Chancellor Rachel Reeves is preparing to unveil the government’s spending review, a pivotal moment for the Labour government that will lay the political ground for the next election.

Reeves will set departmental budgets and priorities for the coming years, and is expected to spare defence and health from a tightening of Whitehall expenditure that will involve some departments facing real-terms cuts.

She will also announce a borrowing-fuelled spending spree on capital projects, including £113bn of extra cash over the current parliament.

This will include earmarking £39bn for “affordable” homes over 10 years, which the Treasury said will represent “the biggest boost to social and affordable housing investment in a generation”.