Rachel Reeves detailed hundreds of billions of pounds of investment in projects to fix creaking infrastructure outside of London in a speech pointedly aimed at her Cabinet colleagues and members of her own Labour Party.
The Chancellor highlighted £15bn for new transport infrastructure across the north and midlands of England in a speech on Wednesday, saying there is “more to come” in the spending review next Wednesday when she will reveal how £600bn of annual spending will be split between departments for the next three years. She also said more pensioners will get their winter fuel allowance this winter.
The backdrop is a bitter behind-the-scenes battle with Cabinet colleagues who won’t settle on which programmes should be slashed from their budgets and her colleagues in the Parliamentary Labour Party who have spent the last six months grumbling about the choices she has made. As they complain she is “stubborn” for refusing to contemplate changing her fiscal rules, Reeves now tries to show her human side.
“Contrary to some conventional wisdom, I didn’t come into politics because I care passionately about fiscal rules,” Reeves argued. “I came into politics because I want to make a difference to the lives of working people.”
Reeves’s October budget, which hiked tax, coupled with a relaxation of the UK’s fiscal regulations, has provided an additional £113bn for investment. Next week will determine the allocation of these funds.
Paradoxically the Government is spending more overall. Big tax rises in the autumn have meant hefty cheques for public services, but because areas including health and defence are getting significant extra cash, there’s a tight squeeze on day-to-day spending more or less everywhere else.
Major departments, including Yvette Cooper’s Home Office and Angela Rayner’s Ministry of Housing, Communities and Local Government, have still not settled on an agreement for the spending even after the unofficial deadline expired last weekend.
“I have had to say no to things that I want to do,” Reeves added, warning that her Cabinet colleagues won’t “get everything they want” in the spending review next week.
Of all the members of Starmer’s Cabinet who have been buffeted since they took office, Reeves has received the most flak. There have been endless and wearying arguments in private – and, increasingly, in public – from Labour MPs who can’t or won’t accept that the bond markets simply won’t allow more Government debt without hiking borrowing costs. There are also those who accept the strictures of the gilt traders but want to tax the wealthy instead.
The Government set out new fiscal rules in October last year, which say the budget should be on course to be in balance or surplus – and financial debt should fall as a share of the economy – by 2029-30. The rules also put constraints on welfare spending.
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The Treasury is frustrated Reeves has not gained sufficient political credit for attracting additional investment, managed by changing those fiscal rules to allow her to borrow to invest – and shifting the definition of Government debt to offset financial assets owned by the taxpayer. On Wednesday she unveiled the extra capital spending after a review of the Treasury’s green book, which determines how officials calculate the costs and benefits of a scheme.
On Monday, Starmer stood in front of workers at BAE in Glasgow to set out defence spending. He was flanked by a redheaded woman in a boiler suit with a fabulous blow-dry who paid close attention throughout. By contrast in Rochdale at Mellor, an accessible bus manufacturer, Reeves drew the short straw. Behind her was a grumpy-looking bloke who stared at his shoes and couldn’t hide his boredom at the Chancellor’s words. Perhaps he wasn’t interested in the Metrolink tram extension to Stockport town centre. At one point he gave her side-eye, with enormous meme potential.
Referencing former Prime Minister Liz Truss’s 2022 budget that sent interest rates soaring, the Chancellor warned against “fantasy economics” and said, “No one should need to be told about the dangers of reckless borrowing for the financial security of ordinary families”.
“Fiscal rules are an indispensable safeguard for working people, and that is why my rules are non-negotiable,” she said. It’s ironic she was wheeling out the threat of a Truss-style meltdown when her popularity, according to the latest Ipsos poll, has declined to match that of her Tory predecessor, Kwasi Kwarteng, in the aftermath of that notorious event.
And while the fantasy economics line was partially aimed at Reform UK’s promised spending splurge, it was also a potshot at her own colleagues and their endless moaning. But the comrades don’t want to hear it; one of their biggest fears is a new wave of austerity will hand Nigel Farage power.
A Labour MP who has been campaigning in Scotland for the Hamilton Holyrood by-election said voters had been telling the party members knocking on their doors: “We’re Labour; why can’t you be more Labour too? That means higher tax of the wealthy and more spending.”
That somehow Labour has lost its values and sense of purpose is concerning other Labour MPs back at Westminster, as one explained to The i Paper. They said they’re concerned about planned welfare cuts and want the Government to do more for children in poverty.
“The Tories shipped out the capacity of the Treasury to deal with social policy and it didn’t get into other departments; it disappeared. The worry in the PLP [Parliamentary Labour Party] is that social policy has felt siloed from all the other things we are trying to achieve so a focus on the fiscal rules is met with an eye roll because we are not looking at how fiscal and social policy interact,” the MP said.
Reeves’s speech was nevertheless a good start at explaining some of the political trade-offs she believes are central to Labour’s project. It comes after the Government has suffered from a political narrative packed full of contradictions. It has simultaneously opposed tax increases while implementing them and hinting at more. It has criticised austerity measures while about to enact them. And, it has advocated for rearmament but won’t attach a spending figure to it, thereby indefinitely postponing its implementation.
Reeves’s spring statement was characterised by significant reductions to disability benefits. There’s no way she will want to go through that again. The Treasury is optimistic that the Chancellor’s expansive budgetary approach set out on Wednesday will be a defining feature of next week’s spending review.
But it’s a pivotal moment for Reeves as the allocation of Government resources will significantly influence the quality of public services and, consequently, voter satisfaction for the next few years. She doesn’t want her colleagues on the Labour benches to stare at their shoes and give her side-eye like the bus worker in Rochdale.
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