Rachel Reeves pins hopes of a reset on Spending Review

Each year, the chancellor gets to set a Budget – a moment to grab the nation’s attention and show voters that the people running the country understand their struggles, and are on their side.

It’s supposed to be the annual set piece of any UK Government. But on Wednesday, Rachel Reeves will deliver a statement to the House of Commons that is arguably more important than any Budget she’ll deliver.

This week’s Spending Review isn’t even considered a ‘fiscal event’ – that means there shouldn’t be any detailed tax and spending decisions at all. Instead, the chancellor is supposed to plot out overall public spending for the three years ahead, department by department.

The reason it matters so much is because the UK Government is desperate to change perceptions of how it’s managing the economy and the public finances. Even though she should have a few more Budgets left before the next general election, this could be Rachel Reeves’ last chance to change course.

Labour came to power with a brutal message when it came to the public finances – not ‘things can only get better’, but ‘things are definitely going to get worse’. The idea was to show voters that finally, Labour could be trusted with people’s tax money.

That approach led Reeves to announce the slashing of Winter Fuel Payments as one of her first policies in office. But rather than building trust, taking help with energy bills away from millions of pensioners has been hugely unpopular.

Bruised by the backlash, today the chancellor confirmed a U-turn and announced that millions of pensioners across England and Wales will have their Winter Fuel Payment restored – pensioners in Scotland had already been told by the Scottish Government that they will get a payment this winter, regardless of their circumstances. But the political damage has already been done, and many Labour MPs feel it could have been avoided if Reeves had toned down the tough economic message just a little, and not suffocated any sense of hope just a few weeks into office.

The UK Government now faces another critical moment, and it can’t afford to make the same mistake. After boosting investment and day-to-day spending in her first Budget, this week’s spending review will put a much tighter squeeze on the public finances.

Overall, spending will continue to rise, but by much less than in Labour’s first year in power – and the biggest share of any additional cash will be swallowed up by the NHS, meaning many other departments and public services could see their budgets cut.

The UK Government is anxious to rebut any claims that this is a return to austerity, and looking at public spending as a whole, that’s true. But that doesn’t mean there won’t be more tough, unpopular decisions in the final years of this Labour government, as a result of this week’s Spending Review.

Most of those decisions will only directly affect public services south of the Border, but they will have an impact on the Scottish Government’s overall budget in years to come. Facing the same pressures of rising costs and an ageing population, that means tough decisions down the line for whoever is in power at Holyrood, too.

Without a bit more optimism than she’s managed so far, the chancellor risks fuelling the trends in the polls, with Reform rising and Labour hitting new lows. And in Scotland, the economic narrative has also hurt Labour and given hope to the SNP – even though it was Scottish Labour that emerged victorious at the Hamilton, Larkhall and Stonehouse byelection. That win was very much against the odds, and in spite of the UK Government’s unpopularity.

This week represents Rachel Reeves and Keir Starmer’s best chance of a reset. It could be their last chance, too.