Wednesday briefing: ​What to expect from the Treasury's spending review announcements

The Guardian

a day ago

Morning. It's spending review day. After weeks of tense negotiations between ministers and the Treasury, Rachel Reeves is set to unveil exactly how the government will allocate the spending it announced in last year's budget.
If you're wondering what this actually means, my colleague Archie Bland helpfully explained when the process began six months ago. In short: departments outline how they want to spend money over the next few years, then negotiate with the Treasury over how much they will actually get.
We already have a good idea of what will be in this spending review. The government has given the go-ahead to the Sizewell C nuclear plant; announced £15bn in transport spending across the north of England; expanded free school meals for all children whose parents receive universal credit; and unveiled a £4.7bn plan to build three new prisons.
We also know which ministers settled quickly and which were deeply unhappy. Angela Rayner, deputy prime minister and housing secretary, won out after a fraught and drawn-out process to secure more funding for social housing, while the home secretary, Yvette Cooper, warned that the government would not meet its manifesto promises on crime. The energy secretary, Ed Miliband, was able to keep cash for a major programme of insulation, but it is unclear whether other schemes will be scaled back as a result.
After a troubled start in government, will this spending review give Labour the reset so desperately needed? I spoke to Jessica Elgot, the Guardian's deputy political editor. But first, the headlines.
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The UK has not had a full three-year spending review since 2015 because of the political turmoils of Brexit and the pandemic. There is a hugely important number that the Treasury wants front and centre this time: £113bn of capital spending. This is money for infrastructure, building schools and hospitals, that was unlocked by the change in fiscal rules before the October budget, which allowed more borrowing for long-term investment.
'For most ordinary voters, all they see the government committing to is political pain: whether that's winter fuel allowance or welfare cuts, the tough line that was taken at the budget and the spring statement,' Jessica explains. 'On lots of different issues, people have heard that there's a return to fiscal discipline, which is a phrase they associate with austerity. And every bit of polling tells you that people have just had enough of that.'
This spending review, therefore, is 'some kind of recognition that while they can still be seen to be fiscally responsible to avoid a Liz Truss-style crisis, they do have to present a more positive vision. They have to try and get some political benefit.'
The way they will attempt to do this, she says, is by pointing out investing in infrastructure generates economic growth and a return on that money spent, unlike day-to-day departmental spending. So expect to hear a lot of ministers talk about 'choosing investments over decline'.
Jessica goes further: 'The Treasury has felt particularly aggrieved that they haven't got credit for making this change in the fiscal rules and framing up this cash. You still get people saying they need to raise taxes and the grumpy retorts to that is 'we raised £40bn worth of tax for the last budget and we changed the fiscal rules to pay for £100bn pounds of capital spending'. So this is them belatedly trying to claim credit for that in order to cover up what we expect to be a very tight spending review for departments on day-to-day spending.'
Starting from scratch
The process for the spending review is brutal. Departments must justify their entire budgets from scratch, known as a zero‑based review approach, then negotiate with the Treasury.
Jessica adds that there is the idea during this process that departments deploy what is known as a 'bleeding stump' strategy – where, for example, they tell the Treasury that they will have to stop providing an essential service, such as cancer treatments or free school meals, if there is no change to the budget. In 2011, then Conservative minister Eric Pickles had accused Labour councils of doing this in the midst of austerity.
Some ministers settled early with the Treasury, including the justice secretary, Shabana Mahmood, so she could announce her prison building programme. Wes Streeting's department is also set to be one of the big winners of the spending review: it will lay the groundwork for the NHS's 10-year plan. So is Angela Raynor, with the chancellor announcing nearly £40bn worth of grants to be spent over 10 years for local authorities, private developers and housing associations. Other holdouts, including the Department of Education, and Department for Environment, Food and Rural Affairs, settled recently with some decent wins.
'Some of the big beneficiaries are the defence industry. You will see capital spent on some schools and hospitals, actually slower than the ones the Tories promised, but Labour will say that that's because the Tories didn't have any money to fund things they committed to,' Jessica says. But, most importantly, 'all of these things take time to filter through'.
Will voters feel better off?
The multibillion-pound investment at Sizewell C on the Suffolk coast has been billed by the government as the biggest nuclear programme in a generation, and one that will 'get Britain off the fossil fuel rollercoaster'.
Labour has also committed to big infrastructure projects in the north of England that should benefit populations there, but it will be a long while before those benefits are felt, Jessica says.
'That's a problem in terms of political cycles about who gets credit for what. None of this stuff is going to be built before the next election. I think that Sizewell C isn't going to be built until the end of the 2030s.'
The government would argue it is building infrastructure that demonstrates the UK is a good solid place to invest. People should therefore start feeling the benefits of a growing economy. 'Your daily life should start getting less expensive, your wages should be rising, interest rates should be coming down, inflation should be coming down. That's the theory,' Jessica says. 'But you can see through the rise of Reform in the polls that people are frustrated they're not feeling that effect quickly enough.'
'Big, visible benefits'
The partial U-turn on winter fuel allowance for pensioners and sluggish growth means Rachel Reeves has very little fiscal headroom for her day-to-day spending, Jessica explains. But though departments have had very tight settlements, the published accounts are not as bad as previously feared.
Are there any other surprises on welfare coming, particularly on disability benefits and child poverty? 'I wouldn't expect any announcements on that front,' Jessica says. 'A lot of decisions have been deferred. On disability benefits, we're expecting very difficult welfare cuts to come at the end of June.'
Labour MPs are being told that the major investments they are seeing in their constituencies are only possible because of these tough decisions, Jessica adds, with the Treasury framing it as 'making hard choices so we can afford big, visible projects that benefit everyone'.
It is unclear if it will work. 'Maybe they'll be won over by that, but at the moment, not many of them are. That will be a very difficult moment.'
On child poverty, the imminent taskforce report is likely to strongly recommend lifting the two-child benefit cap. There are suggestions that the prime minister is open to it. But again, it belongs in a different category of policy decisions, separate from the spending review. 'There's lots of suggestions out there that the PM himself is minded to act on that. But again, that's not a decision for tomorrow.'
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