If you sat through the entire spending review speech delivered by Rachel Reeves in the House of Commons, you might have been lulled into a sense that the UK was awash with a wealth of riches as the chancellor sprinkled billions across the land.
There were billions for social housing, nuclear power stations, rail lines and research and development to power the economy.
There was money for schools, the police, the NHS, and defence spending, as the chancellor sketched out her roadmap for Britain for years to come, with an acknowledgement that the government – and particularly this chancellor – had endured a difficult first year.
“We are renewing Britain. But I know that too many people in too many parts of our country are yet to feel it…the purpose of this spending review is to change that,” she said.
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There was £113bn of borrowing to fund capital investment and an extra £190bn over the course of the parliament for public services, fuelled by those contentious tax rises in the budget last autumn. This was a Labour chancellor turning her back on austerity.
“In place of decline, I choose investment. In place of retreat, I choose national renewal,” she said.
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The chancellor deserves credit for the capital investment, which she hopes will unlock jobs and power economic growth. But when something sounds too good to be true, it normally is.
For me, former shadow chancellor John McDonnell hit the nail on the head on Wednesday night as he remarked rather wryly to me that “the greater the applause on the day, the greater the disappointment by the weekend”.
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Could tax hikes be needed?
Because, in talking up the prospect of national renewal, the chancellor glossed over what the “hard choices” mean for all of us.
There are questions now swirling about where the cuts might fall in day-to-day budgets for those departments which are unprotected, with local government, the Home Office, the Foreign Office, and the Department for Environment all facing real-terms cuts.
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My colleague Ed Conway, analysing the government figures, found cuts in the schools budget for the last two years of this parliament – the chancellor’s top line figure showed an overall rise of 0.6% over the five-year period of this Labour government.
There are questions too over whether council tax bills might be increased in order to top up local government and police budgets.
Ms Reeves told me in an interview after her speech that they won’t, but she has predicated increases in police funding and local government funding coming locally, rather than from central government, so I will be watching how that will play out.
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Even with the increase in health spending – the NHS is getting a 3% boost in its annual budget – there are questions from health experts whether it will be enough for the government to hit a routine operations target of treating 92% of patients within 18 weeks.
My point is that this might not be – to again quote Mr McDonnell – “mathematical austerity”, but after over a decade where public dissatisfaction in public services has grown, the squeeze of day-to-day spending could make it hard for the chancellor to persuade working people this is a government delivering the change for them.
There is pressure to reverse some of the welfare cuts, and pressure to lift the two-child benefit cap, while the pressure to reverse the winter fuel allowance has already resulted in Reeves this week making a £1.25bn unfunded spending commitment (she will set out how she is paying for it at the next budget).
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Will voters feel the ‘renewal’?
Reeves told me on Wednesday there was no need for tax rises in the autumn because the spending envelope had already been set, and the money now divvied out. It’s a very live question as to whether that can hold if the economy weakens.
She did not rule out further tax rises when I asked her last week, while Treasury minister Emma Reynolds told my colleague Ali Fortescue on Wednesday night: “I’m not ruling it in, I’m not ruling it out.”
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The gamble is that, by investing in infrastructure and getting spades in the ground, and tilting limited public money into the NHS, the government can arrive at the next election with enough ‘proof points’ to persuade voters to stick with them for another five years.
On Wednesday, the chancellor laid the foundations she hopes will turn the government’s fortunes around. The risk is that voters won’t feel the same by the time they are asked to choose.
