Rachel Reeves has seen off a major crisis for Labour after conflicts within the cabinet threatened to block her spending plans for the next three years.
Just two days before she is due to unveil the spending review, the chancellor finally broke a stalemate with deputy prime minister Angela Rayner over funding for housing and local government.
However, a struggle with Yvette Cooper’s Home Office is still believed to be ongoing, with the Treasury now thought to be offering an above-inflation boost to police budgets.
The boost would see cuts to other areas of the Home Office, which had been facing a significant squeeze to pay for extra funding in the NHS and defence.
As Ms Reeves was preparing to present her plans to parliament on Wednesday, desperation was creeping into the tense talks between the Treasury and the final departments to hold out.
But the chancellor received a huge boost when sources confirmed late on Sunday evening that Ms Rayner and the Ministry of Housing Communities and Local Government had settled, more than a week after a deadline set by the Treasury to conclude talks.
It comes as cabinet minister Peter Kyle on Sunday morning refused to rule out real-terms spending cuts to the police force and the housing budget.
While the technology secretary warned that “every part of our society is struggling” – sending a strong signal of the government’s intent to squeeze budgets – it is understood that the Ministry of Housing was refusing to accept such an outcome before a deal was stuck on Sunday evening.
The row came after The Independent revealed that the social housing sector will face a crisis if ministers press ahead with funding cuts.
The chief executive of one of Britain’s largest housing associations raised fears of a “cliff edge” over building more homes – with money set to run out by 2026.
It is unclear yet whether the sector, which includes scores of councils, will have the funding and certainty they need to start building social housing supply again.
But the warning from Fiona Fletcher-Smith, chief executive of L&Q and until last week, chair of the G15 group of London housing associations, came after the Local Government Association (LGA) warned that 51 per cent of councils are now running deficits on their housing budgets.
Ms Rayner had led a cabinet push for the chancellor to avoid cuts by imposing wealth taxes, a plan now fully backed by Labour’s biggest financial backers, the trade unions. In a memo leaked last month, Ms Rayner suggested eight wealth taxes on the super-rich and corporations in a move supporters described as the “progressive alternative”.
Meanwhile, the issue has also been vexing Labour backbenchers concerned by the party’s slide in the polls, with one MP pointing out that Labour’s flagship housing pledge “means nothing if the current stock of social housing suffers” because of cuts.
And last month, six of Britain’s most senior police chiefs – including Metropolitan Police chief Sir Mark Rowley – warned Sir Keir Starmer that he will not be able to deliver his flagship pledge to cut crime without serious investment.
As well as new online threats from organised crime, they said the emergency release of prisoners to alleviate overcrowding in prisons – and recommendations in the sentencing review to free inmates earlier – would put more pressure on policing.
The chancellor is attempting to walk a tightrope between delivering on the party’s election promises and sticking within the bounds of her self-imposed fiscal rules.
There have been months of wrangling over departmental budgets as the chancellor seeks to ringfence health spending, increase defence to 2.5 per cent of GDP and water down proposals on benefit cuts – as well as U-turn on ending the winter fuel payments for millions of pensioners.
Asked earlier on Sunday whether he could guarantee there would not be a squeeze on the budgets for Ms Rayner or Ms Cooper’s departments, Mr Kyle told the BBC’s Sunday with Laura Kuenssberg programme: “The first thing is, in the last budget we gave a billion pounds extra to police. We are on the way to delivering 13,000 new police officers – right through to community police officers – so that people can have community policing back in their communities again.
“On the fact that the police have been writing to the chancellor… We also have letters from the universities, we have letters from doctors about the health service, we have letters from campaigners for child poverty writing to us, and other aspects of challenges in Britain at the moment.
“Every part of our society is struggling because of the inheritance that we had as a country and as a government.”
The technology secretary also said that police must “do their bit” to start adapting to changes that may be necessary as a result of a squeeze on their budget.
“We expect the police to start embracing the change they need to do, to do their bit for change as well. We are doing our bit,” he said.
“You see a chancellor that is striving to get investment to the key parts of our country that need it the most… You will see the priorities of this government reflected in the spending review, which sets the departmental spending into the long term.
“But this is a partnership. Yes, the Treasury needs to find more money for those key priorities, but the people delivering them need to do their bit as well.”
Over the weekend, ministers confirmed that the spending review will see the government invest “the most we’ve ever spent per pupil in our school system”, after reports that an extra £4.5bn per year will be invested in Britain’s schools.
Meanwhile, the chancellor will also unveil an £86bn package for science and technology on Wednesday, with Mr Kyle saying “every corner of the country” would benefit from the package.
Speaking on Sunday, the tech secretary also confirmed that no decision will be taken on the winter fuel allowance until the autumn Budget – dispelling speculation that the government would make an announcement on it at the spending review.
After chaotic government messaging left millions of pensioners with no idea what the changes will look like or when they will be announced, the technology secretary said that “decisions are going to be taken and announced” in the run up to the autumn Budget – giving ministers more breathing room to work out how they will be funded.
Rutte to meet PM as Nato chief says ‘quantum leap’ in defence needed
Labour’s wake-up call: Football fans aren’t alone in using expletives about Starmer
Russia is already at war with Britain, defence adviser warns
Starmer’s welfare cuts will see ‘340,000 more people in poverty’
TV doctor Hilary Jones says he would help terminally ill to die if law changed
Labour splits over assisted dying debate heat up ahead of crucial vote
