Budgets & fiscal events

Public spending

A healthy State?

Putting the 2025 Spending Review into context

12 June 2025

Camron Aref-Adib

Mike Brewer

Tom Clark

Alex Clegg

Adam Corlett

Ruth Curtice

Emily Fry

Zachary Leather

Charlie McCurdy

Felicia Odamtten

Simon Pittaway

James Smith

Greg Thwaites

Yesterday saw the Chancellor reveal the results of the first ‘zero-based’ review since 2008, the first stand-alone Spending Review since 2019, and the first three-year plan since 2021. It was the Government’s chance to say what its priorities are after painful announcements on higher taxes and borrowing, and then welfare cuts, at the Autumn Budget and Spring Statement.

The decisions in this Spending Review were about allocating spending for the next few years: three years for day-to-day resourcing, four for capital investment plans. The big picture is dominated by day-to-day spending, which constitutes around four-fifths of the total.

This briefing note sets out the decisions and discusses what they mean for people, public services and policy for the rest of the Parliament.

Key findings

The big winner – both overall and in terms of day-to-day spending – was health, which by the last year of this Parliament sees its annual day-to-day budget being boosted by £17.2 billion. This leaves health and care sweeping up a 90 per cent of the planned increases in day-to-day departmental budgets through the three years of this Spending Review. But the annualised growth will be 2.8 per cent against 3.6 per cent since the inception of the NHS.
Education is also up (by 1.3 per cent annually per pupil) but elsewhere, there are losers. On average, spending on everything apart from health, defence, education, and overseas aid falls slightly in real per person terms between 2025-26 and 2028-29 (by 1.3 per cent on average, or £2.4 billion). The departments with the biggest cuts include foreign aid, and transport (as post-Covid rail subsidies are reduced).
But it is important to remember that last autumn, the Chancellor funded large increases in public spending that serve to increase the baseline on which yesterday’s decisions build. Over the Parliament as a whole, health and care still takes up the lion’s share of the increase in budgets since 2023-24. But some other departments – such as DWP and Justice –look to be faring relatively better over the Parliament than they do when the new Spending Review is considered in isolation.
By the end of Spending Review period, the real level of day-to-day departmental spending per person will have returned to roughly where it was in 2009-10, but the shape of the state has changed significantly, with health and care rising from 34 per cent of day-to-day departmental spending directly controlled by Westminster to 49 per cent. Over this long stretch we can also see the legacy of the 2010s austerity: day-to-day per person resources will, for example, have fallen by 16 per cent for Justice, by 31 per cent for Work and Pensions, and by 50 per cent for Housing, Communities and Local Government since 2009-10.
The Spending Review confirms that capital spending in 2029-30 will be £33 billion higher than the previous Government had planned, thereby maintaining investment at its highest sustained rate since the 1980s. Relative to the previous Government’s planned cuts, this extra investment should result in a much-needed boost to growth. And a welcome increase in funding for affordable housing means annual budgets will be higher than since 2010 but lower than at the end of the last Labour government. But the biggest investment winner was Defence. Once increases in financial transactions are stripped out, the £7.3 billion a year real-terms increase in defence contrasts sharply with the £3.6 billion cut to real investment across all other departments.
Compared to plans of the previous Government, the Spending Review delivers a boost to benefit in-kind income for households of £1,400 for a typical family in 2028-29, or an average of £1,700 for the poorest households. Some specific decisions this week – notably the expansion of free-school meals to many more low-paid working families, and the renewal of the Household Support Fund – contribute to this progressive slant.
Looking ahead, a bright summer of spending is likely to become a darkening autumn of fiscal reality. The combination of higher gilt yields (up around 0.2 percentage points since March), a weakening in most forecasts for economic growth and other pressures – including the unfunded £1.25 billion ‘U-turn’ on Winter Fuel Payments and any funds needed to support the Child Poverty Strategy – could well require the Chancellor to raise taxes further meet her fiscal rules in her next Budget towards the end of the year.

Search site

Key topics

Timely research

A healthy State?

Search site

Keywords

Content type

Keywords*

Content type

Key findings

Further reading

Mailing list

Sign up below

I would like to receive:

I consent to my data being used in line with the privacy policy