The 2025 Spending Review marked the most defining moment yet in Rachel Reeves’ time as Chancellor. There were major investments in health, housing, transport, defence, and innovation with two key messages emphasised by the Chancellor at the despatch box – fiscal responsibility and borrow to invest.
However, this left room for uncertainty, raising questions about fiscal sustainability and political strategy over the long-term.
Investment with a purpose
At the heart of the Chancellor’s statement was a pledge to “borrow to invest” in an effort to deliver real-world benefits to voters, all the while reflecting Labour’s growth agenda. This was reflected by the £190bn uplift for public services and £113bn in capital spending. Notable winners of the Spending Review include:
- NHS: £29bn annually with significant investment in digital transformation and urgent dental care.
- Housing: A ten-year, £39bn Affordable Homes Programme and £13.2bn protected for the Warm Homes Plan.
- Transport: £15.6bn for regional infrastructure and £2bn for Transport for London renewals.
- Defence: Spending to rise to 2.6% of GDP by 2027, with major allocations for nuclear deterrence and tech-driven capabilities.
Business & innovation front and centre
We asked our network – including our Senior Advisors who have previously worked in government – for their views on what the Review means for business investment, particularly in AI, R&D, and clean energy. Namely, the British Business Bank’s expanded role and a £2bn AI Action Plan underscore a pivot towards long-term economic transformation.
However, as our network note, none of the sectors received what they asked for – raising concerns about delivery under constrained fiscal conditions – and whether what was announced adds up to a coherent growth strategy is questionable.
Tensions behind the headlines
Despite headline commitments, the Review revealed strategic dilemmas. Cuts to the budgets for the Foreign and Home Offices, and real-terms reductions for the Department for Environment, Food & Rural Affairs (DEFRA) and the Department for Culture, Media and Spot (DCMS) reflect the hardnosed tactics of Darren Jones and his Treasury colleagues. Experts warn of “robbing Peter to pay Paul” – in this case, the decision to cut the foreign aid budget and boost funding for the Ministry of Defence. This new money for defence may merely cover existing risks, not drive transformation.
Furthermore, questions loom over affordability. Can Reeves maintain generous budgets into the latter half of the Parliament? Or will we see tax rises in the October Budget as so many are predicting to cover the shortfall?
The political gamble
With Labour’s first year in power marred by lacklustre growth and a stinging defeat in May’s local elections, this Review was far more ‘political’ than October’s Budget. It was an attempt to reset Labour’s narrative, but the challenge lies in timing. The benefits of capital-heavy spending may not materialise before the next election. If growth doesn’t follow soon, voters may be left wondering where all the money went – and why they haven’t felt the benefits.
Read Pagefield’s full analysis and insights of this year’s Spending Review here.
