Reeves places £39bn affordable homes plan at centre of spending review

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Chancellor Rachel Reeves will on Wednesday put a £39bn “affordable housing” plan at the heart of her multiyear UK spending review, as she combines a tight squeeze on day-to-day spending with a £113bn plan to bolster the country’s creaking infrastructure.

The Treasury said the £39bn earmarked for affordable homes over 10 years represented “the biggest boost to social and affordable housing investment in a generation”.

Reeves’ spending review — the result of months of intense haggling between the Treasury and cabinet ministers — is a pivotal moment for the Labour government, setting departmental budgets and priorities for the coming years and laying the political ground for the next election.

But there are growing expectations Reeves could be forced to raise taxes in the autumn, as economic growth remains sluggish and the cost of servicing government debt continues to rise.

On Wednesday, she will spare defence and health spending from what will otherwise be a tightening of day-to-day Whitehall expenditure that involves some departments facing real terms cuts. Local government services are expected to come under serious pressure.

But the chancellor will focus on a borrowing-fuelled spree on capital projects, promising £113bn of extra spending over the parliament that will particularly benefit “towns and cities outside London and the south-east”.

“The government is renewing Britain,” Reeves will say in a speech to the House of Commons. “But I know too many people in too many parts of the country are yet to feel it.”

The National Housing Federation, whose members provide housing for 6mn people, described the £39bn affordable homes package as “transformational”.

“This is the most ambitious affordable homes programme in decades and alongside long-term certainty on rents, will kick-start a generational boost in the delivery of new social homes,” it said.

Reeves’ promise of new roads, railways, public transport and green energy projects for the north and the Midlands is intended to raise regional growth rates.

Labour strategists hope it will also slow the advance of Nigel Farage’s Reform UK, which currently leads in opinion polls.

But allies of London’s Labour mayor Sadiq Khan said the focus on regions outside the capital was “incredibly short-sighted” and would leave the city short of the funds it needs to improve its own infrastructure.

Reeves remains in a tight fiscal spot, with speculation rife that she could be forced to raise taxes in her autumn Budget. Her spending envelope allows average real term increases of just 1.2 per cent a year for current departmental spending over the next three years.

But her decision last year to relax her borrowing rules to permit extra infrastructure investment will allow her to dispense billions of pounds to favoured projects. Allies insisted claims that the spending review represents a return to austerity were “ridiculous”.

Sir Mel Stride, shadow chancellor, criticised Labour for “spending money it doesn’t have” while loading Britain up with debt that was becoming more expensive to service. Stride said more tax rises in the autumn were “inevitable”.

Full details of Reeves’ £113bn capital spending plan will be set out in a 10-year infrastructure strategy next week, but the chancellor has already indicated big investments in urban transport schemes, nuclear power and artificial intelligence.

“The priorities in this spending review are the priorities of working people,” Reeves will say. “To invest in our country’s security, health and economy so working people all over the country are better off.” She will add: “In place of decline, I choose investment.”

Labour MPs are also expecting Reeves to address their concerns about child poverty, and set out longer term plans for improving the NHS. An industrial strategy and a defence industrial plan will also follow later in the month.

Paul Johnson, director at the Institute for Fiscal Studies, a think-tank, said the announcements represented a massive moment for Labour as it sets out its priorities for individual areas of spending after setting the overall envelope for the parliament last October. 

But it leaves major risks hanging over the public finances. By frontloading the spending settlement — with a particularly big boost for departmental budgets in 2025-26 — Reeves has left herself open to speculation that future plans will have to be topped up, adding to pressures on the public finances. 

Meanwhile the narrow £9.9bn buffer Reeves left herself against her key fiscal rule of balancing the current budget risks getting eroded given weak growth prospects and high borrowing costs.

“It leaves all the fiscal questions unanswered,” said Johnson, who warned there is at least a 50 per cent chance of tax rises in the autumn.