Just before winning his second term in office, Barack Obama madea plea to American votersnot to switch back to the Republicans. “They drove our economy into a ditch and then they got the nerve to ask for the keys back. I don’t want to give them the keys back – they don’t know how to drive”.
Keir Starmer’s Labour will be hoping to be able to make a similar pitch to British voters in four years’ time: warning against returning the keys to the Conservatives while also suggesting that Reform UK would land the country in an equally messy economic predicament.
Labour’s first multi-year spending review on Wednesday presented a perfect opportunity to emphasise, despite the government’s rather bumpy first year in office, what is considers to be the clear dividing lines with the two rightwing parties.
First among these is the decision to allocate a huge £113bn extra in capital spending, funded through borrowing after changes to the chancellor’s “iron clad” fiscal rules at the autumn budget.
In the days running up to the spending review, ministers announced £15bn fortransport outside London, £14.2bnto build a new nuclear power stationand an almost doubling of government spending – nearly £40bn –on affordable housingover the next 10 years.
Politicians are often criticised for focusing too much on short-term outcomes, with one eye always on the next election. “One of the central failures of the last 14 years was the failure to invest in our country when interest rates were low,” said one government insider.
Investment is harder with a difficult fiscal backdrop. But ministers believe that it is needed not only to restore the public realm – schools, hospitals, railways, housing – but also as a display of confidence that will encourage private investment, and help to deliver the holy grail: growth.
Despite Reeves’s insistence the economy has improved, pointing to the interest rate cut and wage increases as justification for now taking a different approach to spending, the backdrop of anaemic growth and rising unemployment suggest the sunlit uplands are still some way off.
Starmer told his cabinet on Wednesday the government was entering a “new phase” that would deliver on the promises it has made to working people. Reeves emphasised that she recognised attempts for “national renewal” were yet to be felt by the public.
Officials say both the prime minister and chancellor know the government has to deliver, or it will die. “People didn’t elect a Labour government just to sort out public finances,” one No 10 insider said. “We have to do more. We have to set out what this change will look out.”
But for all the extra investment in infrastructure, the changes that will follow are years away. While new homes, power stations and transport links are now on their way, the most the public will see by the next election will be spades in the ground.
There are some exceptions, and they are not insubstantial ones. Capital spending on the NHS, for example, means more scanners and technology that will lead to greater productivity. In turn, that will help drive down waiting lists, a key manifesto pledge.
But the risk for the government is that most voters’ interactions with the state come through public services – schools, the police, local councils – which have been hit by extremely tight settlements for day-to-day spending.
Real-terms spending will grow at an average of 1.2% a year over three years, after taking inflation into account, a significant drop from the first two years, when it will be 2.5%. Defence and the NHS have been the big winners, meaning some departments, such as the Home Office, face deep cuts.
The Treasury denies this is a return to austerity – pointing to a 2.3% overall real-terms increase for departmental budgets, compared with the Tories cutting them by 2.9% in 2010, leading to a decade of public services being pushed to the brink.
And so over the coming days, ministers will attempt to refocus anxious Labour backbenchers away from cuts in day-to-day spending, and back on to capital budgets, with further big announcements expected.
They may struggle to restore calm for long, with more difficult decisions coming down the line, including over benefit cuts and potential tax rises in the autumn budget to pay for U-turns on winter fuel and perhaps even the two-child limit being scrapped.
The government has an uphill task. Standing at the dispatch box, Reeveschannelled David Cameronwhen she told the Commons: “I have made my choices. In place of chaos, I choose stability. In place of decline, I choose investment. In place of retreat, I choose national renewal.”
Yet her own colleagues remain jittery, worried that the promised renewal will not come quickly enough to see off the Reform threat, or a resurgent Tory party, with a battle on how to frame the spending review ahead.
“We all welcome the billions put into capital spending, the country desperately needs it,” says one minister. “But the danger is that it comes too late, and the public doesn’t see enough change before the next election, and decide to give the keys to No 10 elsewhere instead.”