Reeves plans billons in infrastructure spending but her luck needs to change

Times

10 hours ago

Darren Jones has spent the past few months in the eye of the storm, leading negotiations between the Treasury and cabinet ministers on the spending review.
But even during the most tense of discussions, there were moments of levity: the soldiers taking part in rehearsals for Trooping the Colour would intermittently burst into music below his office window, leaving ministers in fits of laughter.
Despite claims of blistering rows between him and Angela Rayner, the deputy prime minister, and Yvette Cooper, the home secretary, Jones, the chief secretary to the Treasury, insists they are all singing from the same hymn sheet.
In an interview in his Treasury office overlooking St James's Park on Thursday, Jones, 38, looked more relaxed than he did only the day before, when Rachel Reeves delivered the results of her spending review, divvying up hundreds of billions of pounds between her ministerial colleagues.
Reflecting on the process, he said: 'I'm friends with everybody. Look, the spending review is always a challenging process because the economy is not in a position where we've got surpluses. So, obviously, everybody always wants more than is available.'
For most government departments, the spending review has been a game of two halves. On day-to-day spending there has been a big squeeze, the Foreign Office and the Department for Environment, Food and Rural Affairs (Defra) among the biggest losers. However, there has also been a large boost in capital funding as the government seeks to tell a more positive economic story after rows over cuts to disability benefits and last month's U-turn over winter fuel payments for pensioners.
This week Jones will start to unveil how the money will be spent, including an announcement tomorrow that the government will spend a minimum of £750 billion on infrastructure over the next ten years. This, he hopes, will be part of 'a destination story' about 'how the country's going to look and feel better' as a consequence of the decisions the Labour government is taking.
Alongside this, the government will launch a new website giving details of the 'pipeline of the projects' so industry will be able to see in advance when and where they will be built. For the first time, this will bring together economic infrastructure alongside housing and social infrastructure, giving a decade-long view ahead to the supply chain. It will be followed in a few weeks' time by the announcement of sites for 'new towns of the future' and an industrial strategy that is set to include energy subsidies for manufacturers.
'What we want to achieve is businesses investing in their workforce because that's the real constraint on delivery,' said Jones, who began life in a council house on the outskirts of Bristol. 'So it should give them the confidence to invest in apprentices, to train up their workforce, to hire more people and get them skilled up so they can actually deliver these houses and schools and energy infrastructure.'
Jones was quick to point to the job opportunities because unemployment has started to creep up again from 4.5 per cent to 4.6 per cent. Critics argue that the effect of Labour's NI rise for employers is now being felt.
Jones has also been forced to clarify remarks he made on BBC's Question Time when he appeared to suggest that the majority of those arriving on small boats across the Channel are 'children, babies and women'. In fact, 81 per cent are men. Jones said later that he was referring to one visit he had made to Dover.
Along with money for potholes and a tranche of new railway stations and lines — including one between Liverpool and Manchester — the government will announce a ten-year flood defence strategy, investing £7.9 billion in building and repairing barricades. Defra claims that every pound spent on flood defences prevents £8 of economic damage, the Treasury saving £3 from this due to a reduction in damage to public infrastructure such as roads, railways, schools and hospitals.
But it won't all be good news. The Sunday Times can reveal that HM Revenue & Customs (HMRC) is investigating the high-speed rail project HS2 for fraud, including the treatment of workers and whether they should have been paid as in-house staff or freelancers.
On Wednesday, the transport secretary Heidi Alexander is set to address the issue head-on as part of a major 'reset' of HS2, which has been blighted by delays, huge cost overruns and chronic mismanagement. She will set out a scathing assessment of how the project has been run, based on the findings of Mark Wild, who in December was appointed chief executive of HS2 Ltd, the body set up to oversee the line's construction.
Wild, who previously oversaw Crossrail in London, has written to Alexander warning that phase one of HS2 will not be completed within the current 2029-33 time frame if the project sticks to its current framework. He will not specify how much longer it is expected to take, but industry sources say completion of phase one could be pushed back by at least five years. HS2 is also due to open talks with contractors to switch from 'cost-plus' contracts — which cover the actual costs incurred plus a fee — to those that better incentivise cost savings.
Jones said: 'The last government hadn't really updated prices or scheduling or anything with HS2, which was a real problem. The whole thing just kind of got out of hand. The Department for Transport will be publishing their review shortly, which will expose all of the problems that we have found in the project, but also what our plan is now to … get a grip of it.'
Despite announcing billions of pounds in investment, the headlines since Wednesday have been dominated by dire predictions that tax rises will follow in the autumn budget because of the strain on the public finances. Economists have said there will be no choice but to raise taxes to keep the Treasury's books balanced at a time when forecasts suggest a worse-than-expected outlook for growth.
Figures from the Office for National Statistics (ONS) published on Thursday revealed that the economy contracted in April by 0.3 per cent as businesses cut jobs and cancelled investment plans in response to higher taxes and the uncertainty created by President Trump's tariff war. This, along with the latest jobs data, released on Tuesday, which showed the number of workers on company payrolls had fallen by 109,000 in May, threatens to rob the government of any credit for its spending review investment.
Like other ministers who have been asked, Jones did not rule out tax rises in the autumn. 'Well, no one is able to rule anything in or out because this is all about forecasts,' he said. 'What we don't do in government is have hypothetical forecasts because you'd just be completely crazy. You'd be changing your plans every five minutes with the latest data set.
'So, the next [Office for Budget Responsibility] forecast will be commissioned ten weeks in advance of the budget in the autumn. And then we'll need to see what they think and as a consequence, what Rachel and the prime minister decide.'
HS2 is years behind schedule
CHRISTOPHER FURLONG/GETTY IMAGES
Reeves has previously ruled out coming back for any more in the autumn after announcing £40 billion in tax hikes last year, including £25 billion from employer's national insurance contributions (NICs). But it is understood that inside the exchequer, a list of potential revenue raisers is already being compiled, although insiders insist officials always draw up such documents for ministers in preparation for fiscal events.
According to one source, the list includes potentially raising the bank surcharge — an additional levy imposed on banks' profits, above the 25 per cent corporation tax rate — which was considered by Reeves before her first budget but ditched following a backlash from City executives. The surcharge was cut from 8 per cent to 3 per cent under the Tories in 2023 and a source suggested that Reeves could seek to partially reverse it by increasing the rate to 5 or 6 per cent.
A second option said to be on the list is increasing the tax rate applied to dividends, which are paid to shareholders of companies and are sometimes taken by company directors as an alternative to a wage. Currently the top rate on dividends stands at 39 per cent, compared with 45 per cent charged on the top rate of income tax. Taxpayers are also entitled to a £500 dividend allowance on top of the £12,570 tax-free personal allowance which, if removed altogether, would save the Treasury approximately £325 million a year.
According to a poll of almost 2,000 people by the think tank More in Common, the public overwhelmingly expects taxes will have to rise in response to last week's spending review (56 per cent to 20 per cent). Only 15 per cent think the chancellor is doing a good job and the public now say they would trust her predecessor, Sir Jeremy Hunt, to run the economy over Reeves by a margin of 62 per cent to 38 per cent.
The public also do not believe the chancellor will meet her pledge to close the asylum hotels by the end of this parliament.
Luke Tryl, director of More in Common, said: 'The public are going to need to see real results before their opinion of the government improves. What's more, the public are increasingly worried that the Treasury is going to have to come back and ask for extra tax rises to pay for last week's announcements — and most people are in no mood to pay more. In particular, the suggestion of further hikes in council tax looks set to land particularly badly with the public, who, more than any other area of taxation, want to see council tax go down. The chancellor's economic tightrope act looks set to continue.'
The government will begin its next high-wire act this week when it introduces the controversial welfare reform bill, which proposes billions of pounds of benefit cuts. Ministers have in recent days floated tweaks to the package to soften the impact and win over Labour MPs threatening to rebel and No 10 is now increasingly confident it has the numbers to win the vote, expected at the end of the month.
However, with the weather improving, a summer of small boat crossings, rising unemployment and the spectre of tax rises could yet again threaten the new-found political harmony in the Labour ranks.