Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Rachel Reeves is facing a showdown with four leading cabinet ministers as her spending review goes down to the wire, in spite of allies’ claims that the chancellor is increasing spending by £300bn over the parliament.
Angela Rayner, deputy prime minister, is fighting to defend housing and local government budgets, while Yvette Cooper, home secretary, is trying to bolster police spending to meet Labour’s crime-cutting “mission”.
Meanwhile government officials confirmed that Ed Miliband, energy secretary, and Bridget Phillipson, education secretary, are yet to settle their budgets, even though final decisions will be announced on June 11.
Miliband is locked in one of the biggest struggles with the Treasury, including over funding for the “warm homes” insulation plan, carbon capture projects and GB energy, the new state energy company.
Allies of Reeves said that the “vast majority” of Whitehall departments had now settled their budgets for the next three years, leaving those ministers holding out for better deals fighting over a diminishing pot of money.
But the chancellor’s critics inside government said Reeves and “accountants” at the Treasury were now setting government policy, ignoring the “missions” set out by Sir Keir Starmer in Labour’s election manifesto. “It’s mad,” said one official.
They argued that because the Treasury has settled budgets with lower priority departments, it was now arbitrating on financial trade-offs between areas such as education, police, housing and green energy programmes.
That view is not shared in the Treasury, which argues that Reeves is not the austere chancellor portrayed by some Labour MPs and that she has already loosened the purse-strings to a great extent.
“Within this spending review there is £300bn to be distributed between departments because of decisions taken by the chancellor in last year’s Budget,” said one Reeves ally.
Reeves’ Budget last October loosened fiscal rules on capital spending, allowing the chancellor to distribute £113bn over the rest of the parliament for roads, railways, green energy and other infrastructure projects.
Meanwhile Reeves’ team say that she will also spend £190bn more on day-to-day spending over the five-year parliament than the Conservatives had planned. Her Budget in October increased taxes by £40bn a year and added an average £28bn of borrowing every year over the parliament.
“The message at the spending review is we will be investing in Britain’s renewal,” said the Reeves ally. “We will be investing in the country’s security, health and economy.”
Reeves is under pressure from Labour MPs to raise taxes or relax her borrowing rules to permit more spending, but the chancellor will insist she has already presided over a considerable fiscal loosening.
Labour MPs are being invited in to see Reeves and her deputy Darren Jones in the coming days to be given “good news” about how some of the £113bn of multiyear capital spending will be allocated, according to one official.
The Treasury is also rewriting its “green book”, the framework for assessing the value-for-money of public projects, to ensure that more cash is allocated to less “productive” regions beyond London and the south-east.
