Austerity in Disguise? Rachel Reeves’s Spending Review Offers Promises Tomorrow, Pain Today

Rachel Reeves’s first major Spending Review as Chancellor is being hailed by some as a turning point in Britain’s fiscal strategy, a departure from the scorched-earth austerity of the last decade and the start of a new phase: “borrowing to build.” On the surface there is a clear shift in tone and direction. There are bold promises of new infrastructure, more affordable housing, and bigger investment in long-term national projects. But beneath the headlines and hopeful projections, much of this plan feels familiar. One phrase kept coming up: her budget, her choice. And she’s absolutely right. Every part of this budget is a choice: what to spend, where to spend it, and why. While money is being put aside for big future projects, the public services people use every day; healthcare, local councils, public transport are being quietly squeezed, being asked to make do with less.  For all the talk of change, much of this review feels like austerity rebranded, with a populist edge and a centrist gloss. The technical definition of austerity is a reduction in public spending. But these days, it’s less about accounting and more about a political mindset. It’s the language of belt-tightening and paying off the national credit card. It means cuts to benefits that hit the most vulnerable. It means making life harder for disabled people. It means prioritising pensioners over children. In that sense, Rachel Reeves isn’t breaking with the past, she’s following the path laid by Osborne and Hunt.

Capital for Tomorrow, Cuts for Today

Let’s start with the big promises. Reeves has committed to the largest capital investment package in decades. Billions are being directed toward nuclear power plants, three new prisons, regional rail networks, repairing collapsing schools and building new ones and a £39 billion plan to boost affordable housing by the end of the decade. It’s a welcome change in ambition, this looks like a government finally investing in Britain’s decaying infrastructure and addressing the generational neglect of the built environment. But if you dig a little deeper, the picture becomes more troubling. While capital budgets rise, day-to-day departmental spending, the money used to keep services running, is being quietly chipped away. Most departments are facing real-terms cuts: -2% for Business, -5% for Transport, -7% for the Foreign Office, and the ever-embattled Home Office down by 2%. Local government funding which provides services like adult social care, housing support, and libraries, already hollowed out from losing 60% of its core funding since 2010. That situation isn’t improving. The message is clear: Labour will build gleaming new infrastructure, but public services must keep tightening their belts.

This approach: spending big on future projects while asking everyday services to tighten their belts, has all the makings of what we might call “Austerity 2.0.” Austerity, not as an explicit ideological project, but as an emergent reality born of fiscal caution, political calculation, and institutional inertia. It’s like building a new hospital while letting the existing ones fall apart. Capital spending gets the photo ops. Operational funding gets ignored. For ordinary people dealing with rising bills, overworked NHS staff, and crumbling council services, this review doesn’t offer much immediate help.

Health and Housing: Gains, With Strings Attached

Healthcare is one of the few areas where day-to-day spending increases significantly, with the NHS seeing a 60% boost in its revenue budget. That sounds huge, and it is after years of underfunding. This is a clear attempt to signal a new era of seriousness about waiting lists, GP access, and hospital capacity. It is also, unmistakably, a political move. Labour needs to prove it can be trusted with the NHS, and this cash injection is designed to reclaim lost ground.

But even this comes with caveats. The broader support systems the NHS relies on; like social care, community health, and local public health teams, are still stretched to breaking point. Is this funding increase sustainable, or will it be offset by the collapse of social care and local health services? Can the NHS improve outcomes if the broader ecosystem, care homes, community nursing, mental health, is under-resourced? Hospitals can’t discharge patients if there’s nowhere for them to go. Ambulances can’t respond to emergencies if they're stuck outside A&E. The government’s own choices seem to work against its stated aims.

Housing, too, has received rhetorical attention. The £39 billion pledge for affordable housing by 2030 is significant, but “affordable” is a misnomer when it continues to mean 80% of market rents. Social housing budgets will nearly double, and the goal is to build 1.5 million new homes. That’s a step forward. But again, it’s not enough. The UK has a shortfall of around 4.4 million homes since World War II. And what counts as “affordable housing” often isn’t affordable at all, usually priced at 80% of market rent. True social housing, the kind that can provide stability for working-class families and tackle homelessness, remains underfunded. Council house construction is still marginal. 

Meanwhile, rents in social housing will rise by inflation plus 1% each year for the next decade, a policy that essentially codifies a housing crisis into law and there are still no rent controls to stop soaring costs in the private market. The average house now costs eight times the average income, a ratio we haven’t seen since Queen Victoria was on the throne. It’s progress, but not transformation. Housing associations will do much of the delivery, but council housing, genuinely low-cost, and secure homes remains sidelined. Supply isn’t the whole story. Solving the housing crisis also means bringing down rents.

Generational Inequality: Locked In

The defining divide in British politics today isn’t just ideological, it’s generational. It’s the split between the wage class and the asset class; between those who earn their income and those who own. Rachel Reeves and Keir Starmer often talk about “working people,” but when you look at the choices in this Spending Review, it’s clear who’s being protected and who’s being asked to pay.

Reeves’s fiscal plan is, whether by design or not, deepening the gap between older and younger generations. Pensioners remain shielded by the triple lock, which guarantees annual rises to the state pension based on inflation, wage growth, or 2.5%, whichever is highest. This, despite pensioners already being one of the least impoverished demographics. Meanwhile, younger people are hit by stealth taxes: frozen income tax thresholds, rising employer National Insurance, measures that quietly increase the tax burden on a generation already locked out of homeownership and saddled with student debt.

Older people vote in higher numbers. They read the newspapers that politicians care most about. They were lucky enough to enter adulthood when housing was affordable, when university was free, when job markets were stable. Many of them worked hard, yes, but they did so in a system that rewarded that effort far more than it does today. Younger people, in contrast, face rising rents, stagnant wages, the highest childcare costs in Europe, a hostile benefits system, and worsening mental health. Many work multiple jobs just to stay afloat. And yet, it is their needs that are constantly left out.

This isn't just economically short-sighted, it’s politically dangerous. You can’t build a future on the backs of people who can’t afford to participate in it. Child poverty sits at 30%. Pensioner poverty at 16%. Yet the government has chosen to restore universal winter fuel payments while keeping the two-child benefit cap in place, two policies with similar costs but vastly different impacts. Where’s the fairness in that?

The Spending Review quietly reveals the unspoken truth: our generation will carry the cost of protecting the asset-rich, while being offered little in return. The tax base is shrinking, the pensions bill is growing, and the imbalance is becoming untenable. And yes, I know the state pension is one of the worst in Europe. Pensioner poverty is real, and I’m glad the government adjusted its approach to winter fuel support, even if it may have overcorrected. But the Winter fuel payments and triple lock is a political promise no other group enjoys: not parents, not renters, not young workers.

The cost of pensions is rising year after year, while the pool of working-age taxpayers footing the bill is steadily shrinking. It’s one of the clearest fault lines in the generational divide.

A Cost-of-Living Crisis the Government Pretends Not to See

Perhaps the most glaring omission in this Spending Review is the lack of any serious intervention in the ongoing cost-of-living crisis. Inflation may have cooled, but bills haven’t. Water charges are rising by 27%. Energy costs remain volatile. Food prices have stabilized but are still too high for many families. Yet there are no rent controls, no utility caps, and no meaningful expansion of benefits. For millions of households, this review offers nothing but a continuation of quiet suffering.

Disability payments have been cut in real terms, even though these are often what help people stay in work. Even the winter fuel payments fiasco, cut, then partially restored, has become emblematic of a government that can’t quite decide whether it wants to help or just appear as if it’s trying, damaging both trust and public confidence. It’s a failure to engage with the daily pressures people are facing. The government is betting that long-term infrastructure projects will carry the day, while offering little to ease immediate financial pain. 

The Employment Squeeze: Taxing Work, Not Wealth

Labour's tax policy is another area where rhetoric and reality diverge. Despite its progressive branding, the tax burden is falling disproportionately on workers and employers rather than on wealth or unearned income. Employer National Insurance rises, making hiring more expensive at a time when underemployment is growing. Income tax thresholds are frozen, meaning more people will pay more tax without actually earning more.

Reeves has backed away from long-promised reforms, like taxing capital gains at the same rate as income, or closing loopholes used by private equity firms. People who earn money from investments can still pay lower tax rates than people who earn a salary. It’s inefficient and economically short-sighted. The message this sends is unambiguous: Labour, like the Conservatives before them, fears the wrath of wealth more than it fears the erosion of fairness.

Skills, Migration, and Delivery: Can Labour Build What It Promises?

There’s a basic question that hangs over all of Labour’s big plans to invest in infrastructure: who is actually going to do the work? It’s one thing to promise new railways, homes, and green energy projects. It’s another to make them happen. Right now, the UK simply doesn’t have enough people with the right skills to deliver it all. We have shortages in areas like construction, plumbing, engineering, and energy installation; exactly the jobs needed to turn Labour’s ideas into reality.

At the same time, net migration is going down, even though the UK economy still relies heavily on migrant workers to fill labour gaps. Training and apprenticeships haven’t kept up either. The government says it’s increasing the education budget, but a 1.5% rise barely makes a dent after years of cuts, and colleges that offer vocational training are still struggling.

It’s not just about skills. To get big projects off the ground, you also need enough workers in the right places, affordable housing for them to live in, and transport to get them to sites. Delays in planning, red tape, and poor coordination often slow things down before a single brick is laid.

If Labour wants its investment plans to succeed, it needs more than ambition. It needs a serious plan to train people, attract workers, and fix the broken systems that slow everything down. Without that, all the promises risk staying on paper, instead of being built in the real world. Without a serious workforce strategy, Labour’s plans may end up as PowerPoint slides rather than physical realities.

Political Strategy or Policy Vacuum?

Labour’s deeper problem is strategic. Some of Labour’s policies seem designed more to head off populist challengers like Nigel Farage than to solve real problems with a bold new vision. The plan to phase out asylum hotels by 2029 is a populist crowd-pleaser which might sound like a tough, cost-saving measure, but it’s deeply uncertain whether it’s achievable, They're going to house them in social housing instead, which will still cost money.  and it plays into hostile rhetoric without offering a humane or realistic plan for the asylum system.  

This isn’t a strategy. It’s a stalling tactic. And the public is beginning to notice. Labour risks being seen not as a government of change but as a government of competent drift. If Farage manages the difficult task of holding his poll lead over the next four years, Starmer will need a completely different electoral coalition to beat him. And spending years stamping out the left, mocking progressive values, and trying to appease the right is a terrible way to prepare for a fight with a populist.

Labour is also struggling to clearly explain its overall strategy. The cautious tax approach, the limited immediate help, the focus on future investment, without a clearer articulation of the trade-offs, risks, and longer-term outcomes risks being seen not as a government of change but as a government of competent drift. The public sees the pressure they’re under now, and they don’t feel like the government is listening. 

Where Do We Go From Here?

There’s a lot to like in this Spending Review if you squint: serious investment in the long term, a move away from pure austerity, a real attempt to modernise Britain’s infrastructure. But the trade-offs being made; cutting services now in the hope of benefits later, are risky, especially in a country already stretched thin. 

What Was Missing: Real Reform, Not Just Rhetoric

For all its promises, this Spending Review misses the opportunity to make structural changes that would actually ease pressure on households and begin to rebalance the economy. Here’s what should have been in the review but wasn’t:

• Capping Utility Price Rises: Water companies are hiking bills by up to 49%. Energy prices have tripled in the past year. A government serious about the cost-of-living crisis would impose caps or controls to shield households from exploitative hikes during a time of national pressure.

• Implementing Rent Controls: Rents have spiralled far beyond wages, yet there are still no measures to curb private rental inflation. Without rent controls, housing remains unaffordable for millions. Local authorities should have the power to limit increases, stabilise tenancies, and protect renters from eviction and exploitation.

• Fairer Taxation: If Reeves wants fairness, the tax system needs to stop punishing workers and start taxing wealth:

  • Reverse the hike in employer National Insurance, which disincentivises hiring.

  • Raise corporation tax, which remains one of the lowest in the G7.

  • Equalise Capital Gains Tax with income tax, ending the preferential treatment of unearned income.

  • Close inheritance tax loopholes that allow vast fortunes to be passed on tax-free.

• Support for Disabled People: Cutting Personal Independence Payments isn’t “fiscal responsibility”: it’s cruelty. These benefits help people stay in work. Gutting them increases poverty and sidelines disabled people from public life.

• Investment in Skills and Training: Labour’s capital investment ambitions are substantial, but the workforce to deliver them simply doesn’t exist. A serious plan would significantly boost vocational training, apprenticeships, and technical education to fill labour gaps in construction, care, energy, and engineering.

• A Rational Migration Strategy: The government is cutting net migration while facing acute labour shortages across key sectors. You can’t reduce immigration and ignore training needs and expect delivery to happen. We need either more skilled migration, or an urgent domestic training push, or both.

• End Hidden Cuts and Income Erosion: Quiet austerity is still austerity. Freezing tax thresholds while inflation bites, assuming council tax increases, and trimming benefits behind the scenes is not neutral policy, it’s a stealth tax on low- and middle-income households.

• Fix the Asylum System Instead of Politicising It: The promise to end hotel use for asylum seekers by 2029 isn’t a solution, it’s a headline. What’s needed is real reform: clear the backlog, properly fund the Home Office, and build a fair, efficient asylum system that reduces cost and restores basic decency.

What Labour needs now is courage. Courage to tax wealth fairly. Courage to tell the truth about the cost of living. Courage to invest not just in buildings, but in people and services.  It also means being honest with the public about the choices being made and the reasons behind them. Without that, this review will go down not as the end of austerity, just with better PR.