When Rachel Reevespublishes the government’s spending reviewon Wednesday, the stories the Treasury will want to tell are the energy, transport and other infrastructure projects that will get a share of the big boost in capital funding – £113bn.
They will argue that cash, freed up by the change to the fiscal rules in the budget, could only have happened underLabourand was opposed by the Tories and Reform.
But the capital spending cannot stop expected cuts in day-to-day spending, meaning extremely tight settlements for departments, with savings expected from policing budgets, local government, civil service cuts, foreign aid, education and culture.
Treasury sources said they would still spend £190bn more over the five-year parliament than the Conservatives’ spending plans – meaning more than £300bn will be distributed among departments.
Real-terms spending will grow at an average of 1.2% a year over the three years that the spending review period covers, a significant drop from the first two years when it will be 2.5%.
Even that figure does not tell the full story because of the disproportionate boost being given to defence and the NHS – and has led the Institute for Fiscal Studies to warn that the spending commitments will require “chunky tax rises” in the autumn, when coupled with other expected priorities such as restoring the winter fuel allowance to more pensioners and action on child poverty such as ending the two-child benefit limit.
Here are some of the key offers from the spending review – and the rows over cuts.
The biggest row of the spending review has been between Reeves and the home secretary, Yvette Cooper, over policing, which one source describes as being a “huge headache”.
Cooper has brought out the big guns to make her case, first with a letter fromsix police chiefswho warned that without more funding the government would not meet its manifesto promises on crime. Sir Mark Rowley, the head of the Metropolitan police, and other senior police officers have also written to the prime minister to warn him that investment was need to prevent some crimes being routinely ignored. It is understand the policing budget will not face real terms cuts but the level of spending is still under discussion.
The Home Office is under strain as a major spending department that is key to some of the most ambitious manifesto pledges – including halving knife crime, police recruitment, reducing violence against women and girls as well as dealing with monitoring offenders who will be released earlier due to sentencing changes.
The other major spending review row is over deep dissatisfaction from Angela Rayner – the deputy prime minister and housing secretary – with the level of funding for social homes in the spending review, making her one of the last remaining holdouts in negotiations with the Treasury over departmental spending settlements.
The Ministry of Housing, Communities and Local Government has been battling for more funding for the affordable homes programme as well as trying to preserve cash for local councils, homelessness and regional growth initiatives.
The Treasury had previouslyput £2bn into affordable housing, described as a “down payment” on further funding to be announced at the spending review, which Reeves said would mark a generational shift in the building of council homes.
However, the next phase of funding has caused a major rift with Rayner – and more so because capital spending on infrastructure such as housing is meant to be a priority.
The environment secretary, Steve Reed, is said to have been holding out for a big capital injection to fund flood defences. The autumn budget said the government was facing significant funding pressures on flood defences and farm schemes of almost £600m in 2024-25, and that those schemes would have to be reviewed for their affordability.
Sources at the Department for Environment, Food and Rural Affairs (Defra) confirmed a post-Brexit farming fund would be cut in the review. Labour promised a fund of £5bn over two years – from 2024 to 2026 – at the budget, which is being honoured, but in the years after that it will be slashed for all but a few farms.
The energy secretary, Ed Miliband, had a long fight to keep cash for a major programme of insulation, which was a key part of the government’s net zero strategy. However, there are reports suggesting other schemes could be scaled back to protect the insulation programme.
At the October budget, Reeves announced £3.4bn over three years for household energy efficiency schemes, heat decarbonisation and fuel poverty schemes. The government responded to concerns expressed at the time calling the sum the “bare minimum” and promising a spending uplift at the review.
Miliband’s department is expected to get significant capital investment in energy infrastructure including nuclear – with the government poised to give the go ahead to the Sizewell C nuclear plant.
The chancellor has already announced £15bn in transport spending across the north of England, funds which she said fulfil promises made by the Conservatives to the country but which the party had no way to pay for them in its own plan.
Wes Streeting’s department is set to be one of the big winners of the spending review and it will lay the groundwork for the NHS 10-year plan, which will be published imminently after the spending review. The department will get one of the biggest boosts to funding as others face real-terms cuts.
The funding for the plan prioritises three key areas, moving care from hospitals to communities, increasing the use of technology, and prioritising prevention.
No 10 and Streeting hope that the 10-year plan will contain major commitments and a positive story that the government will finally be able to tell properly on improvements to the health service – though any good news could be scuppered by the ballot for strike action by resident doctors.
Still, Streeting’s department was one of the last to settle formally with the Treasury due to negotiations over drug prices, though departmental sources downplayed any specific row.
Any child in England whose parents receive universal credit will be able to claim free school meals from September 2026, the government has said. Parents on the credit will be eligible regardless of their income. The government says the change will make 500,000 more pupils eligible.
A Department for Education (DfE) source said it was the best measure outside welfare changes to address child poverty and that the education secretary, Bridget Phillipson, had consistently fought to protect school food programmes through each round of spending negotiations.
But schools budgets will be squeezed. Teachers will get a 4% pay rise next year, with additional funding of £615m. But schools will still have to fund about a quarter of the rise themselves – a total of £400m from their current budgets.
Phillipson has tasked the DfE with finding savings in schools budgets, such as energy bills.
Savings will also come as the government is removing public funding for level 7 apprenticeships, which has drawn criticism from skills experts.
The justice secretary, Shabana Mahmood, was one of the first to reach her settlement to allow her to announce a £4.7bn plan to build three new prisons starting this year, part of a “record expansion” as the government attempts to get to grips with the prison crisis.
The early announcement was essential because it came alongside an announcement that the government would put alimiton how long hundreds of repeat offenders can be recalled to prison amid Whitehall predictions that jails will be full again in November.