Rachel Reeves pins hopes of a reset on Spending Review
Each year, the chancellor gets to set a Budget – a moment to grab the nation's attention and show voters that the people running the country understand their struggles, and are on their side.
It's supposed to be the annual set piece of any UK Government. But on Wednesday, Rachel Reeves will deliver a statement to the House of Commons that is arguably more important than any Budget she'll deliver.
This week's Spending Review isn't even considered a 'fiscal event' – that means there shouldn't be any detailed tax and spending decisions at all. Instead, the chancellor is supposed to plot out overall public spending for the three years ahead, department by department.
The reason it matters so much is because the UK Government is desperate to change perceptions of how it's managing the economy and the public finances. Even though she should have a few more Budgets left before the next general election, this could be Rachel Reeves' last chance to change course.
Labour came to power with a brutal message when it came to the public finances – not 'things can only get better', but 'things are definitely going to get worse'. The idea was to show voters that finally, Labour could be trusted with people's tax money.
That approach led Reeves to announce the slashing of Winter Fuel Payments as one of her first policies in office. But rather than building trust, taking help with energy bills away from millions of pensioners has been hugely unpopular.
Bruised by the backlash, today the chancellor confirmed a U-turn and announced that millions of pensioners across England and Wales will have their Winter Fuel Payment restored – pensioners in Scotland had already been told by the Scottish Government that they will get a payment this winter, regardless of their circumstances. But the political damage has already been done, and many Labour MPs feel it could have been avoided if Reeves had toned down the tough economic message just a little, and not suffocated any sense of hope just a few weeks into office.
The UK Government now faces another critical moment, and it can't afford to make the same mistake. After boosting investment and day-to-day spending in her first Budget, this week's spending review will put a much tighter squeeze on the public finances.
Overall, spending will continue to rise, but by much less than in Labour's first year in power – and the biggest share of any additional cash will be swallowed up by the NHS, meaning many other departments and public services could see their budgets cut.
The UK Government is anxious to rebut any claims that this is a return to austerity, and looking at public spending as a whole, that's true. But that doesn't mean there won't be more tough, unpopular decisions in the final years of this Labour government, as a result of this week's Spending Review.
Most of those decisions will only directly affect public services south of the Border, but they will have an impact on the Scottish Government's overall budget in years to come. Facing the same pressures of rising costs and an ageing population, that means tough decisions down the line for whoever is in power at Holyrood, too.
Without a bit more optimism than she's managed so far, the chancellor risks fuelling the trends in the polls, with Reform rising and Labour hitting new lows. And in Scotland, the economic narrative has also hurt Labour and given hope to the SNP – even though it was Scottish Labour that emerged victorious at the Hamilton, Larkhall and Stonehouse byelection. That win was very much against the odds, and in spite of the UK Government's unpopularity.
This week represents Rachel Reeves and Keir Starmer's best chance of a reset. It could be their last chance, too.
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The Independent
25 minutes ago
- The Independent
Britons ‘better learn to speak Russian' without major defence spending hike, Nato chief warns
British people 'better learn to speak Russian' if Sir Keir Starmer does not massively ramp up defence spending, the Nato secretary general has warned. Mark Rutte said he was 'really impressed' by the prime minister 's strategic defence review unveiled last week. And he called for Nato countries to set a 'credible path' towards spending 5 per cent of their national incomes on defence amid the growing threat from Russia. Speaking at London's Chatham House, Mr Rutte said it is 'not up to me' whether that means Rachel Reeves should consider tax hikes to pay for the commitment. He added: 'I mean, what I know is that if we want to keep our societies safe... look, if you do not do this, if you would not go to the 5%, including the 3.5% core defence spending, you could still have the National Health Service, or in other countries their health systems, the pension system, etcetera, but you had better learn to speak Russian.' He did not set out a deadline by which Nato countries will have to reach the 5 per cent target, more than double what the UK currently spends on defence. 'I have a clear view on when we should achieve that,' he said. But he added: 'I keep that to myself, because we are having these consultations now with allies, and these discussions are ongoing, and we will in the end agree on a date when we have to be there.' His plans would see a return to Cold War levels of defence spending, with Russia's war on Ukraine still raging and rising tensions around the world. Nato chief Mr Rutte is in London to see Sir Keir ahead of a Nato summit in the Netherlands this month. The visit comes just days after the PM promised to make Britain 'battle ready', outlining Labour's plans to overhaul the country's defence capabilities. Defence secretary John Healey meanwhile said Britain's army needed to become '10 times more lethal' in the face of the 'immediate and pressing threat" from Russia and the rise of China. 'We are in a new era of threat, which demands a new era for UK defence,' he told MPs. But the announcement descended into a row over funding, with Sir Keir refusing to commit to hiking defence spending to 3 per cent of GDP by 2034. The PM was boosted on monday as Mr Rutte said the his plans to spend 2.5 per cent of GDP on defence from April 2027, with an aim to rise to 3 per cent over the next parliament, were not at odds with his own proposed target for the bloc. The 5 per cent goal is not "some figure plucked from the air", he said. "The fact is we need a quantum leap in our defence. The fact is we must have more forces and capability to implement our defence plans in full." While he said the "exact details are classified", Mr Rutte said there needed to be a 400 per cent increase in air and missile defence. He said Russia could be ready to use force against Nato within five years. "The new generation of Russian missiles travel at many times the speed of sound. The distance between European capitals is only a matter of minutes. There is no longer east or west. There is just Nato." As he met with Sir Keir in the White Room of No 10, he commended the Prime Minister on the "very good stuff" in the defence review. "It is not only about the traditional things, of course we need them, like ammunition... there is also drones, innovation, building the defence industrial base. It is really broad, it is really making a big impression in Brussels I can tell you," he said. Sir Keir called Nato the "cornerstone of our defence" and the "most effective military alliance the world has ever seen", adding that the task of the upcoming summit was to make sure it serves that purpose for decades to come. Sir Keir also spoke to German chancellor Friedrich Merz on Monday and the two leaders welcomed efforts by Nato allies to step up defence spending as well as Mr Rutte's suggestions to further boost it, a Downing Street spokeswoman said. The boost to the defence budget announced last week will be confirmed by chancellor Ms Reeves in her spending review on Wednesday, when she will set out the government's priorities for the next three years.
BBC News
30 minutes ago
- BBC News
Spending review now settled, says Downing Street
The government's latest spending plans are settled, the prime minister's official spokesman has Rachel Reeves is expected to expected to announce funding increases for the NHS, schools and defence, along with a number of infrastructure projects, when she sets out her day-to-say spending and investment plans for each department in Wednesday's Spending Secretary Yvette Cooper was the last to fix a deal on Monday afternoon, following public warnings from police chiefs, calling for more Secretary Angela Rayner reached a deal with Reeves and the Treasury on Sunday evening. Reeves has loosened Treasury borrowing rules to free up about £113bn for investment in infrastructure projects, but will need to squeeze budgets elsewhere in order meet her own rules, which include not borrowing to fund day-to-day week, she admitted that she had been forced to turn down requests for funding for projects she would have wanted to seeking to protect their budgets remained locked in budget talks over the ministerial negotiations over the government's spending review had been completed, the prime minister's official spokesman said the chancellor would be investing in public services and growth."The spending review is settled - we will be focused on investing in Britain's renewal so that all working people are better off," he said."The first job of the government was to stabilise the British economy and the public finances, and now we move into a new chapter to deliver the promise and change."The Home Office had argued privately that police numbers must be maintained for the government to deliver its policy commitments on neighbourhood policing, but that under the spending proposals this would not be chiefs including Sir Mark Rowley, the commissioner of the Metropolitan Police, had publicly lobbyied the government for more money in recent weeks, and there were suggestions the Treasury might have "imposed" a settlement on the Home the weekend, Technology Secretary Peter Kyle told the BBC's Sunday with Laura Kuenssberg the chancellor was facing pressure from all departments for additional funding. Kyle said "every part of society was struggling" and declined to rule out a squeeze on last-minute talks with Cooper come ahead of what is set to be a highly significant week for every part of has already U-turned on removing Winter Fuel payments from all but the poorest pensioners, and will now give these 75% of pensioners, which will cost an estimated £ government has also pledged to hike defence spending, invest £86bn in science and technology, and give free school meals to half a million more balance the spending, Reeves has announced a £14bn package of savings in March, including £4.8bn of welfare opponents have accused the government of having the wrong shadow home secretary Chris Philp said: "They have chosen to prioritise spending on Ed Miliband's mad green projects, on inflation-busting pay rises for their trade union paymasters and spending £100bn a year – five times the police budget – on debt interest payments."Liberal Democrat leader Sir Ed Davey has urged the chancellor to rule out cuts to social care, which is financed through local said the government would have "more money in the pot, more growth, more revenue" if it pursued closer trading ties with Europe. Sign up for our Politics Essential newsletter to read top political analysis, gain insight from across the UK and stay up to speed with the big moments. It'll be delivered straight to your inbox every weekday.
Daily Mail
33 minutes ago
- Daily Mail
Inflation is so high, even Rachel Reeves's voice is going up: Chancellor suffers from technical gaffe as inflation surges to 3.5% - far higher than expected as Labour's economy spinsout of control
Rachel Reeves demonstrated it isn't just inflation soaring higher today as she was seen on TV defending her economic record in a bizarre falsetto. An unfortunate technical error meant the under-fire Chancellor's response to a dramatic spike in prices was delivered in a tone more akin to Mickey Mouse. The episode left Sky News presenter Wilfred Frost - son of Sir David - briefly dumbfounded before he said: 'I think we have a problem...' Ms Reeves said: 'The numbers today are clearly disappointing. We want to see inflation coming down after the cost of living challenges that people have been through these last few years.' Her voice was then silenced entirely as broadcast bosses realised things were going awry. The glitch sparked hilarity on social media, with users comparing the rise in Ms Reeves's voice to Labour party policies which have caused 'ballooning national debt'. Speaking to Sky News , Ms Reeves said: 'The numbers today are clearly disappointing. We want to see inflation coming down after the cost of living challenges that people have been through these last few years' Ms Reeves was facing the music after headline CPI rate rocketed from 2.6 per cent in March to 3.5 per cent last month, a peak not seen since January 2024. Worryingly, it was significantly more than the 3.3 per cent analysts had pencilled in, with Ms Reeves acknowledging the figures were 'disappointing' and her national insurance hikes were partly to blame. Core CPI - excluding energy, food, alcohol and tobacco - was also at the highest for a year. The grim data will fuel Bank of England concerns about underling pressures, with chief economist Huw Pill having already warned that interest rate cuts have been too fast. Experts immediately suggested that Threadneedle Street might pause reductions at the next monetary policy committee meeting next month. The Bank had forecast that inflation would top out at 3.5 per cent in the third quarter of the year. The spike comes after Ofgem 's energy price cap rose by 6.4 per cent in April, having fallen a year earlier. That was alongside a raft of bill rises for struggling households, including steep increases to water charges, council tax, mobile and broadband tariffs. Meanwhile, Labour's NICs and minimum wage increases will have been stoking pressure in the system. Office of National Statistics (ONS) acting director-general Grant Fitzner said: 'Significant increases in household bills caused inflation to climb steeply. 'Gas and electricity bills rose this month compared with sharp falls at the same time last year due to changes to the Ofgem energy price cap. 'Water and sewerage bills also rose strongly this year, as did vehicle excise duty, which all pushed the headline rate up to its highest level since the beginning of last year.' Ms Reeves said: 'I am disappointed with these figures because I know cost of living pressures are still weighing down on working people. 'We are a long way from the double-digit inflation we saw under the previous administration, but I'm determined that we go further and faster to put more money in people's pockets. 'That's why we have increased the minimum wage for millions of working people, frozen fuel duty to protect commuters and struck three trade deals in the past two weeks that will go towards cutting bills.' Asked if the inflation figures had been pushed up by measures including the NICs hike, Ms Reeves said: 'When I became Chancellor last year, I faced the very difficult challenge that there was a £22billion black hole in the public finances. 'We had to fix that, and if we hadn't have done the Bank of England would not have been able to cut interest rates four times this last year, which has obviously had a direct effect on the mortgages and the rents that people pay. 'And also that money that we raised from national insurance, but also cracking down on non-doms, tax - VAT - on private schools, increasing capital gains, particularly on private equity firms, that money has gone into our National Health Service, which is why waiting lists and waiting times are going down after spiralling out of control the last few years. 'So I do recognise that all policies have consequences, but if I hadn't have acted to stabilise the public finances, we would be in a worse position today.' However, shadow chancellor Sir Mel Stride squarely blamed Ms Reeves for the hike in inflation. He said: 'This morning's news that inflation is up - and now well above the 2 per cent target - is worrying for families. 'We left Labour with inflation bang on target, but Labour's economic mismanagement is pushing up the cost of living for families - on top of the £3,500 hit to households from the Chancellor's damaging jobs tax. 'Higher inflation could also mean interest rates stay higher for longer, hitting family finances hard. 'Families are paying the price for the Labour Chancellor's choices.' Speaking at an event held at Barclays in London yesterday, Mr Pill said the pace of interest rate reductions since August last year has been 'too rapid'. He said progress of 'disinflation' was partly a signal that easing monetary policy – meaning rates coming down – was working. 'And in my view, that withdrawal of policy restriction has been running a little too fast of late, given the progress achieved thus far with returning inflation to target on a lasting basis.' 'I remain concerned about upside risks to the achievement of the inflation target,' he added. Mr Pill, who is a member of the Bank's Monetary Policy Committee (MPC), was among the members to vote against cutting rates to 4.25 per cent, instead preferring to leave them unchanged. The bank's base rate has come down from a peak of 5.25 per cent, when it was hiked to try to quell surging inflation across the UK. He said his vote to hold interest rates at this month's policy meeting was more of a 'skip' than a 'halt' in rate cuts. This reflects his view that the 'pace of bank rate reduction should be 'cautious', running slower than the 25bp (basis points) per quarter we have implemented since last August', the economist said. 'That requires a 'skip' in that quarterly pattern at some point. And I decided that the May meeting was an appropriate moment for that 'skip'.' Meanwhile, Mr Pill stressed that he was concerned about inflation persistence – meaning price rises remaining elevated – which would mean 'you need to run the economy a little bit cooler'. 'That's an uncomfortable message, but it may be an important message for policymakers with inflation targets to normalise,' he said. 'I do worry about the fact that inflation has stayed stubbornly high, and pay dynamics have stayed stubbornly strong, even as activity has been relatively disappointing… over the last two to three years. 'So that's what I worry about… and I think that does influence the way I vote in the committee as an individual.' Daniel Casali, chief investment strategist at wealth manager Evelyn Partners, said: 'This acceleration in inflation for April was driven by a triple-whammy of factors. One, large indexed and regulated price increases, including mobile phone charges, vehicle excise duty, and water and energy bills. 'Two, a later-than-usual Easter weekend, which lifted airfare and accommodation prices, and three, businesses passing on the higher National Minimum Wage and employers' National Insurance (NI) contributions to consumers... 'If inflation exceeds expectations – as today's figure suggests it could - the MPC could well delay a further interest rate cut at its next meeting on June 19, particularly if news on the real economy remains stable.'
