Rachel Reeves faces huge test as £600bn spending review unveils cuts and investments

Rachel Reeves faces the biggest test of her chancellorship today as she unveils a colossal £600bn spending review that will shape Britain’s future and define Labour’s promises of national renewal.

This is far more than just a routine budgetary exercise. After a turbulent first year in office, the Labour government is seizing the moment to convince voters that it can deliver the sweeping change it promised last year. Reeves’ team see this not as a reset, but as a chance to showcase the projects and policies that will transform communities.

The headlines have already started rolling. Prime Minister Keir Starmer, alongside Energy Secretary Ed Miliband, announced a £14.2bn investment in the Sizewell C nuclear power plant on Tuesday, pledging over 10,000 new jobs and improved energy security.

Last week, Reeves unveiled £15bn for new rail, tram, and bus networks across the North and West Midlands. A fresh rail line linking Liverpool and Manchester is expected to be greenlit today. Combined, these announcements form part of a £113bn capital investment blitz – Labour’s promised “decade of renewal” anchored on security, health, and the economy.

But that’s only half the story. While Reeves trumpets these ambitious projects, the real political pain sits in the day-to-day spending decisions across Whitehall.

Having front-loaded departmental budgets during Labour’s first year, Reeves is now restricting annual spending growth to just 1.2% above inflation for the rest of the parliament. Defence and the NHS will absorb much of that, leaving many unprotected departments facing real-terms cuts.

The Home Office is feeling the squeeze. Home Secretary Yvette Cooper was the last to settle with the Treasury, with her deal reportedly imposed by Reeves. Her brief remains vast — border security, immigration, homeland security and policing. Labour’s manifesto pledged 13,000 extra police officers, but with a tight settlement, delivering those numbers may force cuts elsewhere.

Council budgets, schools, and courts also face pressure as capital investment in housebuilding surges while their daily operating budgets tighten. Frustration inside the Home Office is mounting, with some questioning how security can remain one of Labour’s priorities while defence secures most of the funding.

Reeves will defend her approach today, insisting spending is up £190bn over this parliament, thanks in part to painful tax rises announced in her first budget. But the Chancellor’s refusal to ease her fiscal rule — which requires day-to-day spending to be covered entirely by tax receipts — is creating political friction inside Labour.

The winter fuel payment U-turn still hangs over her. After initially attempting to cut allowances for millions of pensioners, Reeves was forced into a £1.25bn climbdown to protect payments for nine million people. The government is also under mounting pressure to scrap the two-child benefit cap, a move backed by senior figures including Liz Kendall, Bridget Phillipson and Starmer himself — but one that could cost £3bn.

Changes to proposed disability benefit cuts may also be required to secure parliamentary support for broader welfare reforms, adding further strain.

The Chancellor is under rising pressure to loosen the purse strings. Labour MPs and ministers are increasingly pushing for targeted tax rises this autumn to ease growing discontent and deliver on campaign promises. Reeves, for now, remains publicly committed to fiscal discipline.

Despite the internal tensions, Labour insiders sense a shift in mood. The winter fuel debacle no longer dominates doorstep conversations. As one senior Labour figure told Sky News: “Last weekend was the first time in a long while that it felt alright.”

Today’s announcements may trigger headlines about cuts and tax rises, but Labour hopes the broader message will resonate: a government finally delivering on its renewal pledge with thousands of jobs, billions in investment, and long-promised change.

THE STANDARD

Rachel Reeves will use her upcoming Spending Review to promise that “working people [are] better off,” focusing on health, security, and the economy. The Chancellor is expected to unveil tens of billions for capital projects, including £15bn already announced for transport outside London. However, concerns are growing that London may miss out as Labour focuses investment in regions, partly to counter Reform UK’s rise.

Mayor Sadiq Khan fears key London projects like the DLR Thamesmead extension, Bakerloo line, and West London Orbital may lose out. Reeves will argue her plan delivers Britain’s “renewal” and ensures investment reaches towns often neglected.

The NHS is set to be the biggest winner with up to £30bn extra funding, alongside schools and defence. But other departments, like the Home Office, face real-terms cuts. Reeves has £113bn available due to looser borrowing rules but warned that Britain’s £2.8 trillion debt mountain still casts a long shadow over public finances.

BBC

Ahead of the Spending Review, people across income levels told the BBC their priorities. Lewis Eager, 26, earning £850/month, wants better job opportunities for young people struggling to enter full-time work. Nursery nurse Resheka Senior and husband Marcus, earning £52,500, seek more childcare support to ease rising costs. Apprentices Ollie Vass and Grace Sangster, earning £71,000, call for more apprenticeships, first-time buyer support, and higher tax-free allowances. Leah Daniel, on £700/month benefits, fears welfare cuts and wants stable jobs to escape poverty. GP Kirsty Rogerson, earning £96,000, urges fresh produce subsidies to tackle obesity affordably and supports higher taxes for stronger public services. Pensioner Sylvia Cook, living on £20,000, welcomes winter fuel payments but argues for government savings, tax reforms, and NHS efficiency over more spending. The diverse views highlight widespread hopes and anxieties ahead of Rachel Reeves’ Spending Review announcement, balancing investment with tight public finances.

THE NEW STATESMAN

Rachel Reeves faces a crucial Spending Review, balancing Labour’s public service ambitions with her strict fiscal rules. Amid internal discontent over her decisions, Reeves plans to boost spending by £300bn while pledging stability and £39bn for affordable housing. The stakes are high as Labour’s popularity has dipped, with Nigel Farage’s Reform Party now leading polls and presenting itself as a viable alternative. Both Labour and the Conservatives accuse Reform of “fantasy economics” due to its costly, unfunded pledges, but polling shows Labour and Reform tied on economic trust. The public’s hazy understanding of Liz Truss’s 2022 economic failure limits Labour’s ability to link Farage to Trussonomics, as voters associate Truss’s collapse with Tory incompetence rather than the policies themselves. Reeves must navigate these dynamics carefully, as any misstep could further erode her credibility and Labour’s economic standing amid rising voter disillusionment.