Reeves ‘failed' to back English councils in spending review, MPs warn
But Mr Forster warned that 'in the detail of the statement', the Government 'is only investing an extra 1.1% in local government next year and the year after'.
The Liberal Democrat MP told the Commons he was 'very disappointed' with the Chancellor's statement and asked: 'What does the Chancellor say to councils across the country and to my constituents of Woking to justify that lack of investment?'
Ms Reeves replied: 'Well, that's real-terms increases in spending every year, that this Labour Government are giving to local authorities.
'And that compares to the Conservative-Liberal Democrat administration from 2010 to 2015 that cut real spending by 2.9% every year, so I'm much happier to stand on my record as Chancellor than what the Liberal Democrats did when they had a chance of being in government.'
Woking issued a section 114 notice two years ago, in June 2023, when it faced having to plug a £1.2 billion deficit.
Billpayers in the Surrey borough faced a 9.99% council tax rise the following year.
Mr Forster, who is a member of the Commons Housing, Communities and Local Government Committee, told the PA news agency: 'In today's spending review, the Chancellor has failed to invest in local government – and she is refusing to acknowledge the harm this will cause.
'In my constituency of Woking, our local authority has already gone bankrupt, I fear more will soon follow. Following the former Conservative administration bankrupting Woking, we have seen public toilets close.'
He called on the Government to 'support councils more'.
The spending review which Ms Reeves fronted on Wednesday pledged 'wider reforms' which 'will ensure funding is effectively targeted, based on an updated assessment of need, and will consolidate funding to give local authorities greater flexibility to innovate'.
Local government reorganisation will 'improve the join-up between local services, enabling councils to deliver services more efficiently', according to The Treasury.
Conservative MP for Broxbourne Mr Cocking, who is also a member of the Commons committee, described the spending review as 'devastating'.
He said: 'Councils that are going through local government reorganisation, where councils that have been run really well, are going to be potentially lumbered into new super-unitary councils, with councils that haven't managed their finances well'.
Mr Cocking said that where authorities merge, 'you'll find that residents that have got sound council finances, have had good services, are now going to be subsidising areas that have made bad decisions', and added that the spending review failed to compensate for this.
Surrey's district and county councils are set to merge, with new single-tier authorities taking on town hall functions, as part of the Government's push towards 'unitary' councils throughout England set out in last year's English Devolution White Paper.
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You'd be forgiven for not noticing, but one of the few economic bright spots for Labour since it came to power is that wages have on average been rising more strongly than prices, leading to some overall increase in living standards, albeit modest. Nonetheless, it is an achievement of sorts. Big increases in public sector wages and in the statutory minimum wage have played a key role in this process, so the Government can reasonably claim the credit. But it must also bear responsibility for the cost. You cannot forever keep legislating for increased living standards, and the question therefore arises as to how sustainable the recent trend really is. Barring a miraculous re-emergence of productivity growth, the answer, sadly, is not at all. At some stage, the Government has to hold the line on public sector pay growth to stand any chance of balancing the books and staying within its own fiscal rules. 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For its part, the Bank of England forecasts CPI inflation to peak next month at 4pc, before then beginning to subside back towards its 2pc target. But we've seen that movie before. Last time price inflation misbehaved – during the post-Covid supply chain disruptions and the following energy price shock of Putin's invasion of Ukraine – wages rapidly followed suit. Right now, they are still just about managing to stay ahead of prices. As we know, Office for National Statistics data on the labour market are flawed, and therefore unreliable. But for what it's worth, they show overall wage growth at a still nifty 5pc for the April-to-June quarter, which adjusting for inflation – using the measure that includes owner-occupiers' housing costs – means real-terms growth in regular pay of nearly 1pc. Unreliable though the data might be, they are somewhat supported by most of the real-time evidence. Intelligence from the Bank of England agents points to average pay rises for 2025 of between 3.5pc and 4pc. Recently reported wage settlements have also tended to be within this range. In other words, we seem fast to be approaching that stage where growth in prices and pay are about the same, and we stop getting better off. This is plainly not good news for Rachel Reeves, the Chancellor, as she approaches the Budget in a couple of months' time. Delivering higher living standards is one of her key political objectives, but that too is heading for the dustbin. Much depends on what happens to inflation, and here the future looks particularly hard to predict, as we saw earlier this month when the Bank of England's Monetary Policy Committee was so split on what to do about interest rates that it had to hold a second vote. In the event, the decision to cut by a further 0.25 percentage points was carried by just one vote. To be cutting interest rates while inflation is rising is not a good look. On the one hand we have pressure from wages, threatening to break through anew into second-round inflationary effects. We also have higher food prices, which is the form of inflation people notice most – it's immediately observable every week in the rising cost of shopping baskets. And we have the inflationary pressures feeding through from the public sector. It's remarkable how much of an issue this type of inflation has been in recent decades, with the effective cost of public services such as healthcare and education rising much more rapidly than most other things over many years now. Until the post-pandemic spike in inflation, central bankers liked to congratulate themselves on how clever they had been in keeping inflation well anchored. In truth, it had very little to do with them, but was substantially the result of globalisation and the outright deflation this gave rise to in the price of many goods. Supply-chain shortages as economies began to open up again after lockdown shattered this convenient offset to what had long been relatively high levels of inflation in domestically produced services. The disguise became cruelly exposed. And so on the other hand we now have these globalisation effects beginning to manifest themselves anew in disinflationary pressures. This might seem an odd thing to argue given America's tariff war, which threatens to reverse the globalisation of the past 30 years. But it also leaves mass producers such as China with grotesque overcapacity, and therefore seeking to expand their markets outside the US, putting downward pressure on prices everywhere else. Talk of stagflation – a combination of rising unemployment and above-target inflation – may therefore be misplaced. This may well be the fate of Trump's America, where high tariffs are almost bound to be inflationary but where growth seems to be slowing fast, but it is unlikely to be the case in Europe, including the UK. Here, the more probable outcome is stagnation – or at least, minimal growth – but without the inflation. Rising long-term gilt yields might seem to point to a more inflationary future, but as I've written before, the more likely explanation is simply a growing lack of demand for longer-dated government bonds in general. This is the case almost everywhere, but is particularly true of the UK, where the one-time biggest source of domestic demand for gilts is drying up as defined benefit pension funds mature and go into runoff. When combined with quantitative tightening by the Bank of England – selling down the Bank's holding of UK gilts – this may indeed account for all of the yield premia gilts display over comparable sovereign debt. All this is a roundabout way of saying that the future trajectory for inflation, wages and growth is even more uncertain than usual. Reeves is said to be desperately looking for policies that might boost productivity, and thereby get her out of the fiscal hole she has dug for herself. It might help if she stopped casting around for tax increases, and instead focused on reducing the size of state spending, where much of the inflation is coming from.
