Labour tiptoed cautiously through its first year – will it now decide to escape its own shadow?

by Tiffany

The strategising and multi-year planning going on ahead of this week's Spending Review is the bread and butter of any well-run economy.

A Spending Review shows how resources are being allocated between departments and so indicates the government's "when-push-comes-to-shove" priorities. But this time it will be a "different sort of Spending Review", the chancellor's helpers are saying.

That's because with the new government nearly one year old, this Spending Review is also a one-off opportunity to show the private sector and international investors that it has a confident, deliverable vision.

But having tiptoed cautiously throughout its first year in office, the question is whether this government can convince those potential investors that the economic vision is real? And will other long-term challenges, such as industrial energy prices, social care costs, and worker illness be prioritised or parked?

'Stop playing tiny domestic politics'

Some chief executives tell me they cannot fathom why a government with such a huge majority can sometimes appear to be scared of its own shadow.

There had been talk of Downing Street "wanting to have fights" over planning for major projects. But companies that have major investors waiting to invest in the factories that could start rolling out the mass adoption of green technologies are wondering whether Downing Street really will back them, given the polls, and possible net zero backlash.

"They need to stop playing tiny domestic politics," one boss of a major consumer company told me, as he awaits a convincing solid vision.

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Potential investors are wondering if Downing Street will really back them

It is with big investors in mind that the chancellor's focus at this spending review has been on long-term capital spending – that's where the big numbers come in.

The proportion of the country's GDP that is being earmarked for capital spending, is 2.7% on a five-year average. If that doesn't strike you as eye-watering, it's worth noting it will be at its highest sustained level for nearly half a century. It will be significantly higher than under Brown-Darling in 2010. In 2000 this number was 0.5%.

Of course, allocating significant sums is not a guarantee that the money will be spent effectively, or even at all. Spending on capital is often subject to the rollercoaster of short-term government priorities.

In a crisis it tends to be the first thing to get hacked back, because the loss of future buildings or roads or rail lines is less politically troublesome than cutting back a public service or, say, teachers' pay in the here and now.

That's why under the chancellor's new borrowing rules, the money can at least be allocated to big capital projects. Her reforms to those rules – keeping them strict on day-to-day spending, but consciously allowing more space for long-term investment – were designed for this.

The main goal being future growth.

Time to 'rewire the state'

Long-term certainty over the capital sums that are being allocated over the next week or so, could be a gamechanger. Private investment is more likely to follow if there are long-term plans in place, especially after so many years of political uncertainty.

As part of all this, the chief secretary to the Treasury is also announcing increases in spending on research and development. That is designed to boost science-led growth.

But the marquee project for this announcement will surely be the long-awaited high-speed rail line between Liverpool and Manchester. It is a piece of infrastructure forged in the fires of the UK's industrial heritage, including the world's first inter-city passenger line, and of course Stephenson's Rocket, the original steam locomotive.

Now, 200 years on from its launch in 1829, it may well be time for another industrial revolution, of sorts.

Reuters
Rachel Reeves' team says she will deliver a "different sort of Spending Review"

But make no mistake, the government has still had to make some big choices, even within a more generous capital budget. Most of the increase in defence spending announced last week is in the form of capital spending.

When the documents are published on Wednesday, it is possible that some other capital projects will have been squeezed to make room.

All departments have also reassessed spending from first principles, as part of a "zero-based" review. In theory there could be entire projects axed. There will also be a lot of "investing to spend less". Using the capital budget to invest in, say, AI scanners in the health service, in a way that ultimately is supposed to save money.

The aim, ambitiously put, is to "rewire the state" and "get Britain moving".

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