Yesterday’s long-awaited Spending Review matched up to Labour’s many leaks and previews over the last few weeks. There were significant increases in health and military spending and some much needed money for housing and big infrastructure projects. But these are matched to further cuts in critical departments like agriculture and the environment, and the money for local government in particular does not restore losses since 2010 at a time of increasing pressures on their funding. This will not feel like an end to austerity and does not address the underlying economic problems we face. 

Additional spending on investment projects outside London and the South East will be welcomed. Reeves gave herself more wiggle room inside her self-imposed fiscal rules at the Budget last year, tweaking how the government counts its own debt and so allowing herself a bit more leeway with borrowing for big projects like this, called ‘capital spending’. £113 billion extra has been found for projects including railways in the North of England and, more controversially, the Sizewell C nuclear power plant. The Treasury’s internal guidance for how it makes investment decisions, the so-called ‘Green Book’, has been updated to remove a notorious bias against the country outside of London that has seen the North of England miss out on (according to the IPPR thinktank) £140 billion of extra transport spending. 

For decades, Britain has been a low-investment economy, with already comparatively low levels of investment by business and government falling further in the last decade. This is the biggest single reason for the country’s economic weakness in recent years compared to other large developed countries. Low government investment discourages businesses from investing themselves and drives the whole economy into a low wage, insecure setting. It makes sense for Labour to try and address this. But to put the new money in perspective, the additional funding will still leave UK government investment spending below the average of the OECD group of developed economies.

More importantly, it’s not the only or even the most important and immediate economic problem we face. Reeves’s fiscal rules impose tight restraints on what the government can spend on its day-to-day operations — like paying salaries for nurses or teachers, known as ‘current’ spending. This remains severely constrained: while health spending is set to increase by 3 percent a year, this is below the long-run average rate of increase of 3.3 percent, and well below the sort of increases Labour delivered when it was last in office. 

Some additional money for schools has been found, but falls short of the increases Labour delivered previously in office. And while extra funding for local authorities has been allocated, it will still leave funding around 10 percent below its 2010 levels, even as demands on councils for social care and special educational needs have been soaring. Crucially, the extra funding assumes councils all apply their maximum possible council tax rise — a sure-fire political flashpoint in coming years. 

The most immediate culprit for this miserliness is the huge increase in defence spending, set to rise to levels unseen in this country since the end of the Cold War. The militarism of this government has been evident since February: the strategic decision has been taken that if Britain has a role in the emerging multipolar world, it will be as a heavily-armed, aggressive servant to the Washington regime. The result of this is a direct squeeze on domestic living standards.

Keir Starmer and Reeves have both tried to contend that defence spending creates jobs and growth, but this is an exceedingly thin argument. Defence spending today is technologically advanced, equipment heavy, and creates very few manufacturing jobs — as analysis of the government’s own figures for its employment impact shows. Whatever Reeves’s hopes for future growth, and it remains the case that Labour has bet the farm on its return, extra military spending will contribute little. 

But the extra defence spending, combined with more capital investment and continuing tight restraints on social expenditure, with the hated two-child benefit cap still locked in place, are consistent with the plan Reeves and Starmer set out well before the election. It’s a mess, but they have created a government unlike any we have seen since the Second World War: a Labour government that does not spend on traditional Labour priorities like education and welfare, but which does (unlike recent Conservative administrations) support more government intervention, including an industrial strategy (due to be published next week) and even public ownership, nationalising British Steel and setting up GB Energy. If there’s an administration it bears the closest resemblance to, it’s Boris Johnson’s — Reeves’ investment outside the South East is a version of his ‘levelling up’. 

It won’t work. It’s based on a fundamentally mistaken assessment of our real and emerging economic problems. Take one of the more striking trade-offs in the Spending Review. Ed Miliband’s Department for Energy Security and Net Zero won substantial funding increases, on top of Sizewell, including £13.2 billion for home insulation and £8.3 billion for Great British Energy. Yet the Department for the Environment, Food, and Rural Affairs (Defra), which oversees most of nature and agriculture spending, looks set for cuts. And whilst flood defence spending is set to increase, the £5 billion the government has pledged falls short of what the Association of British Insurers says is necessary. It’s Defra that has to deal with the consequences of climate change and the nature crisis, but it’s Defra getting cut — even whilst more money is put into decarbonisation. There are going to be a series of big political rows over this in the coming years, no doubt starting with the farmers, whilst the protection of the natural environment is going to run threadbare. 

And with an increasingly elderly population more susceptible to fall ill, health care of course needs a boost — and so does public health funding, which remains squeezed, and social care funding, which remains in desperate crisis. The more social care is underfunded, leaving vulnerable adults without the attention they need, the more the NHS is put under strain: today, around one-in-seven acute care beds in the NHS is occupied by a patient who can’t be discharged for lack of social care provision. Care expenditure, as the Women’s Budget Group and others point out, is fundamental to making the rest of the economy work properly. 

Funding for all this could be found. The idle hoards of the super-rich could be put to good use through wealth taxation, whether simple changes like equalising Capital Gains Tax and income tax (bringing in around £16 billion a year) or a full-blown, Swiss-style wealth tax, with 2 percent on assets over £10 million bringing in £24 billion. Meanwhile, British corporations have over £900 billion stashed, rather uselessly, in their bank accounts. Instead of squeezing hard-up smaller businesses, Reeves could go for the cash-rich corporations. 

And the entire review remains predicated on a return to relatively high growth, in short order. But growth, as major institutions like the World Bank now say, is going to be weak across the world over the rest of this year, and particularly weak in Britain as global instability worsens. Even a small knock to growth, from any source in an unstable world, will unsettle Reeves calculations, leaving her scrabbling around in this autumn’s Budget for either spending cuts, or tax rises to meet her own, self-imposed fiscal rules. The government not taking a serious and systemic approach to Britain’s fundamental economic issues — wealth inequality, environmental risk exposure, an aging population — leaves core services like social care underfunded, the wealth of the rich undertaxed, and millions of us exposed to worsening instability and insecurity.