Spending Review 2025: Analysis

The Chancellor has delivered the most significant set-piece event of her career to date, which will define government spending and investment priorities for the remainder of this Parliament. The message from Reeves was clear: invest or face decline. But this is a Spending Review with big winners, big losers, and plenty of uncertainty stored up for the years to come.

Despite the £113bn allocation for long-term capital spending, which will be paid for by increased government borrowing, the reality facing many departments is one of constrained day-to-day budgets. And that’s a difficult story to sell to voters on the doorstep, who likely won’t feel the impact of the capital projects outlined today until long after the next election.

This is neither a big splurge nor a return to austerity but treads a line somewhere between the two. Capital spending will increase by just 1.3% from 2026/27 to 2029/30, although this doesn’t include the increases planned for this financial year. And while day-to-day spending is still increasing overall, there are significant variations across Whitehall departments, with most departments facing cuts.

Health, energy, housing and defence were the day’s biggest winners, reflecting Labour’s commitment to significant investment in an NHS still struggling to catch up post-COVID, defence spending amidst global instability, and economic growth via infrastructure investment.

Reeves went big on social and affordable housing, announcing one of the largest funding boosts in a generation with a £39bn Affordable Homes Programme to help deliver 1.5 million homes. This is an eye-catching number, but it will be delivered over a ten-year period and with the majority of funding slated for after the next election. Responding to the calls of the sector, she also confirmed a long-term rent settlement for social housing and a £10bn uplift for Homes England.

Social housing is a totemic issue for many on the left, and the Prime Minister is hoping that today’s announcements – as well as the winter fuel U-turn and free school meals expansion – will go some way to reassuring disgruntled MPs and Labour voters, offering a deeper explanation in terms of what motivates this Government.

The disproportionate boost in funding for defence and the NHS, coupled with other expected priorities such as restoring the winter fuel allowance and ending the two-child benefit limit, have naturally led to speculation around tax rises at the autumn budget. The question now is where the Government will look to raise revenue without breaking its manifesto pledge to not increase Income Tax, employee National Insurance or VAT for working people. Reeves will be only too aware of the impact of noise around tax rises on business and investor confidence.

There were regional winners and losers too. On the whole, today reaffirmed this Government’s commitment to devolution, with confirmation of increased capital spending in northern cities, new funds to be channelled via Mayoral Authorities and further details around Local Growth Plans and Integrated Settlements published alongside the main SR. In contrast to Reeves’ championing of the north and the midlands, London barely got a look in beyond a four-year settlement for TfL. London Mayor Sadiq Khan has already labelled the Spending Review ‘disappointing’, and with the 2026 London local elections coming into view, lack of funding for the capital will cause a particular headache for Labour’s candidates facing threats from the Liberal Democrats and Greens.  

The consensus across the political commentariat is that Labour’s chances at the next election depend on voters feeling that the Government has made a real difference to their lives and their pockets – enough of a difference to stem the flow of support to Reform. Whether today has achieved that remains to be seen, but the Chancellor will be hoping that today has helped to sow the seeds for future political and economic success.