The spending review has the potential to renew the government – but it won’t be easy for Rachel Reeves to stay within her fiscal rules
Rachel Reeves repeatedly told us that she is about the “renewal of Britain”. The question anxious Labour MPs want answered is whether she has done enough to prompt the renewal of their government after a period of drift, disillusion and division. No member of the cabinet needs a lift more than the chancellor herself. Even before the clunky and humiliating U-turn over winter fuel payments, her personal approval ratings were slumping dangerously close to being as negative as Kwasi Kwarteng’s score after the maxi-disaster of his mini-budget.
Did she pull it off? The chancellor had plenty of things to announce that ought to please Labour people and those who voted for the party in the belief that it would deliver much-promised change. The most obvious winner is health and social care. NHS England is slated to get 3% of additional annual average spending above inflation compared with the last full financial year of Conservative government.
As she got stuck into unveiling extra billions for this and more billions for that, the chancellor also boasted of more resources heading in the direction of defence, border security, skills training, prison places and education. The comprehensive-educated chancellor found extra money for a programme “to fix our crumbling classrooms”. The emphasis on improving transport links and local regeneration projects in the Midlands and the north of England has pleased Labour MPs who feel the hot breath of Reform on their necks. Changing the fiscal rules to permit more spending on capital projects also gave her scope to announce the biggest cash injection into social and affordable housing in half a century.
Rachel Reeves has clearly grown sensitive to the complaint that she’s the prisoner of cautious officials
She’s clearly grown sensitive to the complaint from some colleagues and commentators that she’s the prisoner of cautious officials and the government has been hijacked by a flint-fisted “Treasury party”. So she struck a lot of contrast between her plans and the “lost decade” of Tory austerity while repeatedly intoning the mantra: “My choices are Labour choices”.
A Conservative government would not have made many of her choices and this is not George Osborne-style machete wielding. But it may feel that way in areas that are unprotected and unfavoured. International aid has already taken a severe hit to help fund the boost for defence. There will be tough real terms reductions in the budgets of the departments of culture, media and sport, the environment and Home Office. Yvette Cooper, who was the last cabinet holdout during the negotiations with the Treasury, only comes out flat on her spending money if the home secretary can fulfil the pledge to stop using large sums to house asylum seekers in hotels.
Another cause for concern is whether the books now balance. Mel Stride, the shadow chancellor, struggled during a response punctuated by gales of Labour laughter, but he had one good line when he said: “This is the spend now, tax later review.” The majority of independent analysts reckon the chancellor won’t be able to stay within her fiscal rules unless she comes back with some tax rises in her budget in the autumn.
My other caveat is about the faith the government is investing in infrastructure to enhance the growth rate and make itself look more appealing to the electorate. By their nature, capital projects can’t be built overnight. Even with a more liberal planning regime, it will take more than a decade to put up and plug in the new Sizewell C nuclear reactor. The time it takes is no reason not to improve infrastructure. It is a reason for ministers to be wary of how quickly they will see any political reward.
This is one of the most consequential events there will be before the next general election. In the aftermath of the chancellor’s big reveal, supportive cabinet ministers have been talking it up as “pivotal” and a “turning point” for her personal fortunes and for their overall prospects as a government. It needs to be.
Photographs by Wiktor Szymanowicz / Getty Images, Luke MacGregor/Bloomberg via Getty Images
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