When Rachel Reeves last week tried to shift the narrative around her spending review – from one of fiscal restraint to ‘spend, spend, spend’ – she ‘unveiled’ £113 billion in infrastructure investment. But for those in Westminster with more than a short-term memory, they will have felt a distinct sense of déjà vu.
That’s because much of what Reeves announced had already appeared on gov.uk more than 18 months ago. These were Conservative plans, shelved for the election, now revived under a different party banner.
Last week, Rachel Reeves announced £1.5 billion in funding to improve trams and buses in south Yorkshire. Eighteen months ago, the plans for south Yorkshire stood at £1.5 billion. In Liverpool, it’s the same story: £1.6 billion then, and £1.6 billion now. The pattern repeats across the north-east, the west of England, and the Tees Valley with identical sums, unchanged from what the previous Conservative government had already put on the table.
And that’s what’s striking about this spending review: how closely Labour’s plans echo those of the Tories. Before the election, the Institute for Fiscal Studies pointed this out. Over the next three years, the Conservatives had proposed a 0.9 per cent increase in total spending; Labour had pledged 1.2 per cent. In protected areas, the plans were nearly identical: NHS England would receive a 3.6 per cent boost under both parties, the Foreign Office 1.8 per cent, and childcare entitlements around 30 per cent.
Where Labour slightly diverged was in the scale of cuts to unprotected departments. Labour pledged a 1.6 per cent real terms cut, compared with the Tories’ 3.4 per cent. Still, both parties foresaw a contraction in key areas of the state.
A year on, we now have a clearer picture of what that shift means in cash terms. Figures released to the BBC over the weekend show Labour plans to spend £190 billion more over the remainder of the parliament than the Conservatives had pencilled in. On paper, it's a significant increase. But once you account for inflation and pre-existing commitments – particularly in health, defence, and education – the headline number shrinks fast. Day-to-day, or current, spending will rise by just 1.2 per cent in real terms. That leaves little room elsewhere, and for unprotected departments, it likely means real-terms cuts of over 1 per cent. In effect, not far off what a Conservative chancellor might have delivered.
Another feature of the review is how much resource spending – not just capital investment – is being branded as new when, in reality, much of it had already been pencilled in. Worse still, some of the so-called new money actually represents flat budgets or even quiet real-terms cuts.
Take the recently announced £86 billion ‘boost to science and tech to turbocharge the economy.’ As economist Julian Jessop has pointed out, this figure isn’t new money at all. It’s a cumulative total of all potential government spending on R&D over four years, including academic research grants, which may or may not end up being spent. Broken down, it’s around £22.5 billion annually by the end of the decade. But even that’s misleading: the figure doesn’t account for inflation, which erodes its real value significantly. Once you adjust for price rises, and consider that the government was already spending around £20 billion a year on R&D, the actual uplift is likely marginal. In fact, by the end of the decade, research spending could be falling as a share of GDP.
Jessop also casts doubt on the NHS numbers. The £30 billion headline increase in health spending, trailed heavily over the weekend, once adjusted for inflation, shrinks to around £17 billion. That’s actually less than what the Office for Budget Responsibility had forecast back in March. In real terms, it equates to an annual increase of roughly 2.8 per cent. Yet in the OBR’s own words, spending on NHS England was already projected to grow by 3.6 per year a year post-2025 ‘in line with its long-run historical average’.
Crucially, the government is not confronting the deeper, long-term structural pressures on the public finances. (The Tories are only marginally beginning to address this, and Reform are totally ignoring it.) Ageing populations, rising health and social care demands and absent productivity growth all point to a day when tax revenues and debt cannot meet Britain’s spending demands. But rather than grappling with those hard truths, Reeves continues to make minor adjustments in the same narrow fiscal framework, appeasing her backbenches while ignoring the scale of the challenge ahead.
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