While Rachel Reeves was flashing multi-billion cheques around in the House of Commons this week, voters about 100 miles away in the Severn ward of Stroud were voting in a council byelection, held—most unusually—on a Wednesday. The Labour share there plunged by more than 20 points, splintering in various directions, with the Green candidate coming through to win. This result does more to elucidate the real significance of the Chancellor’s upbeat statement than her blizzard of numbers.
Vast as some of the big spending sums sounded, for those who follow these things there were few real surprises. After loosening her borrowing rules and jacking up taxes by £40bn in the autumn, it was now times for Reeves to tell us what different public services and projects would get. Yet she wasn’t in a position to dish out any largesse.
Her starting point had been the former chancellor Jeremy Hunt’s plans for a wildly unrealistic squeeze on public services—plans Labour never challenged during last year’s election. Consequently, all of Reeves’s extra taxes and borrowing had only allowed her to hold the overall share of public services in the economy steady. This left her facing the sort of delicate expenditure balancing act that governments should expect in an ageing society whose economy has grown too slowly for too long.
Economist Andy King, a former Office for Budget Responsibility man, summed up the pragmatic course that Reeves charted through her dilemmas this week as “conventional and sensible”. It is hard to disagree. Although a staggering 90 per cent of the available day-to-day money went to health, that still provides only for rather slower budgetary growth than the NHS has typically secured since its inception, while hopefully offering it enough to stay afloat.
Most other services are in line for a bit of a squeeze—and for some, the “austerity lite” I warned about in my column last week awaits. But because it comes after the “emergency injection” that many departments had received last year, while the new settlement will certainly leave a lot of services continuing to creak, it should be enough to avoid many collapsing. There was also welcome resolve to maintain long-term public investment, rather than raid it to sweeten the short-term arithmetic. This should, at the margins, help support economic growth. The one twist since the autumn here is that, in the newly insecure world forged by the return of Donald Trump, a very large chunk of this investment is going to be in military rather than civilian infrastructure.
But if the economic news was less than sensational, the political break with the dour managerialism of Labour’s first year in office felt like a serious jolt. From Labour’s 2021 loss in the Hartlepool byelection, on through its almighty win in last year’s general election, and then right up to its battering in this May’s local polls, at every turn Keir Starmer’s Labour party has emphasised respectability over radicalism.
The lesson that Labour took from Liz Truss’s ruinous mini-budget in 2022 was not that the right had over-reached and was ripe for attack, but that the technocratic centre ground had been vacated. It saw this gap as the only place to be. In a general election campaign ruthlessly and efficiently targeted at Middle England swing seats—a route to victory via an underwhelming total vote—Starmer was entirely open about being more interested in attracting former Conservatives than other voters. Labour engaged with critics from the right, often compromising with them. Critiques coming from the left, by contrast, were brushed aside on the basis that progressives had nowhere else to go.
Once in government, insofar as Labour tried to tell a story, it was more about competence and national security than anything else—not bad things, necessarily, but not things anybody can pretend are distinctively Labour. Backbenchers demanding early action on poverty were told that waiting was the only realistic option. In some cases they had the whip suspended. The thinning ranks of Labour’s membership was welcomed as a sign of the “wrong sorts” walking away and leaving the party in the care of the “grown-ups”. Under the surface, progressive reforms on the rights of shift workers and renters were quietly cranked into action. But far, far more voters noticed the cut to winter fuel payments than either of these.
And indeed, Labour hiked taxes in the autumn with a view to restoring a parched public realm. But the justification for this was much more about “Tory incompetence” than any positive political vision.
The real significance of the Spending Review—and the changing mood music on issues such as the two-child limit in the run-up to it—is that the government has finally noticed that it can no longer pretend, at least on economic terrain, that voters to its left do not exist. Instead, it has decided to take the public expenditure fight to the state-slashing right. Reeves hailed all of the train and tram schemes, free school meals and NHS spending increases that she managed to eke out of the tight arithmetic as “my choice” and “Labour’s choice”. The chancellor taunted the tax-cutting Conservative and Reform parties that they wouldn’t be able to match such commitments.
There are, inevitably, questions about whether this new approach can work. Going back to the Severn ward in Stroud crystalises the problems: while the Greens won the byelection, Reform came from nowhere to get within 20 votes of victory. The government’s newly progressive tone on public spending goes alongside immigration crackdowns designed to appeal to socially conservative voters, whom it presumes it can lure without driving ever more liberals into the arms of the Greens and Lib Dems.
With an ever-widening gender gap in politics, another question is how Labour’s rather macho positioning will go down with women voters. The first female chancellor could fairly insist that she should be free to single out “builders, welders and electricians” for praise in her speech without the old assumption that these are “male jobs.” But one feminist thinktank immediately warned of a potential mismatch in favour of physical over social infrastructure. Meanwhile, many Green-curious voters will hear in Reeves’s “defence industrial superpower” an echo of what a former Republican president of the United States once darkly dubbed the “military-industrial complex”.
For all the problems, though, there should be opportunity, too, in this week’s modest rhetorical tilt to the left. It affords Labour the chance to prepare the ground for what could be a very difficult autumn budget, in which further tax rises may be required. There is some public appetite for this. New research just shared with me by the world-renowned American pollster Stanley Greenberg suggests far broader support in the UK for new levies on wealth than for the general assumption that tax rises must be avoided. Starmer and Reeves are a long way from making that sort of leap. Still, now that they have kicked off an argument on public expenditure, such a move feels slightly more possible than it did through the long “absence of war”.
