Labour MPs are growing increasingly concerned over Rachel Reeves’s handling of the economy The i Paper understands, following the resignation of International Development Minister Anneliese Dodds.
Dodds – the fourth senior woman to quit Sir Keir Starmer’s Government – told the Prime Minister she was going due the cuts in the aid budget made to increase defence spending instead.
It is understood she believes the Government’s plan for funding the defence rise is not sustainable and the Chancellor will have to eventually look at either changing her fiscal rules or increasing taxes.
Her resignation was welcomed by some who warned of a growing sense of unease across the Labour Party over the Government’s attitude towards spending.
Reeves has pledged not to borrow to fund day-to-day expenditure or increase direct taxation, but with her financial head room thought to have evaporated she is facing having to make cuts in her March spring statement.
In her resignation letter to the PM, Dodds said she had expected discussions about raising the defence spending target from 2.3 to 2.5 per cent of GDP to look at changing the fiscal rules and taxation.
Reeves has remained steadfast in her refusal to bend her fiscal rules to allow more borrowing and is under pressure not to implement any further tax rises.
The defence spending increase will come by reducting the aid budget from 0.5 per cent to 0.3 per cent of GDP, Keir Starmer announced on Tuesday.
MPs expressed concern during a packed one-hour meeting of the parliamentary party on Monday evening, ahead of the announcement, where, according to sources, only one spoke out in support of the decision.
One Labour MP told The i Paper: “Whilst it is relatively simple to make spending decisions in the abstract, the unintended consequences can be horrific and long lasting.
“Dodds’s letter clearly outlines those risks and needs to be a wake-up call for future choices.”
Another MP added that her resignation “rightly highlights the concerns many MPs have about cuts to the aid budget, especially at a time of increasing global need and volatility” – and speaks to underlying unease about spending plans.
“We have consistently been told we can’t afford support for our constituents, from the winter fuel payment to lifting the two child cap,” they said.
“Many will be looking at the spring statement to see whether concessions will be made on things like welfare support and child poverty.”
Starmer defended his decision, saying it was “difficult and painful” but that “protecting our national security must always be the first duty of any government”.
Dodds was told of the plan to raid the aid budget last Friday.
By Monday, when she was informed her budget would be almost halved overnight, she made the decision to step down from Cabinet – but kept it private from even her closest allies to avoid disrupting the PM’s visit to the US, The i Paper understands.
In the subsequent days Dodds, alongside officials in the Foreign, Commonwealth and Development Office (FCDO), went through the potential impact of the cuts on current overseas projects.
A source said seeing the “stark” outcome for vulnerable people overseas crystalised Dodds’s decision to step down.
On Monday Starmer announced that development assistance aid will be cut from 0.5 per cent of gross national income to 0.3 per cent in 2027, in order to increase the defence budget to 2.5 per cent.
Allies of Dodds said she feels she understands more than No10 what the real-lift impact of the cuts will be.
In her letter to the Prime Minister, she said it looked as if the Government was following in the footsteps of US President Donald Trump’s aid cuts which would be “deeply damaging” to the UK’s reputation.
She also warned the move would affect support for Gaza, Sudan and Ukraine and could lead to the UK being shut out of multilateral bodies.
Deputy Prime Minister Angela Rayner said she was “really sorry” to hear of the resignation but backed Starmer’s spending decision.
“It is a really difficult decision that was made but it was absolutely right that the Prime Minister and the Cabinet endorse the Prime Minister’s actions to spend more money on defence,” she told broadcasters.
Conservative Party leader Kemi Badenoch said she backed Starmer on his decision.
But Tory MP and former foreign office minister Andrew Mitchell said Dodds had done the “right thing” by stepping down.
“Labour’s disgraceful and cynical actions demean the Labour Party’s reputation as they balance the books on the backs of the poorest people in the world. Shame on them and kudos to a politician of decency and principle,” he said.
The Liberal Democrats also welcomed the resignation, arguing the Government position on aid spending is “unsustainable”.
The Scottish National Party (SNP) have demanded a Commons vote on the aid spending decision.
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