Spending commitments on defence mean it is “impossible” for the chancellor to invest in economic growth, public services and net zero policies when she allocates money for the next three years, leading economists have warned.
Rachel Reeves will face “unavoidably” tough choices as she set out her plans in a spending review in just over a week, the Institute for Fiscal Studies (IFS) says.
The government has pledged to increase defence spending to 2.5 per cent of GPD within the next two years.
But on Saturday, ahead of the launch of a new defence strategy on Monday, the defence secretary John Healy went further as he said there was “no doubt” the UK would meet its target to raise the level to 3 per cent by 2034.
The IFS said the spending review would be dominated by money for defence and the NHS. Its research economist Bee Boileau said funding for other priorities will likely slow to a “trickle”.
She said: “At the spending review the government faces some unavoidably tough choices, particularly as, after turning on the spending taps last autumn, the flow of additional funding is now set to slow to more of a trickle.
“Take capital spending: government investment is set to be sustained at historically high levels in the coming years, but most of the increase happened last year and this year, and it looks as if all of the remaining increase in funding over this parliament has already been allocated to defence.
“Simultaneously prioritising additional investments in public services, net zero and growth-friendly areas within this envelope will be impossible.”
On Saturday The Independent revealed that Angela Rayner and Ms Reeves were at loggerheads over the spending review as the deputy prime minister’s department missed an unofficial deadline to settle its budget until the next general election without securing an agreement.
With the review set to be unveiled on 11 June, departments said that the Treasury wanted its plans agreed by the start of this weekend.
But The Independent understands that Ms Rayner’s Ministry of Housing, Communities and Local Government (MHCLG) is one of several departments yet to settle with Ms Reeves and her deputy Darren Jones.
The review will see Ms Reeves announce the government’s day-to-day departmental budgets for the next three years and investment budgets for the next four.
The Local Government Association has called for councils to get a “significant and sustained” boost to funding so they can deliver vital services.
“Councils in England face a funding gap of up to £8bn by 2028-29 and have already had to make huge savings and efficiencies over the past decade,” LGA chair Pete Marland said. “They desperately need a significant and sustained increase in overall funding in the spending review to meet the requirements being placed on them.
“Without adequate funding, councils will continue to struggle to provide crucial services, with devastating consequences for those who rely on them, and it will be impossible for them to help the government achieve its reform and growth agenda.”
The Liberal Democrats urged the government to put money into social care.
“Ending the crisis in our NHS must be a top priority, but unless they fix social care too, ministers will just be bailing water from a sinking boat with a spoon,” the party’s treasury spokesperson Daisy Cooper, said. “Vital NHS investment risks going to waste if hospitals can’t discharge patients who don’t need to be there and if local authorities don’t have the resources to care for people in their homes and prevent them going to hospital in the first place.”
She also urged the government to negotiate a bespoke UK-EU customs union, to boost the economy, before looking at “painful cuts to already stretched budgets”, from justice to farming.
