Rachel Reeves acknowledged she had been forced to reject calls for funding for “good” projects as she refused to loosen the rules governing her stewardship of the public finances.
The Chancellor has been involved in wrangles with Cabinet colleagues over departmental budgets ahead of next week’s spending review.
She insisted her self-imposed “fiscal rules” were “non-negotiable” because she would not risk the economic chaos that could be caused if the markets lost faith in her ability to control spending.
The Chancellor said the combination of tax hikes she has already unveiled and the changes to the way borrowing for investment is accounted for meant £300 billion extra was available over the coming years.
But she acknowledged this was not enough to meet the demands made by ministers.
She said: “Not every department will get everything that they want next week and I have had to say no to things that I want to do too.”
But, she added: “That’s not because of my fiscal rules. It is a result of 14 years of Conservative maltreatment of our public services, our public realm and of our economy.”
She said there were “good things I’ve had to say no to” but “the reason for that is because it is important to have control of the public finances”.
Ms Reeves denied she would be forced into mounting another massive tax raid in order to meet her fiscal rules, which include a promise to match day-to-day spending with revenues.
She said: “We made decisions in the budget last year to increase taxes by £40 billion.
“We have absolutely no intention of repeating a budget on that scale again.”
And she rejected claims that a squeeze on the Home Office budget – reportedly one of the departments holding off on agreeing a deal with the Treasury – would damage policing.
In a letter to the Prime Minister, Sir Mark Rowley, the head of the Metropolitan Police, warned that cuts to police budgets will have “far-reaching consequences”.
Asked about warnings from Sir Mark and other policing leaders, the Chancellor said: “We will be increasing spending on police in the spending review next week, so that’s not a decision or a choice that I would recognise.”
Ms Reeves was speaking in Rochdale as she confirmed plans to tear up Treasury Green Book rules to help fund billions of pounds of investment in cities across England.
The £15.6 billion package for mayoral authorities included funding to extend the metros in Tyne and Wear, Greater Manchester and the West Midlands, along with a renewed tram network in South Yorkshire and a new mass transit systems in West Yorkshire.
Green Book rules have been criticised in some quarters for favouring investment in London and the South East.
The move means more money for areas of the North and Midlands, including the so-called red wall, where Labour MPs face an electoral challenge from Reform UK.
Ms Reeves said: “The choice is already clear: Where Reform and the Conservatives would gamble with Britain’s future, Labour will invest in that future.
“Where they offer chaos, Labour offers stability.
“Where they offer decline, Labour offers investment.
“And where they offer more of the same, we offer change; change that we can now deliver because of the choices we have made.”
For too long, people in the North & Midlands have been locked out of the investment they deserve. With £15.6bn of investment, we're giving local leaders the means to drive cities, towns and communities forward, investing in Britain’s renewal. https://t.co/w5zsecFzbg
— Rachel Reeves (@RachelReevesMP) June 4, 2025
The investment announced on Wednesday includes £2.4 billion for the West Midlands to fund an extension of the region’s metro from Birmingham city centre to the new sports quarter, and £2.1 billion to start building West Yorkshire Mass Transit by 2028.
Greater Manchester will receive £2.5 billion for projects including new tram stops in Bury, Manchester and Oldham and an extension of the tram network to Stockport.
A £1.5 billion investment in South Yorkshire will include £530 million to renew the region’s trams, while the East Midlands will receive £2 billion to design a new mass transit system between Derby and Nottingham.
In the south, the west of England will receive £800 million, including £200 million to develop mass transit links between Bristol, Bath, South Gloucestershire and north Somerset.
Shadow Treasury minister Gareth Davies said the transport plans were repeats of promises made by the previous Conservative administration.
He said: “Rachel Reeves is scrambling to salvage her failing economic plan after the Prime Minister has made U-turn after U-turn, punching holes in her credibility.
“She needed to do better than copying and pasting announcements made by the previous Conservative government. The country is not falling for their lies anymore. Britain deserves better.”
