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Economic growth

The Cloud of Numbers in Rachel Reeves' Spending Review

Strategic Insights

— 1 min read

Labour's spending review, presented by Chancellor Rachel Reeves, outlines a significant investment plan to drive economic growth. However, a closer examination reveals that the majority of this increased spending, over 60%, will be allocated to defence and net-zero initiatives. While these areas may focus on growth, they are unlikely to produce an enduringly higher growth rate. Instead, the UK faces a productivity problem, not a jobs problem, as it continues to underinvest in infrastructure and research and development. Investments in defence and clean energy may not be the most effective way to boost economic growth, and the government should focus on more growth-friendly projects such as infrastructure and R&D.

Key Takeaways:

  • Over 60% of the additional spending in Labour's spending review will be allocated to defence and net-zero initiatives, which may not produce an enduringly higher growth rate.
  • The UK faces a productivity problem, not a jobs problem, as it continues to underinvest in infrastructure and research and development.
  • Targeted investments in infrastructure and R&D are more likely to improve growth and steer workers towards more productive areas.
  • The government can be more confident in investing in infrastructure and R&D to increase growth, as the UK has long underinvested in transport infrastructure relative to other developed economies.
  • The Department for Science, Innovation and Technology will receive a £3.8bn increase in its annual capital budget, while the Department for Transport receives only £1.8bn.
  • The overall transport budget will experience a real-terms cut, despite the extra £14bn going to defence and the £9bn going to the Department for Energy Security and Net Zero.

Statistics:

  • 60% of additional spending in Labour's spending review will be allocated to defence and net-zero initiatives. (Source: Helen Miller)
  • £113bn of additional investment is forecast to take place over the current parliamentary term. (Source: Labour Government)
  • £140bn of extra borrowing is forecast over the same period. (Source: Labour Government)
  • The UK has long underinvested in transport infrastructure relative to other developed economies. (Source: Department for Transport)
  • £3.8bn will be allocated to the Department for Science, Innovation and Technology as an increase in its annual capital budget. (Source: Labour Government)
  • £1.8bn will be allocated to the Department for Transport. (Source: Labour Government)

Sources:

  • "The Cloud of Numbers in Rachel Reeves' Spending Review" by Helen Miller, Institute for Fiscal Studies
  • Labour Government website
  • Department for Transport website

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