NHS-dominated Spending Review leaves little to rebuild other public services

The NHS has again grabbed the lion’s share (90 per cent) of the extra funding for day-to-day public services allocated at the Spending Review, with inflation-adjusted per-person spending flat or falling for most other departments, leaving little to rebuild other public services, the Resolution Foundation said today (Wednesday).

After two fiscal events dominated by tax rises and welfare cuts, Spending Review 2025 was finally an opportunity for the Chancellor to deliver good news by allocating an additional £149 billion of day-to-day public service spending (RDEL) and £115 billion of capital spending (CDEL) relative to plans inherited from the last Government.

Public service spending was again dominated by health – grabbing 90 per cent of the total increase since 2025-26. The 2.8 per cent increase in day-to-day health spending is well above the 1.7 per cent average during the 2010s, though below its historic average increase of 3.6 per cent.

The increase in health, small increases to defence and education, and cuts to ODA mean that spending on the rest of day-to-day public services will fall slightly in real, per-person terms between 2025-26 and 2028-29 – by 1.3 per cent on average, the equivalent of cuts of £2.4 billion by 2028-29.

Looking at individual departments, Home Office and Transport will see significant real per-person funding cuts (6.1 and 15.2 per cent), driven primarily by falling asylum spending and the end of Covid-era rail subsidies. In contrast, Justice and Education will see increases of 4.2 and 4.1 per cent per person and per pupil respectively.

Overall, real day-to-day public service spending is due to rise by 1.7 per cent over the course of this Parliament (2023-24 to 2028-29). This compares to a fall of 2.4 per cent during the austerity years of the coalition government (Spending Review 2010 and 2013), and the 4.4 per cent increase announced over the 2000 and 2002 Spending Reviews when Labour was last in office.

The risk for the Government is that, while the decisions over its two Spending Reviews are a far cry from the austerity of the 2010s, those cuts aren’t being reversed, with public services such as the police, justice and local government receiving little extra funding with which to repair themselves.

The big increase in the Government’s capital spending plans means investment in 2029-30 will be £33 billion higher than under a continuation of the previous Government’s plans. Relative to those plans, there are particularly large increases for Transport (£4.6 billion), Energy Security and Net Zero (£5.6 billion), and Science, Innovation and Technology (£2.3 billion) in 2029-30.

The biggest relative winner today is Defence, where spending is set to increase by £7.5 billion between 2025-26 and 2029-30, accounting for nearly four-fifths of the rise in overall capital spending at today’s Spending Review (£9.7 billion).

The Foundation notes that while net zero has received a big increase in capital spending over the Parliament, much of its budget has been converted into financial transactions. This means that a third of the spending on warmer homes will come from lending rather than capital grants. The new Affordable Homes Programme, which reaches £4 billion in 2029-30, is a significant increase on recent programmes, and almost as big as the National Affordable Homes Programme under the last Labour government.

Finally, a summer of spending is likely to become an autumn of fiscal reality as a worse economic outlook translates into weaker public finances.

Higher gilt yields (up around 0.2 percentage points since March), lower growth forecasts (private-sector projections for this year and next have been marked down by an average of 0.3 percentage points since the cut-off for the most recent OBR forecast) and the unfunded £1.25 billion ‘U-turn’ on Winter Fuel Payments mean the Chancellor is likely to need to raise taxes or cut welfare in order to meet her fiscal rules at the autumn Budget.

Ruth Curtice, Chief Executive at the Resolution Foundation, said:

“After two challenging fiscal events dominated by tax rises and welfare cuts, the Chancellor has finally had a chance to announce more positive economic news, with £149 billion of funding for public services, and £115 billion of infrastructure projects.

“But despite the extra cash, the poor state of Britain’s public services and wider infrastructure means the Chancellor has had to balance competing demands. The NHS has once again grabbed the lion’s share of the cash, reflecting its position as a top priority for the public, with little left over for other vital public services such as the police, justice system and local government.

“The government priority of boosting growth is reflected in the welcome increase in economic infrastructure over this Parliament, as is the welcome commitment to build more affordable homes. But over the three years of this Spending Review over three-quarters of the growth in capital spending goes to defence.

“A glass half-full view of the Spending Review sees an above-average increase in NHS spending and an end to the funding cuts that have hit most other public services since 2010. A glass half-empty view sees a still modest boost to the health budget that won’t be enough to reduce NHS waiting lists, and a settlement for other public services that’s too tight for them to be repaired after decades of decline.

“After a summer of spending, the Budget this autumn will be far more challenging. The economic outlook is looking weaker – not stronger – since the spring, and that will require more tax rises or welfare cuts for the Chancellor to meet her fiscal rules.”