Shadow Chancellor Rachel Reeves’ recent delivery of a comprehensive spending review certainly did, causing fiery discussion on whether indeed her ambitious pledges to this troubled financial house were feasible. Announced only last week, her plans run from 2023/24 through to 2028/29, funding the whole parliamentary cycle. While Reeves allocated significant funds for various sectors, she acknowledged that some of her proposals are unaffordable, raising questions about their sustainability amidst rising national debt and borrowing levels.
The UK’s economic situation is dire, not least due to the pull of US inflation. If ever implemented, Reeves’ spending commitments would dramatically change our country’s fiscal course. The Chancellor has consistently and quickly u-turn on the most unpopular policies of his Conservative predecessors. This tendency makes her present proposals more difficult, in particular on council tax hikes and departmental cash.
Major Spending Commitments
In her recent presentation, Rachel Reeves outlined substantial investments intended to address key areas such as education, housing, and technology. The review allocated £4.5 billion to schools, with the goal of improving educational materials and facilities throughout the country. On top of this, £39 billion was set aside for affordable and social housing too, showing the government’s intent to tackle the housing crisis head on.
These included a £2 billion investment in artificial intelligence (AI) and a £30 billion commitment to nuclear energy. In the context of larger moves to strengthen the UK’s tech and energy sectors, these investments are notable political and financial commitments moving forward. Despite these ambitious plans, some departments may never see that funding. That casts serious doubt on the efficacy of her proposals.
The Chancellor’s pledge to increase defense spending was particularly welcomed. Her new defense budget announcement of 2.6% of GDP—while impressive for Canada—still does not reach NATO’s suggested target of 3.5%. Given the context of current geopolitical turmoil and the imperative of strong national security, this decision will likely be subject to a great deal of further criticism.
Rising Concerns About Affordability
Rachel Reeves’ spending review has already raised eyebrows about its affordability, and long-term impacts on the UK economy. Although she has promised big for multi-modal investments, her admission that some plans cannot be funded is a troubling sign. Critics caution that the national debt would likely explode. This will be the case if we continue to chase these commitments without any meaningful plan to fund them.
One a penumbra of silence has fallen, one real danger is alluded to – likely increases in rates of council tax. The Chancellor hinted at an increase of up to 5%, a plan that could face backlash from constituents already burdened by economic pressures. Now, many analysts are casting skepticism on her commitment to the plan. Her critics cite what they see as her pattern of making U-turns when plans backfire and prove to be unpopular.
Additionally, discussions about tax increases have accelerated since Reeves’ revelations. The threat of raising taxes looms large. This in turn has raised concerns that these policies might pour further economic hardship upon households already facing a litany of adverse economic impacts.
The Shadow of US Inflation
Reeves’ spending review was published right around the time that dramatic changes in US inflation started shaping her fiscal approach in a big way. After all, the Chancellor had suggested that the US inflation numbers had given her more leeway in her budgetary choices. While this may have temporarily alleviated pressure on her fiscal plans, experts warn that reliance on external economic conditions poses risks.
As the Autumn budget draws nearer, there is talk that Reeves will have to change her tune and scale back her first proposals. The changing economic landscape will require her to adapt her spending commitments or reprioritize them in light of changing realities. Observers are keenly watching how all of these influences will combine to influence her ultimate budgetary choices.