After weeks of jostling with ministers, chancellor Rachel Reeves unveiled her 2025 Spending Review on 11 June, setting out departmental budgets and infrastructure investment for the next three years.
Total departmental budgets will grow by 2.3% per year in real terms until 2028/29, with some departments like health receiving a more significant boost. Defence, housing and transport were other areas of focus.
Reeves confirmed an extra £29 billion per year for the NHS, £39 billion over the next decade for social housing, and committed to increase defence spending to 2.6% of GDP by April 2027.
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Other departments saw their day-to-day budgets cut, including the Home Office and the Foreign Office.
Reeves said the aim of the review was to “invest in Britain’s security, invest in Britain’s health and grow the economy so working people are better off”.
Shadow chancellor Mel Stride hit back at the government’s announcements, calling it a “spend now, tax later” review. Speculation is rising that further tax hikes could be on the agenda in the Autumn Budget – although nothing has been confirmed.
What was announced at the Spending Review?
The focal point of the new spending plans were boosts in the health and defence budgets, as well as more funding for housebuilding, education, and energy.
Health
Reeves announced a “record cash investment” for the NHS, increasing day-to-day funding by 3% per year in real terms. This is equivalent to an extra £29 billion per year.
Cutting NHS waiting times and increasing the number of appointments were both key Labour manifesto promises.
Reeves today called the NHS Britain’s “most treasured public service”, and used her speech to defend Labour’s record so far this parliament.
The government has recruited 1,700 new GPs, delivered 3.5 million more NHS appointments and cut waiting lists by 200,000, Reeves said.
Defence
Following announcements made last month by the prime minister in the Strategic Defence Review, Reeves confirmed that the defence budget would increase to 2.6% of GDP by 2027.
This will amount to £11 billion more over the period outlined in the Spending Review. The government says the investment will deliver renewal across the country to make Britain a “defence industrial superpower”.
Reeves also reaffirmed that £4.5 billion will be invested in munitions and that £6 billion will be directed to renew the UK’s fleet of nuclear submarines.
The chancellor said much of this funding would come from cuts to the international development budget announced in February.
Further boosts could also be on the horizon over the longer term. Documents published after Reeves’s speech outlined an ambition to reach 3% in the next parliament, if economic and fiscal conditions allow.
Alongside greater defence spending, the chancellor announced that £280 million more per year would be set aside for a new ‘Border Security Command’ and confirmed that hotels would no longer be used to house asylum seekers by the end of the parliament, at a projected saving of £1 billion per year.
Police
Police spending power will increase by 2.3% per year in real terms over the Spending Review period of three years.
The government also plans to put an additional 13,000 police officers, community support officers and special constables into neighbourhood roles.
Tackling crime was another key manifesto promise. In the lead-up to the election, Labour pledged to halve serious violent crime and raise confidence in the police and criminal justice system.
An upcoming whitepaper will outline a programme of police reform, “raising standards, harnessing technology, increasing efficiency and improving accountability,” the government has said.
Housing
The chancellor announced that affordable and social housing will receive a £39 billion investment over the next decade, in what Reeves said was the “biggest cash injection in fifteen years” for the sector.
This cash will be distributed as grants to local authorities, private developers, and housing associations, with plans already in place in some areas such as Blackpool, Sheffield, Swindon and Preston.
Homes England, the public body that funds affordable housing, will be designated as a public financial institution and given £10 billion for financial investments to help achieve the government’s homebuilding plans.
Energy
The UK’s energy sector will also see increased investment after the government confirmed it approved the construction of a new nuclear reactor at the Sizewell nuclear power station, putting £14.2 billion towards the project.
Reeves also said she would invest £2.5 billion into researching nuclear fusion, and announced that Rolls-Royce was the government’s preferred bidder to build the UK’s first small modular nuclear reactor.
Outside of the production and research of nuclear energy, the chancellor said millions would be invested into carbon capture schemes, including support for Acorn in Aberdeenshire, and Viking in Humberside.
Reeves said putting further investment into low-carbon energy production will bring household energy bills down and reduce the UK’s reliance on overseas oil and gas.
Education
More reserved cash injections are on the way for the Department for Education. The core schools budget will receive £4.5 billion, with an additional £2.3 billion to fix “crumbling classrooms”.
Reeves also confirmed that free school meals will be extended to all children who live in a household that receives Universal Credit.
The government says “over half a million” more children will receive free school meals, and that the scheme will lift 100,000 children out of poverty.
Transport
A new boost of £15 billion of investment has also already been announced for transport infrastructure in England. This cash will be spent by mayoral authorities on things like trams, trains and buses.
Reeves said £3.5 billion would be allocated to upgrading the Transpennine Route between York and Manchester, while £2.5 billion will be spent on the continued development of East-West Rail, between Oxford and Cambridge. Wales will receive £445 million to spend on its railways over the next 10 years.
Business and technology
An extra £25.6 billion will be put into the British Business Bank, a state-owned bank that primarily loans money to small to medium-sized businesses. This increase amounts to a two-thirds rise in its “financial firepower”, according to the chancellor.
Reeves also announced that £1.2 billion a year will go towards training and upskilling schemes for young people, as well as for the greater provision of apprenticeships.
Meanwhile, an extra £2 billion was earmarked to spend on the government’s AI Action Plan, announced in January.
Winter Fuel Payment
Reeves reiterated the government’s decision to reinstate the Winter Fuel Payment for the “vast majority” of pensioners – three quarters by the government’s reckoning. Details of this policy U-turn were first announced on 9 June.
One of Labour’s first moves after coming into office was to means-test the benefit – meaning pensioners only qualified if they got Pension Credit or certain other income-related benefits. The move sparked strong backlash.
What is the Spending Review?
The Spending Review is the mechanism through which the government calculates and dishes out departmental budgets in the long term, usually for the next three or four years. It is led by the chief secretary to the Treasury, who draws up initial plans, and the chancellor of the exchequer who refines and approves them.
The money for public resources like the NHS, schools, and transport infrastructure comes from departmental budgets, so boosts and cuts to them will affect the funding of public services.
Alongside day-to-day departmental spending, which includes salaries, supplies and administration costs, the review also covers investment such as infrastructure spending on things like railways, schools and hospitals.
Spending Reviews are not done annually, and this review is the first since 2015 to take place outside of a global pandemic. The previous review took place in 2021 under a Conservative government.
What does the Spending Review mean for your money?
The Spending Review is unlike the Autumn Budget or Spring Statement as it is not a “fiscal event”. Instead, it is an internal review of departmental budgets and investment opportunities.
As a result, no new taxes or other revenue-raising measures are announced in the Spring Statement. But that does not mean that there are no implications on what could come next.
Increased government spending has to be funded. This can be done in three broad ways – through borrowing, increased taxation, or through budget cuts.
According to Reeves’s self-imposed “fiscal rules”, she is not allowed to borrow money in order to fund day-to-day government spending (though she is allowed to borrow to invest), so this means that any spending increases must come from either cuts or increased taxes.
As it stands, most of the government’s plans for increased spending will get their funding from cuts to other departments, but some commentators have worries about whether this is realistic.
The Institute for Fiscal Studies (IFS), an independent economic think-tank, has said it worries that taxes may need to be raised in the Autumn Budget if economic growth remains sluggish.
IFS director Paul Johnson said the “very significant” amount of government borrowing means the chancellor could be forced to raise taxes.
In an interview with the BBC, he said the government’s deficit is set to be “significantly higher than planned” and that “if the economic forecasts move at all in the wrong direction then we may have to have some tax increases”.
