Rachel Reeves looks to spending review to shift focus from welfare cuts

The Guardian

4 days ago

Rachel Reeves's spring statement in March ended up being defined by deep cuts to disability benefits. The Treasury hopes next week's spending review will be remembered for the chancellor's largesse.
Her team have consistently been frustrated that despite announcing tax increases worth £40bn a year by the end of the parliament, and radically rewriting the fiscal rules, Reeves has failed to win much political credit for unlocking additional investment.
The Treasury argues that its plans amount to more than £100bn in additional capital investment over the next five years, compared with what her predecessor Jeremy Hunt expected to spend.
Reeves believes under-investment is a long-term bugbear of the UK economy. She made space for this additional infrastructure spending by changing the fiscal rules to allow her to borrow to invest – and shifting the definition of government debt, to take into account financial assets owned by the taxpayer.
The chancellor will be in Manchester on Wednesday to announce a slate of transport investments outside London, as part of this uplift in investment, with more to come next week.
She has been inviting groups of Labour MPs into No 11 this week to tell them the good news about high-profile projects in their constituencies – though some fret that they are unlikely to materialise rapidly enough to bring much electoral benefit.
After fraught cabinet negotiations, the spending review will parcel out among Whitehall departments the spending for the next three years which was announced at the spring statement – the 'envelope', as the Treasury calls it.
Alongside infrastructure projects, the chancellor is expected to prioritise health, defence and economic growth, with the latter including the government's long-awaited industrial strategy.
Reeves and her cabinet colleagues will be keen to point to the potential benefits of this additional spending, not least a less dysfunctional NHS.
Outside these key areas, some departmental settlements are expected to be painfully tight, particularly towards the later end of the three-year period the spending review covers: a point that will inevitably be made by thinktanks such as the Institute for Fiscal Studies.
Reeves's enforcer, Darren Jones – the chief secretary to the Treasury – insists departments should be looking for ways to make resources go further over time, through innovation and cracking down on waste.
And the chancellor is expected to offer a robust defence of her fiscal rules, which despite mounting disquiet inside her own party, her team contend are necessary to maintain the stability of the public finances.
Under the rules, day-to-day spending must be covered by taxation. Reeves's allies believe this tough constraint is necessary, to maintain the market confidence the Treasury needs, to ratchet up borrowing to fund investment.
But critics argue that it distorts decision-making, forcing the government into choices like the £5bn in welfare cuts made in the spring statement, in order to ensure the rules were on course to be met.
Another controversial choice Reeves made to balance the books, the means-testing of the winter fuel allowance, is also likely to come under intense scrutiny , with the chancellor unable to say as yet how the partial U-turn on the policy will be funded (or indeed exactly who will receive the payment this winter).
She is also likely to be challenged about whether she will find the resources for other Labour priorities, including tackling child poverty – a full strategy on which is now not expected until the autumn.
After the bruising reversal of the winter fuel allowance decision, with which she was so closely associated, Reeves will be hoping next week will be more about spending than cuts. But it is also likely to underline, yet again, the difficulties of achieving some of Labour's central aims within the fiscal constraints the Treasury has set.