Latest news with #Chancellor
Sky News
2 hours ago
- Business
- Sky News
Rachel Reeves is about to make huge spending decisions - these could be the winners and losers
A week today, Rachel Reeves presents the spending review; how the budget is divided between government departments between 2026 and 2029 - the bulk of this parliament. It's a foundational moment for this government - and a key to determining the success of this administration. So, what's going to happen? The chancellor did boost spending significantly in her first year, and this year there was a modest rise. However, the uplift to day-to-day spending in the years ahead is more modest - and pared back further in March's spring statement because of adverse financial conditions. Plus, where will the £113bn of capital - project - spending go? So, we've done a novel experiment. We've taken Treasury documents, ministerial statements and reports from the Institute for Fiscal Studies. We put them all into AI - into the deep research function of ChatGPT - and asked it to write the spending review, calculate the winners and losers and work out what goes where, and why. It comes with a health warning. We're using experimental technology that is sometimes wrong, and while ChatGPT can access up-to-date data from across the web, it's only trained on information up to October 2023. There are no answers because discussions are still going on. Think of it like a polling projection - clues about the big picture as things move underneath. But, critically, the story it tells tallies with the narrative I'm hearing from inside government too. The winners? Defence, health and transport, with Angela Rayner's housing department up as well. Everywhere else is down, compared with this year's spending settlement. The Home Office, justice, culture, and business - facing real terms squeezes from here on in. The aid budget from the Foreign Office, slashed - the Ministry of Defence the beneficiary. You heard about that this week. Health - a Labour priority. I heard from sources a settlement of around 3%. This AI model puts it just above. Transport - a surprise winner. Rachel Reeves thinks this is where her capital budget should go. Projects in the north to help hold voters who live there. But, could this spell trouble? Education - down overall. Now this government will protect the schools budget. It will say 'per pupil' funding is up. But adult education is at risk. Is this where they find the savings? So much else - Home Office down, but is that because asylum costs are going down. Energy - they're haggling over solar panels versus home insulation. Justice should get what it wants, I am told. This isn't about exact percentages. But you can see across lots of departments - things are tight. Even though Rachel Reeves has already set the budgets for last year and this, and only needs to decide spending allocations from 2026 onwards, the graphs the Treasury will produce next week compare what will be spent to the last set of Tory plans. This means their graphs will include the big spending increases they made last year - and flatter them more.
The Independent
9 hours ago
- Business
- The Independent
Rachel Reeves must take back control of the growth agenda
Chancellor Rachel Reeves does not present as one of life's gamblers. Her proudest boast, curriculum vitae aside, is her 'iron' determination to put Britain's public finances on a sustainable footing. Yet, as the latest report from the OECD shows, that objective has been far from fulfilled – and will become even more difficult to achieve, at least over the coming year or so. The organisation's downgraded UK growth forecasts – 1.3 per cent this year, and 1 per cent for 2026 – are miserable, and will do nothing to lift confidence among consumers and investors, nor banish the dismal mood in her party about its electoral prospects. For most people, there is no practical difference between living in an economy with such minimal expansion and one that is stagnant or in a mild recession. Ms Reeves's problem is that, fiscally speaking, she likes to live dangerously – or, at least, that is how things have turned out. She has never provided herself with sufficient leeway in meeting her self-imposed fiscal rules to withstand the kind of bad luck or more serious shocks to the economy that might come any chancellor's way. Such unfortunate developments have been all too frequent in her time in office, and that has led to a sort of perma-crisis over tax, spending and borrowing, with politically sensitive cuts to benefits adding to the sense of jeopardy. Time and again, Reeves has created the thinnest of margins of error – about £10bn, in a spending total of around £1,300bn – and, time and again, it has been wiped out. Sometimes, that has been because of the usual vicissitudes, such as inflation proving more stubborn than usual, and elsewhere because of unpredictable events, most obviously Donald Trump's gyrating attitude to tariffs. But she has made her own mistakes, too. Cutting the pensioners' winter fuel payment yielded minimal additional revenues for maximum electoral loss, and she placed too much emphasis on raising employers' national insurance contributions, which appears to have had a more depressing effect than thought. Her biggest gamble, however, has been in hoping that she could meet her fiscal rules by the absurdly small margins she allowed herself. The OECD recommends that the chancellor 'steps up' her efforts to create a more comfortable buffer against adversity, and Ms Reeves would be as well to take their advice. The comprehensive spending review next week is the best opportunity she will have on that side of the ledger to inspire confidence that she is indeed making the right kinds of tough choices – ones that protect the most vulnerable, as well as boosting growth. At the Budget in the autumn, she will have another chance to 'kitchen-sink' the measures needed to avoid the periodic crises that have unnerved markets and so drained confidence in the government. The OECD suggests a 'balanced' approach: targeted spending cuts, including the closure of tax loopholes; revenue-raising measures such as re-evaluating council tax bands for the first time since they were introduced in 1991; and the removal of distortions in the tax system. These reforms to taxation would probably mean a fairer and more rational system, and might thus make the economy a little more healthy. But the main effect must be to chart a medium-term fiscal strategy that markets can have confidence in, which provides room for the Bank of England to ease interest rates, and, at last, puts the government back in control of events, rather than being pushed around by them. Few governments have foundered as swiftly as the Starmer administration, but that does not mean recovery, both economic and political, is impossible. Far from it. This early in the parliament, and with such a substantial majority at the government's disposal, Ms Reeves has a chance to put right the mistakes she made in her first months, and move beyond (rightly) chastising the Conservatives for their complacency and banging on about the notorious £22bn 'black hole'. To borrow a phrase popular in government circles, she should have gone further and faster last year to sort the public finances out for the rest of the parliament. The good news for her and her colleagues is that it is not too late to lay those firm fiscal foundations for growth. But this year, she should play safe, take more notice of the raw politics of her choices, and develop a more compelling narrative about the future rewards for prudence. It will be painful, but not as uncomfortable as watching another wager fail. She will indeed need an iron determination.
Daily Mail
12 hours ago
- Business
- Daily Mail
Raise council tax, says OECD, as it gives Rachel Reeves a headache with cut to UK growth forecast
Rachel Reeves has been given a fresh growth headache as the OECD downgraded its UK outlook and warned the Chancellor to act with 'prudence' on the public finances. The OECD called for the Chancellor to target tax loopholes and even highlighted council tax rises as a potential way to raise revenue. It said Britain should re-evaluate council tax bands, which could see households hit with bigger bills, particularly those living in larger homes, or expensive parts of the country, such as the South East. Britain's economy is expected to grow by just 1.3 per cent this year, down from a previous forecast of 1.4 per cent, according to the Paris-based Organisation for Economic Cooperation and Development. And growth for next year is pencilled in at 1 per cent, down from 1.2 per cent. The OECD's gloomy outlook painted a picture of UK growth continuing to be below par 'Momentum is weakening, with business sentiment rapidly deteriorating,' the OECD said, adding that the state of the public finances posed a 'significant downside risk'. It urged Reeves not to loosen the purse strings, cautioning that she only had a 'very thin' amount of wiggle room left to balance the books. Economists have warned that Reeves may have to raise taxes in her next Budget if the UK's finances do not improve. But after promising not to raise income tax, national insurance, or VAT, the Chancellor is in a tricky position. The OECD said: 'A balanced approach should combine targeted spending cuts, including closing tax loopholes; revenue-raising measures such as re‑evaluating council tax bands based on updated property values; and the removal of distortions in the tax system.' The darkening outlook will add to speculation that Ms Reeves will stage another big tax raid. Yesterday, analysts at Deutsche Bank said they expected 'upwards of £10billion in tax rises to be announced in the autumn Budget ' The OECD also warned that stubborn inflation – fuelled by Labour's national insurance and minimum wage hikes – could force the Bank of England to leave interest rates higher for longer. It forecasts that rates will fall by a further 0.75 percentage points in this cycle but not reach that level for a year. The report said: 'Bank Rate is projected to be lowered gradually from its current value of 4.25 per cent and reach a terminal value of 3.5 per cent in the second quarter of 2026, as inflation continues to converge towards target and growth slows below potential.' It came as Bank governor Andrew Bailey cast doubt on official figures showing that Britain enjoyed the strongest start to the year of any member of the G7 group of advanced economies. Mr Bailey told MPs that evidence from businesses painted a much weaker picture Office for National Statistics data pointing to growth of 0.7 per cent in the first quarter of 2025. 'The surveys are nothing like as strong as that,' he told the Treasury select committee. 'My own visits around the country are somewhat supporting the survey evidence. The Chancellor is under intense pressure from Cabinet colleagues and Labour's Left ahead of the government's spending review this month. The government is being urged to reverse winter fuel payment and child benefit cuts and dole out big spending rises, notably for defence. But Ms Reeves was urged by the OECD to stand firm. It pointed to the 'substantial' interest payments on Britain's debt pile that are weighing further on the public finances. In its latest global economic outlook, the OECD said: 'Fiscal prudence is required… strengthening the public finances remains a priority.' The report said that Britain's 'currently very thin fiscal buffers' could prove 'insufficient' if the Chancellor wanted to stimulate the economy in the event of fresh shocks. It called for 'targeted spending cuts' as well as tax reforms. The report comes just a week after a similar call from the International Monetary Fund (IMF) to 'stay the course' in bringing the public finances under control.
The Independent
18 hours ago
- Business
- The Independent
Healey insists defence funding will rise to 3% target to meet review aims
Defence Secretary John Healey insisted he was '100% confident' that military funding would increase as promised to prepare the armed forces for the future. The Strategic Defence Review recommended sweeping changes, including a greater focus on new technology including drones and artificial intelligence based on rising budgets. The Government has committed to increase spending to 2.5% of gross domestic product from April 2027 but only has an 'ambition' to reach 3% during the next parliament, which is due to end by around 2034. The authors of the review have suggested reaching that 3% target is vital to delivering their recommendations while US President Donald Trump has pushed for Nato allies to spend 5%. Mr Healey denied he was gambling on economic growth to meet his target, telling BBC Breakfast: 'I'm 100% confident that we'll hit that 3%. 'The important thing for now is what we can do, and we can do now more than we've been able to do before, because of an extra £5 billion the Chancellor has put in to the defence budget this year and the 2.5% that we will deliver three years earlier than anyone expected. 'It means that a £60 billion budget this year will rise throughout this parliament and beyond.' The Ministry of Defence announced a £5 billion investment in the 'kit of the future' following the publication of the review on Monday. The funding includes £4 billion for drones and autonomous systems, and an extra £1 billion for lasers to protect British ships and soldiers. Mr Healey said the investment would provide 'the most significant advance in UK defence technology in decades' and 'ensure our armed forces have the cutting-edge capabilities they need to meet the challenges of a rapidly changing world'. Part of the investment will see the establishment of a new 'drone centre' to accelerate the deployment of the technology by all three branches of the armed forces. The focus on drones comes as the technology has proved increasingly lethal on the battlefield in Ukraine, where it now kills more people than traditional artillery. At a meeting of allied defence ministers in April, Mr Healey said the UK estimated drones were inflicting 70-80% of battlefield casualties, while on Sunday Ukraine launched a major attack on Russian airfields deep behind the front line using a fleet of small drones. In addition to investment in drones and AI, the Government has announced an additional £1 billion for the development of 'directed energy weapons' (DEWs) during the current parliament. This includes the DragonFire laser scheduled to be fitted to the Royal Navy's Type 45 destroyers from 2027, with a similar system provided for the Army by the end of the decade. DragonFire and other DEWs are intended to provide a lower-cost form of air defence against targets including drones, costing just £10 per shot compared with the thousands of pounds it costs to fire existing weapons.
Yahoo
21 hours ago
- Business
- Yahoo
Healey insists defence funding will rise to 3% target to meet review aims
Defence Secretary John Healey insisted he was '100% confident' that military funding would increase as promised to prepare the armed forces for the future. The Strategic Defence Review recommended sweeping changes, including a greater focus on new technology including drones and artificial intelligence based on rising budgets. The Government has committed to increase spending to 2.5% of gross domestic product from April 2027 but only has an 'ambition' to reach 3% during the next parliament, which is due to end by around 2034. The authors of the review have suggested reaching that 3% target is vital to delivering their recommendations while US President Donald Trump has pushed for Nato allies to spend 5%. Mr Healey denied he was gambling on economic growth to meet his target, telling BBC Breakfast: 'I'm 100% confident that we'll hit that 3%. 'The important thing for now is what we can do, and we can do now more than we've been able to do before, because of an extra £5 billion the Chancellor has put in to the defence budget this year and the 2.5% that we will deliver three years earlier than anyone expected. 'It means that a £60 billion budget this year will rise throughout this parliament and beyond.' The Ministry of Defence announced a £5 billion investment in the 'kit of the future' following the publication of the review on Monday. The funding includes £4 billion for drones and autonomous systems, and an extra £1 billion for lasers to protect British ships and soldiers. A new era of threat requires a new era for defence. The Strategic Defence Review marks a landmark shift in our deterrence and defence ⬇️ — Ministry of Defence 🇬🇧 (@DefenceHQ) June 2, 2025 Mr Healey said the investment would provide 'the most significant advance in UK defence technology in decades' and 'ensure our armed forces have the cutting-edge capabilities they need to meet the challenges of a rapidly changing world'. Part of the investment will see the establishment of a new 'drone centre' to accelerate the deployment of the technology by all three branches of the armed forces. The focus on drones comes as the technology has proved increasingly lethal on the battlefield in Ukraine, where it now kills more people than traditional artillery. At a meeting of allied defence ministers in April, Mr Healey said the UK estimated drones were inflicting 70-80% of battlefield casualties, while on Sunday Ukraine launched a major attack on Russian airfields deep behind the front line using a fleet of small drones. In addition to investment in drones and AI, the Government has announced an additional £1 billion for the development of 'directed energy weapons' (DEWs) during the current parliament. This includes the DragonFire laser scheduled to be fitted to the Royal Navy's Type 45 destroyers from 2027, with a similar system provided for the Army by the end of the decade. DragonFire and other DEWs are intended to provide a lower-cost form of air defence against targets including drones, costing just £10 per shot compared with the thousands of pounds it costs to fire existing weapons.
