With the dust settling on the details of Rachel Reeves’s Spending Review, a clear picture of what she has decided for the nation’s finances is swiftly coming into view. The Chancellor yesterday declared herself “disappointed” that the economy shrank by 0.3% in April. Her gamble, as it was at the election nearly a year ago, is growth, and that is just not coming at the rates Labour needs it to to justify her decisions.
This is a classic tax and spend set of economic decisions by Labour. The Chancellor hopes large infrastructure programmes, including building many of the homes Britain badly needs, will reap this economic growth and therefore political rewards for the Labour government. The problem, as always, will be paying for it.
Public spending is only created in four main ways: borrowing, moving it from other pots, growth and taxation rises. It is difficult to see how tax rises will not follow in the autumn as a result of what Reeves has laid out this week, unless substantial growth happens in a very short period of time. This huge growth required has so far not happened under Labour. Questions remain about how, for example, the u-turn on the winter fuel allowance will be paid for, and how the government can pay for the lift of the child benefit cap. This will need to be answered in the Budget in a few months time, some of which will be contrary to what the 2024 Budget promised.
Reeves admitted that people are “yet to feel the benefit” of a Labour government. That is true, with the party’s drop of around ten percentage points in many polls over the course of a year bearing witness to this. Similarly, a poor showing in the recent local elections suggests many feel there is not much to be grateful for from this government, although a better and fairer picture will emerge in May’s elections to both councils in England and the Scottish Parliament and Welsh assembly. The Conservatives have seen a similar drop in their polling, languishing at 16 per cent in some polls.
It is striking, in this context, that Reeves talked about “the parties opposite” in the plural rather than the singular. The threat from Reform UK is clear, with Reeves singling out Nigel Farage for personal criticism from the despatch box. She also mentioned Farage’s “£80bn of unfunded spending”, a figure he would dispute. But the fact is Labour sees the threat from Reform UK and it is clearly greater than from the official Opposition. This asymmetric opposition threat is a challenge for Labour, which is forced to govern via a set of established principles and processes.
Farage talks about fairness, value for money and government working for the people, rather than ignoring them as he alleges Labour does. His message is getting through to at least some extent. Reeves needs to assure people the Labour government is on their side and the substantial amount of tax paid – the highest as a proportion of what the country makes since World War Two – is worth it for many ordinary people who cannot get a GP appointment, a decent home, a school place for their child. It is only when these basic points change that people will feel as if Labour is on their side when it comes to public services, although there has of course been some improvement in NHS waiting times which has transformed care for many. This type of progress needs to be replicated in other public services.
More granular detail of the Spending Review has been set out by my Atticus colleagues. What those figures show is a focus on healthcare, defence and infrastructure. But the type of substantial change Reeves’s vision indicates will take time, and whether the benefit will be felt by 2029 is questionable. And that uncertain picture is the reality the government must face as it continues to govern, and campaign, in the meantime.