By David Milliken
LONDON (Reuters) -British finance minister Rachel Reeves will divide up more than 2 trillion pounds ($2.7 trillion) of public spending on Wednesday in a speech she hopes will foster a sense of national renewal and make clear the year-old Labour government’s political priorities.
In an address to parliament due after 1130 GMT, Reeves will set out day-to-day budgets for government departments from 2026 to 2029 and investment plans out to 2030.
Reeves set the overall total for spending in an October budget, financing her plan with the biggest tax rise in a generation and looser fiscal rules that make it easier for her to borrow to cover long-term investment.
The choices she announces on Wednesday must start paying off quickly if Labour is to achieve its goals of boosting Britain’s growth rate and improving the quality of overstretched public services.
“This government is renewing Britain. But I know too many people in too many parts of the country are yet to feel it,” Reeves is expected to tell parliament, according to speech extracts released by the finance ministry.
Reeves said the government would “invest in our country’s security, health and economy so working people all over our country are better off.”
Among the projects announced on Wednesday was likely to be a 39 billion-pound 10-year programme to build lower-cost housing – almost doubling the annual amount spent on this compared with existing support, the finance ministry said.
Since its sweeping election victory last July, Labour has seen its popularity slide. The right-wing Reform Party led by former Brexit campaigner Nigel Farage is now ahead of it in the polls and outperformed it in English local elections last month.
While Britain’s economy recorded the fastest growth of the Group of Seven advanced economies in the first quarter of this year, the International Monetary Fund has forecast that in coming years it will lag behind the United States and Canada and barely outperform the euro zone.
Official data on Tuesday showed the jobless rate had hit its highest in nearly four years – which the opposition Conservatives blamed on Reeves’ October decision to place the main burden of tax rises on employers and boost workers’ rights.
SPENDING BATTLE
Discussions between Reeves and government ministers have continued into this week over how big a slice their departments will receive of a pie whose size was set last year.
Plans announced so far include 86 billion pounds on research and development, 16 billion pounds on public transport, 4 billion pounds on a new nuclear power station, 6 billion pounds on nuclear submarines and 4 billion on prisons.
The final spending increases are unlikely to be shared out equally.
Capital-intensive plans to raise defence spending to 2.5% of gross domestic product, announced by Starmer in February, mean other departments will see no real-terms increase in the pace of investment after this year, the Institute for Fiscal Studies think tank estimates.
Day-to-day spending on public services is due to rise by an average of 1.2% a year on top of inflation between 2026-27 and 2028-29, while capital budgets will increase by an average of 1.3% in real terms through to 2029-30, according to the IFS.
Both rates of growth are much slower than in the current financial year, when investment spending is set to jump by 11.6% and current spending rises by 2.5%.
For day-to-day spending, increasing the health budget by 2 percentage points more than the average – as was typical when Labour was last in power before 2010 – would mean real-terms cuts of 1% a year for other departments, the IFS said.
Chris Jeffery, head of macro strategy at Legal & General, Britain’s largest asset manager, said the fact that the overall spending total was known limited the impact for investors. Instead, financial markets would be most focused on whether any proposed cuts looked realistic for the departments affected.
“If they’re imposing really large real-terms cuts in spending, then I think the market will come to the conclusion that these are less likely to be delivered than if they are less aggressive,” he said.
($1 = 0.7409 pounds)
($1 = 0.7410 pounds)
(Reporting by David Milliken; Additional reporting by Yoruk Bahceli; Editing by Hugh Lawson)
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