𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Chancellor Rachel Reeves faces “an impossible choice” as Labour descends into civil war over plans to cut spending.

Party sources say the Chancellor is facing pressure from all sides as she attempts to balance the books while meeting Prime Minister Sir Keir Starmer’s demand to increase money for defence.

Ms Reeves has ordered departments to find savings of up to 11% but with the NHS likely to be protected, despite health accounting for more than 40% of public service spending, the axe is likely to fall disproportionately on services such as policing and funding for local authorities.

Some Ministers are said to be urging the Chancellor to consider imposing further tax increases instead.

At the same time, Ms Reeves is under pressure not only to speed up plans to increase defence spending to 2.5% of GDP, at a cost of close to £5 billion, but to go further in the wake of the threat from Russia and concerns that US under President Donald Trump is no longer committed to the defence of Europe.

A Labour source said: “That’s a monstrous amount of cuts she would have to look for. It’s a real issue.”

But tax rises are also difficult, said a source. “If we are talking about more taxes, who are we going to tax now? You can’t just keep asking the same people for more money.”

Labour’s manifesto included a pledge not to raise taxes “on working people” and the Chancellor promised in November she was “not coming back with more borrowing or more taxes” in addition to tax increases in last year’s Budget such as a hike in employer National Insurance.

At the same time, Sir Keir has said there will be no return to austerity, in a reference to the spending cuts imposed by Conservative-led government after 2010.

Day-to-day spending on public services is £453.4 billion annually, including £190.1 billion for health and £88.8 billion on education. If schools and hospitals are protected from cuts then other services will have to take the burden.

Defence spending is set to amount to £56.9 billion in 2024/25. Labour MPs calling for a significant increase include Laura Kyrke-Smith and Melanie Ward, who pointed out that Poland is set to spend 4.7% of GDP on defence. In a joint article for House Magazine they said: “Planning to reach 2.5% of GDP spending on defence at a distant future moment is no longer sufficient. We must move fast and be far more ambitious, as Finland, Sweden and others already are.”

The UK’s soaring benefits bill will be targeted by Ms Reeves but this will be unpopular with backbench Labour MPs who campaigned against Tory efforts to force more people into work. Incapacity and disability benefits currently cost £64.7billion but watchdog the Office for Budget Responsibility has warned this is set to rise to £100.7billion by 2030.

Work and Pensions Secretary Liz Kendall is also reported to be calling for benefits savings to stay in her department to be spent on schemes increasing the employment rate.