Who is fighting in Whitehall’s spending wars?

The ‘protected’ departments of health and defence will get a larger share of the cake, writes Andrew Grice, while others will be left grappling with further cuts

There’s no respite for Rachel Reeves after her spring statement. As well as worrying whether Donald Trump’s tariffs will blow her economic strategy off course, the chancellor must now divide up a shrinking cake among Whitehall departments before her spending review concludes in June.

The Treasury hoped this process would be more harmonious than previous reviews, but it is not, as cabinet ministers fight hard to defend their budgets. The “protected” departments, health and defence, will get a larger share of the cake, so the slightly bigger cuts announced by Reeves on Wednesday will fall disproportionately on those whose budgets have not recovered since George Osborne’s austerity.

Housing and local government is already down 46 per cent on its 2009-10 level, while culture is down 38 per cent, work and pensions 29 per cent, environment 22 per cent, transport 20 per cent, and justice 19 per cent. Despite that, the Treasury has told these departments to model cuts of 5.7 per cent and 11.2 per cent over the three-year review period.

Several ministers tried but failed to persuade the chancellor to change her fiscal rules earlier this month. She doubled down on them this week, judging that the financial markets would not tolerate higher borrowing. Reeves will be relieved that the bond market dog did not bark, but her decision makes the spending review even more difficult.

Tensions between the Treasury and the Department for Work and Pensions led to this week’s last-minute announcement of a £500m cut in universal credit after the Office for Budget Responsibility (OBR) fiscal watchdog ruled that the government’s £5bn worth of welfare cuts would save only £3.4bn. OBR officials complained that the rushed, late figures had not given them enough time to work out the precise savings.

The £500m worth of cuts in injury time gave the game away: for all the talk of (admittedly needed) welfare reform, these rushed savings were really about making the chancellor’s sums add up. History suggests that hurried measures save less than expected.

Despite all the uncertainty in the global economy, Reeves replaced the vanished £9.93bn of headroom against her rules with a new figure of precisely £9.93bn. Old Whitehall hands detect a Treasury trick of keeping the headroom low to redouble the pressure on ministers to rein in spending. But it could come back to bite Reeves if her cushion disappears again by her Budget in October.

There’s also bad blood between the Treasury and the Department for Education. They blame each other for a leak suggesting that Bridget Phillipson, the education secretary, was ready to end free school meals for infants and reduce spending on schools by £500m. A classic “bleeding stumps” move in the Treasury’s eyes – putting up something so gruesome it would be knocked down – as Reeves duly did on free meals.

“Complete rubbish,” replied Phillipson’s allies.

Whitehall is not a happy place. Reeves wants to save £2.2bn by reducing administration costs by 15 per cent by 2030. She has earmarked £306m for redundancy payments, and up to 50,000 jobs could go – a lot more than the 10,000 she trailed.

The chancellor promised that some savings will be switched to frontline services, but civil servants insist that such a cull will harm service delivery. Again, there’s a long history of headline-grabbing efficiency savings that do not live up to their billing.

Ministers are right to encourage underperforming officials to leave rather than be shuffled to their next Whitehall job. But their unnecessarily hostile language, like Keir Starmer’s talk of “an overcautious flabby state”, has alienated civil servants – many of whom voted Labour and, wearing their professional hat, welcomed the fresh start of a new government. “A lot of people are disillusioned; they did not expect this from Labour,” one senior official told me.

Sue Gray, Starmer’s former chief of staff and previously a Whitehall lifer, had a point when she used her maiden speech in the Lords to urge politicians to avoid phrases like “blobs”, “pen-pushers”, “axes” and “chainsaws”.

But Starmer and Reeves have a point too. There are now 513,000 civil servants – 90,000 more than at the start of the pandemic. In 2023, productivity in public services was 0.3 per cent lower than in 1997.

Reeves delayed her cuts until the later years of this parliament, and Whitehall whispers suggest she hopes some will not be needed if she secures greater economic growth. But such hints are not bankable as ministers squabble over their budgets.

Many Labour figures are alarmed that the welfare cuts will push 50,000 more children into poverty. Even though the OBR said the planned housebuilding boost could add 0.2 per cent to GDP, Labour backbenchers are starting to wonder whether Reeves will avoid a “doom loop” in which no or low growth forces more cuts or tax rises, which then further harm growth.

As one MP, a Reeves loyalist, put it: “She has put all her chips on growth. But what if we don’t get it? We’ll lose the next election.”