An almost immediate rise in the shares of property developers, building companies and defence contracters tells us most of what we need to know about Rachel Reeves spending review.

Barratt Redrow (+1.7%), Persimmon (+1.66%), and Berkeley (+1%) are all among the top rises on the FTSE 100 share index today in the City. (Guardian live blog 11June)

Susannah Streeter, head of money and markets at Hargreaves Lansdown, says the chancellor’s spending plans have been greeted by “a calm reaction from financial markets

The only measure that will have a positive short term effect on how people are experiencing the continuing cost of living crisis was the pre-announced U turn on the pensioner winter fuel allowance.  After the review, Reeves made it very clear that the devastating cuts to Personal Independence Payments (PIPs) are still going ahead with pe rhaps minor tweaks. Lifting the two child benefit cap – which would immediately reduce absolute poverty for hundreds of thousans was hinted at by Starmer but there has been nothing concrete.

What we do have is billions and billions of public money going straight to the masters of concrete – the companies building the huge new nuclear plant at Sizewell or  continuing with the carbon capture projects.  As the Greens have pointed out in parliament this money could be much better spent in more environmentally positive ways by insulating homes and massively increasing green energy investment.

The folly of Labour’s strategic partnership with business

Even the mirage of some material improvements for the many is hostage to Labour’s strategy of a partnership with business – particularly  big tech – which will bring the growth that will supposedly trickle down to all of us.  Yet this week we saw that the economy actually shrunk in April and unemployment has been rising steadily. The international economic situation is not looking great either with the uncertainties and inefficiencies created by Trump’s tariff obsession.

Hidden away in the charts and small print is another key plank in Reeves’ strategy. She is expecting big efficiency savings throughout the various spending departments – including in those areas with the biggest increase in spend like Health. Now this will surely mean job cuts and past history suggests making these savings if not as straightforward as it looks. AI and modernization is being touted as the magic wand to produce these savings.  Robot surgery is going to cut waiting lists they say..

Robert Peston, the ITV pundit correctly points out:

Here is an extraordinary government claim. Of £13.8bn of efficiency savings it is promising each year by 2028/9, health and social care is promising to provide more than £9bn of them. Is that credible?

Another way the figures are massaged by Labour is where the base line for growth in budgets makes the figure look better than they are. Some time is chopped into phase one and phase two. Eight departments will actually see cuts to their budget between this year and the end of the parliament.

Most of the economic think tanks like the Resolution Foundation, the Institute for Fiscal Studies or the Institute for Economic and Social Research think tax rises are inevitable come the Autumn budget:

Stephen Millard, NIESR interim director, explains:

“The Chancellor has yet again said that her fiscal rules are ‘non negotiable’. But, given the small amount of headroom at the time of the Spring Statement and the increases in spending announced since then, it is now almost inevitable that if she is to keep to her fiscal rules, she will have to raise taxes in the Autumn Budget.”

Don’t mention taxes

Chief Secretary to the Treasury Darren Jones vehemently denied on the media round that taxes will go up, although his boss, Reeves has been careful not to rule them out.  The Labour leadership are terrified that progressive tax measures like a wealth tax would weaken what they see as their prime partnership with business. Polling has shown that a wealth tax and/or taxes on bank profits or the gambling companies are popular. Apart from anything else, ruling out tax increases makes you look untrustworthy and incompetent if you do put them up.

In a similar vein, Reeves tried to minimize the fact that the pressure inside the labour movement and Reform’s electoral challenge were the reasons the fuel allowance was dumped and not some sudden improvement in economic conditions in the last months led by her brilliant leadership that rendered it no longer necessary.  

The £39 billion boost for the affordable housing programme (AHP) looks a big deal at first glance but remember this is over ten years – about £3.9 billion a year. As the Financial Times pointed out the money is backloaded, it is only £3billion a year until 2029. There will only be small difference from the sums currently allocated to the current AHP. More importantly there is a great silence about how much genuinely affordable housing will be bought. Nobody seems to have the numbers and Angela Raynor has been reluctant to commit to a number.  Most experts doubt the 1.5 million homes will be built.

In any case the real housing crisis is not produced by slow planning regulations or over concern about environmental rules but by affordability. Again the Office for Budget Responsibility and others think even if the 1.5 million home target is met it will only have a marginal effect on house prices.  There are a great many empty or underused properties that could also be marshaled to deal with the crisis if we had a government that was not basing its housing programme on a partnership with property companies. The Financial Times reported:

A housing industry figure said it would be “fair enough” for Labour to argue that it was investing more than the Conservatives.

“But this seems well short of the transformational investment the government promised,” he added

Andrew Fisher, the former Labour head of policy who wrote the ground-breaking 2017 Party Manifesto, tweeted about the budget allocation to the Ministry of Housing, Communities and Local Government: “Looks like a sleight of hand masking real terms cuts on local government finance.”

He noted that the apparent 3.1% increase in the Spending Review document appeared to include the assumption of a 5% increase in council tax, which itself will have political repercussions. This would mean a core funding cut from central Government of 1.4% annually from 2025/6 to 2028/29.

NHS and Education: increases not as good as it looks

Unlike the Tories Labour is putting more money into the NHS.  However the settlement is still below the long term average increase and much less than the last Labour government put into it. Efficiency savings are also required here and it is not clear if improved salary increases for nurses or doctors will be funded.

Education will receive more infrastructure funds but money for day to day spending including on salary  increases will still be very tight. Julia Harnden of the Association of School and College Leaders said:

Schools are already having to make significant cuts and the spending review announcements will not change that situation in the short-term and won’t be enough to reverse this situation in the longer term either.

This additional funding does not include colleges and sixth forms and we are particularly worried about the financial sustainability of this vital sector. 

Nothing new was provided on dealing with the rising costs of Special Educational Needs support in schools. There is talk in Labour leadership circles of changing the criteria, making it more difficult for parents to get support for their children than it is already. Social care generally is another big hole in the spending review as the Lib Dem leader, Ed Davey, has been quick to point out.

No more nuclear subs

Defence spending has been boosted as a result of artificially induced paranoia about the threat from Russia as though there is some imminent danger of an invasion. Historically the defence budget has been a gravy train for arms companies who always charge top dollar.  Once again a huge amount of money is going to upgrade nuclear submarines.  Defence manufacturing is supposedly going to produce more jobs.  So many other sectors of the economy which could provide social goods and many more jobs for everyone are not catered for . SureStart children centres would be a much better way to do this.

Socialists who support Ukrainian self determination against the Russian aggressor think Ukraine has a right to get arms where it can. Britain can provide sufficient arms to the Ukrainian people without massively expanding its defence budget. Dumping nuclear arms would save a great deal of money. Socialists should argue for public ownership of the arms industry and fighting for a government that can remove British nuclear weapons, leave NATO and work towards international disarmament and peace.

One positive development in response to the welfare cuts has been the growing opposition of Labour MPs on this issue. There is even talk of a new coalition between the Socialist Campaign area of MPs and what is called the soft left.  Various tweaks to the cuts will probably buy off some of the hundred or so MPs that say they cannot support the cuts. If the Tories decide to vote against too then the number will further reduce. It would be a mistake for activists to place too many hopes in such a new realignment. Some of it is related to maneuvering among possible leadership candidates like Raynor or Burnham.  Socialists should focus on the broadest possible unity against Labour austerity but build resistance in the communities and workplaces. Supporting left electoral alternatives to Labour is also important. 

This spending review is bad for the environment and does not address the brutal inequality and the cost of living crisis most people are experiencing. We should build the resistance to it.

NB Featured iageRachel Reeves standing in front of union jack on flag pole gainst pale background.