The suspended Labour veteran John McDonnell has called for a grassroots leadership challenge to the Labour government, warning that unless party members, unions and MPs “stand up and assert themselves to take back control of our party”, Labour risks losing not just its power: “We could lose a party.”

The former shadow chancellor accused Keir Starmer’s government of “callousness and political incompetence”, criticising its hesitance in abolishing the two-child limit on benefits, and what he calls a “brutal launch of an attack on benefits of disabled people”.

Writing for the Guardian five decades after joining Labour as a young trade unionist, McDonnell said the movement he had devoted his life to had “instigated a series of policies that fly like a knife to the heart of what we believed the Labour party above all else stood for when we joined the party”.

“When in the first king’s speech the Starmer leadership didn’t just fail to address the major cause of child poverty, the two-child benefit cap, but demanded Labour MPs vote against its abolition, the first signs of the callousness and political incompetency of the decision-making of the new administration were put on display,” he wrote.

McDonnell was among seven Labour MPs suspended last July for defying the whip on a Commons vote to end the two-child limit – a policy that continues to cause anger across Labour’s benches – leaving many MPs ready to use the welfare-related vote expected in the coming weeks to express their discontent.

Labour’s decision to delay the release of its long-awaited child poverty strategy until autumn has left some MPs feeling relieved, but many feeling further angered given experts have warned more children will continue to be pushed into poverty every day the policy exists.

McDonnell highlights what he sees as an erosion of Labour’s founding mission. “We are the party founded to eliminate poverty and secure equality,” he said, but instead he added, “the distasteful sight of Labour ministers accepting gifts and tickets and donations from the rich and corporate carpet baggers whilst cutting the benefits of the poorest in our society was justifiably nauseating for many of our supporters.”

“To then follow this up with the debacle of the winter fuel allowance and the brutal launch of an attack on benefits of disabled people has disillusioned our supporters on a scale not seen before in the recent history of our party”.

The U-turn on universal winter fuel support, which initially excluded millions of pensioners on modest incomes, followed internal backlash and a local elections drubbing. But McDonnell argued the government’s direction had already “opened the door to the divisive and destructive proto fascism of Farage”.

Going even further, McDonnell launched a cutting assessment of Starmer’s inner circle, claiming a full-blown power struggle was already under way. “What we are now witnessing is a panicked half-hearted policy retreat whilst the back room boys, Morgan McSweeney in the leader’s office and Nick Parrot in the deputy leader’s office, fight like rats in a sack for the succession to Keir Starmer.”

Downing Street heavily pushed back against MPs’ criticism of Starmer’s recent immigration speech, rejecting the direct comparison with Enoch Powell but saying the prime minister would not “shy away” from direct talk about the subject.

The government is preparing for a June spending review, with pressure from Labour backbenchers and trade unions to introduce a wealth tax and reverse planned welfare cuts. The leadership has so far resisted those calls, but McDonnell’s intervention will be read by Labour insiders as a direct call for Starmer’s ousting if he does not.

“Unless the party members, our affiliated unions and members of the parliamentary Labour party stand up and assert themselves to take back control of our party, in the next period, in the Labour party’s history we may not just lose a government, we could lose a party”, he said.

• The subheading of this article was amended on 28 May 2025. An earlier version called McDonnell a former chancellor; he is in fact a former shadow chancellor.