Rachel Reeves will put £113bn of new capital investment at the forefront of the spending review and argue that the billions of investment in homes, transport and energy would only have happened under Labour.
The billions unlocked by the change to the fiscal rules, which will be spent over the next parliament, will be at the centre of the government’s narrative in a fortnight’s time in an acknowledgment thatLabourMPs need a better economic story to address rising discontent among the public.
The chancellor will champion the investment despite warnings about government borrowing after it reached £20.2bn in April.
Keir Starmer confirmed last week that the government wouldU-turn on the unpopular winter fuel cutsand the government is expected to make significant commitments on child poverty, with Starmer favouring ending the two-child benefit limit.
Reeves told the Guardian that the spending review would show the country and the markets that the billions in borrowing would fuel growth and jobs and help lead to private investment.
She said: “We are building homes, building infrastructure, whether that’s transport or energy. I do want to make sure that we’re spending government money to create jobs, apprenticeships, and build supply chains in this country.
“At the spending review coming up in June, we will invest more in capital, and we’re going to invest £113bn more in capital spending than the plans we inherited from the previous government. I do want to make sure that every penny of that money works for the British economy and creates jobs.”
Reeves will hope details of how the government will spend the £113bn package will be enough to stave off further disquiet over harsh cuts to day-to-day spending expected in the spending review. Departments had been asked to model reductions in their budgets of as much as 7% over the next four years.
Winners from the spending review are likely to be health and defence, and major capital funding for prison building has already been announced by the justice secretary, Shabana Mahmood. Other projects likely to be approved include the new Sizewell C nuclear power station.
The £113bn capital investment fund will also include schemes such as East West Rail, significant cash for housebuilding as Labour strives to meet its 1.5m homes target, protecting government research and development funding, and funds to rebuild schools as well as the first tranche of hospital rebuilding.
Ministers will spend the week after the spending review highlighting new infrastructure projects, with briefings to MPs about how these will affect their local areas.
Treasury sources said Reeves understood that the government needed to set out anew how the billions would be spent.
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One source said: “Part of our spending review argument is that this £113bn was only available because of the choices that she took. It is a political choice to have done that. So every pound of that £113bn would not be there had it not been for a Labour government. We will labour this as part of the spending review. The Tories and Reform all opposed those fiscal rule changes. So they are opposed to that additional investment.”
Labour MPs have ramped up pressure on the Treasury in recent weeks from the right and left of the party, with calls to mitigate the effects of the disability cuts and anger over winter fuel cuts.
A number of MPs, including the former cabinet minister Louise Haigh, have been calling for an economic reset after Reform UK’s surge in the local elections. The chair of the influential Labour Growth Group, the MP Chris Curtis, said the economy was stuck in a “doom loop” and that without drastic action, the Reform leader, Nigel Farage, was on course to become prime minister.
One source said: “That is real money. It’s not empty promises, or the unsigned cheques the Tories used to do. It’ll be proper money, and this investment in Britain’s future will be a part of the theme of the spending review.
“There are trade-offs in spending reviews. But she’s made a clear political choice to invest in the long-term projects that will make a real difference to people’s communities. These will be Labour homes built by a Labour government. All this investment is Labour – no one else would have done it. We changed those rules and now there is £113bn that was not there.”