A Whitehall quip circulating is that the government will soon consist solely of the NHS and the military, with all other departments as mere appendages.
This isn’t amusing to ministers battling to secure departmental funding. In a few weeks, Chancellor Rachel Reeves will unveil what an insider termed “the final major set of decisions” before the next general election.
It’s widely understood in Westminster that billions will be allocated to health and defense. However, the Chancellor and her deputy, Darren Jones, are engaged in intense discussions with Cabinet ministers to finalize government budgets extending to 2029.
Beyond disputes over winter fuel allowances or welfare payments, this Spending Review will shape all government policy. It’s not simply about budget spreadsheets; it’s a fundamental debate about the government’s priorities and purpose.
The winners and losers will significantly influence the political landscape for years to come. I’ve spoken with nearly 20 ministers, advisors, and insiders to gain insight into these behind-the-scenes negotiations.
“It’s going to be a messy affair,” notes a Whitehall source. As repeatedly stated by ministers, the government must “live within its means,” necessitating “difficult decisions.”
This translates to spending cuts in certain areas. Paradoxically, overall government spending is increasing, fueled by substantial tax increases in the autumn, which have provided significant funding for public services.
The Chancellor also revised borrowing regulations for long-term projects (“capital spending”), increasing available funds by over £100bn this time.
However, substantial additional funding for health and defense has created a severe constraint on day-to-day spending across other sectors. Despite the large budgets, a government source acknowledges that “certain services are in serious jeopardy.”
Who, then, are the likely winners and losers? By late Friday, over half of government departments had reached final agreements with the Treasury.
No. 10 claims “rapid and early progress.” A Cabinet member commended Reeves and Jones for their “genuine commitment to collaboration.” This sentiment, however, is not universally shared.
“The situation has become quite heated,” another source reveals, highlighting significant tensions given the substantial sums and political reputations at stake.
The process involves countless decisions, with one insider describing it as a line-by-line review.
A general rule of thumb is that the Treasury will be fiscally conservative regarding day-to-day spending but more generous with capital spending. Therefore, funding for new roads, energy infrastructure, hospital buildings, and prisons is expected to flow.
The government is likely to highlight these large-scale projects—the anticipated approval of the Sizewell C nuclear power station is one example.
In the coming days, expect announcements regarding investments in new health equipment, housing construction jobs, and water infrastructure.
The Spending Review will likely be followed by what sources describe as “infrastructure week,” showcasing a range of plans.
One source stated, “The capital budget is manageable; it’s the day-to-day spending where the truly difficult conversations lie.”
This means departments responsible for daily public services, such as police, social care, and primary schools, are likely to face significant pressure.
Numerous potential points of contention could erupt across Whitehall before the June 11th review.
Even Downing Street is seeking cost savings, which one source describes as “absurd,” especially when “if you are concerned about effectiveness and control, you should invest in No. 10!”
Tensions exist over council budgets, depleted after years of cuts while demands continue to rise. Uncertainty remains regarding long-term funding for affordable housing and initiatives to support deprived areas. There are also concerns about potential cuts to the budget for home insulation.
There are worries that funding for increasing police numbers and performance, and halving violence against women and girls might be insufficient. The value for money of capping bus fares is also under scrutiny.
“The financial constraints are so severe that significant disputes are arising over relatively small amounts,” one source notes.
Capping bus fares costs approximately £200m—a negligible sum in the context of the overall government budget.
“Only one in six passengers utilize this service, suggesting the £200m could be better allocated,” another source explains, adding, “however, the political implications make it untouchable.”
Under pressure, various ministers and their teams are adopting what might be described as vastly different approaches.
Rumors of slammed doors and accounts of a cabinet minister refusing to take meeting notes and rejecting all proposals abound.
Ministers will always seek more for their departments, and during times of fiscal austerity, conflict is inevitable.
Conversations with some sources reveal genuine concern about the impact of these decisions on public services.
One cabinet minister stated, “We’re already operating under immense pressure—the core issue is the extreme scarcity of funds.”
However, another suggested that some colleagues “are harboring unrealistic expectations given the country’s fiscal situation.”
Some within the government even assert that “there is considerable excess and waste,” implying that cuts, including civil service headcount reductions, have been relatively easy to identify.
Balancing the budget is the initial step. The second challenge is how this aligns with the narrative of an unpopular government.
Senior officials hope that the review, combined with major infrastructure plans, can generate positive news after a period of setbacks.
Reeves’ deputy, Jones, aims to create “stories, not spreadsheets” and has been engaging with groups of MPs about local initiatives, providing evidence of government action to address voter concerns.
The difficulty, as one government source points out, is that “day-to-day spending is what people notice…long-term projects don’t sway votes.”
Remember, day-to-day spending will be tightly controlled, while long-term capital spending is likely to be more generous.
“There’s immense pressure to demonstrate tangible results within three-and-a-half years,” the source adds.
Numerous potholes can be filled before 2029. However, constructing power stations takes considerable time. Some within government advocate for a clearer justification for spending cuts, otherwise, one source warns, “another political party could be in power—a compelling argument from the Labour Treasury is needed, and Rachel needs to articulate this.”
Efforts to reduce spending face two further challenges. With the focus on health, defense, and long-term projects, what becomes of the prime minister’s “missions”—remember them?
“It’s difficult to envision how the missions will survive,” one source notes, despite their intended role in defining Sir Keir Starmer’s approach to government.
What about his purported commitment to reform and restructuring the state? Proponents argue that financial constraints provide a compelling reason for significant change.
However, as one experienced Whitehall insider questions, “How do you prevent political momentum from waning across all other areas if most departments spend the next few years managing decline? How do you maintain political momentum in a climate of reductions?”
Changes that could lead to substantial cost savings and improved public services in the long term may require upfront investment.
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In the coming weeks, government sources will emphasize the importance of this Spending Review and criticize the Conservatives’ failure to conduct comprehensive audits for years.
However, procedural efficiency doesn’t always translate into effective politics. The modern spending review was conceived by Gordon Brown at a time of considerable government largesse.
New Labour had ample resources, and spending reviews served as opportunities to showcase this. In contrast, Sir Keir’s Labour faces fragile public finances.
Treasury sources argue, logically, that outlining long-term financial plans benefits departments and the public by providing clarity.
However, the Spending Review risks highlighting political divisions and cuts, overshadowing any positive aspects of Downing Street’s decisions.
“I don’t fully comprehend their rationale,” one insider comments, “perhaps it’s about demonstrating governance, but it merely imports poor decisions into No. 10 and 11.”
Front pages already reflect discontent, such as clashes between the Treasury and Angela Rayner, who will appear on the show tomorrow, along with Conservative leader Kemi Badenoch.
Like many significant political events, the Spending Review presents substantial potential rewards and risks, as the decisions will shape public services and the country’s fabric for years to come.
Moreover, money speaks volumes. The current financial choices will define the government’s political narrative.
Top images credits: Reuters, and PA / EPA – EFE/Shutterstock
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