Rachel Reeves. Image © Rupert Rivett/Shutterstock
Judging Spending Reviews on the day is like judging new-ish England manager Thomas Tuchel on the basis of his early games in charge. Everybody booed him after the loss to Senegal, but maybe he is simply trying to find the right player combination and will go on to win the World Cup!
Similarly, it will be some time before we can really understand what the strengths and weaknesses of Rachel Reeves’ 2025 Spending Review are. Nevertheless, we have to have a go.
So of course in the Spending Review there were some that got a decent settlement: health got around a 3% real-terms increase for the next three years, while defence got nearer 4%.
And there were some that had to have less or even real-terms cuts, a consequence of having a fixed and pretty tight spending envelope. This surprisingly included the Home Office budget, cut by 1.4% each year (with the hope that a reduction in spending on asylum seeker hotels will make up for this). As the numbers are digested and better understood there will be squeals of delight from some stakeholders and expressions of anguish from those who feel their specific cause has been ignored .
But perhaps more useful at this stage is to go detective-style and to try and understand what the Spending Review tells us about three key issues. First, what does it reveal about government priorities and the way it will govern? Second, what does the timing of spending over the next few years tell us about the government’s economic and political plotting? Third, who did the government feel they could ignore and who does it look as though they felt they had to please?
On the first, this Spending Review looks like it was crafted by Reeves and Starmer as much as they could around the five ‘missions’ the prime minister announced soon after he came into office. It was not hard to see them in the spending decisions: growing the economy, an NHS fit for the future, safer streets, opportunity for all, and making Britain a clean energy superpower.
Now, one could argue that some of the ways these manifest themselves are not very broad and long-term in the way missions were once advertised – for instance health has unsurprisingly done well from this Spending Review but it is mainly about NHS spend not its social determinants and prevention. But nevertheless the government appears to still be using these missions as its organising motif and given the current fiscal position, that is impressive.
Second, it is noticeable that much of the good news was about investment and capital expenditure. The affordable housing figures were very striking – £39bn over the next 10 years, a major increase on what went before; money into energy and net zero including nuclear; as well as over £15bn funding over the next five years into transport in the major (non-London) cities.
This is partly because the welcome change in the fiscal rules brought in by chancellor Rachel Reeves allowed more room for such investment – and does not for current spend. But it is also because the only way to achieve some of these missions – especially the growth mission – is by longer-term investment. This is always dangerous for an incumbent government. Investment announcements are initially received as good news, especially in the places they are targeted at. But then everyone notices that they feel no immediate difference, because capital investment takes many years to show up in the community and lives.
It is noticeable that the percentage increases in capital and current spending are higher in the first two years of the parliament than in those set out in this Spending Review for the next 3 years. That is a little unusual – politics often suggests tightening up to start and then letting the money flow to ‘encourage’ voters nearer the next election. But if you want to show you have made a difference to people then this is surely the right balance – if such a balance has to be made (probably due to a need to hit the fiscal rules on debt coming down as a proportion of GDP).
Lastly, what does this Spending Review say about who the government feels it wants to please and who it can safely ignore? Clearly there is a big pitch to what might seem like potential Labour/Reform switchers and the chancellor’s repeated use of the phrase “working people” made that clear.
This should mean long overdue investment into many areas of the country which have been neglected. There were also pretty decent settlements for net zero that should appeal to those on the more liberal and green wing of the population, although the Defra budget is to be cut 2.3% per year.
Meanwhile civil servants get a bashing – although they have avoided a DOGE approach, the administrative savings pencilled in of 16% in real terms by 2029-30 must mean a lot of jobs going. And local government is left to stew a bit more with a hint that the way it will survive is with council tax rises.
Areas such as social care are once again given short-ish shrift relative to what many feel is needed. This has been common across governments of all hues for many years, but it surely can’t go on forever.
Of course, there are many questions that this Spending Review could not and did not answer. Can Labour’s big commitments in areas including housing, health and policing be delivered with these numbers? Will local government and the courts simply fall over if this is all they get for the next three years? Will Reeves be forced to look again at tax in her autumn Budget if she wants to keep to her fiscal rules? How does Donald Trump affect any of these things? But this Spending Review has at least given us a clear steer for the way the government is seeking to govern and deliver the changes which the country needs.
