Rachel Reeves will put £113bn of new capital investment at the forefront of the spending review and argue that the billions of investment in homes, transport and energy would only have happened under Labour.
The billions unlocked by the change to the fiscal rules, which will be spent over the next parliament, will be at the centre of the government’s narrative in a fortnight’s time in an acknowledgment that Labour MPs need a better economic story to address rising discontent among the public.
The chancellor will champion the investment despite warnings about government borrowing after it reached £20.2bn in April.
Keir Starmer confirmed last week that the government would U-turn on the unpopular winter fuel cuts and the government is expected to make significant commitments on child poverty, with Starmer favouring ending the two-child benefit limit.
Reeves told the Guardian that the spending review would show the country and the markets that the billions in borrowing would fuel growth and jobs and help lead to private investment.
She said: “We are building homes, building infrastructure, whether that’s transport or energy. I do want to make sure that we’re spending government money to create jobs, apprenticeships, and build supply chains in this country.
“At the spending review coming up in June, we will invest more in capital, and we’re going to invest £113bn more in capital spending than the plans we inherited from the previous government. I do want to make sure that every penny of that money works for the British economy and creates jobs.”
Reeves will hope details of how the government will spend the £113bn package will be enough to stave off further disquiet over harsh cuts to day-to-day spending expected in the spending review. Departments had been asked to model reductions in their budgets of as much as 7% over the next four years.
Winners from the spending review are likely to be health and defence, and major capital funding for prison building has already been announced by the justice secretary, Shabana Mahmood. Other projects likely to be approved include the new Sizewell C nuclear power station.
The £113bn capital investment fund will also include schemes such as East West Rail, significant cash for housebuilding as Labour strives to meet its 1.5m homes target, protecting government research and development funding, and funds to rebuild schools as well as the first tranche of hospital rebuilding.
Ministers will spend the week after the spending review highlighting new infrastructure projects, with briefings to MPs about how these will affect their local areas.
Treasury sources said Reeves understood that the government needed to set out anew how the billions would be spent.
