In her spending review, Chancellor Rachel Reeves has tried to buy off opposition to the government by a commitment to greater investment in infrastructure and to some extent in the NHS. But the devil is in the detail, and what is also clear is that there will no relief in the daily lives of ordinary workers from the Tory-lite austerity that she introduced in her first eleven months in office.
One headline figure that Reeves wants us all to look at – and particularly the trade union leaders who have backed her pro-business strategy – is the additional spend on the NHS. The health service is due to receive a 3 per cent real terms rise in current spending, although this is below the long-term growth rate of 3.6 per cent a year.
Given Wes Streeting’s love affair with the private health sector, a huge proportion of any additional money will almost certainly find its way into the profits of the private sector. Although the leaders of UNISON have been some of the main backers of Starmer, the members of that union will not see a pay rise that keeps them ahead of rising costs for food, housing or energy, and they will see no respite in the enormous staffing shortage in the NHS. The delapidated buildings in which they work will not be helped by a capital budget that in real terms will be flat for the next four years.
Whilst the expansion of free school meals is welcome, the budgets that schools have at their disposal is going to be cut. The core schools budget is only going up by 0.4 per cent a year for the next three years, well below the level of inflation faced by schools for books, energy and equipment, which is estimated at 4.1% 2025/26.
School funding will rise by 3.4%, which means a part of the agreed teachers’ pay award of 4% will have to come from cuts in school budgets. It is expected that three quarters of primary schools and over 90% secondary schools will be forced to make cuts next year.
Class sizes already the highest in Europe
The idea that schools can somehow “improve productivity” is a ludicrous notion. As the NEU point out, Primary class sizes are already the highest in Europe and secondary class sizes are the highest since records began. More than a million pupils are taught in classes over 30.
The fundamental aim of the government’s economic strategy, and what was trumpeted by Reeves in the Commons, is to increase the productivity of the British economy. Driving ‘growth’ is the mantra Starmer and Reeves have repeated over and again. But the difficulty of their task is shown by figures released the day after the Commons speech, showing that British GDP fell by 0.3% last month.
The aim of Labour’s right wing is to manage capitalism better than the Tories did and better than the capitalists themselves do. In fact, the spending review and its emphasis on investment is a crushing indictment of British capitalism, where investment is proportionately smaller than for any of the other main capitalist countries.
What the government strategy boils down to is that it – ie the taxpayer – has to drive the investment in the economy, because those who own and control the private sector find it unprofitable to do so.
Few would object in principle to the idea of governments investing, but an important aspect need to be mentioned. It is that government spending nowadays is all about contracts for the private sector. Defence spending is one of the biggest gains in the review – and the purpose of defence spending is in itself highly questionable, but that is another issue – which means vast amounts of cash going to a handful of giant defence contractors, like BAE systems, who make nuclear submarines.
Nuclear power is an open-ended commitment to spend money
The same is true of investment in energy. £14bn is being given to develop nuclear power at Hinkley C, but like HS2, nuclear projects are never on time or on budget, so we can expect this to be doubled or trebled in the coming years. It is an open-ended commitment to throw tons of government money at an unnecessary project. There are no allowances made in the calculations, for example, for the massive costs of eventual decommissioning and removal of nuclear waste.
Rolls Royce is being given a juicy deal to develop ‘small modular reactors’, which, like ‘carbon capture and storage’ involves a completely unproven technology. There are only three SMRs operating anywhere in the world, all delivered three, four or five times over budget. Not that Rolls Royce shareholders care.
Nuclear power is not even the best energy option – ten times more is being handed to energy companies for nuclear than is going to local energy provision like solar, house insulation and wind power, or into storage of energy to mitigate against ‘intermittency’.
The whole spending review is about companies sponging off government and rubbing their hands in anticipation of lucrative contracts. Tussel, an organisation that monitors procurement, was gushing with enthusiasm over the spending review. “The government is doubling down on efficiency, innovation, and delivery” its website said, “and procurement will be the engine driving it”.
A part of the spending review was focused on providing ‘affordable’ social housing and some of it is a £625mn Construction Skills Fund, to train 60,000 badly-needed construction workers. Even this Skills Fund will be plundered by private companies: as Tussel says, it will “unlock opportunities for training providers to partner withbuyers looking to scale up and deliver the government’s 1.5 million homes target”.
The ‘market’ is rigged to maintain a housing shortage
Britain is short of construction workers, because over many years the big six private companies dominating homes building have pushed up profits by reducing apprenticeships. These companies, with landowners and developers, artificially maintain a housing shortage to keep prices and profits up, but the spending review does nothing to break their stranglehold on the housing market.
Even the government’s drive to modernise services and government departments with IT – and ‘modernisation’ is always a code-word for redundancies – will provide lucrative contracts for the private sector. The spending review, Tussel says, “offers an opportunity for digital recruiters, HR tech providers, and L&D specialists to support civil service transformation through automation, upskilling, and workforce modernisation”. In short, as Tussell’s 2025 snapshot showed a 41% increase in public sector IT procurement spend over the last 4 years, “this growth looks set to continue”.
In the final analysis, this spending review will not change the fortunes of the Labour leadership. New jobs might be provided and infrastructural investment might provide benefits to the economy. But they will be long-term benefits that will not change Starmer’s popularity ratings now.
Living standards are stagnating now. Wages, particularly in the public sector, are too low now. Energy, housing and food costs are rising beyond the capacity of wages to keep up…now. Child poverty, although partly alleviated by the Reeves review, with a welcome increase in free school meal provision, is still rising overall.
Nearly 18 mn workers dragged into paying basic rate income tax
Worse, most economist believe that taxes will have to be raised if Reeves is to keep current spending within the strait-jacket she has imposed. Workers are already paying more tax, year on year, because of the freezing of income tax allowances. That freeze means nearly 18 million workers being dragged into paying the basic rate for the first time, by 2027/28.
The assumptions made in the review about additional spending by local authorities are based on increases of 5% in Council Tax across the board, and when councils do this, as the Financial Times points out, “bills would rise at the fastest rate over any parliament since 2001-05”
Rachel Reeves and Keir Starmer have made a tilt at public investment, partly in the hope of keeping trade union leaders on side. The announcement about investment in Hinkley was made at the annual conference of the GMB, and that was not an accident: it was calculated to appease a union which has long supported nuclear power.
Even Unite, a union considered on the left (as it is on many issues) is wedded to the arms industry and has welcomed the increased in defence spending. This is despite the fact that for both of these unions, only a small fraction of the membership work in nuclear power and defence.
But the Labour leaders’ strategy will still fail in the longer run. Low paid workers will still be struggling hard just to stand still in the coming months. The promised one and a half million new homes looks like a mirage in the desert, and will remain so, as long as private developers and builders dominate the industry.
Crucially, Labour will continue to haemorrhage support to Reform UK, which appears to offer easy solutions to workers’ problems today. The spending review might just have prolonged Keir Starmer’s tenure as leader, because union leaders are so easily seduced. But the writing is on the wall, and he will not avoid a clash, sooner or later, with disgruntled MPs, angry trade unionists and embittered voters.
