UK Spending Review 

Why this Spending Review matters 

For all governments, Spending Reviews are a key event in the political cycle. It is the moment when the government allocates spending across departments. In doing so, it sets out what it cares about and the trade-offs it is willing to make to meet those priorities. On Spending Review day, the government can put tax to one side and just focus on the allocation of public money. And the government can control the narrative. For Budgets and Spring Statements, the Office of Budget Responsibility (OBR) will provide its own objective assessment. In contrast, the Spending Review is free from any OBR commentary.

Politically, today is a particularly important moment for this Labour government which has largely been on the backfoot since taking power nearly a year ago. Few Labour MPs would disagree that it has been a difficult initiation with decisions like winter fuel now accepted as political mistakes, paid for at the local elections. Whatever the very real challenges it has faced, the public voted for change last July and now want to see that delivered. Today is a moment for Chancellor Rachel Reeves to tell the story of what that change looks like, what this government is for, and what the country will look like over the next three years.

It is also a reset moment and a chance to demonstrate what the purpose of the fiscal restraint last autumn was for. The decisions made in the autumn were not popular but might be accepted by the public if the government can show that they were taken for a clear purpose. Today’s Spending Review is perhaps the last chance for the government to do that. And the sums of money being allocated are not insignificant—the government has set out how it will spend over GBP 600 billion of the public’s money. Ultimately, the timeframe means this Spending Review sets the platform for Labour’s next election campaign.

The Chancellor has today made a particular virtue of capital spending as the means to boost the productive capacity of the economy to enable growth. Restraint in many areas of day-to-day departmental spending is to allow GBP 113 billion in capital spending over the next four years. That this fiscal expansion will lead to economic growth, however, is by no means guaranteed. It is a gamble, and the investment has to go into the right projects that will generate the economic returns that people can see and feel—and soon. Even if successful, capital investment like this will take time to feed through into economic growth, so the next two fiscal statements at least may still be difficult.

On the other hand, limits on day-to-day spending does affect the functioning of government and public services and will be felt in a number of areas. This Spending Review also leaves many issues unaddressed. In the coming three years, local authorities may face significant financial difficulties, some universities claim to be in a similar position, and social care remains unaddressed. These challenges may become unavoidable. The danger is that by the Budget, the Treasury will have to fund the winter fuel payment reversal, and the Chancellor may also have Cabinet colleagues, such as the Home Secretary, seeking to reopen their settlements if they prove unsustainable.

Attention has already turned to where taxes will rise if—or more likely when—this is required by the autumn. Even if the UK secures its own exemptions, there is likely to be further impact from the US tariffs. This is not the Chancellor’s fault, but it will be her problem as it could further erode her fiscal headroom. If this happens, she will have to return to Parliament to find more money. This is likely to be either from welfare cuts, which is politically difficult, or from departmental cuts, equally challenging for her Cabinet colleagues. This is set out in more detail in the analysis section below. 

What has been announced 

Today’s Spending Review marked the end of months of negotiations between government departments and the Treasury. While overall spending is up by 2.3% in real terms over the remainder of this Parliament, within this envelope there are some clear winners and losers.

Investment into the UK’s energy security featured prominently throughout the Chancellor’s speech, with Ed Miliband’s Department for Energy Security & Net Zero appearing one of the biggest winners from today’s announcements. Significant investment in nuclear and the Warm Home Plan featured prominently, alongside the allocation of the full GBP 8.3 billion to Great British Energy over the course of this Parliament. The Chancellor also committed to investing in Carbon Capture, Usage and Storage. Elsewhere, Peter Kyle’s Department for Science, Innovation and Technology also did well with GBP 22.6 billion per year for R&D by 2029–30, a real terms increase.

Defense spending will also rise, increasing to 2.6% of GDP by 2027 with ambitions to reach 3% in the next Parliament with significant capital investment. The most eye-catching item is the GBP 15 billion allocated for the UK for a sovereign nuclear warhead program while other big spending commitments include over GBP 4 billion to develop autonomous platforms, GBP 6 billion for munitions procurement and production, and at least GBP 7 billion on renewing military accommodation.

For the Department of Health, too, there was welcome news, with the NHS receiving a GBP 29 billion real terms increase in its annual resource budget by 2028–29, rising to GBP 226 billion, representing 3% average annual real growth. NHS capital budgets will rise by GBP 2.3 billion in real terms, with over 20% growth from 2023–24 to 2029–30—supporting hospital building, digital upgrades, and primary care. NHS reform priorities include investment in technology and AI, introducing a single patient record system and funding to bring back the family doctor model through increased GP training, alongside the delivery of 2% productivity growth per year, unlocking GBP 17 billion in savings.

Elsewhere, other public services will also benefit from increased investment. Local government, overseen by Angela Rayner, will receive GBP 3.4 billion more in grants by 2028–29 (vs 2024–25), a 3.1% real terms annual increase in core spending power. In addition, new devolution settlements and integrated funding packages are intended to empower local leaders while the new Local Growth Fund will launch with 10-year capital settlements for selected city regions in the North and Midlands. Some of the UK’s most deprived communities will benefit from additional regeneration and public realm funding and the Green Book’s investment criteria will be amended to better reflect opportunities outside London and the South East.

Schools will see a GBP 2 billion real terms uplift, delivering a 1.1% average per-pupil annual real growth with the School Rebuilding Programme investing GBP 9.6 billion over four years to rebuild 500 schools. Increased skills and training funding will support 1.3 million 16–19-year-olds. And following last week’s announcement, the Chancellor reiterated the government’s commitment to expanding Free School Meals to all children with a parent on Universal Credit by 2028–29—costing GBP 410 million per year and lifting 100,000 children out of poverty.

Whilst the Home Office will see its day-to-day budget fall, police spending power will increase by an average 2.3% per year in real terms over the Spending Review period. Use of migrant hotels to house asylum seekers will end by 2029, saving GBP 1 billion per year. The justice system will receive GBP 7 billion for 14,000 new prison places by 2029–30 and GBP 700 million per year for probation reforms by 2028–29.

Notwithstanding relative department winners and losers, all departments face having to find efficiency savings with administrative budgets across all departments cut by 16% in real terms by 2029–30, saving GBP 2.2 billion annually. The government has big hopes that innovation, including widespread AI adoption can do a lot of the heavy lifting here, with the GBP 3.25 billion Transformation Fund, first announced at Spring Statement 2025, driving efficiency in public services and modernizing the state. 

Analysis: The Labour perspective 

Renewal is the one-word summary of today’s Spending Review announcement. As with BBC Springwatch broadcasts this time of year that document the transition from winter’s dormancy to reawakening, the Chancellor is keen, after being criticized for her gloomy economic prognostications, to strike a more positive note about Britain’s economic future—from economic dormancy to economic growth.

In two key speeches before the election Reeves set out her economic approach. Her Mais Lecture and Securonomics speech focused on “Stability; Investment; Reform.” Labour is delivering more political stability. The investment principle was today’s focus.

But there is little doubt that she is a weakened political figure—unpopular in the country, and with much-reduced political capital in Parliament. Nevertheless, this Spending Review doesn’t really deviate from the plan, with its focus on the big infrastructure challenges of the country.

Partly to address her own political weakness, the Chancellor is keen that this is seen as a Labour Spending Review: the choices she has made favor the priorities Labour values such as health, education, and improving public services.

Leveling up is back—by another name. Treasury is being told to evaluate the benefits of capital spending differently in the fabled Green Book, channeling infrastructure investment to under-resourced areas—a big win for Labour’s metro mayors like Andy Burnham, Steve Rotheram, and Tracy Brabin who now expect more government spend to be unlocked for the North.

And it’s why there was a series of announcements about improving the town centers and local environments so that people can really feel the change this government is making.

But events like this are always about trade-offs. There are always losers. The Chancellor is no longer politically invulnerable, and people question her judgement. The Treasury team are learning political lessons. The political handling ahead of today has been more adept: more pitch rolling with colleagues and a drumbeat of eye-catching, major announcements that set the scene and the story for the Spending Review.

But concerns remain for Labour politicians about how her plans are funded and whether proposed welfare cuts—disability benefits, the two-child benefit cap—remain in place. Emboldened by the winter fuel rethink, MPs will continue to campaign hard on these issues. And though keen to trumpet an overall budget growth of 2.3% in departmental budgets, Treasury documents show big spending challenges for most government departments, and it is left unsaid as to where the axe will inevitably fall.

The reality is that economic renewal, unlike on Springwatch, takes years and not weeks. This Spending Review is a big bet. And changing course is not an option if Labour continues to stay behind in the polls and focus groups continue to have negative views about Labour’s top politicians and their ability to deliver change. 

Analysis: The Opposition response 

“This Spending Review is not worth the paper it is written on…this is a spend now, tax later review…because the [Chancellor] knows she will need to come back here in the autumn with yet more taxes.” These were the opening remarks as Mel Stride, the Shadow Chancellor, delivered his scathing assessment of the Chancellor’s spending plans.

Stride took aim at how the Labour Party was claiming before the General Election that their plans for government involved barely any additional spending or borrowing, but now, the Chancellor was “parading her largesse” as she announced “hundreds of billions in additional spending over this Parliament.”

This line of attack was coupled with claims that the Chancellor’s “deluge of taxes and regulations has left business confidence at record lows” and how due to the decisions she has made, the country has no fiscal fire power left to respond to “even the smallest changes in the bond markets.”

Stride also pressed the Chancellor to see whether she could confirm that there would be no additional borrowing to pay for her winter fuel allowance U-turn, and if that was the case, whether she can explain how it will be paid for without raising taxes.

It is clear from speaking with senior Conservatives immediately afterwards that the majority thought Stride did well. One in particular told us: “Stride’s job is to be the face of our Party’s efforts to regain economic credibility, and his speech today was a good step in the right direction towards achieving that.”

Following the fallout of the Liz Truss mini-budget and the scale of the defeat the Conservatives suffered last year, no individual speech can achieve that stated aim. But it is clear that Stride is leading the effort within the Shadow Cabinet to try and ensure that restoring the Party’s credibility on the economy is their number one priority.

Away from the Conservative Party, Richard Tice, responding on behalf of Reform, also took aim at what he described as “completely out of control” government spending. He added that the Chancellor may want to learn some lessons from the ten Reform-led councils which have, he claimed, identified “hundreds of millions of pounds” worth of savings. With Zia Yusaf returning to Reform to head up Reform’s Musk-inspired DOGE unit aimed at identifying efficiency savings, we can expect to hear a lot more arguments like this from Reform politicians as they seek to demonstrate that they can be trusted with elected office. 

Materials presented by Edelman’s Public & Government Affairs experts. For additional information, reach out to Mohammed.Hussein@Edelman.com