'It's going to be ugly': Westminster braces for Spending Review

There is a joke, of sorts, doing the rounds in Whitehall, that soon government will be "the NHS and the army with the rest just bolted on".

For ministers fighting to keep cash to spend in their departments it's not that funny. In a couple of weeks, the Chancellor Rachel Reeves will reveal what an insider described as "the last big set of decisions" before the next general election.

It's an open secret in Westminster billions will be found for health and defence. But the chancellor and her deputy, Darren Jones, are locked in conversations with Cabinet ministers about setting all government budgets all the way to 2029.

Forget rows over winter fuel or welfare payments, the Spending Review sets the for everything. Much more than spats over spreadsheets, it's a series of arguments about who and what the government is for.

Who wins and who loses will set the political terrain for years to come. I've talked to nearly 20 ministers, advisers, and insiders about what's going on behind closed doors.

"It's going to be ugly," observes a Whitehall source. In case you've been living on Mars, ministers have said, again and again, government has to "live within its means", and "there'll be difficult decisions".

That's all code for saying some bits of government spending will be hacked back. The paradox is that overall, the government is spending more – big tax rises in the autumn meant hefty cheques for public services.

And the chancellor also changed the rules on how much she can borrow to spend on long term projects, what's known as "capital spending", giving her more than £100bn to dole out this time round.

But because some kinds of spending - like health or defence - are getting significant extra cash, there's a tight squeeze on day-to-day spending more or less everywhere else. Despite the vast budgets, one government source its, "there are services in real danger".

Who, or what then, are the likely winners and losers? By late Friday more than half of government departments had reached a final agreement with the Treasury.

No 10 claims evidence of "early and swift progress". A member of the Cabinet praises Reeves and Jones for "genuinely trying to be collaborative". That's not a universal view.

"It's got quite spicy," another source says, with some acute tensions, hardly surprising given there are billions at stake, and political reputations to make or break.

There are literally thousands upon thousands of decisions, with us going "literally line by line," one government insider says.

But there is a rough rule of thumb. With day-to-day spending, the Treasury will be tight as a drum, but relatively generous when it comes to capital spending. So cash for new roads, power infrastructure, hospital buildings, and prison building will flow.

Government is likely to try to create headlines from those big-ticket items – the expected approval of the new Sizewell C nuclear power station is one example.

In the next few days, as if as a warm up, you'll hear announcements about investing in new kit for health, construction jobs for housing, and water infrastructure.

The Spending Review itself is likely to be followed by what sources describe as "infrastructure week", a whole range of plans.

One source said, "the capital budget's OK, it's the day to day where the really difficult conversations are".

And that means departments whose budgets are gobbled up by providing public services every day, like police officers, care for the vulnerable or primary schools, are likely to feel the heat.

There are multiple arguments, planted like political landmines, any of which could explode across Whitehall before the review on 11 June.

There is even a hunt for savings in Downing Street, which one source describes as "mad", at a time when "if you are worried about delivery and grip, spend money in No 10!".

There are tensions over council budgets, depleted after years while demands on them grow. There's uncertainty over cash to build affordable homes over the long term, and money earmarked to help deprived areas grow. There is worry the budget to insulate millions of homes might be raided.

There's concern that plans to improve police numbers and performance and halve violence against women and girls might not be allocated enough cash. And there's a conversation about whether capping bus fares is really value for money.

"The money is so difficult they are having big fights about small amounts," one source says.

Capping bus fares only costs about £200m - pennies when it comes to the overall government budget.

"Only one in six engers use it - so for £200m that money could be working harder," another source tells me, "but the politics wrapped around it mean if you touch, it is a third rail".

Under pressure, different ministers and their teams are taking what could diplomatically be described as very different approaches.

There are whispers of slammed doors, and tales of one cabinet minister refusing to take notes to meetings, and answering "no" to every suggestion or remark made by officials.

Ministers will always want more for their departments and when money is tight, it's not surprising the process is fraught.

In conversation with some sources, you can hear worry in their voices about the effect decisions might have on the services the state provides.

One cabinet minister told me, "We're already so up against it – the core problem is that money is very, very tight."

But another said some colleagues "are being unrealistic about where the country is fiscally".

Some in government even say, "there is a lot of fat and waste", suggesting some cuts, even reducing headcount among civil service that's "grown out of control", have been easy to find.

Making the sums add up is the first part of the process. The second question is where this all fits into an unpopular government's story.

There is hope in senior circles that the review, together with big infrastructure plans, can be used to create a summer of good news, after many months of taking a pasting.

Reeves' deputy, Jones, wants to create "stories not spreadsheets" and has been regularly talking to groups of MPs about what's being lined up for their area, evidence of what government is doing they can sell to frustrated voters.

The tricky part, as one government sources suggests is that "day-to-day spending is what people notice… you don't swing votes with long-term projects".

it's day-to-day spending that's tight, long-term cash for capital that's likely to flow.

"There is huge pressure to have something to show for it in three-and-a-half years' time," the source adds.

You can fill plenty of potholes before 2029. You can't plan and build many power stations. There's an appetite in pockets of government to have a much clearer explanation of why money needs to be saved, or else, one source warns, "it could be another political party sitting there – there needs to be an argument from a Labour Treasury, and Rachel needs to set that out".

And trying to save cash confronts two other realities. With the focus squarely on health, defence, and long term projects, what happens to all of the prime minister's "missions" – them?

"It's really hard to see how the missions survive," one source says, even though those ambitions were meant to define Sir Keir Starmer's whole approach to government.

And what about his supposed zeal for reform, rewiring the state? Enthusiasts would argue being short of cash is the best argument for making big change.

But as an experienced Whitehall insider asks, "How do you avoid political momentum dropping out of everything else, if most departments are spending the next few years managing decline? How do you maintain political momentum in a world of down arrows":[]}