By-election win a breather for Labour before spending review gloom

Times

a day ago

It was a brief moment of respite. At 3am on Friday the prime minister was woken by a call from an aide informing him that, against the odds, Labour had won the Hamilton, Larkhall & Stonehouse Holyrood by-election.
There may have been just 602 votes in it, but for Sir Keir Starmer at this stage of his premiership a win is a win. It was, he said, a 'fantastic' victory.
For one local resident it mattered more than most. Morgan McSweeney, Starmer's chief of staff, lives nearby with his wife Imogen Walker — she is the MP for the overlapping constituency of Hamilton & Clyde Valley — and is said to have taken a close interest in the campaign.
The Times has been told that Starmer's decision to announce a U-turn on winter fuel payments earlier this month, rather than waiting until the spending review next week, was made partly with Hamilton in mind.
Those on the ground said it had almost immediate cut-through, with winter fuel payments going from being the biggest issue on the doorstep at the start of the campaign to being relatively marginal. 'People got that we had listened,' was how one MP put it.
But the win was far from clean. Reform UK went from a standing start to winning 26 per cent of the vote, just three per cent behind the SNP and five per cent behind Labour.
It also showed Nigel Farage's party could siphon off votes from the Conservatives in Scotland as well as England, as support for the Scottish Tories collapsed from 17 per cent at the 2021 Holyrood election to 6 per cent. Richard Tice, Reform's deputy leader, claimed the result was 'truly remarkable'.
The spending review promises to be one of the most challenging moments of Sir Keir Starmer's premiership
THOMAS KRYCH/STORY PICTURE AGENCY
A cabinet minister insisted that Labour's victory showed that the party could come through the middle to win next year's elections to the Scottish parliament. The SNP's tactic of telling voters to back them to stop Reform backfired dramatically.
But any sense of relief for Starmer will be short-lived. The spending review next week promises to be one of the most challenging moments of his premiership. The government will seek to frame it as being about 'investing in Britain's renewal', with money going into security, the NHS and the economy more broadly.
In one sense Rachel Reeves, the chancellor, has a positive story to tell, with a £30 billion uplift in funding for the NHS, significant investment in the military and £113 billion worth of capital spending — including investment in local transport projects, nuclear power and other schemes.
Reeves has been telling colleagues that the capital spending 'must be felt everywhere', with investment in shovel-ready projects across the country.
But while the government would like to focus on the winners from the spending review process, many of the headlines are likely to be about the losers. The decision to increase spending on the NHS and the Ministry of Defence means that unprotected departments are facing real-terms cuts.
Some of the negotiations between the Treasury and cabinet ministers have been brutal. Talks between Reeves and Angela Rayner, the local government and housing secretary, and Yvette Cooper, the home secretary, are going down to the wire.
The discussions between Cooper and Reeves in particular are said to have been particularly robust, with one Treasury official describing them as 'explosive'.
Cooper has been making the case that without additional funding the government will be unable to deliver on several of Starmer's flagship pledges, including halving knife crime and halving violence against women and girls.
Her case has been made both publicly and privately by the police. Sir Mark Rowley, the head of the Metropolitan Police, has written to Starmer directly along with other police chiefs warning that without additional funding forces will face 'stark' choices about which crimes they investigate.
When pressed on Rowley's intervention this week, Reeves's response was curt. 'We will be increasing spending on police,' she said. However she did not say whether she would meet the demands of police for a real-terms rise in spending, which lies at the heart of the row.
JOSHUA BRATT FOR THE TIMES
Rayner, who is seeking to protect local council budgets from cuts, is also said to have been 'forthright' in fighting her corner. One report claimed she had stormed out of a meeting with Darren Jones, the chief secretary to the Treasury, slamming the door on the way out.
Rayner's allies denied this, saying that while she had been tough in the talks she could not have slammed that door because the meeting had been held virtually. They added that they were now 'making progress' but were happy to go down to the wire. 'The deadline is when the document has to go to the printers,' they said.
Reeves's room for manoeuvre is inherently limited by the state of the public finances and global events, something she alluded to at a CBI dinner on Thursday night.
'To be able to make decisions is a huge privilege,' she said. 'However, there's a lot of things that are out of [my] control as well, whether that is tariffs or what's happening in the global economy. You've got to be very agile and respond to the world as it is.'
Paul Johnson, the outgoing head of the Institute for Fiscal Studies, said that he has 'genuine sympathy' for Reeves and the difficult choices she has to make.
• UK public borrowing tops £20bn in blow for Rachel Reeves
Speaking at his leaving drinks in Westminster he said: 'We had an almost 20-year period of continual growth, a sense of real optimism I think, and that's really been sort of beaten out of the economy, and I think probably to some extent beaten out of the electorate.
'Not only have we had, up till the late 2010s, a period of really serious cuts to public services, but no increase in people's incomes either. There's just really hard trade-offs.'
The question hanging over the spending review will be that of tax rises. The government's U-turn on the winter fuel allowance — which will cost about £700 million — will only add to the pressure on the public finances. Plans to reverse the two-child cap on benefits could cost as much as £3.5 billion a year.
All of this against the backdrop of a growing hole in the public finances, and the estimate of some economists that Reeves could be as much as £60 billion in the red by the time of the autumn budget.
Reeves did little to calm nerves at the CBI dinner, when she highlighted the huge tax rises of her inaugural budget and said she was 'never going to repeat anything of that scale' — which is not the same thing as ruling out any further rises.
In the Treasury there are concerns that for all the fireworks surrounding the spending review the broader economic outlook is bleak. 'Everyone is talking about who gets what at the spending review but the bigger picture is that no one is really talking about the unsustainable path government debt is on,' one official said. 'We need politicians to start thinking about how we get on top of it. We don't have long before there is a serious risk of a debt spiral.'