Reeves gambles on ‘renewing Britain' to win trust of voters and see off Reform

Yahoo

a day ago

Rachel Reeves has gambled billions of pounds of infrastructure spending on 'renewing Britain' before the next election but faces a challenge to convince voters Labour can deliver change amid deep cuts to everyday spending.
The chancellor admitted that 'too many people in too many parts of our country' were yet to feel the benefits of the change they voted for when Labour was swept to power with a huge majority last year.
With many Labour MPs already feeling unsettled about the electoral threat of Reform UK, she has already launched a charm offensive to convince them that her spending review on Wednesday was not a return to austerity.
Economists warned that mounting pressures on spending, including the U-turn on winter fuel payments for pensioners and Labour MPs' backlash against disability benefit cuts, meant Reeves could be forced to raise taxes or look for more savings in the autumn.
There could be other tax increases ahead, with the Treasury's calculations being based on assumptions that local authorities will put up council tax by the maximum 4.99% a year for three years to fund services, including adult social care.
Writing in the Guardian, Keir Starmer said departmental budgets, which will grow by 2.3% a year in real terms, showed the government had 'entered a new stage' in its efforts to transform the country.
'It is an investment in Britain's renewal, so working people have more money in their pocket, more pride in their community and more hope for their children's future,' he wrote.
The NHS and defence were the big winners of the spending review, with 90% of the increase in the day-to-day budget over the next three years going to health and 80% of the boost in capital spending going to defence, according to the Resolution Foundation.
However, it means other Whitehall departments, including the Home Office, Ministry of Housing Communities and Local Government, and the departments of culture, transport and environment, all face real terms cuts to their everyday budgets, as does the Foreign Office, mainly as a result of aid cuts.
Ministers have been chastened by polls which suggest that Labour's decision to increase spending overall at the autumn budget has not yet filtered through to voters, after a bumpy first year in power, contentious decisions over welfare cuts and a rise in national insurance for employers.
A growing clamour for change has been reflected in a surge in support for Reform UK. In her statement to MPs, Reeves reminded them that Nigel Farage, the party's leader, had described Liz Truss's disastrous mini budget as 'the best Conservative budget since the 1980s'.
She said Reform was 'itching to do the same thing all over again' and had already racked up £80bn in unfunded spending commitments since the last election. 'They are simply not serious,' she said.
In response to a threat from the right, the chancellor made a high-stakes promise to cut spending on asylum hotels by the end of the parliament, which she said would save £1bn. There was also £280m more a year for the new Border Security Command.
But the Home Office will receive a budget cut that will extend beyond the asylum savings, causing alarm from police officers and the London mayor, Sadiq Khan.
The government set out its version of Elon Musk's 'Doge' efficiency pledges, suggesting they would make cuts of £14bn through operational improvements, digital transformation, cutting consultants and implementing AI.
Despite free school meals being expanded to at least 500,000 more pupils, lifting 100,000 out of poverty, school budgets will be squeezed. Teachers will get a 4% pay rise next year via additional funding of £615m but schools will have to fund about a quarter of it themselves.
The spending review marked the culmination of months of discussions between Reeves and her cabinet colleagues. Negotiations with the home secretary, Yvette Cooper, went down to the wire.
In recent days, ministers announced £15bn for transport outside London, £14.2bn to build a new nuclear power station and an increase that will almost double government spending on affordable housing to nearly £40bn over the next 10 years.
After months of speculation over the government's commitment to net zero, Reeves confirmed ministers would not cut Labour's landmark £13.2bn fund to fix draughty homes.
Reeves drew a comparison with the 2.9% cut in the austerity years under the Conservative-Liberal Democrat coalition – a retort to her critics who have accused her of a return to austerity.
'Austerity was a destructive choice for the fabric of our society, and it was a destructive choice for our economy, too, choking off investment and demand,' she said. 'Creating a lost decade for growth, wages and living standards – that is their legacy. My choices are different. My choices are Labour choices.'
Paul Johnson, director of the Institute for Fiscal Studies, hailed the 'genuinely big sums' the chancellor had set aside for infrastructure projects, but warned that some departments' day-to-day spending plans look tight.
'The funding increases for health and defence are substantial. The corollary, of course, is a less generous settlement elsewhere,' he said.
Reeves changed her fiscal rules in last autumn's budget to pave the way for a £113bn uplift in investment spending, and Wednesday's statement set out details of where this funding will be allocated – much of it aimed outside London and the south-east.
Beneficiaries include green energy, social housing and transport. The Treasury hopes such projects will create jobs (including in deprived areas), help to make the UK's sluggish economy more productive, and kickstart growth.
As well as changing Treasury rules to support investment in England's regions, the spending review provides £52bn for Scotland, £20bn for Northern Ireland and £23bn for Wales.
'We are renewing Britain. But I know that too many people in too many parts of our country are yet to feel it,' Reeves said. 'My task as chancellor and the purpose of this spending review is to change that. To ensure that renewal is felt in people's everyday lives, in their jobs, and on their high streets.'
As the chancellor insisted she would stick to her fiscal rules – including meeting day-to-day spending through tax receipts – experts warned that any economic shock could push her plans off course.
Andrew Goodwin, chief economist at consultancy Oxford Economics, said: 'Considering the government's recent U-turn on winter fuel payments could be a precursor to higher government spending in other areas, it looks increasingly likely that substantial tax increases will be needed.'
Ruth Curtice, director of the Resolution Foundation, said: 'After a summer of spending, the budget this autumn will be far more challenging. The economic outlook is looking weaker – not stronger – since the spring, and that will require more tax rises or welfare cuts for the chancellor to meet her fiscal rules.'
The shadow chancellor, Mel Stride, called it a 'spend-now, tax-later review', adding that Reeves 'knows she will need to come back here in the autumn with yet more taxes and a cruel summer of speculation awaits'.