This spending review is a massive deal. It’s a massive deal because of the sums of money and capital the government is about to allocate – £600bn over the next three to four years.
But it is also a massive political moment as the Labour government tries to turn the corner on a difficult first year and show voters it can deliver the change it promised.
It is not, say No 10 insiders, another reset, but rather a chance to show ‘working people’ why they voted Labour. Look at the blitz of announcements over recent days, and this is a government trying to sell the story of renewal.
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On Tuesday, the prime minister and his energy secretary, Ed Miliband, announced the biggest nuclear building programme for half a century, with £14.2bn being poured into Sizewell C on the Suffolk coastline to create over 10,000 jobs over the next decade and provide energy security.
Last week, the chancellor announced £15bn for new rail, tram and bus networks across the West Midlands and the North. She’s also expected to green-light a new rail line between Liverpool and Manchester on Wednesday, and invest capital in housebuilding.
In total, there will be £113bn of additional capital investment, which the government will frame as the long-promised ‘decade of renewal’ around the three pillars of security, health and the economy.
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But that is only one half of this spending review and only one half of the story we will hear on Wednesday, because the largesse of the capital investment – which the chancellor will say is only possible because of the choices she made in the first year of government – will be matched with spending settlements for day-to-day spending across Whitehall that will draw into sharp relieve the choices and priorities for this government.
Security and health are two of her pillars, and it will be defence and health that will take a bigger share of the spending pot.
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Frustration in the Home Office
Having front-loaded day-to-day spending into the first and second years of this Labour administration, the overall pot will rise by 1.2 per cent in real terms every year for the rest of the parliament.
That is pretty modest growth and, bluntly, it means that if the defence and NHS budgets get a bigger share of the pot, there will be real terms cuts in some unprotected departments.
One to watch is the Home Office, where the home secretary was the last to hold out on a settlement and seems to have had it imposed on her by the chancellor.
Hers is a huge brief, spanning police – including the manifesto pledge to increase police on the beat by 13,000 – border security, immigration, and homeland security.
There is frustration in the Home Office that while ‘security’ is one of the government’s pillars, it is the Ministry of Defence that has been given the funding. If Yvette Cooper is to deliver on police numbers, what else might have to give?
Watch too for a squeeze on council budgets as the chancellor uses her capital budget to invest in house building, while day-to-day spending is squeezed across our councils, schools and courts.
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Reeves under pressure to boost spending
This is the rub. Rachel Reeves will insist on Wednesday that spending is rising by £190bn more over the course of the parliament, partly because of those tough tax rises in her first budget.
But largesse in capital investment won’t be able to disguise the short-term pressures on day-to-day spending from a Labour Party and a set of voters fed up with cuts and feeling like their lives aren’t improving.
The winter fuel reversal is the proof point. The chancellor, who will not loosen her fiscal rule of funding day-to-day spending through tax receipts, has to find £1.25bn to pay the allowance to nine million pensioners this winter.
She is also under pressure to lift the two-child benefits cap, with Liz Kendall, Bridget Phillipson and Sir Keir Starmer all thought to want this to happen. That will cost up to £3bn.
There is pressure to change the disability cuts in order to get the welfare changes through parliament.
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The point is that the chancellor is under huge pressure to lift spending, not keep her foot on its throat, and that means into the autumn, the clamour for targeted tax rises will only grow.
Can Reeves sell this government’s ‘renewal’ story?
But amongst the top team, there is some guarded optimism.
The political pain of the winter fuel allowance U-turn has eased the pressure on the doorstep: one very senior Labour politician told me this week that last weekend was the first time in a long time that the matter didn’t come up on the doorstep and “the first time in a long while that it felt alright.”
On Wednesday, there will be pain. The headlines will scream cuts and open up talk about tax rises that will run right up to the budget in October.
But it will also be a moment where this Labour government can show voters in the form of dozens of projects and thousands of jobs, that it does have a plan to rebuild.
Read more:
Guide to the spending review
Five things you need to know about the spending review
New nuclear power station gets green light
It is a spending review that will define Labour in power for the rest of this parliament and how our country looks and feels for years to come.
The political aim is to do enough – be it on hospital waiting lists, energy bills, wages, or shovels in the ground – to persuade voters at the next election to give Labour another chance.
For months, MPs have been quietly grumbling that this Labour government is in power without a story to tell. On Wednesday, we’ll see how well Ms Reeves can write, and sell, the next chapter.
