Latest news with #spendingreview
Daily Mail
3 hours ago
- Business
- Daily Mail
Labour 'at war' over cash for Net Zero, housing, cops and education: Spending review goes to the wire as Rayner, Miliband, Yvette Cooper and Bridget Phillipson hold out
is facing a battle to get the spending review over the line with four ministers said to be holding out. The Chancellor is due to unveil the crucial three-year settlements for departments in just over a week, amid mounting pressure on the public finances. However, she is still thought to be haggling with Ed Miliband over cash for Net Zero projects and Angela Rayner over housing and local government funding. Home Secretary Yvette Cooper has been pushing for money for police, while Bridget Phillipson has yet to agree a package at education. Keir Starmer is gathering his Cabinet this morning, after a defence blueprint published yesterday threw the problems facing the government into stark relief. The PM vowed to get Britain 'war-ready' as he warned of the threat from Russia and other hostile states. But he refused to give a firm timetable for spending 3 per cent of GDP on defence. Sir Keir has also signalled he is ready to bow to a Labour revolt demanding restoration of the winter fuel allowance, and easing of the two-child benefit cap. With the economy stalling, that has led to warnings he will be forced into 'chunky' tax rises by the Autumn unless Ms Reeves loosens her fiscal rules and borrows even more. The spending review allocates funding to departments from within the fiscal 'envelope' that was set by the Chancellor at the Budget. That package hiked taxes by around £40billion a year and changed rules on borrowing, allowing for a front-loaded splurge on day-to-day and capital spending. But analysts always cautioned that the plans looked implausibly tight in the later years, and issues have been exacerbated by lower growth. According to the Financial Times, Ms Cooper is demanding enough police spending to meet Labour's crime-cutting 'mission'. Mr Miliband is said to be embroiled in one of the biggest disputes, over funds for the 'warm homes' insulation plan, carbon capture projects and GB Energy. 'Within this spending review there is £300billion to be distributed between departments because of decisions taken by the chancellor in last year's Budget,' one Reeves ally told the paper. 'The message at the spending review is we will be investing in Britain's renewal. 'We will be investing in the country's security, health and economy.'
The Guardian
5 hours ago
- Business
- The Guardian
Rachel Reeves must think big to fund Labour's ‘battle-ready' Britain. Tweaks and tinkering won't do
Who in their right mind would want to be Rachel Reeves right now? Her spending review out next week will feel like austerity all over again. Even if, in reality, it's not a cut but more spending, as the Institute for Fiscal Studies emphasises. After an uplift in everyday spending at the budget, here comes a much-needed capital slab of £113bn. Yet whatever the numbers say, painful cuts to most things will be the story and the feeling. If you want to try your hand, the IFS has just put its 'Be the Chancellor' gadget up on its site. Strap yourself into Reeves's fiscal straitjacket and attempt a Houdini-like escape, as you decide on levels of borrowing, taxing, spending and debt. One thing it illuminates is how much even mere slivers of growth improve your position immensely. How far can you go? The febrile market meltdown point is unknowable, but Liz Truss was a useful crash dummy testing squillions on tax cuts without raising revenue. Donald Trump, plunging into an unexplored fiscal wilderness, beat a retreat when his monster tariffs sent the markets charging back out at him. He seems to be having another try. One reason not to want to be chancellor is that Reeves inherited public services and the economy in their worst state in recent memory. The £22bn black hole was a fraction of the true deficit, as every minister soon revealed the bleeding stumps of their stricken department after years of cuts. How do you weigh up hungry children, inadequate home insulation, councils bankrupted by social care and special educational needs funding, meagre social housing, and stretched policing and courts? None will get enough, some will get cut. These choices are the breath of politics: no wonder Labour MPs look so drawn, Survation finding 65% of them think the government should change course on fiscal policy to fund public investment and spending. At the weekend Compass conference, Labour's soft left keened over vacillations and slow progress. At the same time, Starmer's commitment to be 'battle-ready' means huge defence spending. Monday's strategic defence review commits not just to defending Nato countries facing imminent danger from Vladimir Putin, but rebinding us to the Europe we walked out on. It means defending our own endangered undersea cables, vulnerable internet and critical facilities. It's 'a new era', Keir Starmer said. 'The world has changed.' Yes, indeed. And so must the government on tax and spending. More revenue must be raised, and the answer is not more tweaks. The whole tax and spending ship is an unseaworthy rustbucket encrusted with barnacles, in need not of a lick of paint but of stripping down and rebuilding. Adjustments seeking small sums deliver maximum political pain, and minimal financial gain. Tempting tax loopholes turned out to be strewn with political landmines: farmers sitting on undertaxed millions in land wealth, or well-off pensioners in no need of winter fuel allowances are explosive when set off. (It turns out the cost of poor pensioners rushing to claim pension credit for the first time is outweighing the £1.5bn savings: good news but not for the Treasury.) Assuaging the wrath of more than 100 rebellious Labour MPs will blunt the savings from disability cuts. These one-offs have not been worth the row. Helen Miller, incoming director of the IFS, suggests to me that tackling the big questions would be a better approach. She's right. Labour may as well grasp worthwhile reform, since the poison press and social media assaults them just as brutally over small things. Here's a truly difficult example: Miller would end VAT reliefs for food, books and children's clothes, which benefit the rich as they spend most. That brings in a stonking £100bn. After more than compensating those on lower incomes with universal credit and raising income tax thresholds for middle earners, that would buy a complete Sure Start programme and more. Start again on property tax: revaluing council tax so a Blackpool semi no longer pays more than Buckingham Palace, with a land value tax where there is no penalty for housebuilding and no escape from taxing ground value, no stamp duty to hinder movement. The other great question she raises is health costs. The Department of Health and Social Care takes around 40% of day-to-day spending, the majority of that on the NHS. It's dangerous to ask if we need every new drug and treatment. The NHS draws cash away from underfunded education, yet we never dare discuss this clash of interests. Older people use the NHS most: 32% of the spend is on those aged between 65 and 84 (16% of the population) with another 10% on over-85s (3% of the population), according to Full Fact. Yet the future depends on better early years, great schools, further education colleges, skills and apprenticeships. Investing in human capital brings longer-lasting national growth than bricks and mortar, as education and skills are passed for ever down the generations. But the Treasury green book says no. Wealth tax is not as difficult as claimed: Liam Byrne's book Inequality of Wealth shows the top 1% have multiplied their wealth by 31 times more than the other 99% since 2010. Arun Advani, director of the Centre for the Analysis of Taxation, says a tax on assets of 1% from those with more than £10m would yield £10bn, which would nicely eliminate the worst poverty: End Child Poverty this week reports one in three children in the UK are living in poverty. Making all forms of income pay the same tax, earned or capital gains, rents or self-employed, pays out £12bn, says the economist Prof Richard Murphy. If ever there were a time to uproot old habits, it's now. The defence review demands more contribution. If money isn't raised elsewhere, defence risks eating into everything. 'Change' was why Labour got elected, but voters don't see or feel it, and nor do hang-dog Labour MPs. The fiscal straitjacket has come to be a signal to voters, indicating 'no change'. Yet the Institute for Government points out the rules permit Reeves to suspend them 'in the event of a 'significant negative shock',' while noting 'it is at the Treasury's discretion to define what constitutes such a shock'. Her own spending review will show how Trump, tariffs and emergency defence spending cause a deeply 'negative shock' to everything else. Labour has suffered the biggest dip in popularity within its first 10 months of any newly elected UK government in 40 years. Yet look at its opportunity for change, with four full years of government ahead and a majority it may never see again (nor should, with electoral reform). In all these things, the Labour cabinet and Labour MPs have nothing to lose but their nerve. Polly Toynbee is a Guardian columnist
Yahoo
2 days ago
- Business
- Yahoo
This is the opportunity the Tories have been waiting for. Can they take it?
'We can't tax and spend our way to higher living standards and better public services,' said Rachel Reeves during her Spring Statement in March. I'm not sure the Chancellor ever believed this – or if she did, her senior colleagues don't agree. Deputy Prime Minister Angela Rayner, in her deftly leaked memo, has floated yet more tax rises on firms, property and pensioners, raising another £4bn a year. This despite the UK's tax burden – revenues as a share of GDP – already heading for 38pc, a 70-year high. Sir Keir Starmer, equally desperate to appeal to Left-wing Labour activists lest the 'Red Queen' outflanks him, has just made his own new spending pledges – diluting already pretty unambitious money-saving measures his own Government only recently announced. The Prime Minister wants to restore broader access to winter fuel payments while scrapping Labour's policy of maintaining the two-child cap on child benefit – at a combined cost of least £5bn per annum. With Reeves's Spending Review looming, due on June 11, Starmer is now pushing this Chancellor into numerous extra expenditures – commitments he will hang around her neck should they fail to happen. After her 'once in a generation' £40bn tax increase unveiled last October, Reeves promised 'no more tax rises'. Yet as the public finances deteriorate – with Labour's taxes curtailing job-creation, enterprise and growth, squeezing tax revenues further – a lot more government spending and additional, equally counterproductive tax rises, are surely coming down the line. All this is maddening, but hardly surprising. Starmer's front bench is well to the Left of Sir Tony Blair's various cabinets. What is surprising, perhaps, is that Nigel Farage's Reform party has, over the last week, joined Labour as a party tossing around hefty spending pledges like confetti. Having soared to 30pc in the opinion polls, Farage wants more – and reckons exploiting Labour's welfare woes may be the way to get it. So, the Reform leader last week also pledged to scrap winter fuel payments cuts and the two-child benefit cap, while introducing a new married couples' tax allowance – again, with an eye on traditional Labour supporters. Yet countless Red Wall voters are sick of work-shy neighbours raising large families off the back of generous 'welfare packages', while they struggle to support smaller broods despite going to work each day. More fundamentally, Reform is meant to be a low-tax party. Richard Tice, its deputy leader, is a card-carrying 'Thatcherite' – so what does he make of this lurch to the Left, as Farage moves Reform's tanks onto Labour's lawn? 'Our child benefit policy must be seen in overall context of our family-friendly 'make-work-pay' approach to life,' Tice tells me. Family-friendly policies sound good but need paying for. And Reform's electoral success means all the party's spending plans will now come under serious scrutiny. Not a moment too soon. I actually have considerable sympathy for perhaps the party's flagship economic policy – increasing the basic rate of income tax threshold from £12,570 to £20,000 – allowing lower-income workers to keep more of their money. It strikes me the £50bn to £80bn price tag estimated by the Institute of Fiscal Studies and others is too high. With 10.4 million workers earning between the existing threshold and £20,000, and another 24.7 million earning more, Reform sources say the policy costs £44.5bn, but that higher VAT receipts from additional related consumption reduces that to £40bn. That sounds reasonable. Plus, I think almost everyone is underestimating the extent to which a threshold raise will reduce benefit claims – although Reform has currently pencilled-in £15bn of welfare cuts under this and other headings. It's also worth saying that requiring low-income state workers to pay less is far less inflationary than awarding them large pay rises, which then ripple across the private sector too. 'We are going to make big savings,' said Farage last week, during the same speech in which he made his latest spending commitments. Reform reckons it can save, in total, around £100bn a year – 8pc of current public spending. Scrapping net zero and related subsidies would save £30bn, the party says, with improved efficiency and government procurement netting about the same. While I applaud the sentiment, I think any government – however diligent and driven – will struggle to make these savings within one Parliament. Reform is dead right, though, to insist that the Bank of England stops paying banks and other financial institutions some £30bn to £40bn in interest payments on 'quantitative easing' reserves. This is a technical point but set to be fiercely contested – with Reform's policy, master-minded by Tice, supported by some serious economists. Starmer accuses Reform of 'fantasy fiscal plans', but Labour's own much-vaunted welfare savings lie in ruins. The UK's huge sickness benefits bill is set to soar from around £50bn to well over £70bn by the end of the decade. We're not talking cuts, but a minor slowdown in what remains a huge welfare spending increase – which now won't happen. Labour and Reform – the two parties currently most likely to win the next election – now look to be chivvying each other into ever higher spending commitments. This, at a time of genuine financial peril – with state debt service costs well over £100bn per annum and 30-year yields at a multi-decade high. What we need is an opposition party to counter the big-spending message, appealing to millions of voters who know in their bones successive UK governments have spent way beyond their means and that, at some point, the music will stop. This is the opportunity Kemi Badenoch's Tories have been waiting for. Have they the courage to take it? Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.
Arab News
2 days ago
- Business
- Arab News
UK faces choice next week between health and other spending, IFS think tank warns
LONDON: British finance minister Rachel Reeves' key decision in next week's multi-year spending review will be how much to spend on health care versus other public services, the Institute for Fiscal Studies think tank said on Sunday. Reeves is due to set out day-to-day spending limits for other government departments on June 11 which will run through to the end of March 2029 — almost until the end of the Labour government's expected term in office. Britain has held periodic government spending reviews since 1998, but this is the first since 2015 to cover multiple years, other than one in 2021 focused on the COVID pandemic. The non-partisan IFS said this spending review could prove to be 'one of the most significant domestic policy events' for the current Labour government. Prime Minister Keir Starmer's announcement in February that defense spending would reach 2.5 percent of national income by 2027 had already used the room for further growth in public investment created in Reeves' October budget, it said. 'Simultaneously prioritising additional investments in public services, net zero and growth-friendly areas ... will be impossible,' said Bee Boileau, a research economist at the IFS. Non-investment public spending is intended to rise by 1.2 percent a year on top of inflation between 2026-27 and 2028-29, according to budget plans which Reeves set out in October — half the pace of spending growth in the current and previous financial year. The IFS sees no scope for this to be topped up, as Reeves' budget rules leave almost no room for extra borrowing and tax rises are now limited to her annual budget statement. This forces Reeves and Starmer to choose between the demands of the public health care system — plagued by long waiting times and a slump in productivity since the COVID-19 pandemic — and other stretched areas. In past spending reviews, annual health care spending has typically risen 2 percentage points faster than total spending. If that happened this time — equivalent to an annual increase of 3.4 percent — spending in other departments would have to fall by 1 percent a year in real terms, the IFS forecast. Raising health care spending at roughly the same pace as other areas — a 1.2 percent rise — would only just keep pace with an aging population and not allow any reversal of recent years' deterioration in service quality, the IFS said. Spending cuts could be achieved by scaling back services provided by the state, reducing public-sector employment or real-terms cuts in public-sector pay, it added. But it warned the government needed to be specific about how it planned to make cuts, or risk financial markets losing confidence in its ability to keep borrowing under control. The review does not cover spending on pensions or other benefits, which the government is tackling separately.
Reuters
2 days ago
- Business
- Reuters
UK faces choice next week between health and other spending, IFS think tank warns
LONDON, June 1 (Reuters) - British finance minister Rachel Reeves' key decision in next week's multi-year spending review will be how much to spend on healthcare versus other public services, the Institute for Fiscal Studies think tank said on Sunday. Reeves is due to set out day-to-day spending limits for other government departments on June 11 which will run through to the end of March 2029 - almost until the end of the Labour government's expected term in office. Britain has held periodic government spending reviews since 1998, but this is the first since 2015 to cover multiple years, other than one in 2021 focused on the COVID pandemic. The non-partisan IFS said this spending review could prove to be "one of the most significant domestic policy events" for the current Labour government. Prime Minister Keir Starmer's announcement in February that defence spending would reach 2.5% of national income by 2027 had already used the room for further growth in public investment created in Reeves' October budget, it said. "Simultaneously prioritising additional investments in public services, net zero and growth-friendly areas ... will be impossible," said Bee Boileau, a research economist at the IFS. Non-investment public spending is intended to rise by 1.2% a year on top of inflation between 2026-27 and 2028-29, according to budget plans which Reeves set out in October - half the pace of spending growth in the current and previous financial year. The IFS sees no scope for this to be topped up, as Reeves' budget rules leave almost no room for extra borrowing and tax rises are now limited to her annual budget statement. This forces Reeves and Starmer to choose between the demands of the public healthcare system - plagued by long waiting times and a slump in productivity since the COVID-19 pandemic - and other stretched areas. In past spending reviews, annual health care spending has typically risen 2 percentage points faster than total spending. If that happened this time - equivalent to an annual increase of 3.4% - spending in other departments would have to fall by 1% a year in real terms, the IFS forecast. Raising healthcare spending at roughly the same pace as other areas - a 1.2% rise - would only just keep pace with an ageing population and not allow any reversal of recent years' deterioration in service quality, the IFS said. Spending cuts could be achieved by scaling back services provided by the state, reducing public-sector employment or real-terms cuts in public-sector pay, it added. But it warned the government needed to be specific about how it planned to make cuts, or risk financial markets losing confidence in its ability to keep borrowing under control. The review does not cover spending on pensions or other benefits, which the government is tackling separately.
