Rachel Reeves has said there will be a “real-terms increases to government spending in this parliament" but has not ruled out cuts to individual departments’ spending power.
Speaking to BBC Radio 4’s Today programme this morning ahead of a speech at the Labour Party conference, she said: "There won't be a return to austerity, there will be real-terms increases to government spending in this parliament.”
Asked if some departments could nevertheless face cuts, Reeves said: “What I’m saying is there will not be real-terms cuts to government spending, but the detailed department-by-department spending will be negotiated.”
Reeves added: “But we also need to reform our public services. It’s not just about how much money you put in, it’s about how you run government departments and how you run frontline public services. It’s why all of our ministers are working with Peter Kyle at the Department for Science, Innovation and Technology to bring new innovation to public services so that we can do things better, not just spend more money. Of course money is needed, but it’s needed alongside reform.”
In her speech at the conference, she repeated the “no austerity” message, saying: "Because I know how much damage has been done in those years... there will be no return to austerity."
The chancellor will set out departmental spending plans for 2025-26 in the autumn budget in October, to be followed by a multi-year spending review in the spring.
During the election, the Institute for Fiscal Studies warned that unprotected departments faced cuts of up to 2.9% under Labour's plan.
After Labour came to power, Reeves ordered a financial audit. Following its completion, she said the government had discovered a £22bn “black hole” in public finances and asked departments to find 2% cuts from their administration budgets, as well as halting“non-essential” spending on external consultants and government communications. She has reportedly asked certain departments to find billions of pounds in savings ahead of the upcoming Budget.
Reeves said in her speech that if the UK had grown at the rate of the OECD average in the last 14 years year of Conservative governments, the economy would be £140bn larger than it is today. She said this would have meant £58bn a year more for public services “without raising a single tax rate by a single penny revenue to invest in our schools, our hospitals, our police and all our public services”.
Reeves also told the conference that she would change the Treasury’s previous approach to investment and setting out the government's new industrial strategy next month.
“It is time that the Treasury moved on from just counting the costs of investment to recognising the benefits too. So we are calling time on the ideas of the past; calling time on the days when governments stood back, left crucial sectors to fend for themselves, and turned a blind eye to where things are made and who makes them.
“The era of trickle-down, trickle-out economics is over, and so I can announce, that next month, alongside our business secretary Jonathan Reynolds, I will publish our plans for a new industrial strategy for Britain.”
Covid corruption commissioner to probe contracts
Reeves also used her conference speech to confirm that the government's new Covid corruption commissioner will investigate more than £600m worth of Covid contracts awarded under the Conservatives.
"I have put a block on any contract being abandoned or waived until it has been independently assessed by that commissioner," she said.
"I won't run a blind eye to rip-off artists and fraudsters, who used a national emergency to line their own pockets. I won't let them get away with it."