The inheritance will be one of, if not the defining issue of Labour’s first few years in government. The same problems that provided a springboard for them in the election campaign – waiting lists, crime, sewage etc – now risk becoming quicksand in government, swallowing time, money and political capital.  

A new government cannot, as Keir Starmer said, wave a magic wand. Nor can it just throw money at the problems. The spending plans Labour has assumed responsibility for look more like those from the Cameron/Osborne austerity years than under Blair/Brown. With big problems, big ambitions and big expectations, the chancellor is right to set out the ‘state of the inheritance’ to parliament. But Rachel Reeves should also take this opportunity to look beyond public spending: how well are public services performing and what would spending plans really mean for performance? The reason the inheritance will be such a defining issue is not the size of any one problem, it is the combined effect: there is very little room for manoeuvre in the public finances and public services that are starting to buckle under pressure.

The chancellor is right to ‘open the books’ to parliament on public spending

Both Labour and the Conservatives have been criticised, including by the Institute for Government, for conveniently ignoring the implications of the spending plans they both signed up to. Whoever won was going to have to confront the reality – the election was a chance to win a mandate for doing so.

But better late than never. While it might have been politically expedient to accept the fictitious forecasts before the election, it is now essential to lay out the true extent of challenges lurking in the public finances. Under current spending plans – those set out by the Sunak government, plus Labour’s manifesto pledges – day-to-day departmental spending is set to increase by 1.2% per year in real terms between 2025/26 and 2028/29. However, given Labour’s commitments to implementing the NHS Long Term Workforce Plan, increasing aid and defence spending in line with GDP, and expanding childcare provision, unprotected areas of spending like prisons and local government would be set for cuts of 2.1% per year.

There are new pressures a government will need to deal with too, including any public sector pay settlement this year if the Pay Review Bodies recommend – as expected – something more in line with private sector wage growth.  

A new Labour government will need to be up front about the difficult choices it faces in the public finances. And those choices will, inevitably, effect the pace at which it will be able to make good on its promises to improve public services.  

Reeves should tell parliament what the inheritance means for public services

If Rachel Reeves wants to set out the constraints she faces – and the difficult choices the new government will need to make – she should set out the inheritance on public services performance alongside the financial inheritance. New ministerial teams are beginning their own audits – Wes Streeting is doing a review into the NHS for example. While these will continue to be important to baseline performance and identify the most pressing challenges, the chancellor has a chance to set out a more complete picture.

This is an opportunity to do what governments too rarely do: contrast what it puts in against what it gets out. Or the problems it is facing with the cash available to fix it. It also gives MPs and the public critical additional information. It tells them the possible consequences of the spending plans. Telling parliament that prisons spending, when adjusted for demand and inflation, is expected to be cut by over 5% a year between 2024/25 and 2028/29 (as it is under current plans) is one thing. But MPs might find that number more stark if it is placed against charts showing performance: on declining quality of cells; sharply rising violence; dire inspection ratings; and, of course, a forecast for demand that continues to grow, while being just days away from outstripping supply of places.

The chancellor could take parliament, service by service, through the key public services, the money that has been spent, the implications for performance and outcomes, and the forecasts for spending.

That doesn’t mean this should all be a big prelude to more spending across the board; per-pupil schools spending was reduced under the coalition government, but pupil attainment improved. Nor does it mean that more spending necessarily directly equates to better performance; hospital and NHS workforce spending has increased significantly in recent years – albeit after years of less generous settlements – but service performance has not improved. But a government elected to improve service performance should be clear about its baseline.  

The chancellor might find some political benefit in the update to parliament, but there are practical benefits, too. Setting out the inheritance in public services and public finances will help with the forthcoming spending review. Rachel Reeves has to make a set of painful choices in setting budgets for next year. Getting to grips with the starting point and surfacing the hard decisions now might help her to manage the growing expectations of parliament and the public.