Rachel Reeves will next week make one of her biggest statements to MPs since Labour’s general election victory.
The chancellor will unveil the results of her line by line spending review, setting out the budgets of government departments until the end of the decade.
The review will be the first conducted by a Labour government since Alistair Darling and Gordon Brown’s comprehensive spending review in 2007. And it will see Ms Reeves walk the tightrope between delivering on the party’s election promises while seeking to squeeze within her self-imposed fiscal rules.
As a result, some departments are likely to face deep spending cuts, while others see their budgets increase for the years to come.
The Independent looks at what the spending review is likely to include and the rows it is already causing.
What is the spending review?
Ms Reeves’ spending review has taken place in two parts, with phase one set out in her October Budget – which included £40 billion of tax hikes and set out departmental spending until 2026.
The second phase has seen departments ordered to set out how adopting technologies such as AI and reforming public services can free up government cash and support the delivery of Labour’s missions.
Wednesday’s review will set out day-to-day departmental spending for the next three years and investment spending for the next four.
Reeves has ruled out borrowing for day-to-day spending and has insisted she will not raise taxes again, prompting questions about how the policies will be funded and whether cuts will be made.
When is the spending review?
The spending review will take place after Prime Minister’s Questions, so at around 12.30pm, on Wednesday, 11 June.
What has already been announced?
Ms Reeves hopes a government splurge on infrastructure will be enough to keep the cabinet and Labour backbenchers onside, with the chancellor touting changes to her fiscal rules allowing her to borrow more to invest.
On Wednesday she set out plans to invest billions of pounds in public transport in the North and Midlands, with billions more expected to be unveiled next week.
Reeves has also confirmed that the government will U-turn on its decision to take winter fuel payments away from 10 million pensioners, a policy change that could cost more than £1bn.
The government has also said that the overseas aid budget will be cut to fund a boost in defence spending, which will increase from 2.3 per cent of gross domestic product (GDP) to 2.5 per cent by 2027. Labour are under pressure to raise it to 3% by 2034.
What else might be announced?
The chancellor has raised the prospect she will confirm Labour’s plans to U-turn on its controversial winter fuel cuts, promising on Wednesday to announce the details “as soon as we possibly can”.
Ms Reeves confirmed Wednesday’s statement will not see another round of bumper tax hikes, as some had expected.
And only the protected defence, health and education departments are likely to be spared. Others will see spending slashed, with the days leading into the statement dominated by cabinet infighting over the cuts. The Institute for Fiscal Studies (IFS) has already warned that “sharp trade-offs are unavoidable”.
With the government already having vowed more money for the Ministry of Defence to boost spending to 2.5 per cent of GDP by 2027, the money will have to come out of other departments’ budgets.
Meanwhile, the ever-ballooning NHS budget will also see pressure piled on other departments, as Labour prioritises investment in the health service to cut waiting lists.
But the trade-offs could undermine Labour’s promises elsewhere, with police chiefs writing to Sir Keir Starmer warning him forces could face “stark choices” about which crimes to prioritise due to potential cuts.
How have the cabinet and others reacted?
Reports suggest Yvette Cooper, Angela Rayner and Ed Miliband had refused to agree to the spending settlements with just a week to go, with a senior Labour figure telling The Independent the cuts will lead to key manifesto spending promises being ditched. Areas that could be affected are border control, policing, housing and social care.
But cuts are necessary due to the lacklustre growth forecasts for the UK economy, which may be further downgraded in the autumn as a result of Donald Trump’s tariffs.
Metropolitan Police head Sir Mark Rowley was among those warning the prime minister of “far-reaching consequences” if the Treasury pushes ahead with slashing costs, including cuts to frontline policing last seen under austerity.
Home Office and Treasury negotiations have been going “poorly”, the police chiefs warned.
How is Britain’s economy looking?
The government has claimed that an economic turnaround in recent months has meant it can finance changes such as the U-turn on winter fuel payments, with Sir Keir on Wednesday saying it is also why Labour backs the state pension triple lock.
The economy performed unexpectedly strongly in the first three months of the year, with the chancellor highlighting that Britain had the fastest growth in the G7, with GDP rising by 0.7 per cent.
But despite the positive figures, experts warned that the economic landscape has shifted considerably since the first quarter, particularly with the introduction of Mr Trump’s tariffs.
