After Rachel Reeves delivered what amounted to £2.2trn of public spending over the next four years , she dipped into her own pocket and continued her generosity with a round of drinks for her staff at the Two Chairmen pub in Westminster.
Having overseen the biggest splurge in expenditure in peacetime, the Chancellor was in need of a stiff drink as she pinned her and Sir Keir Starmer’s hopes of political survival on a spending bonanza between now and 2029.
Reeves announced plans to pump billions more into the NHS , defence, social housing and swathes of the country outside the South East, as she sought to guard Labour against the increasing threat from Reform UK in its traditional heartlands .
But despite the blowout, serious doubts remain within the Labour rank and file over Downing Street’s ability to win back support from voters after the Chancellor’s early gambit on winter fuel payments way back in July last year.
‘Winter fuel was the worst decision, and people blame Keir’
“The winter fuel decision was the worst decision they ever could have made. It could be the end of Labour. People blame Keir for that,” a veteran left-wing Labour MP said this week.
The initial response to the spending review among Whitehall officials and Labour backbenchers alike was one of relief, although many in Labour were unimpressed by Reeves’s speech itself, in which she listed a large number of local projects which were receiving funding without linking them thematically.
“It was quite George Osborne,” one Labour source said – a reference to the former chancellor’s habit of basing his funding decisions on political calculations, giving individual MPs a flashy announcement they could trumpet in their area.
While the Department of Health received the most generous increase, Government insiders want to emphasise that they are pouring money into defence as part of their bid to win back voters from Reform UK.
“We want to put the message out that the big winner was John Healey,” a source told The i Paper , referring to the Defence Secretary.
‘Stop the boats, we probably win the election. Don’t, and we probably lose’
Economists were unanimous in their assessments, however, that taxes will have to rise in the autumn budget in order to pay for the giveaways. Income tax thresholds are widely expected to be kept frozen beyond 2026, in a move that could raise £10bn a year.
Taxes on capital gains, pensions and inheritance have all been mooted in recent months, while the Institute for Fiscal Studies said the spending review will mean council taxes will rise at the fastest rate since 2001 .
MPs were largely united in welcoming the spending plans, with one frontbencher saying the package had “landed well with colleagues”.
Another Labour MP, facing a threat from Reform in the “Red Wall”, said they were “delighted by the emphasis on tackling regional inequality”, but quickly added: “We need to go, much, much further over the coming years.”
For them the priority is dealing with the Channel crossings crisis. “Shunting asylum seekers from hotels to housing is one thing – but actually solving the problem is another,” the backbencher said, summing up his party’s prospects succinctly: “If we stop the boats – we probably win the next election. If it carries on – we probably lose it.”
Luke Akehurst, Labour MP for North Durham, particularly welcomed the increase in defence spending to 2.5 per cent of GDP by 2027, saying it meant the Government could “link re-equipping the Armed Forces to deter Russian aggression with reindustrialising the UK and bringing economic growth to left-behind regions”.
This is not a viewed shared on the left of the party. While there was lukewarm support for the additional £39bn for affordable housing over 10 years, the focus on defence spending is questioned by some left-wingers, despite the aggression from Russia and escalating tensions in the Middle East .
Above all, the Labour left fears that forthcoming battles over welfare reform and winter fuel payments – despite the Government’s partial U-turn on the policy – mean no amount of public spending can win back support from voters.
‘Keir gets more people angry on the doorstep than anyone I can remember’
“Keir is the most despised leader I can remember,” the veteran MP claimed. “I don’t think it’s fair or warranted, but he gets more people angry on the doorstep than anyone I can remember, be it Jeremy [Corbyn], Ed [Miliband], Tony [Blair] or Gordon [Brown]. People hate him.”
The MP added, in reference to Starmer’s all-powerful chief of staff: “What we have seen is the Morgan McSweeney blueprint completely fall apart.”
They said the outlook for the party was now so gloomy that the left of the Labour movement were already mobilising to replace Starmer should he lose at the next general election, with Angela Rayner seen as their most likely candidate to succeed the Prime Minister when the time comes.
“The rules mean we need around 82 MPs [to get Rayner on the ballot]. So we’re speaking to the new intake, having coffees – there are a lot who are not impressed with what they’ve seen so far.”
Starmer’s challenges abroad
The rumbles of backbench discontent are likely to be overshadowed by world events, however, as Starmer switches his attention to the G7 in Canada. This weekend’s summit comes amid rising apprehension among world leaders about the conflict between Israel and Iran bubbling over.
While relations remain strong between Downing Street and the White House, particularly on a personal level between Donald Trump and the Prime Minister, Trump’s administration was highly critical of the British Government’s decision to sanction two Israeli Cabinet ministers this week.
US Secretary of State Marco Rubio warned the UK “not to forget who the real enemy is” in the wake of the decision. Starmer also faces the delicate task of convincing Trump not to abandon the Aukus submarine deal that was agreed between the US, UK and Australia, after Washington said it was reviewing the agreement.
Any reneging on Aukus would be a significant blow to the UK and would pile further pressure on Downing Street to rethink its reliance on an increasingly fickle US. The Prime Minister’s bilateral talks on Sunday with his new Canadian counterpart Mark Carney – who has repeatedly criticised Trump’s demands for Canada to become America’s 51st state – are likely to be an additional push in the same direction.
Read Next: Rayner secures 10-year affordable housing pledge from Reeves
Carney has already warned that his fellow Canadians were “not impressed” by No 10’s decision to invite Trump to a second state visit, leaving Starmer in the diplomatically delicate position of being stuck in the middle of the US President and his host.
During the summit there are also likely to be heated conversations over defence spending, and the rate at which countries are expected to hit Nato’s and the White House’s demand to up expenditure to 3.5 per cent of GDP.
Starmer and Reeves’s spending review showed no growth beyond 2.5 per cent in defence spending after 2027, with the Government stating only that it is their ambition to hit 3 per cent by 2034. To reach that the Prime Minister and his Chancellor will have to present both MPs and the electorate with yet more difficult trade-offs.
For now, the PM will be focusing on the darkening outlook on the international stage, but he should be mindful of the simmering unrest at home.
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