Spending (P)review - Labour's Tightrope Walk

While the headlines are focussed on the winter fuel U-turn and accused insincerity surrounding the government's rationale for reversing the cut, tomorrow's Spending Review is designed to be more than just another headline grabber. 

With everything already trailed in the media pointing at the Labour government performing a balancing act between bold promises and budget realities, tomorrow's fiscal update will be a politically calculated statement of intent. It’s a package designed to show Labour can govern with discipline, but still deliver on its promises. 

The Spending Review - occasionally called the comprehensive spending review - is the process the government uses to set all departments' budgets for future years. Tomorrow's announcement by the Chancellor Rachel Reeves therefore will set out planned day-to-day spending totals for all government departments for the years from 2026/27 to 2028/29, and investment spending plans for a further year (from 2026/27 to 2029/30). 

Day-to-day departmental spending is set to rise by just over 1% a year, with capital investment nudging up slightly more. It’s not a spending spree, but it’s not austerity either. The NHS is expected to receive a £30bn boost over three years, while defence spending is on track to hit 2.5% of GDP by 2027 - funded, controversially, by trimming the overseas aid budget. 

This was a resignation matter for former rising star and International Development Minister Anneliese Dodds in February and a sign of things to come as Labour Party splits continued to deepen over the following months. 

The suite of announcements slates for tomorrow is a little something for everyone, but not enough to silence the critics (even from within the Labour Party) who have dubbed cuts “austerity 2.0”. LabourList, the dedicated news platform about the Labour party, reported on Monday many Labour MPs were feeling "resigned" to announcements being "brutal" and the Parliamentary Labour Party (PLP) would be unlikely to support cuts while "we found billions for the car industry and steel". 

Some think smoothing over any rifts in the party was the likely driver behind action to restore winter fuel payments (which will be fully funded at the next fiscal event, the Autumn Budget). Alongside the move for free school meals to be expanded to reach an additional half a million children. This has emboldened campaigners who are now trying to push for another potential U-turn: ending the two-child benefit cap, which could cost a further £3bn. 

But to think reuniting the party is the main rationale for any U-turns, ignores the deeply felt conviction of both Reeves and Prime Minister Starmer to not only manage the money, and be seen credibly to do so, but to genuinely make an impact for working people. 

Delivering a speech at the GMB Union’s conference in Brighton, the day before the Spending Review, Reeves said: “I know that not enough working people are yet feeling that progress, and that’s what tomorrow’s Spending Review is all about – making working people better off, investing in our security, investing in our health, investing in our economy."

Further announcements trailed include a new £16.7bn commitment to nuclear power projects: £14.2bn of investment to build the new Sizewell C nuclear plant in Suffolk and a small modular reactors (SMRs) programme worth £2.5bn. These are made possible by loosening Treasury borrowing rules to free up an estimated £113bn for investment in infrastructure projects. But this will mean making nearly £5bn worth of cuts by 2028/29 which will likely be made across housing, policing and border control, as well as local government, foreign aid, culture and the civil service to meet the fiscal rules. 

Fiddling the fiscal rules, which include not borrowing to fund day-to-day spending, risks drawing fire from both sides. The left may argue the spending increases are too modest to meet the scale of the country’s challenges. The right will warn of fiscal overreach and market jitters.

This is the tightrope until elusive "growth" happens and for Reeves and Starmer, this Spending Review is about more than numbers. It’s about credibility. "The first job of the government was to stabilise the British economy and the public finances, and now we move into a new chapter to deliver the promise and change," the PM's spokesperson said.

Labour is trying to prove it can be both fiscally responsible and socially ambitious, and to set a tone which has fallen on deaf ears so far: Labour is trying to show it can manage the books without losing its soul. That it can be serious about growth without abandoning fairness, particularly while their poll share is being threatened by populist party Reform which declared itself the true ‘party of the workers’.

The Spending Review will take place after Prime Minister’s Questions around 12.30pm, on Wednesday, 11 June 2025.