Can Reeves calm Labour's troubled waters with her spending review?

Independent

30-05-2025

The term 'fiscal event' hardly does justice to the significance of the government's comprehensive spending review, due to be published on Wednesday 11 June by the chancellor, Rachel Reeves. It's been in preparation more or less since Labour took office last July.
It matters at least as much as any Budget because it sets out broad public spending plans for each area of government. These cover planned investment and current spending in areas such as wages, but exclude cyclical items such as unemployment benefits. So they are a strong statement of the Labour government's priorities.
All the signs are that it's been a difficult process, and the leaks and the spinning have already begun.
What's the trouble?
Trying to balance the books (in reality borrowing huge but manageable sums) is the answer to that. In an environment of great global uncertainty, alongside sluggish UK growth thanks to Brexit, and in a country with an ageing population, Reeves's task is an unenviable one. In addition, she will have to balance the pressing political demands of colleagues with her determination to stick to her 'fiscal rules'.
Specifically?
At the moment, backbenchers in the red wall seats in the North and the Midlands that Labour regained from the Tories at the general election are pressuring the Treasury to pour billions into much-needed investment in infrastructure, to make the most of the industrial potential of these neglected areas. This would also, of course, have a helpful electoral benefit for those MPs who are facing a challenge from Reform UK.
Reeves has hinted that she could adjust her rules on investment spending to facilitate tens of billions to be devoted to levelling up the regions.
Sounds familiar?
Yes, indeed. Although Labour chooses not to use the loaded slogan 'levelling up' about 'left behind' communities, it is very much what Boris Johnson promised in 2019 and, for good and bad reasons, wasn't delivered as expected in the last parliament.
Before that, George Osborne, Tory chancellor from 2010 to 2016, talked ambitiously about devolution, the ' Northern Powerhouse ', and the 'Midlands Engine'. There was even a red wall caucus of Tory MPs, named the Northern Research Group (NRG), who lobbied hard for successive Tory administrations to live up to their promises (most of the NRG members have since lost their seats).
The ultimate symbol of Tory failure was the cancellation of the HS2 rail project, launched with so much hope by David Cameron but miserably dismembered by Rishi Sunak at the 2023 Conservative Party conference. In Manchester. In a former railway station. Now, exactly the same dynamic is operating within the Starmer administration.
There are some big personalities involved?
Yes: Angela Rayner, deputy leader and deputy prime minister, for one. Powerful as her office makes her, she also has an excellent case for expanding the 'affordable homes fund', because of the importance Labour placed on the housing crisis and its target of 1.5 million new homes to be built during its first parliament. This was always a tough one – so much so that it's been reported that Rayner threatened to quit in exasperation and Tony Blair had to persuade her out of it (a story she denies).
She is also surely right to get some adequate funding into local authorities before many more fall into chaotic bankruptcy, which would look like carelessness if not incompetence on the part of Rayner. Other ministers putting up a fight are Yvette Cooper at the Home Office, Ed Miliband (Energy), and Steve Reed (Environment).
Liz Kendall (Work and Pensions) and Reeves will also need to persuade their backbench colleagues to back whatever welfare reforms they eventually settle on – ideally, restoring the pensioners' winter fuel payment, lifting the two-child cap on child benefit, and ameliorating planned cuts to disability benefits. Defence and Health are the only areas likely to escape demands for 'efficiency savings'.
What can Labour backbenchers do?
The spending review is an odd beast, because unlike, say, a finance bill, it's not legislation and doesn't necessarily have to be voted on; and for that matter, a government doesn't have to stick to it (even if it wants to). It's just a 'plan', a statement of intent, and a series of signals about priorities. But some sort of backbench rebellion seems inevitable, even among the usually loyal 2024 intake, even if only by proxy.
At a minimum, they will certainly expect some signs of the imminent restoration of the pensioners' winter fuel payment – the cutting of which was hated by the voters and would have saved little money – and on progress to end child poverty.
Will there be resignations?
There's talk of Rayner being pushed to the limits of her patience, again, and her resignation would be cataclysmic. However, in most cases of a politician wrestling with their conscience, their conscience usually loses.
Rayner would not be thanked for abandoning the administration less than a year into its life. Even worse, as the party is already suffering in the polls, she would thereby be hastening the onset of the ultimate catastrophe – a Farage-led government. She would attract at least as much scorn and blame for that as she would gain respect for standing up for working people, or whatever.
She might, as others have in the past, improve her chances of winning the leadership in due course by making a tactical move to the back benches now, but she's said she's not interested in the top job, and her treachery would probably cost her dear in any case. Having come this far, she'll most likely stick with it.
Others, maybe some more junior ministers with an eye on the long game, might decide to leave office 'on principle'. But this would not affect the outcome of the spending review, which is ultimately going to be more cuts.