Chancellor Rachel Reeves has said not every government department will “get everything they want” in the upcoming spending review, as she defended her economic decisions.
In a speech in Manchester, Reeves suggested she had turned down requests for funding from ministers and argued a squeeze on funding was a “product of economic reality”.
Reeves said her rules on borrowing to pay for public services were “non-negotiable” and insisted they were necessary because of “Conservative maltreatment” of the economy.
The chancellor also confirmed winter fuel payments will be restored to some pensioners this year, after the government U-turned on cuts to the allowance.
The government said the spending review, which will be announced on 11 June, would “scrutinise every single pound the government spends”.
The review will outline day-to-day departmental budgets over the next three years and investment budgets over the next four.
Whitehall insiders have told the BBC they expect it will be “ugly”, and that ministers have been fighting over winning small amounts of cash for their respective departments.
During Prime Minister’s Questions, Conservative leader Kemi Badenoch said the government was in chaos and accused Cabinet ministers of “squabbling” over funding.
Sir Keir Starmer said the government was taking “the right decisions” on the economy adding that growth figures were up while interest rates had been cut.
Reeves’s position on ruling out borrowing for day-to-day spending and not raising taxes again has fuelled speculation that spending cuts will be made.
The chancellor said £40bn of tax hikes already announced in last year’s Budget and the changes to the way borrowing for investment is accounted for meant £300bn extra was available to pay for infrastructure projects in the coming years.
But the chancellor hinted there had been some friction within government over decisions on day-to-day spending on public services, ranging from prisons to policing.
The chancellor said despite a £190bn increase in funding over the spending review period “not every department will get everything that they want next week and I have had to say no to things that I want to do too”.
“That’s not because of my fiscal rules,” Reeves said.
“It is a result of 14 years of Conservative maltreatment of our public services, our public realm and of our economy.”
She said there were “good things I’ve had to say no to” but “the reason for that is because it is important to have control of the public finances”.
Conservative shadow chancellor Mel Stride said: “The government’s mismanagement of the economy has already led to huge tax increases.”
He added: “I think next week we’re going to see some very tough things across the spending allocations.”
The Institute for Fiscal Studies (IFS) think tank has warned tough choices are “unavoidable”, with some departments facing spending cuts.
In her speech, Reeves mounted a forceful defence of her fiscal rules, as she announced £15.6bn of investment in transport infrastructure in England.
“Over the next week you will hear a lot of debate about my so-called self-imposed fiscal rules,” Reeves said.
“Contrary to some conventional wisdom, I didn’t want to come into politics because I care passionately about fiscal rules.”
The chancellor said she came into politics “because I want to make a difference to the lives of working people”, adding that she believed “economic responsibility and social justice go hand-in-hand”.
Reeves accused former Conservative Prime Minister Liz Truss of trashing market confidence with her mini-budget, which included £45bn of tax cuts funded by borrowing, spooking global investors and leading to her resignation.
The chancellor suggested Reform UK leader Nigel Farage was “itching to repeat that exact same experiment”, calling it “fantasy politics”.
“That’s why my fiscal rules are non-negotiable,” Reeves said.
“Let’s be clear: It is not me imposing borrowing limits on government, those limits are the product of economic reality.”
The chancellor has two main rules which she has argued will bring stability to the UK economy:
- day-to-day government costs will be paid for by tax income, rather than borrowing
- to get debt falling as a share of national income by the end of this parliament in 2029/30.
Reeves was speaking in Rochdale as she confirmed plans to move away from the stringent rules in the Treasury’s Green Book, which is used by officials to calculate the value for money of major projects.
The book has been criticised for favouring London and the south-east.
In her speech, the chancellor said sticking to book’s rules had meant “growth created in too few places, felt by too few people and wide gaps between regions, and between our cities and towns”.
Changing the rules means more money for areas of the North and Midlands, including the so-called “Red Wall”, where Labour MPs face an electoral challenge from Reform UK.
The £15.6bn package will be spent on tram, train and bus projects in mayoral authorities across the Midlands, the North and the West Country.
In the Q&A after her speech, Reeves also confirmed “more people will get the winter fuel payment this winter”.
It comes after Sir Keir U-turned on the withdrawal of the allowance from millions of pensioners, after a backlash over the decision.
However, until now it was unclear whether the change in policy would be in place for this winter.
Reeves said the means test that determines who qualifies for the payment “will increase” and that they would set out the details of how the government would fund it in her next Budget in the autumn.
More than 10 million pensioners lost out on payments worth up to £300 last year after the Labour government restricted eligibility to those who qualify for pension credit and other income-related benefits.