Rachel Reeves is undermined by a ‘spend now, pay later' prime minister

Independent

07-06-2025

The spending review will be mostly about making explicit bad news that has not yet been spelt out. The total for planned public spending over the next three years has already been set: what Rachel Reeves will announce in the House of Commons on Wednesday is how much has been allocated to each department.
Hence the distraction of announcing capital spending projects around the country, as Reeves did on her trip to Rochdale this week. Perhaps she was hoping that the short attention spans of journalists meant that they had forgotten she changed her fiscal rules in the Budget in October to allow more capital investment. That was when she sensibly excluded investment that will earn a return from the annual limit on how much the government can borrow.
She did win some headlines this week about 'tearing up the rule book' to invest in transport projects outside the south-east, although some journalists with longer memories – or better internet search techniques – did point out that the projects she announced were identical to those unveiled by Rishi Sunak two years ago.
None of them will even start until 2027, so there will be no actual new roads or trams before the next election, but Labour MPs in the relevant places will at least have something to put on their leaflets.
Another part of the spin cycle before the spending review is confirmation that NHS spending will rise by 2.8 per cent a year more than inflation over the three-year period. This is not enough to ensure that Wes Streeting will hit Labour's target of treating 92 per cent of patients within 18 weeks by the end of this parliament, but Ben Zaranko of the Institute for Fiscal Studies, otherwise known as the Source of the Impartial Truth, described it as 'a serious, meaningful increase in health funding'.
Outside the NHS and defence, however, the spending review is a wasteland of tough choices.
Reeves wrote an article for The Independent on Thursday defending her decisions as 'Labour choices'. But the essential fact of the review is that nothing has changed. It will simply become clearer, when the chancellor addresses the Commons on Wednesday, how tough some of those choices are.
She and Starmer are trapped in the same positions that chancellors and prime ministers always find themselves in. No 10 always wants to spend more and No 11 always has to say no. The personal relationships are different, but the underlying tension is always the same. Starmer and Reeves work well together. They are not friends, as David Cameron and George Osborne were, but neither are they dysfunctional rivals like Tony Blair and Gordon Brown.
They occupy a middle position: Starmer does not think that Reeves is after his job, and Reeves knows that she is secure because it would be disastrous for Starmer to move her – sacking his chancellor would in effect be admitting that their joint strategy was a mistake.
But the underlying tension, baked into the British constitution, is still there. When the prime minister last month announced the U-turn on the winter fuel payment, Reeves allowed it to be known that she had suggested it first. That is presumably what the papers will show when they go to the National Archives, but the reality is that the pressure came from No 10 and she bent to it.
The retreat from the two-child limit on benefits was messier, but the shape was the same. Starmer wants to appease the opposition, from both Labour MPs and Nigel Farage, and expects Reeves to find the money.
For all that Starmer attacks Farage for his unfunded fantasy tax cuts and spending promises, the prime minister is engaged in a bit of low-level Trussonomics himself, making promises without knowing how to pay for them – and hoping that the chancellor can sort it out later.
No one has the faintest idea how she will do it. She is going to find herself trapped. On Wednesday she will set out spending choices that will please no one, setting up the long wait until the Budget in October or November, in which she will have to deal with the growing gap between expected revenue and the spending plans that she has just laid out.
The prime minister has helpfully ruled out tax rises. He said on Monday: 'I don't think you can tax your way to growth. We have high tax as it is.' But on Wednesday the chancellor will by implication be ruling out spending cuts – or what is the point of announcing spending plans for three years if you are going to change them just four or five months later?
It is beginning to look as if the government's plan is to cross its fingers and hope for a miracle. Morgan McSweeney, the prime minister's chief of staff, has had some success in ensuring message discipline, getting all ministers to repeat the phrase 'the Plan for Change' as often as possible.
By the time of the Budget this autumn, however, the slogan might be that it is time for 'a Change of Plan'.