By Peter Main
On 11 June, Chancellor Rachel Reeves will present her Comprehensive Spending Review. This will be the clearest statement yet of the strategy behind Labour’s economic policy for the next four years. It is the conclusion of a process that began well before last July’s general election with the adoption of the ‘fiscal rules’ that would, supposedly, govern all subsequent decision making.
The idea of such rules was first introduced by Gordon Brown in the run up to the 1997 election and its purpose was to assure capital in general, and the City of London in particular, that a Blair-Brown government would not see an explosion of public spending after 17 years of Tory rule.
Reeve’s fiscal rules had exactly the same purpose. They distinguished between spending on investments and spending for day to day services and administration. Because of the inevitably longer term returns on, for example, infrastructure projects, such spending would continue to be funded by borrowing. However, routine expenditure, and that includes the provision of public services, had to be entirely financed by revenue by the final year of the parliament, 2029.
Interestingly one of the tweaks that Reeves has foreshadowed is that she will treat increased defence spending, on military hardware and weapons of mass destruction, as capital investments. So we can all breathe a sigh of relief that bomb production will not seize up, just because pensioners cannot heat their flats next winter!
At the same time, Labour committed itself to no increases in the three biggest taxes: income tax, National Insurance and VAT. Given that borrowing was currently necessary, that could only mean either a big increase in revenue from some other source or a reduction in spending on services.
The next stage in the procedure was the formulation of last October’s budget, which was presented as an emergency response to the ‘black hole’ left behind by the Tories, but also set the overall fiscal strategy for the coming year. That was supposed to stabilise the foundations of the government upon which it would then build specific policies.
The budget calculations and projections were then subject to inspection by the Office for Budget Responsibility, OBR, a body invented by George Osborne in 2010 to back up his austerity programme. For Reeves, its purpose was, once again, to reassure big business, this time that Labour’s plans would indeed keep within the fiscal rules.
The Spending Review is the final step in the sequence. In it, the Chancellor and her team examine the details of every department’s plans to ensure each keeps within its allotted funding. Given recent increases in both inflation and interest rates, that will undoubtedly mean cuts in some services and scaling back of plans in others– with the exception of defence, no doubt.
Even the IMF has advised her to relax these fiscal rules now to avoid having to break them later, under pressure from ‘spending department’ ministers and backbench MPs. And Nigel Farage has stolen Labour’s old clothes by taking up winter fuel payments and the two child benefit cap, only to be accused by Starmer of ‘fantasy economics’.
The usual jockeying for position between ministers has preceded Reeves’ announcement, with Wes Streeting demanding a 4% uplift for the NHS and Angela Rayner claiming her housing targets will be missed without a cash injection. More worrying for Labour’s party managers though are the 150 MPs who have indicated they will rebel over benefit cuts as soon as they have the opportunity.
There is more to this whole procedure than proving Labour’s commitment to the interests of British capitalism. It is also intended to convince workers that there is no alternative to sticking to the whole package of government policy – any deviation would break the fiscal rules and endanger the existence of the government and open the way to another Tory, or even Reform, government.
Despite the hard talk and the reverence for the fiscal rules, as if they were some kind of objective law that simply cannot be infringed, the reality is that all policies are choices, political choices and subject to political pressure. Already, Keir Starmer has implied that at least elements of the Winter Fuel Allowance will be reinstated and that even the two-child benefit cap is being reconsidered.
Why? Because of the hostility which met October’s budget and the recognition that Labour’s 400 plus Commons majority was not the product of mass working class support but the collapse of the Tories and a de facto electoral deal with the LibDems.
Labour MPs know full well that their seats, and their careers, are far from safe. That makes them vulnerable to pressure from their constituents to defend services they depend on. Potentially more important would be pressure from the trades unions, supporting action over pay, conditions and jobs, and demanding the repeal of all the anti-union laws.
One big danger is that those union leaders will hold back, saying they should not destabilise a Labour government. The truth is that the anti-union laws attacked workplace organisation and initiative by strengthening union officials. And now those leaders are unwilling to give up their controls!
In the coming months, as global instability increases, socialists need to prioritise organisation within the unions to force leaders to support direct action not only for economic but also for political demands.
