The upcoming days are critical for the Labour government – a pivotal moment to demonstrate political credibility to disillusioned voters, according to a senior figure.
Intense internal disagreements have marked the lead-up to the imminent Spending Review.
At the time of writing, the Home Secretary and Deputy Prime Minister remain locked in negotiations with the Treasury over budget allocations.
Meanwhile, the Treasury is proactively framing the review as a substantial investment initiative.
On Wednesday, Rachel Reeves announced billions in additional funding for major transport projects outside the affluent South East, leveraging adjusted Treasury regulations to achieve this.
With five days remaining, access has been granted to preview information from Wednesday’s review.
A key chart, slated for inclusion in the comprehensive document set for printing Tuesday night, details the Total Departmental Expenditure Limit (TDEL).
This encompasses all government spending, including routine public service operations and long-term project investments.
However, it excludes unpredictable costs such as pensions, benefits, and debt servicing.
Spanning 2010 to 2030, the chart illustrates spending trends across different administrations: a decline during the coalition years, followed by increases post-Brexit and during the Covid-19 pandemic.
Under Labour, spending initially rises sharply, then moderates towards the end of the parliamentary term.
Projected total real-terms spending by 2029-30 exceeds £650 billion – approximately £100 billion more than when Labour assumed office.
A comparison line shows projected Conservative spending had they remained in power.
The current government is keen to avoid accusations of austerity, and this chart highlights considerable spending increases compared to previous lean years.
While political debate around spending is inevitable, the Chancellor’s autumn budget indicated forthcoming increases.
Expect the government to emphasize significantly higher spending compared to the Conservatives’ plans under Rishi Sunak.
Conversely, the opposition might highlight the steep upward trajectory of the red line, portraying public spending as spiraling out of control.
The chart undeniably shows substantial spending increases. However, it lacks crucial detail on spending allocation. Significant portions will be directed to favored departments – for example, recent reports suggest an additional £30bn for the NHS.
Moreover, a considerable share of the increase funds long-term projects, rather than addressing immediate needs within struggling public services.
While the overall figure is substantial, some government departments will receive substantial funding, leaving others facing continued constraints.
Currently, the Home Office is disputing its allocation, citing insufficient funds for promised police numbers, while the NHS secures another substantial deal.
Therefore, a crucial caveat: the chart provides a framework for the Chancellor’s political argument.
However, it omits the full picture and lacks department-specific breakdowns.
The unusual pre-release of this data might indicate apprehension within No. 11 regarding the review’s reception.
A comprehensive understanding of the Spending Review will emerge only after the Chancellor’s speech and the release of the full documentation on Wednesday.
Subsequent analysis from government bodies, the Office for Budget Responsibility (OBR), think tanks, and experts will follow.
Three key takeaways: Rachel Reeves will allocate substantial funds (tens of billions) to long-term projects; short-term spending will be constrained; and the government’s low popularity necessitates a persuasive narrative to shift public perception.
Following Labour’s first budget, internal government assessments highlighted the need for a revised approach: “We can’t ever do it like this again.”
A source recalled: “It was a very brutal exercise – purely about balancing the books, lacking a cohesive strategy for prioritization.”
Alongside increased NHS funding, the unexpected business tax increase caused significant concern. A repetition is to be avoided.
The current review, according to a Labour source, might prove “painful as hell”.
The challenge for a government facing low approval ratings is to transcend the purely numerical aspect, leveraging public funds to shape and win the political narrative.
Expect Rachel Reeves to frame her first budget as “fixing the foundations,” with this review initiating the “rebuilding” process.
Sources suggest her priorities include national security (justifying defense spending), national health, and long-term investment.
The Spending Review will be followed by an industrial strategy promising business support, potentially including energy cost relief.
This follows significant policy announcements: the immigration white paper, trade deals, and the defense review.
Government sources hope to counter criticism of slow progress, addressing perceptions of a lack of clear direction under Sir Keir Starmer.
A Whitehall insider commented, “Now everything’s happening at once – perhaps the perception of a lackluster government lacking a plan will be dispelled by July?”
Another Labour source suggests the pressure from Nigel Farage has spurred decisive action: “Reform gives us the impetus to actually shake this stuff down.”
This optimistic view might not reflect reality. Implementing cuts remains deeply uncomfortable for a Labour government.
Ministerial welfare plans are already facing potential rebellion. Expanding free school meals might appease some critics, but further dissent is possible.
Reeves must also consider multiple audiences: the public, her party, and financial institutions.
Last year, she enjoyed positive reception in the City. However, the autumn budget has shifted this sentiment.
According to a City source, the autumn budget “damaged her. People saw it as an about-turn on her promises. Raising National Insurance, however they want to present it, went against the spirit of the manifesto… confidence in her in the City is diminished and diminishing”, particularly given rumors of further tax increases.
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Government tax revenue is historically high.
Government debt is also exceptionally high. A former Treasury minister stated, “debt is the central issue of our time, nationally and globally”.
“There is a real risk our debt becomes unsustainable this Parliament, unless we make tough choices about what the state does. We can’t keep on muddling through.”
Global economic uncertainty, further complicated by the US administration’s actions, adds another layer of complexity.
However, politics often involves capitalizing on adversity. Polling indicates widespread public perception that Labour inherited a difficult situation and has mishandled it.
This week presents the Chancellor with an opportunity to shift the narrative. No. 11 aims to showcase distinctive Labour policy decisions.
Reeves is betting that substantial long-term investment will yield economic and political benefits before the next general election.
A senior Labour source stated that Wednesday will be a defining moment: “the moment, this government clicks into gear, or it won’t”. The outcome remains uncertain.
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