Spend now, tax later! Rachel Reeves splurges on NHS and Net Zero… despite fears she has no idea where the money is coming from

Rachel Reeves splashed the cash on the NHS and Net Zero today as fears mount that Brits will need to pick up the bill later.

Unveiling the Spending Review in the Commons, the Chancellor claimed she is ‘renewing Britain’.

She is allocating huge sums to departments up to the end of the decade, after loosening the government’s borrowing rules at the last Budget.

Ms Reeves boasted that her new approach means Labour can spend a staggering £300billion more over the next five years than the Tories planned.

That includes a 3 per cent real-terms increase in day-to-day budgets for the NHS to 2029, worth £29billion a year. 

Shadow chancellor Mel Stride branded it the ‘spend now, tax later’ review, warning the proposals are ‘fantasy’ because Labour does not know where the money is coming from.

But Ms Reeves later suggested she believes she can pay for the changes without new taxes, telling GB News: ‘Every penny of this is funded through the tax increases and the changes to the fiscal rules that we set out at last Autumn.’

The generous fiscal envelope set by the Chancellor last Autumn has been put under massive pressure by the economy slowing down and Donald Trump‘s trade war.

There are demands to pump far more cash into defence, while Ms Reeves has already made an humiliating U-turn on winter fuel allowance cuts and is facing a Labour revolts on other benefits curbs.

That has led analysts and political rivals to argue that more tax increases are ‘inevitable’ – although the funding gap will not crystalise until the next fiscal package.

Ms Reeves fuelled the speculation by telling MPs that there would be no change to her fiscal rules, and day-to-day spending must be covered by ‘tax receipts’.

Doubts have also been raised about whether nearly £14billion of ‘efficiencies’ pencilled into the plans will come to pass. 

At PMQs before the Chancellor took to her feet, Keir Starmer dodged ruling out more tax rises – even though the Budget last year imposed the biggest increase for a single fiscal event in record. 

The spending splurge was also not enough for some Labour figures, as the health service has sucked up so much of the available funding.

London Mayor Sadiq Khan warned that Ms Reeves risked ‘levelling down’ the capital by failing to sign off infrastructure projects, and said the funding settlement for police could mean fewer Met officers.

Furious police chiefs have been voicing concerns that the package is ‘incredibly challenging’. 

At a meeting of Labour MPs tonight, the Chancellor urged them to ‘go out and sell’ her spending review to voters as the party looks to overhaul Reform UK’s in opinion polls.

Unveiling the Spending Review in the Commons, the Chancellor claimed she is ‘renewing Britain’

At PMQs before Ms Reeves took to her feet, Keir Starmer dodged ruling out more tax rises – even though the Budget last year imposed the biggest increase for a single fiscal event in record

The spending envelope for departmental budgets is far higher than the Tories planned

Public sector productivity has been making almost no progress despite investment

Deputy PM Angela Rayner has secured a major spending commitment for affordable housing

Home Secretary Yvette Cooper is thought to be one of the losers from the spending review

The backdrop to the decisions has been looking increasingly grim, with Labour trailing in the polls behind Reform – whom Ms Reeves repeatedly attacked from the despatch box. 

Figures yesterday showed unemployment rising, and a survey found just 12 per cent of Brits believe Ms Reeves is doing a good job. 

Ministers have described the spending plans – equal to an extra £8,100 for every taxpayer in Britain – as ‘the end of austerity’.

In the chamber, Ms Reeves said the Coalition government had made ‘destructive choices’ for society.

She said: ‘In this spending review, total departmental budgets will grow by 2.3 per cent a year in real terms. Compare that to the Conservative choice for austerity. In contrast to our increase of 2.3 per cent, they cut spending by 2.9 per cent per year in 2010.

‘So let’s be clear, austerity was a destructive choice for the fabric of our society. And it was a destructive choice for our economy too, choking off investment and demand, creating a lost decade for growth, wages and living standards.’

She added: ‘My choices are different. My choices are Labour choices. The choices in this spending review that are possible only because of my commitment to economic stability and the decisions that this Government has made. 

‘The Conservatives’ fiscal rules guaranteed neither stability, nor investment. And that is why I changed them. My fiscal rules are non-negotiable and they are the foundation of stability and of investment.’

The Chancellor also took aim at Nigel Farage, saying his ideas for massive tax cuts and more spending on benefits were ‘not serious’.  

Ms Reeves confirmed that defence spending will reach 2.5 per cent of GDP by 2027.

However, she gave no specific timetable for the ‘ambition’ to hit 3 per cent. 

And that is below the 3.5 per cent target Nato is expected to agree at a summit later this month.

‘That uplift provides funding for the Defence Secretary, with a £11billion increase in defence spending and a £600million uplift for our security and intelligence agencies. That investment will deliver not only security, but also renewal in Aldermaston and Lincoln; Portsmouth and Filton; On the Clyde and in Rosyth. 

‘Investment in Scotland. Jobs in Scotland. Defence for the United Kingdom, opposed by the Scottish National Party delivered by Labour.’

Ms Reeves said £4.5billion would be invested in munitions in Glasgow, Glascoed, Stevenage and Radway Green. £6billion will be spent on upgrading nuclear submarine production in Barrow, Debry and Sheffield.

She added: ‘We will make Britain a defence industrial superpower. With the jobs, the skills and the pride that comes with that.’

Home Secretary Yvette Cooper looks to be one of the losers from the spending review, after the Treasury rejected her pleas for more police funding.

But Ms Reeves made a point of praising Ms Cooper, saying there is funding for the promised 13,000 police officers and staff in England and Wales.

‘I am increasing police spending power by an average 2.3 per cent per year in real terms over the spending review period to protect our people, our homes and our streets,’ she said.

‘That is more than £2billion, supporting us to meet our plan for change commitment of putting 13,000 additional police officers, PCSOs and special constables into neighbourhood policing roles across England and Wales.’ 

The Spending Review documents suggested that some of the police funding would be from the council tax precept, which could rise by £14 a year for the next three years. 

The Chancellor later said the Government would not be ‘going above’ council tax increases of 5 per cent a year.

She told ITV: ‘The previous government increased council tax by 5 per cent a year, and we have stuck to that. We won’t be going above that.

‘That is the council tax policy that we inherited from the previous government, and that we will be continuing.

‘And of course, that money goes into those local public services, including social care, and in case of the police precept, it goes into our local policing.’

In her Commons statement, Ms Reeves highlighted Labour’s manifesto pledge of abolishing asylum hotels in this Parliament – despite little signs of progress.

‘We will cut the asylum backlog, hear more appeal cases, and return people who have no right to be here, saving the taxpayer £1billion per year,’ the Chancellor said. 

In her speech, Ms Reeves admitted voters do not feel like they have more money in their pockets as Labour prepares to mark one year in office.

But she insisted she is ‘renewing Britain’. 

‘This Government’s task – my task – and the purpose of this spending review is to change that, to ensure that renewal is felt in people’s everyday lives, their jobs, their communities,’ she said.

Last week, Ms Reeves refused to rule out any further tax increases.

Allies of Angela Rayner have hailied victory in her bid to secure more cash towards meeting Labour’s target of building 1.5million new homes by the next election.

The Deputy PM, who is responsible for housing policy, had a series of bust-ups with Treasury ministers and No 10 over the issue.

The Treasury had proposed a modest increase in the social housing budget from £2.3billion a year to £2.5billion. But Ms Rayner has secured a £39billion settlement over ten years.

Ms Reeves said it was the biggest boost to social housing in a generation. 

But the growing cost of servicing the UK’s debt mountain means a squeeze in other areas of spending.

Paul Johnson, the head of the respected IFS think-tank, said: ‘The schools settlement in England is tight. Strip out the cost of expanding free schools meals, and you get a real-terms freeze in the budget. 

‘With falling pupil numbers, this would in principle allow a rise in spending per pupil. 

‘Instead, the government may have to freeze spending per pupil in order to meet rising demand for special education needs provision.’ 

Addressing a meeting of the Parliamentary Labour Party this evening, Ms Reeves urged her party’s MPs to talk up the benefits of her spending review.

‘People are only going to know the good news that we set out today if we campaign on it, if we deliver the leaflets, if we speak to people on the doorstep, if we write those pieces for our local papers – that is how people are going to know that it is Labour making these differences,’ she said. 

The Tories branded Ms Reeves the ‘Spend Today, Tax Tomorrow Chancellor’.

Shadow chancellor Mel Stride said: ‘Labour is spending money it doesn’t have, with no credible plan to pay for it. 

‘That means more borrowing, more debt, and, inevitably, more tax rises in the Autumn Budget. Don’t be fooled. We can’t afford Labour.’ 

Rachel Reeves is splashing the cash today as fears mount that Brits will need to pick up the bill later

Defence Secretary John Healey has been pushing the Treasury for more funding  

Ed Miliband and Liz Kendall were at the Cabinet meeting this morning

A survey has found just 12 per cent of Brits believe Ms Reeves is doing a good job

The Chancellor and Prime Minister (pictured) have repeatedly claimed that Labour has ‘fixed the foundations’ of the economy, despite rising inflation and cuts to official growth forecasts

Sir Mel added: ‘This spending review won’t be a plan for the future – it will be a dangerous gamble with Britain’s economic stability.

‘Labour is spending money it doesn’t have, with no credible plan to pay for it. That means more borrowing, more debt, and, inevitably, more tax rises in the autumn Budget.’ 

Stephen Millard, interim director of the NIESR economic research institute, said: ‘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.’

Raj Badiani, economics director at S&P Global Market Intelligence, said: ‘The Government will face a persistent challenge of providing substantial funding increases to health, housing, defence and infrastructure development while also ensuring adequate financing to non-protected services – all against the backdrop of meeting its non-negotiable fiscal rules.

‘The goal of balancing books is likely to require a series of painful fiscal announcements, with the spending review following on from a difficult spring statement and 2024’s autumn budget.

‘This year’s autumn budget could be another tough fiscal event, should the UK economy falter amid heightened domestic and external tensions.’

Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, suggested ‘stealth taxes’ could be used later this year to help support these funding plans but said larger hikes could be needed depending on economic forecasts.

‘We think that taxes will need to rise in the coming years to meet day-to-day spending pressures on public services and generational challenges like the need for increased defence spending.

‘Looking ahead to the October Budget, the Chancellor can likely cover small extra spending commitments — like reversing cuts to winter fuel payments — with hikes to duties and other ‘stealth’ taxes that raise prices.

‘But the Government would need to break manifesto promises to hold the big tax rates steady, or change its fiscal rules, if the OBR (Office for Budget Responsibility) downgrades its view of productivity growth in the October budget.’

Chairman of the National Police Chiefs’ Council Gavin Stephens said: ‘It is clear that this is an incredibly challenging outcome for policing.

‘In real terms, today’s increase in funding will cover little more than annual inflationary pay increases for officers and staff.

‘Whilst we await further detail on allocation to individual forces, the amount falls far short of what is required to fund the Government’s ambitions and maintain our existing workforce.

‘A decade of underinvestment has left police forces selling buildings, borrowing money and raising local taxes to maintain the what we already have, with forces facing a projected shortfall of £1.2bn over the next two years, which is now expected to rise.

‘This is against a backdrop of increasing crime rates, with new and escalating threats from organised crime and hostile states, and more offenders being managed in the community as a result of an overstretched criminal justice system.

‘Cutting crime isn’t just about officer numbers – we need specialist skills and people, supported with the right systems and technology, to better protect communities.

‘We fully support the Government’s drive to cut crime and grow officer numbers, but for these to succeed, investment in policing must live up to the ambition.’

In recent days, the Chancellor and Prime Minister have repeatedly claimed that Labour has ‘fixed the foundations’ of the economy, despite rising inflation and cuts to official growth forecasts.

Yesterday’s stark employment figures underline the real-world impact of Labour’s tax and spend approach. They revealed UK payroll numbers have shrunk by 276,000 over the past seven months. In May alone, payrolls fell by 109,000 – the worst month since the pandemic.

Meanwhile the unemployment rate has climbed to 4.6 per cent, the highest in nearly four years.

Experts pinned the blame on Ms Reeves’s £25 billion raid on employer National Insurance, which was announced in the October Budget and took effect in April. Payroll numbers fell every month since the Budget.

WINNERS 

The NHS 

Among the main announcements was a £29billion increase in NHS funding, a rise of around 3 per cent in real terms.

Ms Reeves defended the Government’s record on the NHS since coming into office, including 1,700 new GPs, 3.5million more appointments and cutting waiting lists by 200,000.

She said the Government was spending £10billion on more digitising services as part of the Government’s 10-year plan for the health service.

She said: ‘To support that plan, to back the doctors and nurses we rely on, and to make sure the NHS is there whenever we need it, I am proud to announce today that this Labour Government is making a record cash investment in our NHS, increasing real-terms, day-to-day spending by 3 per cent per year for every year of this spending review.

‘An extra £29 billion per year for the day-to-day running of the health service. That is what the British people voted for and that is what we will deliver. More appointments. More doctors. More scanners. The National Health Service, created by a Labour government, protected, by a Labour government, and renewed, by this Labour Government.’

But the Institute for Fiscal Studies has already warned that any increase in NHS funding above 2.5 per cent is likely to mean real-terms cuts for other departments, or further tax rises to come in the budget this autumn.

The Institute for Fiscal Studies has already warned that any increase in NHS funding above 2.5 per cent is likely to mean real-terms cuts for other departments, or further tax rises to come in the budget this autumn.

The cash injection, which amounts to £17 billion in real terms, comes after Sir Keir Starmer pledged to ensure that by the next election 92 per cent of patients in England waiting for planned treatment are seen within 18 weeks of being referred. 

Latest NHS data suggests around 60 per cent of people are currently seen in this time and figures released last month showed the overall number of patients on waiting lists had risen slightly from 6.24 million to 6.25 million.

But it comes just nine months after The NHS was a major winner from Ms Reeves’s first Budget last October, when the Chancellor as she poured £22.6billion more into the flatlining health service.

At the time Health Secretary Wes Streeting was brutally clear that this may not be enough, because the NHS is ‘not just on its knees, it’s on its face’.

Schools 

Ms announced £4.5 billion-a-year for the core schools budget by the end of the spending review.

The Chancellor also said there would be investment rising to nearly £2.3 billion per year to ‘fix our crumbling classrooms’.

Some £370 million will be spent on school-based nurseries, in addition to £555 million to ‘break the dangerous cycle of late intervention and low-quality care’.

She told MPs: ‘People who went to ordinary comprehensives like mine in the 80s and 90s are all too familiar with the experience of being taught in temporary classrooms. 

‘And the previous Conservative government oversaw another generation of kids herded into cold, damp buildings as school roofs literally crumbled. It wasn’t acceptable when I was at school, and it isn’t acceptable now.’

A report earlier this year warned schools and universities are facing squeezed budgets next year as rising costs are likely to outstrip funding growth.

The Institute for Fiscal Studies (IFS) said state school budgets will remain ‘very tight’ and universities will not reach a ‘secure financial footing’ in 2025/26.

This is despite Labour’s new VAT on private school fees, which will pay for 6,500 new teachers, and a university tuition fee rise of £285 to £9,535.

Earlier this week the National Education Union called for a 2 per cent wealth tax to be used to pour more money into education. 

General secretary Daniel Kebede said: ‘Our schools are at breaking point, with cuts leading to fewer resources, larger class sizes, and the erosion of subjects that are crucial to a well-rounded education. The Government must stop short-changing education.

‘Now is the time for a wealth tax, and closing unfair loopholes to ensure the very richest pay their fair share. Instead of picking the pockets of our pupils, it’s time to tax profits and prioritise our children and our communities over corporate greed.’ 

Defence

Defence spending will rise to 2.6 per cent by April 2027, Rachel Reeves confirmed, as she said Britain will become a ‘defence industrial superpower’.

The cash will include £11billion for rebuilding the Armed Forces in the face of an increased threat from Vladimir Putin’s Russia. 

It comes days after the NATO secretary general warned that Britain’s only alternative to investing more in the military would be to start learning Russia.

Former Dutch PM Mark Rutte issued the chilling message while in London for talks with Sir Keir ahead of a NATO summit later this month.  

The Chancellor quoted Sir Keir Starmer who said the global security situation meant a ‘new era for defence and security’ was needed. Increased spending would lead to jobs across the UK, she added.

She said: ‘A new era in the threats we face demands a new era for defence and security. That’s why we took the decision to prioritise our defence spending by reducing Overseas Development Aid so that defence spending will now rise to 2.6% of GDP by April 2027 including the contribution of our intelligence agencies.

‘That uplift provides funding for the Defence Secretary, with a £11bn increase in defence spending and a £600m uplift for our security and intelligence agencies.’

Ms Reeves said £4.5 billion would be invested in munitions in Glasgow, Glascoed, Stevenage and Radway Green. £6 billion will be spent on upgrading nuclear submarine production in Barrow, Debry and Sheffield.

NATO allies are expected to be asked at the gathering to agree a commitment on allocating 3.5 per cent of GDP to core defence spending by the 2030s.

It comes days after NATO secretary general Mark Rutte warned that Britain’s only alternative to investing more in the military would be to start learning Russia.

A further 1.5 per cent of GDP would be required for ‘defence-related expenditure’ under Mr Rutte’s plan to strengthen the alliance.

It follows pressure from US President Donald Trump on European members of NATO to hike their military budgets.

There are questions about how the UK would fund such an huge increase – roughly equivalent to an extra £30billion annually.

Britain allocated 2.33 per cent of GDP to defence last year, and Sir Keir has only committed to reaching 2.5 per cent by April 2027.

The Labour Government has an ‘ambition’ of increasing that to 3 per cent in the next parliament – likely to run to 2034.

Social housing 

The Government’s £39 billion spending on affordable and social homes has been confirmed by the Chancellor, as she said she wanted to ensure people had the ‘security of a proper home’.

Ms Reeves told MPs Labour’s planning reforms had increased opportunities to build homes. She said it was the biggest increase in half a century.

She said: ‘A plan to match the scale of the housing crisis must include social housing neglected for too many decades, but not by this Labour Government.’

She continued: ‘Led by (Angela Rayner), we are taking action. I am proud to announce the biggest cash injection into social and affordable housing in 50 years. A new Affordable Homes Programme – in which I am investing £39 billion over the next decade.

‘Direct Government funding that will support housebuilding especially for social rent and I am pleased to report that towns and cities including Blackpool, Preston, Sheffield and Swindon already have plans to bring forward bids to build new houses.’

The additional spending has been welcomed by homelessness charities, with Crisis calling it ‘a determined political signal that housing really matters’ and Shelter describing the move as ‘a watershed moment in tackling the housing emergency’.

Flagship planning reforms which are ‘critical’ to the homes pledge cleared the Commons last night.

MPs voted by 306 to 174, majority 132, to approve the Planning and Infrastructure Bill at third reading on Tuesday evening.

Housing minister Matthew Pennycook said the Bill, which aims to improve certainty and decision-making in the planning system, will help to tackle the UK’s housing crisis.

But Tory shadow housing secretary Kevin Hollinrake described the draft legislation as ‘dangerous’ and warned it could lead to ‘rows of uninspiring concrete boxes’.

In addition, the 200-year-old law criminalising rough sleepers is to be scrapped in what homeless charities have hailed a ‘landmark moment’.

The Vagrancy Act, introduced in 1824 for punishment of ‘idle and disorderly persons, and rogues and vagabonds, in England’, is to be repealed by spring next year, the Government has confirmed.

Nuclear power

Britain’s spending on small modular nuclear reactors will ensure the UK is at the ‘forefront of a global race for new nuclear technologies’, Rachel Reeves said.

The Chancellor has also already announced some £16.7 billion for nuclear power projects, the bulk of which will fund the new Sizwwell C plant in Suffolk.

She said the preferred partner for the £2.5 billion project is Rolls-Royce. The same amount will be spent on nuclear fusion.

‘This investment is just one step towards our ambition for a full fleet of small modular reactors as well as providing a route for private sector-led advanced modular reactor projects to be deployed in the UK,’ the Chancellor told MPs.

The Chancellor has also already announced some £16.7 billion for nuclear power projects, the bulk of which will fund the new Sizwwell C plant in Suffolk.

She added it would ‘strengthen Britain’s position at the forefront of a global race for new nuclear technologies’.

The Chancellor said the Government would also support the Acorn project for carbon capture in Scotland.

She said: ‘These are investments to make sure the towns and cities which powered our last industrial revolution will play their part in our next industrial revolution, to reduce our reliance on overseas oil and gas and protect working families from price shocks.’

LOSERS

The police?

Home Secretary Yvette Cooper was the last minister to reach a deal with the Treasury, amid a major row over how much money she would get for policing. 

And questions remain over whether the funding unveiled by Ms Reeves will be enough as she said shew was increasing police spending power by an average of 2.3 per cent per year in real terms  – more than £2 billion.

She said forces will get more cash to allow Labour to fulfil its manifesto pledge of introducing 13,000 extra police officers in England and Wales, citing the importance of people feeling safe in their communities.

On Monday, West Midlands Police and Crime Commissioner (PCC) Simon Foster called for the reinstatement of 700 officers the force has seen cut since 2010, while Hertfordshire’s PCC Jonathan Ash-Edwards warned the force is facing a growing burden.

Their comments followed warnings by the president of the Police Superintendents’ Association Nick Smart, and Tiff Lynch, acting national chairman for the Police Federation of England and Wales.

In December, the National Police Chiefs Council (NPCC) warned that forces in England and Wales were facing a £1.3 billion shortfall over the next two years.

And last month, head of the Metropolitan Police Sir Mark Rowley joined with head of the NPCC Gavin Stephens and four other chief constables to call for more investment.

The Home Office will also receive a £680 million cash boost for border security.

 Ms Cooper has gained £100 million to spend on tackling illegal migration this year and a further £580 million over the next three years for border police and surveillance, including more drones.

The Government has vowed to crack down on people-smuggling and Channel crossings since coming to power in July last year.

This includes by funding elite officers to increase patrols along the northern French coastline and launching a specialist intelligence unit in Dunkirk to track down people smugglers.

It has also established a Border Security Command to lead strategy and its Border Security, Asylum and Immigration Bill, currently going through Parliament, seeks to introduce new criminal offences and hand counter terror-style powers to law enforcement agencies to target smuggling gangs.