Help with understanding background policies

[achaikaJH]

Running:

kyverno: 1.12.6
k8s: 1.30.6 (Azure AKS)

I have below policy, which supposedly should update deployments with the costsavedownscale: "true" label if they are in the correct namespace and cluster name is right. And it is working, but only by admission, not background controller. So unless there is a change made to the deployment, label isn't assigned.
I can see that background controller adds UR, but nothing else happens, no label being added.
So, is this something I do not understand or doing correctly?

kyverno-background-controller-7996c8578-s5zst controller 2025-02-06T15:05:20Z	INFO	PolicyController.handleMutate.mutate-deployments-adding-secondary-clusters-label	policy/mutate.go:15	update URs on policy event
kyverno-background-controller-7996c8578-s5zst controller 2025-02-06T15:05:22Z	INFO	PolicyController.handleGenerate.mutate-deployments-adding-secondary-clusters-label	policy/generate.go:21	update URs on policy event

apiVersion: kyverno.io/v1
kind: ClusterPolicy
metadata:
  name: mutate-deployments-adding-secondary-clusters-label
  annotations:
    policies.kyverno.io/title: Mutate deployments
    policies.kyverno.io/category: Deployment
    policies.kyverno.io/subject: Deployment, Pod
    policies.kyverno.io/minversion: 1.6.0
    policies.kyverno.io/description: "This policy adds downscale labels to secondary clusters deployments"
spec:
  mutateExistingOnPolicyUpdate: true
  rules:
    - name: mutate-deployments
      context:
        - name: namespacefilters
          configMap:
            name: namespace-filters
            namespace: kyverno
      match:
        any:
          - resources:
              kinds:
                - Deployment
              namespaces:
                - "ns-org*"
      exclude:
        any:
          - resources:
              kinds:
                - Deployment
              namespaceSelector:
                matchExpressions:
                  - key: active
                    operator: In
                    values: ["true"]
      preconditions:
        all:
        - key: "{{ namespacefilters.data.clustername || '' }}"
          operator: AnyIn
          value: "{{ \"namespacefilters\".data.\"secondaryclusters\" | parse_json(@) }}"
      mutate:
        targets:
          - apiVersion: apps/v1
            kind: Deployment
            name: "{{ request.object.metadata.name }}"
        patchStrategicMerge:
          metadata:
            labels:
              costsavedownscale: "true"