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Chancellor Rachel Reeves has been warned by MPs that next week’s spending review is a “make or break” moment for the government’s pledge to deliver 1.5mn new homes in England during this parliament, as bitter negotiations over Whitehall budgets entered their final phase.
Angela Rayner, deputy prime minister, is holding out for more money for her department, which funds local government and housing, ahead of the conclusion of Reeves’ spending review on June 11.
Rayner was aided in her fight on Wednesday when the cross-party House of Commons housing and local government select committee published a letter to Reeves urging her to maintain spending on social and affordable housing.
“The spending review 2025 is make or break for the 1.5mn target,” said Florence Eshalomi, Labour chair of the committee, calling for a “generational increase in social and affordable housing investment”.
Rayner’s allies hope affordable housing will continue to be well funded because it counts as capital expenditure, which has been prioritised by Reeves as she sets out spending plans for the rest of the parliament.
While Rayner’s day-to-day budget is being squeezed with serious knock-on effects for local government services, Reeves last year tweaked her fiscal rules to allow an extra £113bn of borrowing for investment over the parliament.
Rayner, home secretary Yvette Cooper and energy secretary Ed Miliband are the last three ministers still holding out for more money from the Treasury.
Reeves set out a tight “spending envelope” for the rest of the parliament in last year’s Budget. Overall day-to-day departmental spending will increase 1.2 per cent in real terms a year on average from 2026-27.
Veteran former Treasury spending negotiators warned on Wednesday the trio are taking a risk by holding out to the bitter end, with the possibility that they have a budget settlement imposed on them.
David Gauke, former Conservative Treasury chief secretary, said “spending ministers” will usually at this stage invoke the support of the prime minister, presenting a dilemma for Sir Keir Starmer.
“If you get into the habit as prime minister of undermining the Treasury, that creates moral hazard for future spending rounds,” Gauke said. “The prime minister is under pressure to side with the chancellor and chief secretary.”
Gauke said sometimes political or external public pressure — for example recent lobbying by police chiefs for more money — could help a minister, but ultimately the Treasury could simply impose a final settlement.
He said there was a chance the chancellor might find some “money behind the sofa” at the last minute, but added: “If you don’t like what you get, you have to accept it or you have to walk.”
Sir Danny Alexander, former Liberal Democrat Treasury chief secretary and an architect of the austerity imposed by the 2010-15 coalition government, said as more ministers settled their budgets, those holding out were left fighting for what was left in the pot.
“The spending envelope is set in advance,” he said. “If everyone else has settled, you are left with the residual. The real risk is that the settlement you get is out of your control.”
Alexander said Lord Ken Clarke, Tory justice secretary in the Coalition government, was the last to settle in the 2010 spending round. “Recollections differ on whether it was agreed or imposed,” he said.
One Labour veteran said sometimes holding out until the end could force last minute concessions, noting towards the tail-end of Gordon Brown’s government Cooper, then work and pensions secretary, had settled “at about 2.30am” the night before the conclusion of a spending review.
Both Cooper and Miliband worked at the Treasury and are the only members of Starmer’s cabinet who were also in Brown’s senior ranks.
The Labour veteran argued Rayner did not have the same length of ministerial experience but was instead burnishing her own leadership credentials.
“I think she’s a little different because she isn’t just holding out for the department, she’s holding out for more political reasons,” they said.