When the Chancellor came to the House of Commons for the spending review she had a flurry of announcements of more money for the NHS, increased infrastructure investment, and backing new nuclear power at Sizewell C.
As I sat listening to her speech, like others I wondered if a magic money tree had been found or that despite all the data showing the opposite, the economy was in fact growing so fast all this spending was easily affordable. In reality, it is funded by locking in the plans for higher levels of borrowing and increasing taxes by £40 billion a year set out in the budget last October.
However, rather than acknowledge that she would be borrowing over a hundred billion pounds more than the last Conservative government planned, Rachel Reeves kept saying changing the fiscal rules had brought stability and investment.
As a country we spend over £100 billion a year on paying off debt interest and thanks to her plans that bill will increase considerably. By comparison, we spend around £50 billion a year on defence.
Does this matter? Well, the danger is spending and borrowing are pushed up so much there is little contingency in the budget for external issues and shocks such as growth being below its already low target, new or higher US tariffs, or a spike in energy prices due to Middle East instability.
And while Rachel Reeves was happy to splurge the cash, there was little about how people would see better value for money and better public services as a result.
As well as the growing interest payments, there is pressure on spending with the government having to find £1.25 billion to reinstate winter fuel payments for many pensioners. Labour MPs – backed by Reform - also want to scrap the two child benefit gap costing £3.5 billion – increasing an unsustainable welfare budget when we need to be reforming the system and making savings.
That’s why I was out on TV and radio in my role as Shadow Treasury minister warning more tax increases in the autumn are now likely. Independent experts said she was “a gnat’s whisker” away from having to do that. That will further depress economic growth and increase unemployment meaning more borrowing will be needed and then more taxes. The result would be a damaging doom loop.
Disappointingly the latest GDP figures show the economy contracted last month and unemployment increased with 100,000 fewer people in payrolls jobs in May alone. And the government has been warned that the impact of their Jobs Tax is likely to see more people laid off, companies not taking on more people, or higher prices.
While day to day spending on the NHS is increasing, the budget for buildings and other capital spend is kept flat. Given that I challenged the health minister to confirm the £1 billion to £1.5 billion budget announced for our new QEH would be unaffected - I’m pleased to say she gave me that commitment.
Sadly this is a rather gloomy economic outlook. But this only underlines the need for the government to change course from its spend now, tax later approach. By taking its foot off the throat of business, the government could unlock some of the investment and growth that was its priority and we all want to see.
