The only way out for Keir Starmer and Rachel Reeves is to show sheer audacity

The House of Commons is not unused to lethally close parliamentary votes, intense political acrimony and governments on the ropes – but what was particular about the past week was that it was a self-made and completely avoidable calamity given the government’s parliamentary majority.

It betrayed a serious lack of political judgment, economic dexterity but perhaps worse, intellectual failing. The prime minister may insist he is in lockstep with his chancellor, but while he was fashioning concessions so extensive that they eviscerated the proposed savings in the bill, his chancellor simultaneously was trying to persuade Labour rebel MPs – or critics as they prefer to be called – to vote for the bill as it stood.

The two were not in lockstep, to say the least; rather they constituted a political pantomime horse and in the process demonstrated the intellectual and political vacuity on which the proposed legislation had been built. At heart, it was never about welfare reform: it was about a toxic choice of how more than £5bn of savings were to be found by 2029/30 dressed up retrospectively as “reform”.

On Tuesday evening, the chancellor, surveying the wreckage of a bill for which she had fought so hard – once supported but now deserted by her prime minister – must have pondered resignation, if only fleetingly. She had been let down and made to look a fool. This is no way to run a credible government.

Yet she – or her and the wider “team” including No 10 – brought this on themselves. To go into battle with such a bill showed a lack of institutional memory and parallel omerta about the necessity of handling anything to do with welfare reform with extreme care.

This fatal combination raises questions about the government’s intellectual and political grip. It is true that the growth of health and disability-related benefits has to be slowed down because, as they begin to dwarf mainstream benefits, the credibility – and moral underpinning – of the entire welfare system will come under strain.

Everyone needs meaning and purpose in their lives, and to be able to contribute to economic and social life through work, if they can. As far as possible, the welfare system should ensure this happens, and the contributing public needs to believe that it happens.

But reform is expensive. Employers taking on people with health and mental health disabilities need to be incentivised; special needs require specialist management and care. That system alone needs piloting, road-testing and careful funding. Equally, those on disability are taking a risk in replacing certain benefits for uncertain income from work; here the new “Right to Try” guarantee, which did survive the vote on Tuesday, is an important innovation in allowing claimants to try work and not lose eligibility for benefits if the experiment fails. But it should be supported by generous incentives to encourage people into work – a work bonus.

Only once those criteria have been met – similar in character to what New Labour did with its new deals for work and later the future jobs fund – are there potential savings for the Treasury. It should be the last in the queue to benefit from reform: not the first as the now defunct clauses in the bill once proposed.

What now? Reeves does have successes to her name. She has exploited her fiscal rules to increase levels of public investment, avoiding the planned damaging cuts she inherited; the Wealth Fund and reinvigorated British Business Bank are becoming serious economic development institutions.

Her pension reforms are a welcome step towards building a pension system that both pays better pensions and invests in Britain; the budgetary crisis in the NHS has been averted and resources found for its renewal. Importantly, she has achieved all this with hard-won credibility in the financial markets who wobbled at the prospect of her going.

And yet. She and the prime minister are badly damaged – a less convincing team than they were, whatever the tears and hugs. It is not only about finding up to £6.5bn to close the gap after both the winter fuel allowance and welfare reform measures have been largely abandoned. That can be done.

It is about audaciously carving out space in increasingly rightwing times to make the progressive case and head off the left’s potential fragmentation. Starmer has mused about the need for a second Beveridge report for the 21st century. Set it in train. Britain could become the tech capital of Europe. Have the audacity to embrace ideas, and a team around you who have the intellect and political nous not to repeat the errors of the welfare bill – which almost certainly requires change.

Without forward motion, governments die. That risk is immeasurably greater after last week.