Chancellor Rachel Reeves’ first Spending Review: Choosing investment over decline 
11/06/2025

Chancellor Rachel Reeves has delivered her first multi-year Spending Review, a significant moment in the political and economic calendar, setting government departmental budgets, capital allocations, and policy direction for the remainder of this parliament.

She characterised her priorities as security, health and the economy with funding increases announced for defence, the NHS and capital investment.

To date, the Chancellor’s frugality has made her unpopular both inside and outside government, imposing tight spending settlements in a range of government departments; forcing tough choices on welfare and international aid, all raising questions about her future as head of the Treasury. 

Today, she tried to reset the tone in more positive terms as she set out a list of spending announcements in social housing and energy projects. Her hallmark caution is now paired with a clearer ambition for the country.

In day-to-day spending, she has escaped accusations of imposing austerity with a modest real-term increase in departmental budgets, averaging 2.3 per cent across the Spending Review period, while prioritising health and defence, both of which received above-inflation uplifts.

Rachel Reeves has, arguably, gambled her chancellorship on a £113billion bet to deliver economic growth. This borrowing-funded investment is earmarked for key sectors and is intended to stimulate long-term growth.

The Chancellor plans to advance the government’s narrative of ‘renewing Britain’, focussing capital spending on sectors with potential long-term economic benefits, such as urban transport infrastructure, green energy, nuclear power, and digital transformation, announcing:

·      £2 billion for AI innovation

·      £14 billion for Sizewell C nuclear plant

·      £15.6 billion for local transport projects, including £445 million for railways in Wales

·      £22.6 billion per year for research and development by 2029-30

Housing, specifically affordable housing, featured prominently. Reeves confirmed a £39 billion ten-year funding package for affordable and social homes, framed by the Treasury as the most significant investment in a generation. The government intends to support new developments, repair uninhabitable stock, and stimulate private investment in social housing.

A significant portion of new investment is being directed towards towns and cities outside London and the Southeast, a continuation of Labour’s commitment to rebalancing the UK economy. Mayoral authorities in places like Greater Manchester and the West Midlands will receive additional transport and infrastructure funding to boost local productivity and political credibility.

Through her first Spending Review, Reeves is attempting a balancing act: strategic investment in the UK’s long-term future while maintaining fiscal discipline in a fragile economic context. This approach now offers greater clarity on the government’s priorities and constraints. The challenge, as ever, will lie in delivery.

Convincing the public this is money well spent will be key as the Reform threat emerges. New polling from More in Common revealed that Reform and Labour are tied on which party the public trust most on the economy (22 per cent), with Nigel Farage being close behind Sir Keir Starmer on who the public trust to lead the country (51 per cent vs. 49 per cent).

With news their economic credibility is falling, the Conservatives are hoping to gain back public trust, with Shadow Chancellor Mel Stride giving a speech last week distancing the current party from Liz Truss’ disastrous mini-budget. Today, he turned his attacks on Reeves, calling her the “Tinfoil Chancellor” in contrast to the ‘Iron Chancellor’ she styles herself.

Reeves and this government will now hope the investment in housing, energy and transport will enable economic growth and the country will start to feel a difference in their day to day lives. Keir Starmer’s hopes, however, of re-election are firmly tied to the spending decisions announced by his Chancellor today.

(Image credit: HM Treasury)