The winners and losers in Labour's first spending review
They will argue that cash, freed up by the change to the fiscal rules in the budget, could only have happened under Labour and was opposed by the Tories and Reform.
But the capital spending cannot stop expected cuts in day-to-day spending, meaning extremely tight settlements for departments, with savings expected from policing budgets, local government, civil service cuts, foreign aid, education and culture.
Treasury sources said they would still spend £190bn more over the five-year parliament than the Conservatives' spending plans – meaning more than £300bn will be distributed among departments.
Real-terms spending will grow at an average of 1.2% a year over the three years that the spending review period covers, a significant drop from the first two years when it will be 2.5%.
Even that figure does not tell the full story because of the disproportionate boost being given to defence and the NHS – and has led the Institute for Fiscal Studies to warn that the spending commitments will require 'chunky tax rises' in the autumn, when coupled with other expected priorities such as restoring the winter fuel allowance to more pensioners and action on child poverty such as ending the two-child benefit limit.
Here are some of the key offers from the spending review – and the rows over cuts.
The biggest row of the spending review has been between Reeves and the home secretary, Yvette Cooper, over policing, which one source describes as being a 'huge headache'.
Cooper has brought out the big guns to make her case, first with a letter from six police chiefs who warned that without more funding the government would not meet its manifesto promises on crime. Sir Mark Rowley, the head of the Metropolitan police, and other senior police officers have also written to the prime minister to warn him that investment was need to prevent some crimes being routinely ignored. It is understand the policing budget will not face real terms cuts but the level of spending is still under discussion.
The Home Office is under strain as a major spending department that is key to some of the most ambitious manifesto pledges – including halving knife crime, police recruitment, reducing violence against women and girls as well as dealing with monitoring offenders who will be released earlier due to sentencing changes.
The other major spending review row is over deep dissatisfaction from Angela Rayner – the deputy prime minister and housing secretary – with the level of funding for social homes in the spending review, making her one of the last remaining holdouts in negotiations with the Treasury over departmental spending settlements.
The Ministry of Housing, Communities and Local Government has been battling for more funding for the affordable homes programme as well as trying to preserve cash for local councils, homelessness and regional growth initiatives.
The Treasury had previously put £2bn into affordable housing, described as a 'down payment' on further funding to be announced at the spending review, which Reeves said would mark a generational shift in the building of council homes.
However, the next phase of funding has caused a major rift with Rayner – and more so because capital spending on infrastructure such as housing is meant to be a priority.
The environment secretary, Steve Reed, is said to have been holding out for a big capital injection to fund flood defences. The autumn budget said the government was facing significant funding pressures on flood defences and farm schemes of almost £600m in 2024-25, and that those schemes would have to be reviewed for their affordability.
Sources at the Department for Environment, Food and Rural Affairs (Defra) confirmed a post-Brexit farming fund would be cut in the review. Labour promised a fund of £5bn over two years – from 2024 to 2026 – at the budget, which is being honoured, but in the years after that it will be slashed for all but a few farms.
The energy secretary, Ed Miliband, had a long fight to keep cash for a major programme of insulation, which was a key part of the government's net zero strategy. However, there are reports suggesting other schemes could be scaled back to protect the insulation programme.
At the October budget, Reeves announced £3.4bn over three years for household energy efficiency schemes, heat decarbonisation and fuel poverty schemes. The government responded to concerns expressed at the time calling the sum the 'bare minimum' and promising a spending uplift at the review.
Miliband's department is expected to get significant capital investment in energy infrastructure including nuclear – with the government poised to give the go ahead to the Sizewell C nuclear plant.
The chancellor has already announced £15bn in transport spending across the north of England, funds which she said fulfil promises made by the Conservatives to the country but which the party had no way to pay for them in its own plan.
Wes Streeting's department is set to be one of the big winners of the spending review and it will lay the groundwork for the NHS 10-year plan, which will be published imminently after the spending review. The department will get one of the biggest boosts to funding as others face real-terms cuts.
The funding for the plan prioritises three key areas, moving care from hospitals to communities, increasing the use of technology, and prioritising prevention.
No 10 and Streeting hope that the 10-year plan will contain major commitments and a positive story that the government will finally be able to tell properly on improvements to the health service – though any good news could be scuppered by the ballot for strike action by resident doctors.
Still, Streeting's department was one of the last to settle formally with the Treasury due to negotiations over drug prices, though departmental sources downplayed any specific row.
Any child in England whose parents receive universal credit will be able to claim free school meals from September 2026, the government has said. Parents on the credit will be eligible regardless of their income. The government says the change will make 500,000 more pupils eligible.
A Department for Education (DfE) source said it was the best measure outside welfare changes to address child poverty and that the education secretary, Bridget Phillipson, had consistently fought to protect school food programmes through each round of spending negotiations.
But schools budgets will be squeezed. Teachers will get a 4% pay rise next year, with additional funding of £615m. But schools will still have to fund about a quarter of the rise themselves – a total of £400m from their current budgets.
Phillipson has tasked the DfE with finding savings in schools budgets, such as energy bills.
Savings will also come as the government is removing public funding for level 7 apprenticeships, which has drawn criticism from skills experts.
The justice secretary, Shabana Mahmood, was one of the first to reach her settlement to allow her to announce a £4.7bn plan to build three new prisons starting this year, part of a 'record expansion' as the government attempts to get to grips with the prison crisis.
The early announcement was essential because it came alongside an announcement that the government would put a limit on how long hundreds of repeat offenders can be recalled to prison amid Whitehall predictions that jails will be full again in November.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Independent
20 minutes ago
- The Independent
Business news live: FTSE 100 latest as Diageo report profits and UK strikes £19m pork deal with Mexico
Stock markets rose in the UK and the rest of Europe on Monday, as investors sought to buy back in following last week's falling share prices on the back of Donald Trump 's latest tariff announcement. The FTSE 100 enjoyed a rise of 0.4 per cent before US stocks followed suit to move higher - though Switzerland's index took a hit due to the unexpectedly high tariff placed on the nation. Elsewhere, mortgage rates are starting to hot up again in anticipation of an interest rate cut from the Bank of England later this week. The likes of Nationwide and Barclays have been reducing two- and five-year deal terms, with hundreds of thousands of homeowners still set to renew their deals this year. Meanwhile, the UK has agreed its latest trade deal with Mexico - albeit a more limited one surrounding pork products, worth an estimated £19m across five years.
Telegraph
21 minutes ago
- Telegraph
‘I paid £50k for my degree – now I'm on Universal Credit'
Those fresh out of university are used to hearing the question: 'What's next?' Yet for more and more graduates, the answer is a seemingly endless job search and – depressingly – an application for benefits. There are more than 630,000 graduates claiming Universal Credit, according to data released last week by Parliament. This number, which is equal to more than one in nine of all those claiming, represents graduates of all ages – not just those who have recently left university. However, the growing number of benefit-claiming graduates underlines how difficult the job market is for young people. Graduate unemployment rose between 2023 and 2024, according to the latest Government data. Those entering the job market say they face an increasingly dehumanising experience where they are being rejected by AI bots before ever speaking to a human. Graduates told The Telegraph that they'd been left with no choice but to move back into their parents' homes, take unpaid internships, and in some cases apply for benefits – as they face a tightening jobs market. Serena, is on universal credit after graduating from the University of Warwick in 2023. The 23-year-old, who amassed over £50,000 in student debt from her undergraduate course, originally wanted to work in marketing, and has had some freelance roles. She is currently applying to any job advert she sees. 'The Jobcentre is one of the most demoralising places. They are meant to help and support you getting into work, but they really don't do that. 'A lot of the time I go in for my five-minute appointment, and they say: 'How's the job search going?' And I say, 'Yeah, I've applied for all of these, but I've not got anything,' then they say, 'OK, we'll see you next week.'' 'A little bit of extra money to help' Serena, who moved back in with her parents in west London, says that a number of her friends are in a similar situation. 'I was one of the first [of us] to realise that university graduates can get universal credit. We didn't realise it was a thing, so I got a lot of my friends to apply for it as well. It's a little bit of extra money to help us.' She adds: 'My friends and I are all struggling to find jobs post-university. It took some of my friends a year to even find short-term or part-time jobs. I got rejected from Wetherspoons, and I have two years of bartending experience. 'I don't even know what companies are looking for at this point.' Companies have become less keen to hire graduates – who have previously been seen as cheap labour with high potential. Data from jobs platform Reed shows that vacancies for graduates – typically at the bottom rung of the ladder – have almost halved from 7pc of total available jobs in 2018 to just 4pc now. According to Indeed, graduate job postings in the 12 months to June are down 33pc compared to a year earlier. The shift is being accelerated by artifical intelligence (AI). Dario Amodei, chief of AI firm Anthropic, has warned that half of administrative, managerial, and tech jobs for the under-30s could vanish before the end of the decade. The employment rate for graduates aged between 21 and 30 dropped from 87.2pc in 2023 to 86.5pc in 2024, according to the latest government figures. 'A never-ending cycle' Sofia, another 23-year-old living in London with her parents, is also struggling for employment. She studied at the London School of Economics, and graduated in 2023. Having done a finance internship as a student and not enjoyed it, she decided to chase her dream of being a journalist. She's now applied for hundreds of jobs. But she has repeatedly been told that she doesn't have enough experience – even for internships. 'It's honestly just a never-ending cycle. The way to get experience is by doing things for free,' she says. 'I don't even bother with entry-level jobs. I apply for internships, grad schemes – things which are really aimed at my level. 'If you do even get a rejection, that's nice.' Sofia says that she's been offered a volunteer role at a local radio station. The catch? She'd have to pay £10 a month to the station to do it. Last September, more than a year into her search, she applied for Jobseekers' Allowance. She says: 'I had the Jobseekers' Allowance, which is only for six months, and it didn't help me get a job.' The benefit pays as much as £72.90 a week for those aged up to 24, and up to £92.05 for those over 25. Those out of work, or on less than 16 hours a week, are eligible as long as they have paid Class 1 National Insurance in the past two to three years – and it can be claimed alongside Universal Credit. How much a claimant gets is dependent on their circumstances. In the meantime, Sofia has been tutoring for an hour a week online and working in retail to try to make ends meet. She is considering going back to university for a master's degree to help her get more experience. 'I was lucky enough that my parents were very much like, 'You go after what you want.' They could see I was putting in all this effort, using all of the resources that I have,' she says. 'You really just have to have the odds in your favour. No matter how special you think you are, it's not going to affect anything.' Nicholas Stephenson, a recent graduate and researcher at think tank Onward, says: 'This is increasingly a problem affecting graduates – regardless of university, degree or classification. 'I know Biomedicine, Physics, and PPE graduates from Russell group universities who are still searching for a job a year after graduation and can't even secure anything part-time, leaving them with no choice but to go on to Universal Credit.' Stephenson adds that where there are surpluses of young people, retailers and fast food outlets are inundated with job applications. He says: 'A single opening for a sales assistant my friend applied for received over 500 applications and held a group interview with nearly 50 candidates. 'It's so bad that even charities are ghosting people trying to gain some experience through volunteering.' 'I'm not desperate enough' Some have decided not to take benefits and to instead rely on their family, or whatever income they can scrounge together. Another 23-year-old graduate based in Hampshire, who did not want to be named, said: 'I haven't taken Jobseekers' Allowance, because I've had freelance work to tide me over. The way that my life is set up, I don't feel like I am someone who should be taking Jobseekers' Allowance at the same time, because I don't think I'm desperate enough.' Emily, another graduate avoiding claiming benefits, graduated from the University of Glasgow last year. Despite having experience as a student journalist, she failed to land a postgraduate role in the media or public relations, so she's taken a job working in a call centre. However, she says that a number of friends who are in similar positions have been forced to claim either the Jobseeker's Allowance or Universal Credit. Emily adds: 'I have applied for hundreds of roles since before I graduated. The way applicants are treated by these companies is disgraceful. We go through three or four stages, jumping through every hoop, to not even be sent a courtesy rejection email or feedback on where we went wrong. It's really dehumanising.' The pressure of finding a job as a graduate is high for these young people. Serena wants to live up to the expectations she has for herself – and to build a life of her own. She says: 'It feels disappointing. Especially being the first to go to university in my family, you have these expectations put upon you that you go to university and then you're going to get a good corporate job and earn a good salary, and live that life. 'It can be quite disheartening. I want to be able to build a life.'
Telegraph
21 minutes ago
- Telegraph
Labour is borrowing against our children's futures
Much of the debate about our public finances is intensely short term. The in-vogue concern at the moment is the fiscal 'headroom' that each Chancellor has to work with – that is, the buffer between their spending plans and the fiscal rules they set for themselves. Rachel Reeves appears to have cut hers so fine that someone sneezing in the Treasury could blow her off course. As it happens, increased borrowing costs and the Government's inability to bring limited reforms to the welfare system means it is highly likely that tax rises are on the way in the autumn, as the Conservatives have been predicting since the general election. But even this will do little to change the fundamental economic picture. The truth is that we live in an age of fiscal irresponsibility, where governments increasingly look to pass the burdens of the present onto the future. That even this short-termist strategy now seems to necessitate desperate tax rises should concern us greatly. In July, the Office for Budget Responsibility published its fiscal risk and sustainability report. For a technical document, it did not mince its words. Britain's deficit is the third highest amongst advanced European economies. Its debt level is the fourth highest after only Greece, Italy and France. Efforts to make our public finances more sustainable have met with only 'limited and temporary success'. There has been a 'substantial erosion of the UK's capacity to respond to future shocks and growing pressures on the public finances', and the scale and array of risks to the UK fiscal outlook is 'daunting'. The most serious liabilities Britain faces are not so much to do with day-to-day spending decisions as they are about the chronic, structural issues with our economy and the state's role within it. They include an unfunded state pension which is designed to increase exponentially over time, even as the number of working people paying for it shrinks, the levels of public spending on healthcare, which is set to rise to more than a fifth of GDP by 2070 (we now already spend more on health than the entire Portuguese economy), and a welfare system that will see us spending £100bn per annum on health and disability benefits as early as 2029-30. What makes these vast financial commitments 'irresponsible', however, is the way we are currently funding them: that is, increasingly by borrowing from the prosperity of future generations. The national debt already stands at about 100 per cent of GDP and is forecasted to grow to over 270 per cent by the 2070s. Even this does not fully factor in the vast state and public sector pension liabilities for the British state – which some commentators argue increases the total outstanding liabilities to some £11tn, or four times the size of the economy. Instead of making tough decisions on spending and taxation today, we are passing on the financial obligations to the taxpayers of the future, who will face higher debt servicing costs. Labour is in a bind. It won't – or can't – take on the responsibility of reducing the welfare bill. It is changing the way the government measures debt, not to give a better picture of the public finances, but simply so it can borrow more. Yet the costs of borrowing have risen to the third highest of any developed economy since it entered office. And so it is being buffeted towards raising taxes to pay for a totally unaffordable level of public expenditure. Some on the Left suggest that this is its own form of fiscal responsibility. But this fails to recognise that higher rates will harm the ultimate source of tax revenue, which is a productive economy. Reform isn't much better. They spy an opportunity to attract voters in the so-called 'upper Left' quadrant on the political spectrum – those with socially conservative but economically statist views and values. They advocate for tighter borders, but greater state involvement in the economy and more generous welfare spending. Cobbling together economic policies based simply on what is most likely to attract a particular section of the British public in the next election, however, is the very same political problem that has gotten us into this mess. So there's a gap in the political market. But if the Conservatives wish to be the party that the public trusts to restore the public finances, they will have to offer a drastic change to the status quo. And that will mean making some far harder decisions than those to which they have committed so far. Firstly, a truly fiscally responsible government would need to reverse a long-standing policy of seeking to take people out of paying tax. Before the post-2020 phenomenon of 'fiscal drag' – in which people were dragged into paying more tax by the combination of frozen thresholds and inflation – Conservatives bragged about taking people out of paying income tax altogether by increasing the personal allowance. We need a complete about-turn in this approach. It is the definition of fiscal irresponsibility to have more and more people benefiting from a system which they do not have a stake in financing. And it's bad politics. To generate a coalition in favour of lower tax rates, we need more people with a stake in sustainable public finances. Secondly, indexing benefits so that they cease to bear any relationship with our ability to pay for them is indefensible. When it comes to the state pension, there is no fund into which savings are built up for an individual worker. Current pensions are being paid for by those in work, and the triple lock introduced in 2010 means its funding requirement is always ratcheting upwards. This needs to be scrapped, a more proportionate index for the triple lock introduced, and efforts to increase private retirement savings radically boosted. Finally, the Conservative articulation of fiscal responsibility cannot come down on the side of raising taxes to accommodate high expenditure, as Labour have proposed. It must do the reverse. In particular, we must level with voters on the NHS. It is not the envy of the world. In fact, on metrics like healthy life expectancy, the only worse system is the US's model of fully private insurance. And it is cripplingly expensive. Again, the only less affordable system in the world is the American. The Dutch and Singaporean models suggest ways to improve both affordability and health outcomes. Fiscal responsibility is a signal. Balanced books, a lower debt burden and a smaller state demonstrate a commitment to the view that the centre of economic life ought not to be at the level of government but in the private, wealth creating sector. But it is not simply about balancing the books year to year. A Conservative Party wishing to present itself as the only force in British politics willing to make the necessary decisions in the cause of long-term prosperity must also address a short-termism which is driving us towards an economic iceberg, and sapping tomorrow's workers of their purchasing power. That means disavowing some policies with which it has been associated for far too long.
