Labour faces series of crises if elected, internal dossier warns

A Labour government would have to grapple with bankrupt councils, public sector pay pressure and the potential collapse of Thames Water, according to an internal dossier by the party’s chief of staff Sue Gray.

Dubbed “Sue’s shit list” by one senior Labour official, it has been drawn up by the former civil servant to identify the most immediate problems Labour would face in office if it wins the election expected this year.

Senior Labour officials said that any one of the areas on Gray’s “government risk register” could puncture a honeymoon period for a new administration led by Sir Keir Starmer.

By identifying them early, the party hopes to craft arguments that blame the ruling Conservative party, which has been in government for the past 14 years.

Labour said: “It is only right that we take preparations for government very seriously, as the public would expect of any party hoping to serve. If the British people place their trust in Labour at the next election, we will face one of the most challenging inheritances possible.”

Each item on the list has the potential to upend the political calendar and dominate the new government’s focus.

Thames Water, the UK’s largest water company, is seeking a cash injection of £750mn to help meet the rising interest rates on its £18bn of debt. Ministers have already drawn up contingency plans to nationalise the business.

Public sector pay is on the list because a new Labour government will come under pressure to offer generous wage increases to trade unions that enjoy close financial ties to the party. 

Although most unions dropped big pay disputes over the winter, ending the biggest wave of industrial action for a generation, junior doctors and train drivers’ union Aslef have not yet settled. The Treasury is adamant that next year’s pay settlement will be much less generous.

A crisis in prisons is also looming, with ministers forced to delay bail hearings and allow early release of some inmates to ease overcrowding. With prisons 99 per cent full, Labour plans to use emergency planning powers to accelerate the existing programme to build 20,000 new places, though this will take time.

Universities are also making budget and jobs cuts following a precipitous drop in lucrative overseas students and a decade-long freeze in tuition fees. A report last week warned some universities will fail if foreign student numbers fall further.

The NHS faces an estimated £12bn shortfall amid rising demands for expensive treatments and the need to invest more in ageing buildings and equipment. Earlier this year Hunt announced a £2.5bn cash injection for 2024-25.

Finally, there is a deepening financial crisis in local government with councils facing an overall deficit of £4bn over the next two years, according to the Local Government Association. Birmingham city council has already in effect declared bankruptcy. Starmer has offered longer-term financial settlements for councils to allow them to plan better, but stressed “we can’t turn the taps on” with new money.

The Cabinet Office did not immediately comment on Labour’s list.