Behind the attention-grabbing numbers in Labour’s spending review, lie profits for tech and arms companies, and more cuts for public services, writes Dominic Alexander

The chancellor’s statement today was carefully constructed to put the emphasis on many billions of pounds being spent on infrastructure and the NHS. Behind the attention-grabbing numbers lies a reality of cuts to most government department spending, and spending on defence and dubious hi-tech fixes which will not relieve the cost-of-living crisis, or restore public services.

Part of the trick is how government spending in the statement was laid out in two phases, so putative increases depend upon from where you start the measurements. In fact, while ‘most departments will have larger real-terms budgets at the end of the parliament than the beginning,’ as the right-wing Institute for Fiscal Studies points out, ‘in many cases much of that extra cash will have arrived by April. Eight departments will actually see cuts to their budget between this year and the end of the parliament.’ The IFS goes on to claim that this ‘is not an austerity Spending Review’, but that judgement depends upon an overall picture which includes massive spending on defence, nuclear energy, and AI investment, none of which will do anything much to alleviate pressures of the cost of living or on the day-to-day provision of public services.

Indeed, the tables in the government’s own report (pp.44-6) show that by 2029, spending on health and social care will only have risen by 2.8%, below its historic average increase of 3.6%, and education by 1.5%. Meanwhile, despite the emphasis on infrastructure spending for the north in the Chancellor’s speech, transport spending will be down by 8.6% in the same period, though much of this reduction is due to the cutting of funding for high speed rail (since that’s old news, this hints at the deceptive nature of the figures being set out). The Department of Environment, Food and Rural Affairs is looking at a 2.2% cut. Overall, this means spending on day-to-day public services will fall slightly in real, per-person terms between 2025-26 and 2028-29, by 1.3% on average, the equivalent of cuts of £2.4 billion by 2028-29, excluding health. An genuine end to austerity would have to mean repairing the damage done by savage cuts of Tory governments since 2010. These numbers are not going to accomplish that.

Small percentages in the budget of high-spending departments can, of course, add up to large amounts of money, but in the case of the NHS, the increase as it stands may be eaten up simply by rising costs. At best, perhaps the extra funding will be enough to prevent the wholesale meltdown of the health-care system. What horrors, including more privatisation, may be lurking in Wes Streeting’s forthcoming Ten Year Plan, we do not know. Local government, however, received little extra funding, and with many councils teetering on the edge of bankruptcy, a meltdown in that sphere appears very much still on the cards.

Investment in whose interests?

It is in capital spending where the government hopes its new investment can turn around the dismal story of its first year in office. However, the new spending on infrastructure is directed into areas where capital will be pleased, but which may include their share of costly failures and where even the successes will not do much to either repair public services or bring an end to the cost-of-living crisis. Firstly, of course, raising defence spending to 2.6% of GDP by April 2027, an £11bn increase, plus an additional £600m for security and intelligence agencies, is a wholly unproductive waste. As has been pointed out, defence industries do not provide many jobs relative to the money put in compared to other kinds of investment, such as in renewables. That kind of investment would be much more socially useful, and provide relatively more employment, and economic regeneration for depressed regions.

It is remarkable, however, how much the government’s economic planning is weighted against renewables and in favour of schemes that demand high-capital investment, but which are of dubious merit at best. More than £20bn is to be spent on Sizewell C and small modular reactors (SMRs). Few of these have ever been built, they have not been commercially successful, and the energy they supply is expensive.[1] In both areas there are bound to be huge cost overruns, with the result of expensive energy, intractable problems with waste disposal, and serious environmental contamination.

Then there is £2.5bn to be invested in nuclear fusion, a technology which has been twenty years away for the better part of a century now. Even more alarmingly, £1bn is being given for ‘the first European laser-directed energy weapon in service’. Then there is funding for carbon capture and storage, another technology which is yet to be proved workable. All of the vast billions being spent on these projects, rather than in cheap and reliable renewable technology come down to one issue. Renewables are not profitable in relation to capital investment, in the way in which high-tech projects are.

Nuclear projects, in particular, provide effectively blackmail leverage over governments: the money has to keep flowing to keep them afloat, and once governments are committed to them, they can’t easily extricate themselves except at tremendous cost. Nuclear energy only makes sense when it is seen in relation to maintaining a nuclear-weapons programme; that is its real purpose and why governments keep wasting billions on it. Again, ‘defence’ wins out over real social and economic needs.

Even more reliance is being placed on AI investment to secure the efficiencies in administrative costs that most departments are being required to carry out; all departments  are being asked to deliver at least 5% savings and ‘efficiencies’ by 2029. This, it seems will be accomplished by a ‘step change in investment in digital and Artificial Intelligence (AI) across public services, including in the NHS’ (Report, p.9). This borders on magical thinking, and is at least a huge gamble that AI can both deliver savings, and not badly degrade services while doing it. The end result could well be worse services at higher costs.

All of this, however, is capital-friendly investment; it promises government-subsidised investment and profits. Yet, boondoggle for capital will not bring the growth that Reeves needs for her calculations to hold up even over the short term. The constraints she has placed on spending due to her fiscal rules, and her refusal to tax wealth, mean that austerity is set to continue. Note that there is as yet no movement on the two-child benefit cap, or on other welfare cuts. It is absolutely true that the economy badly needs investment, but the kind of investment on which the government seems to be so keen is not going to deliver for the working class. Small amounts given towards improving transport in the northare not going to revive depressed industrial areas where voters are turning to Reform.

Our response to all this must not be to give the government a pass due to its posture on increasing investment, when most of that investment is for the benefit of the arms industry and giant technology companies. We need to continue to build an anti-austerity movement that argues for a real change of direction in investment towards social regeneration, a renewables revolution, and an economics that starts from social needs, not the pipe-dreams of capital.

[1] See M. V. Ramana, Nuclear is Not the Solution (Verso: London 2024), pp.204-7, which Counterfire has reviewed here.