On 11 June, Chancellor Rachel Reeves delivered her first full Spending Review, setting out the government’s plans for day-to-day spending and long-term capital investment through to the end of the decade. The review follows a challenging period of slower-than-expected growth, rising inflation, and increased debt servicing costs.
The Chancellor confirmed that no new tax rises would be introduced at this stage. However, with increased pressure on public finances, further changes to taxation later in the year at the Autumn budget remain a strong possibility.
Key economic background
Since the Autumn 2024 Budget, the economic outlook has weakened. The Office for Budget Responsibility (OBR) now forecasts just 1.0% GDP growth for 2025, compared to the 2.0% projected previously. Inflation is expected to average 3.2% during the year, and the cost of servicing government debt has risen significantly.
Government borrowing is currently £9.8 billion higher than forecast, leaving the Chancellor with just £9.9 billion of fiscal headroom. This represents a very slim margin against the government’s main fiscal target of balancing the current budget by 2029 to 2030.
Spending priorities
NHS and public services
The Chancellor confirmed that the NHS will receive a 3% real-terms increase in funding each year, amounting to an additional £29 billion by 2029. Police budgets will increase by 2.3% annually, supporting the recruitment of 13,000 new officers.
Education
In a notable expansion of education support, the Chancellor confirmed that free school meals will be extended to over 500,000 more children. In addition, the Spending Review allocated nearly £2.3 billion annually to address urgent repairs to school buildings, with a further £2.4 billion committed to rebuilding 500 schools across the UK.
Local government
Councils will receive a £3.4 billion uplift in core spending power, with a focus on supporting adult social care and children’s services. However, departments such as the Home Office, Foreign and Commonwealth Development Office, and the Department for Environment, Food and Rural Affairs will face real-terms cuts.
Capital investment
The government has allocated £113 billion in capital investment over the next five years. This includes £39 billion to deliver 1.5 million affordable and social homes, as well as significant spending on infrastructure, transport, and clean energy. Projects include further investment in Sizewell C, upgrades to regional rail networks, and the development of low-carbon energy and defence innovation.
Get in touch
The 2025 Spending Review prioritises long-term investment in public services, infrastructure and housing. However, with tight fiscal margins and weaker-than-expected economic growth, it leaves open the prospect of further tax changes to come.
If you need any help with your financial planning, please get in touch with us on info@smh.group or call 01142 664 432.
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