On June 11, 2025, Chancellor Rachel Reeves presented a comprehensive UK government Spending Review in Parliament, outlining Labour’s fiscal strategy aimed at revitalising public services and infrastructure. The review aims to address a projected £22 billion shortfall in public finances, inherited from previous administrations, through a combination of spending cuts, targeted investments, and tax adjustments. This Spending Review marks a significant shift from previous austerity measures, focusing on long-term investment and regional development.
Overview of the Spending Review
The Spending Review commits to an annual £20 billion increase in public spending, with substantial investments in healthcare, housing, defence, and infrastructure. A notable feature is the £29 billion allocated to the National Health Service (NHS) over three years, alongside a £39 billion investment in affordable housing over the next decade. Additionally, defence spending is set to rise to 2.5% of GDP by 2027, with aspirations for 3% in the subsequent parliament. Reeves emphasised that these investments are designed to drive economic growth and improve living standards across the UK.
Key Areas of Investment
Healthcare
A 3% annual real-term increase in NHS funding is planned, totalling £29 billion over three years. This investment aims to reduce waiting times and enhance service delivery. The government has also accepted pay recommendations, offering NHS workers, teachers, and armed forces personnel above-inflation pay rises of 5.5–6%. Junior doctors in England are set to receive a two-year pay deal averaging 22%, aiming to address recruitment and retention challenges.
Housing
The spending review includes a £39 billion commitment to affordable housing over the next decade. This funding will support the construction of new homes and the regeneration of existing housing stock, particularly in regions outside London. Measures also include adjustments to stamp duty and the Right to Buy scheme to facilitate homeownership.
Defence
Defence spending is set to increase to 2.5% of GDP by 2027, with a goal of reaching 3% in the following parliament. Investments will focus on modernising the armed forces and enhancing national security capabilities. The review also allocates funds for defence manufacturing in various regions, including Aldermaston, Portsmouth, Derby, and Glasgow.
Infrastructure
A £113 billion capital spending plan has been outlined to improve the UK’s infrastructure. This includes investments in transport, energy, and digital infrastructure, aiming to stimulate economic growth and job creation across the country. Specific projects mentioned include upgrades to rail connections among York, Leeds, Manchester, and the East-West rail connecting Oxford and Cambridge.
Efficiency and Savings Measures
To fund these investments, the government plans to achieve £14 billion in departmental efficiency savings by 2028–29. Departments have been tasked with identifying 5% savings, focusing on reducing wasteful spending and improving productivity. A new Office for Value for Money has been established to oversee these efforts. Additionally, £5.5 billion in cuts have been announced this year, rising to £8.1 billion next year, including the scrapping of Winter Fuel Payments for certain pensioners and the cancellation of planned infrastructure projects.
Taxation and Fiscal Policy
The review introduces several tax measures, including the implementation of a 20% VAT on private school fees starting in January 2025, and a 3% increase in the windfall tax on energy companies from November. A new residence-based tax regime will replace the non-domiciled tax status from April 2025. Despite these measures, Chancellor Reeves has indicated that further “difficult decisions” regarding spending, welfare, and tax may be necessary in the upcoming autumn Budget.
National Insurance Contributions
In a move to bolster public finances, the government announced an increase in employer National Insurance contributions from 13.8% to 15%, effective from April 2025. Simultaneously, the threshold at which contributions begin will be reduced from £9,100 to £5,000. This adjustment is projected to raise approximately £25 billion annually. To mitigate the impact on small businesses, the Employment Allowance will be increased from £5,000 to £10,500, allowing over one million employers to maintain or reduce their current National Insurance liabilities.
NHS Funding and Public Sector Pay
The government has committed to a 3% annual real-term increase in NHS funding, totalling £29 billion over three years. This investment aims to reduce waiting times and enhance service delivery. In addition, public sector workers, including NHS staff and teachers, are set to receive pay rises of 5.5%, as recommended by independent pay review bodies. Notably, junior doctors will receive a two-year pay deal averaging 22%, addressing recruitment and retention challenges within the NHS.
Winter Fuel Payments
To address the £22 billion fiscal shortfall, the government has decided to restrict winter fuel payments to pensioners who are in receipt of Pension Credit or other means-tested benefits. This change means that approximately 10 million pensioners will no longer receive the winter fuel allowance, which previously ranged from £200 to £300. The government estimates that this adjustment will save £1.5 billion annually. Critics, including charities like Age UK, have expressed concern that this decision may disproportionately affect low-income pensioners who rely on this support to manage heating costs during the winter months.
Implications for the Autumn Budget
The spending review sets the stage for the autumn Budget, where more detailed fiscal policies will be announced. Analysts anticipate that the government may need to implement additional tax increases to meet fiscal targets, especially if economic growth does not meet projections. The Office for Budget Responsibility has forecasted UK economic growth at 1.1% in 2024, with a slight increase to 2% in 2025. Inflation is expected to average 2.5% this year, gradually decreasing to 2% by 2029. These economic conditions will influence decisions on public spending and taxation in the forthcoming Budget.
In conclusion, Chancellor Rachel Reeves’ spending review outlines a significant shift towards investment in public services and infrastructure, aiming to foster long-term economic growth and regional development. While the proposed measures have been met with both support and criticism, the upcoming autumn Budget will be crucial in determining the feasibility and impact of these plans.
Spending Review
Spending Review
On June 11, 2025, Chancellor Rachel Reeves presented a comprehensive UK government Spending Review in Parliament, outlining Labour’s fiscal strategy aimed at revitalising public services and infrastructure. The review aims to address a projected £22 billion shortfall in public finances, inherited from previous administrations, through a combination of spending cuts, targeted investments, and tax adjustments. This Spending Review marks a significant shift from previous austerity measures, focusing on long-term investment and regional development.
Overview of the Spending Review
The Spending Review commits to an annual £20 billion increase in public spending, with substantial investments in healthcare, housing, defence, and infrastructure. A notable feature is the £29 billion allocated to the National Health Service (NHS) over three years, alongside a £39 billion investment in affordable housing over the next decade. Additionally, defence spending is set to rise to 2.5% of GDP by 2027, with aspirations for 3% in the subsequent parliament. Reeves emphasised that these investments are designed to drive economic growth and improve living standards across the UK.
Key Areas of Investment
Healthcare
A 3% annual real-term increase in NHS funding is planned, totalling £29 billion over three years. This investment aims to reduce waiting times and enhance service delivery. The government has also accepted pay recommendations, offering NHS workers, teachers, and armed forces personnel above-inflation pay rises of 5.5–6%. Junior doctors in England are set to receive a two-year pay deal averaging 22%, aiming to address recruitment and retention challenges.
Housing
The spending review includes a £39 billion commitment to affordable housing over the next decade. This funding will support the construction of new homes and the regeneration of existing housing stock, particularly in regions outside London. Measures also include adjustments to stamp duty and the Right to Buy scheme to facilitate homeownership.
Defence
Defence spending is set to increase to 2.5% of GDP by 2027, with a goal of reaching 3% in the following parliament. Investments will focus on modernising the armed forces and enhancing national security capabilities. The review also allocates funds for defence manufacturing in various regions, including Aldermaston, Portsmouth, Derby, and Glasgow.
Infrastructure
A £113 billion capital spending plan has been outlined to improve the UK’s infrastructure. This includes investments in transport, energy, and digital infrastructure, aiming to stimulate economic growth and job creation across the country. Specific projects mentioned include upgrades to rail connections among York, Leeds, Manchester, and the East-West rail connecting Oxford and Cambridge.
Efficiency and Savings Measures
To fund these investments, the government plans to achieve £14 billion in departmental efficiency savings by 2028–29. Departments have been tasked with identifying 5% savings, focusing on reducing wasteful spending and improving productivity. A new Office for Value for Money has been established to oversee these efforts. Additionally, £5.5 billion in cuts have been announced this year, rising to £8.1 billion next year, including the scrapping of Winter Fuel Payments for certain pensioners and the cancellation of planned infrastructure projects.
Taxation and Fiscal Policy
The review introduces several tax measures, including the implementation of a 20% VAT on private school fees starting in January 2025, and a 3% increase in the windfall tax on energy companies from November. A new residence-based tax regime will replace the non-domiciled tax status from April 2025. Despite these measures, Chancellor Reeves has indicated that further “difficult decisions” regarding spending, welfare, and tax may be necessary in the upcoming autumn Budget.
National Insurance Contributions
In a move to bolster public finances, the government announced an increase in employer National Insurance contributions from 13.8% to 15%, effective from April 2025. Simultaneously, the threshold at which contributions begin will be reduced from £9,100 to £5,000. This adjustment is projected to raise approximately £25 billion annually. To mitigate the impact on small businesses, the Employment Allowance will be increased from £5,000 to £10,500, allowing over one million employers to maintain or reduce their current National Insurance liabilities.
NHS Funding and Public Sector Pay
The government has committed to a 3% annual real-term increase in NHS funding, totalling £29 billion over three years. This investment aims to reduce waiting times and enhance service delivery. In addition, public sector workers, including NHS staff and teachers, are set to receive pay rises of 5.5%, as recommended by independent pay review bodies. Notably, junior doctors will receive a two-year pay deal averaging 22%, addressing recruitment and retention challenges within the NHS.
Winter Fuel Payments
To address the £22 billion fiscal shortfall, the government has decided to restrict winter fuel payments to pensioners who are in receipt of Pension Credit or other means-tested benefits. This change means that approximately 10 million pensioners will no longer receive the winter fuel allowance, which previously ranged from £200 to £300. The government estimates that this adjustment will save £1.5 billion annually. Critics, including charities like Age UK, have expressed concern that this decision may disproportionately affect low-income pensioners who rely on this support to manage heating costs during the winter months.
Implications for the Autumn Budget
The spending review sets the stage for the autumn Budget, where more detailed fiscal policies will be announced. Analysts anticipate that the government may need to implement additional tax increases to meet fiscal targets, especially if economic growth does not meet projections. The Office for Budget Responsibility has forecasted UK economic growth at 1.1% in 2024, with a slight increase to 2% in 2025. Inflation is expected to average 2.5% this year, gradually decreasing to 2% by 2029. These economic conditions will influence decisions on public spending and taxation in the forthcoming Budget.
In conclusion, Chancellor Rachel Reeves’ spending review outlines a significant shift towards investment in public services and infrastructure, aiming to foster long-term economic growth and regional development. While the proposed measures have been met with both support and criticism, the upcoming autumn Budget will be crucial in determining the feasibility and impact of these plans.
If you have a question CLICK HERE and reach out to the Robinsons team
Archives
Categories
Archives
Recent Post
Categories
Portfolio
Meta
Calender