On Wednesday, 11 June, Chancellor Rachel Reeves unveiled the UK Government’s 2025 Comprehensive Spending Review (CSR), outlining a multi-year plan aimed at what she calls “the renewal of Britain”.
With an emphasis on boosting key public services and long-term economic growth, the spending review sets out the government’s departmental budgets from 2026 to 2029.
The final package followed intense, last-minute negotiations with senior ministers: Deputy Prime Minister and Housing Secretary Angela Rayner pushed for increased funding for social housing, while Home Secretary Yvette Cooper tried to secure additional resources for policing.
The Chancellor framed the spending review around the “priorities of working people” – with big investments in defence, education, health and local government.
Departmental spending will rise by an average of 2.3 per cent a year in real terms over the period, adding £190 billion in day-to-day public service funding compared to previous plans.
This marks a notable shift from the austerity budgets of the 2010s, with most areas of government now seeing at least some real-terms increase in funding.
However, Reeves’ upbeat messaging came with an acknowledgment of trade-offs: The biggest boosts are concentrated in a few priority sectors, meaning other departments will face tighter settlements or even cuts despite the overall spending growth.
Biggest winners in the Spending Review
Under Reeves’ plan, health and defence stand out as two of the biggest winners with significant funding increases. Departments with above-average settlements include Defence, slated for a 3.6 per cent annual real-terms increase, and the National Health Service (NHS), which receives roughly 2.8 per cent annual real growth in its budget. These uplifts significantly outpace the 1.5 per cent overall growth rate projected for later years of the review period.
Nearly 40 per cent of all day-to-day government spending will go to the health service alone by the end of the period – underlining the NHS’s protected status even amid tight finances.
Beyond health and defence, a few other areas also see real-terms boosts. Local government is one: After years of strain on council budgets, Reeves aims to ease local pressures through an extra £3.4 billion by 2028-29 for local authorities, equating to around 3.1 per cent annual growth in real-terms in core council funding over the review period.
The justice system is another relative winner – the Ministry of Justice secures funds to expand prison capacity and probation services, contributing to a 1.8 per centyearly real increase for justice spending. Policing resources will rise by roughly 2.3 per cent per year, in line with the average, supporting frontline officer numbers.
This includes £7 billion over five years to build 14,000 new prison places and up to £700 million extra per year by 2028-29 to reform probation services. These investments aim to expand capacity in overcrowded prisons and implement recommendations from a recent sentencing review, modernizing how offenders are managed.
Crucially, capital investment was a focal point of the spending review. The Chancellor stressed the need to “build for the future” as part of her economic renewal agenda.
Major infrastructure and innovation programs were among the headline commitments: £39 billion was earmarked for a 10-year programme to build affordable homes – almost doubling annual housing investment.
Similarly, record funding for research and development (R&D) – £86 billion over four years – was confirmed to spur innovation and underpin Britain’s growth mission.
Big-ticket projects in clean energy and transport were highlighted too, such as a new £14 billion nuclear power station and over £16 billion for regional public transport upgrades.
Defence and Security
In light of the ongoing war in Ukraine and growing uncertainty over the future of the transatlantic alliance – particularly following U.S. President Donald Trump’s renewed warnings against automatic defence of NATO allies, the UK has increasingly positioned itself as a key pillar of European security.
Aligned with this mission, defence spending is set to climb significantly, reflecting evolving global threats and a political resolve to strengthen the UK’s armed forces.
Reeves confirmed that defence expenditure will rise to 2.6 per cent of GDP by 2027, with an ambition to reach 3 per cent of GDP in the longer term “when economic and fiscal conditions allow”.
Concrete commitments include bolstering both hard power and intelligence capabilities. The Strategic Defence Review, published alongside the Spending Review, outlined plans to modernise forces and equipment.
To support this, the budget for Britain’s intelligence agencies will rise by £600 million in real terms over the period, ensuring MI5, MI6, and GCHQ can stay “at the cutting edge of technology” in countering hostile state and cyber threats. Reeves also highlighted the importance of domestic security.
In response to the ongoing issue of small boat crossings in the English Channel, the Spending Review allocates up to £280 million extra by 2028-29 for a new Border Security Command within the Home Office. This funding will target the criminal gangs behind people smuggling, as part of a broader effort to “reduce irregular migration and the flow of illicit commodities” into the UK.
Another pillar of the security theme is energy security, treated as a strategic priority in light of recent volatility in global energy markets.
Reeves announced the government is “ending decades of delay” on critical energy projects by giving the green light to the Sizewell C nuclear power station, support for a new Small Modular Reactor, and funding for carbon capture, usage and storage (CCUS) initiatives.
These long-term investments, while categorized under energy and climate policy, also serve national security aims by reducing reliance on imported fossil fuels.
Defence industry leaders have broadly welcomed the increased spending, noting it provides more certainty for long-term projects.
However, fiscal analysts caution that ambitions could outstrip resources. The Oxford Economics chief UK economist, Andrew Goodwin, pointed out that meeting NATO’s expected higher defence spending targets could require even more funding – and Reeves gave “no guidance on how…plans would adapt” if NATO raises the bar.
Health and Social Care
The Health sector – particularly the NHS – is the single largest beneficiary of the 2025 Spending Review in absolute terms.
With the health service being a central point of voter priorities, Reeves pledged to cut record waiting lists and times, and “invest in Britain’s health” and tackle record waiting lists.
Annual NHS England spending will increase by £29 billion in real terms from 2023–24 to 2028–29, reaching a total of £226 billion by 2028–29.
This represents roughly three per cent average real growth each year for the NHS, and marks one of the most generous settlements the health service has seen in modern spending reviews.
By comparison, the NHS budget will now account for nearly 40 per cent of day-to-day government departmental spending – illustrating its primacy in the national finances.
What will this money be used for?
The aim is that by the end of this Parliament, 92 per cent of patients will start treatment within 18 weeks of referral for non-urgent conditions. Reeves also underscored mental health and primary care as areas receiving targeted support, though specifics were left to the Department of Health and Social Care to allocate.
On top of day-to-day spending, the review delivers a significant jolt of capital investment in health. The NHS capital budget will see a £2.3 billion real-terms increase (about £4 billion more in cash) by 2029-30.
This is projected to be the largest health capital budget ever, amounting to over a 20 per cent real-terms rise. This will cover building new hospitals, upgrading old facilities, improving A&E departments, and adopting new medical technologies and digital systems.
In theory, this capital injection should help modernise the NHS estate (some of which dates to the mid-20th century) and improve productivity – for instance, by replacing outdated equipment with faster, more efficient models.
Despite these headline figures, many health experts warn that the NHS funding boost, may only stabilize the system rather than transform it.
The British Medical Association (BMA) reacted to the Spending Review by cautioning that the NHS budget increase still “falls short of the investment needed to fulfil the NHS workforce plan” and other long-term needs.
Dr. Latifa Patel of the BMA noted that with an ageing population and existing care backlogs, it is “simply not good enough for healthcare spending to keep systems treading water”.
The government’s own projections reportedly suggest that even with this funding, meeting the 18-week treatment target by 2029 could be challenging. A major concern is the workforce: Resolving NHS staff shortages and pay disputes will “need funding” beyond what has been outlined, the BMA argues.
Local Government and Social Housing
Local councils in England will see their core spending power rise by just over 3 per cent per year in real terms. This includes funding to support vital services like social care, libraries, and bin collections, as well as money to help struggling councils balance their budgets.
Despite the uplift, it comes on the back of more than a decade of austerity. Between 2010-11 and 2024-25, council core funding per person fell by around 18 per cent in real terms, with some estimates pointing to even sharper declines – up to 26–27 per cent in the most deprived areas.
These conditions forced councils to drastically reduce spending on culture, leisure, housing, transport, and planning – some sectors saw cuts of 35-43 per cent since 2010.
Several authorities have even issued Section 114 notices – effectively a declaration of financial crisis – most notably Birmingham City Council, which reported an £87 million deficit in September 2023 and cut services dramatically.
The devolved governments get a sizable boost too via the Barnett formula. The Welsh Government, for example, is set to receive an average of £22.4 billion per year – its largest funding settlement in real terms since devolution in 1999.
Part of this will enable long-sought investments for rail infrastructure which local leaders hailed as “hugely welcome” and long overdue.
Scotland and Northern Ireland likewise benefit from increased block grants, empowering them to invest in areas like transport, health, and education in line with their priorities.
Alongside this, the Spending Review unveiled what ministers described as the largest government-backed social housing investment in a generation.
A ten-year, £39 billion capital package aims to boost the supply of affordable and council housing across the UK. This will be channeled through a reformed Affordable Homes Programme and targeted funds for local authorities and housing associations.
The new funding is designed to address chronic shortages that have left over one million households on waiting lists and driven rising homelessness in many urban areas.
Local authorities will also benefit from a £950 million Local Authority Housing Fund aimed at improving temporary accommodation and reducing the costly reliance on emergency B&B placements.
Education and Skills
Education saw a more mixed outcome in the Spending Review – receiving a modest uplift for schools and skills, but with concerns that funding may not go far enough.
The Chancellor announced that the core schools budget will grow by £2 billion in real terms over the spending review period. In cash terms, that’s a £4.7 billion increase by 2028-29 (compared to 2025-26 levels), which translates to roughly 1.1 per cent average real-terms growth per pupil each year.
This money is intended to cover rising costs and deliver previously agreed teacher pay raises. Importantly, Reeves reaffirmed the government’s commitment to improving school infrastructure: about £2.4 billion per year is allocated to the School Rebuilding Programme, underpinning a pledge to rebuild or refurbish over 500 schools across England.
Investments in skills and further education were also highlighted. The spending review sets aside funding to ensure 1.3 million 16–19 year-olds can access high-quality training opportunities in coming years.
There is a £2 billion real-terms boost to skills spending, which government sources say will expand apprenticeship programs and technical education pathways. These measures align with the broader aim of boosting productivity and helping “every region and community” benefit from growth, by equipping young people with practical skills.
However, not all parts of the education sector benefited equally. In a move framed as a reprioritisation, the government confirmed it will no longer fund level seven apprenticeships for people aged 22 and older, aiming instead to focus resources on lower level programmes that cater to school leavers and early-career workers.
While officials argue this will increase access and equity, critics warn it may undermine efforts to upskill the workforce at more advanced levels.
Meanwhile, the Turing Scheme – the UK’s post-Brexit replacement for Erasmus+ saw a real-terms reduction in funding. While its continuation was confirmed, education leaders have voiced concern that the cut could limit the number of students able to access international study and work placements, particularly those from disadvantaged backgrounds.
Who are the “losers” of the Spending Review?
Despite the substantial numbers on paper, not everyone gained from the 2025 spending review. Other departments saw more modest increases or even cuts in funding, with their budgets reallocated to more popular issues.
The Foreign, Commonwealth & Development Office (FCDO) will see its budget reduced by around five per cent per year. This largely follows the government’s earlier decision to stick to spending 0.5 per cent of Gross National Income on overseas aid (down from the previous 0.7 per cent commitment), meaning foreign aid budgets are being squeezed.
Additionally, the Home Office non-policing functions face a 4.5 per cent annual cut, implying less funding for areas like immigration and asylum processing, border management (apart from the specific security initiative), and administrative operations.
The Treasury hopes to offset some of this by implementing a “cheaper system” for handling asylum seekers’ claims – potentially through reforms to accelerate processing or use more basic accommodation facilities, though those plans are controversial.
Agriculture and environment departments may also have to tighten belts in the latter part of the period, as implied by overall limits, though exact figures were not spotlighted in the Chancellor’s speech.
It is also worth noting that all government departments have been told to find at least 5 per cent in efficiency savings, and administrative costs by at least 16 per cent.
While Reeves trumpeted this as “ruthlessly bearing down on waste” to focus funds on front-line priorities, some observers are skeptical. The IFS’s Paul Johnson warns that many departments might “find it hard to stick to the targets” for efficiency after so much past trimming..
The Institute for Government lauded the publication of detailed efficiency plans for the first time (a transparency move by the new Office for Value for Money), but noted that many planned savings rely on initiatives already in progress rather than entirely new reforms.
Reaction and Opposition
The reaction to Rachel Reeves’ 2025 Spending Review has been mixed, with opposition benches being unsurprisingly critical. The Conservative Party argued that Reeves’ spending plans are overly optimistic and potentially unsustainable. Mel Stride, the Conservatives’ finance policy chief, warned that the numbers simply might not add up without further tax increases.
“She will have to come back here in the autumn with yet more taxes, and a cruel summer of speculation awaits,” Stride told MPs.
In context, the Labour government, elected on a promise to end austerity and “rebuild Britain,” is under pressure as it faces mid-term unpopularity and the rise of Reform UK in polls. Reeves’ sunny talk of “renewal” and visible investments in communities can be seen as an attempt to shore up support.
The Opposition, however, remains unconvinced. They point to Labour’s slipping poll numbers and recent U-turns as evidence that the government’s economic strategy is faltering.
Featured image via Martin Suker / Shutterstock.
