This article is from the source 'guardian' and was first published or seen on . The next check for changes will be

You can find the current article at its original source at https://www.theguardian.com/business/2025/jun/12/poorest-to-benefit-from-rachel-reeves-spending-but-tax-rises-likely-says-thinktank

The article has changed 4 times. There is an RSS feed of changes available.

Version 0 Version 1
Poorest to benefit from Reeves’s spending but tax rises likely, says thinktank Britain on track to become a ‘National Health State’, says thinktank
(about 4 hours later)
Resolution Foundation says boost to public services is worth £1,700 by 2030 for lowest-income households Resolution Foundation says half of all public spending will be allocated to the NHS and social care by the end of the decade
Business live – latest updatesBusiness live – latest updates
Rachel Reeves’s multibillion-pound plan to repair public services will benefit Britain’s poorest households most but means tax rises are likely this autumn, according to a leading thinktank. Britain is on track to become a “National Health State” where half of all public spending is allocated to the NHS and social care by the end of the decade, according to a leading thinktank.
The Resolution Foundation said the extra funding for hospitals, schools and the police announced by the chancellor would provide a valuable “benefit-in-kind” for households who would gain from the improvements. Rachel Reeves used her spending review on Wednesday to prioritise billions of pounds for the NHS as she outlined Labour’s priorities up to the next general election, while squeezing funding for other areas.
A middle-income household would gain the equivalent of £1,400 a year on average by the time of the next general election through access to better services, rising to as much as £1,700 for the poorest fifth of households in the country. As the chancellor came under pressure on Thursday to defend her plans, amid warnings that tax rises could be required, the Resolution Foundation said health spending was set to increasingly dominate public spending.
However, the thinktank warned that Reeves could be forced into further tax increases to maintain higher levels of spending at the forthcoming autumn budget, amid a worsening outlook for the economy and public finances. Come the end of the decade, it said that the NHS would account for half (49%) of all day-to-day public service spending controlled by Westminster – up from a third (34%) when Labour last left government in 2010.
“A combination of a weaker economic outlook, an unfunded spending commitment on winter fuel payments, and just £9.9bn of headroom against the chancellor’s fiscal rules, mean further tax rises are likely to be needed this autumn,” it said. The NHS, defence and long-term investment received the lion’s share of the additional funding announced in Reeves’s spending review, with 90% of the increase in the day-to-day budget going to the health service.
Reeves used Wednesday’s spending review to prioritise funding for the NHS, defence and more than £100bn for long-term capital projects despite leaving some key areas facing a tough squeeze. However, the Resolution Foundation and other leading experts warned that the chancellor could be forced to raise taxes again in the autumn to maintain higher levels of spending, amid a worsening outlook for the economy and public finances.
In a pivotal speech to the Commons setting out Labour’s plans up to the next general election, the chancellor said she was taking action to “renew Britain” after years of underinvestment and austerity measures overseen by successive Conservative-led governments. The Institute for Fiscal Studies thinktank said on Thursday that a dramatic turnaround in the economy was needed to avoid a fresh rise in taxes at the budget later in the year.
The Resolution Foundation said the package showed that Britain was turning into a “National Health State”, with health accounting for 90% of the extra spending announced. “With spending plans set, and ‘ironclad’ fiscal rules being met by a gnat’s whisker, any move in the wrong direction will almost certainly spark more tax rises,” said Paul Johnson, the director of the IFS.
In a major reshaping of the state, it calculated the NHS was on track to account for half (49%) of all day-to-day public service spending controlled by Westminster by the end of the decade – up from a third (34%) in 2009-10. Official figures on Thursday showed the UK economy shrank by a bigger-than-expected 0.3% in April, as exports fell following Donald Trump’s tariff announcements and employers cut jobs and froze investment plans in response to tax rises and global trade uncertainty.
The thinktank said real day-to-day spending was now rising again in the 2020s by 2.2% a year, after a 0.5% fall per year in the 2010s. However, in the decade prior to that under the last Labour government, spending rose by 4.3% on average each year. Kemi Badenoch, the leader of the opposition, blamed Labour for Britain’s worsening economic outlook and argued that the Conservatives would have chosen to shrink the size of the state rather than waging a “war on the private sector”.
While the health service is taking up a larger share of public spending, other areas have faced real-terms budget cuts, including a 16% reduction in real, per-person funding for justice and a 50% decline for housing, communities and local government since 2010. However, some economists said Reeves’s policies had mostly reversed the last Conservative government’s “unrealistic” plans, which involved billions of pounds in tax cuts and limited details about how spending would be paid for.
Andy King, a former board member of the Office for Budget Responsibility (OBR), said Reeves allocating £400bn more than the previous government had set out over the course of the parliament was “basically the price tag for taking the implausible out of the spending plans”.
“Was it a spending spree? Not really. Was it austerity? Not really. It looks like a pretty conventional and sensible way of allocating the spending envelope,” he added.
The ballooning share of public spending allocated to the NHS comes as the government wrestles to cut near-record waiting lists, on a mission to fix what health secretary Wes Streeting declared to be a “broken” service after 14 years of Conservative rule.
Spending had already been steadily rising for years, reflecting Britain’s ageing population, rising costs, and more complex treatments, while the impact of the Covid pandemic increased pressure on the service. However, critics have questioned whether more efficiency gains could be made.
Sign up to Business TodaySign up to Business Today
Get set for the working day – we'll point you to all the business news and analysis you need every morningGet set for the working day – we'll point you to all the business news and analysis you need every morning
after newsletter promotionafter newsletter promotion
However, experts warned that Reeves could face a summer of speculation over tax increases in the run-up to the autumn budget. Mel Stride, the Conservative shadow chancellor, said: “This is the spend now, tax later review, because [she] knows she will need to come back here in the autumn with yet more taxes.” While the health service is taking up a larger share of public spending, other areas have been steadily squeezed out, including budget cuts of 16% reduction in real, per-person funding for justice and a 50% decline for housing, communities and local government since 2010.
Labour argues that its plans allocate money that has already been raised, highlighting that the spending review is based on last year’s autumn budget and this year’s spring statement, when the Office for Budget Responsibility judged that Reeves was meeting her main fiscal rule to balance day-to-day spending with revenues within the fifth year of its forecast. The Resolution Foundation said Reeves’s plans would benefit Britain’s poorest households most, by providing a valuable “benefit-in-kind” from access to public services.
However, economists warned that a weak growth outlook and rising government borrowing costs amid Donald Trump’s global trade wars could blow the chancellor’s plans off course. This could force the OBR to downgrade its forecasts for the government finances, which would require Reeves to take action to announce spending cuts or tax rises if she wanted to stick to her fiscal rule. For a middle-income household the benefit would be worth the equivalent of £1,400 a year on average by 2029, rising to £1,700 for the poorest fifth of households in the country.
Andrew Goodwin, the chief UK economist at the consultancy Oxford Economics, said: “Considering the government’s recent U-turn on winter fuel payments could be a precursor to higher government spending in other areas, it looks increasingly likely that substantial tax increases will be needed.” However, economists warned that a weak growth outlook and rising government borrowing costs amid Trump’s global trade wars could blow the chancellor’s plans off course.
This could force the OBR to downgrade its forecasts for the government finances, which would require Reeves to take action to announce spending cuts or tax rises if she wanted to stick to her fiscal rules.
Ruth Curtice, chief executive of the Resolution Foundation, said: “A weaker economic outlook and the unfunded changes to winter fuel payments mean the chancellor will likely need to look again at tax rises in the autumn.”