Chancellor Rachael Reeves gave her first Spending Review yesterday which prompted us to ask:
What is a Spending Review and what is it for?
A Spending Review sets out the Government’s long-term plan for much of its expenditure in the following few years and set limits on the spending of government departments and how much tax-payer money is allocated to public services. The last spending review was delivered by Rishi Sunak in 2021 when he was Chancellor and the worldwide Covid 19 pandemic was in progress.
A spending review generally covers only expenditure that can reasonably be planned in advance and makes up about half of total government spending. A spending review operates with the context of the Government’s fiscal rules and describes how the review relates to budgets and to fiscal rules.
What does yesterday’s Spending Review mean for the UK?
On the face of it the Chancellor does not have money to fund all of the spending on public services that she has provided for. The Institute of Chartered Accounts in England and Wales has said that tax rises are “all but inevitable” as a result of this review and the Chancellor herself has refused to rule this out. So it looks like higher taxes are on their way.
The Key Takeaways for Government spending going forward are :
The Government plans to spend more money over the next few years, especially on health, defence, and education. Some departments will get less, but overall spending is going up. The focus is on sectors like the NHS, housing, transport, and energy.
As part of the recent spending review, there was a strong emphasis on enhancing regional transport infrastructure across England.
A total of £15.6 billion has been allocated to support transport improvements in the country’s city regions. This funding package includes significant investments such as metro extensions in Tyne and Wear, Greater Manchester, and the West Midlands.
Additionally, it will support the renewal of the tram network in South Yorkshire and the development of a new mass transit system in West Yorkshire, reflecting the government’s commitment to boosting connectivity and supporting regional growth.
The review highlighted a significant investment in the UK’s nuclear energy sector, with £16.7 billion allocated to support nuclear power initiatives. A major portion of this funding £14.2 billion will go towards the development of the Sizewell C power plant in Suffolk.
This investment underscores the government’s commitment to long-term energy security and low-carbon power generation.
To strengthen national security and tackle illegal immigration, the government will provide up to £280 million annually for the establishment of a new Border Security Command. This initiative aims to combat people smuggling and enhance border control operations.
Additionally, the government plans to end the use of asylum hotels by 2029, a move expected to save £1 billion each year.
The review commits £22 billion per year to research and development, reinforcing the UK’s ambition to be a global leader in innovation.
This includes £2 billion dedicated to the government’s AI action plan and £6 billion to support the growth of start-ups across the country. These investments are designed to boost productivity, technological advancement, and economic competitiveness.
A total of £39 billion will be invested over the next decade to expand affordable housing. By 2029–30, annual investment in affordable homes will nearly double to £4 billion, up from £2.3 billion during the 2021–2026 period.
This funding aims to address housing shortages and improve access to quality, affordable homes across the UK.
The NHS will receive a substantial funding boost of up to £30 billion. The Department of Health and Social Care’s budget will increase by 3% annually over the next three years, reaching a total of £29 billion by 2028.
This investment is intended to enhance healthcare services, reduce waiting times, and support the workforce
To keep public transport affordable, the £3 cap on bus fares will be extended until 2027. Without the cap, some fares (e.g. Leeds to Scarborough) could rise to £12.
School budgets will see an annual increase of £4.5 billion, with £2.3 billion per year specifically allocated for repairing and upgrading school buildings. This funding aims to improve educational environments and ensure that facilities are safe and fit for purpose.
As part of a wider cost-of-living support package, all children with a parent on Universal Credit will now be eligible for free school meals. This policy aims to reduce child hunger and support low-income families during challenging economic times.
The government has committed £445 million to upgrade rail infrastructure in Wales. This investment is part of a broader effort to enhance regional connectivity and support economic development across the UK’s nations.
Additional measures include a £13.2 billion plan to insulate homes, improving energy efficiency and reducing household bills. The government will also introduce caps on school uniform costs to ease financial pressure on families.
Despite calls for reform, the government has decided not to change the two-child benefit cap. This decision has sparked disappointment among many Labour backbenchers who had advocated for its removal to support larger families.
The Spending Review is conducted by HM Treasury and typically occurs every four years. It is presented by the Chancellor of the Exchequer to Parliament and is a key part of the UK’s fiscal planning. The review includes:
- Departmental budgets for day-to-day operations and long-term investments.
- Spending priorities aligned with government goals (e.g., health, education, defense).
- Efficiency targets and reforms to improve value for money.
- Forecasts for economic growth, inflation, and tax revenues.
A fiscal review is an evaluation of a government’s financial position, focusing on its revenues, expenditures, borrowing, and overall economic strategy. It typically assesses how public money is being raised and spent, whether fiscal policies are sustainable, and how they align with broader economic goals such as growth, inflation control, and debt management.
Fiscal reviews help ensure transparency and accountability in public finances and often inform decisions about taxation, public investment, and budgetary priorities. They can be conducted periodically by governments, independent fiscal institutions, or international bodies like the International Monetary Fund (IMF).
As always, we’re here to help you navigate these developments and make informed decisions. If you feel there is anything we can help you with please get in touch with us here.
