What is the Spending Review and will any tax changes be announced?
Today's Spending Review will publish detailed spending plans for 2026/27 to 2028/29 and investment plans through 2029/30.
Chancellor Rachel Reeves will put forward how much money each department gets and will signal the government’s priorities for public services, infrastructure, and investment.
Importantly, the review is not a budget, so no new tax changes will be announced, just the spending allocations and it'll all be based on existing or forecasted revenue. The government is planning to borrow an additional £113 billion over three years for infrastructure.
The caveat here is that any negative economic surprises could force the government to raise taxes in the future. If growth or revenue forecasts fall short, tax rises may be needed in the Autumn Budget to maintain fiscal rules and fund spending commitments.
Why is today's Spending Review so important?
It’s the first comprehensive review by the Labour government in over a decade after Conservative rule. So we'll be seeing the tone of the new government when is comes to spending for the rest of the parliament.
The successive Conservative governments of the past have been responsible for the budgets of key areas such as the NHS, education, defence and now we can see whether Labour can deliver on their election promises.
Labour faces tough economic conditions with slow growth, high inflation, and tight fiscal rules (they're corned in by their own manifesto promises in places). It will be interesting to see how they plan to get around these.
What can we expect in the Spending Review? Predictions!
- Health - NHS is expected to receive a significant funding boost to support reforms and address backlogs.
- Education - Schools will get an extra £4.5 billion a year, supporting teacher pay rises and reforms to Special Educational Needs and Disabilities (SEND) provision.
- Defence - Substantial increases, with debate over whether to raise spending to 3% or even 5% of GDP.
- Science & Technology - £86 billion for science and tech, with a focus on AI, drug, and battery technology.
- Transport - Major investment in buses, trams, and local train infrastructure; the £3 bus fare cap extended to 2027.
- Housing - £39 billion for a new Affordable Homes Programme over 10 years, aiming for 1.5 million new homes by the next election.
- Energy - £14.2 billion for the Sizewell C nuclear power plant.
- Police and Home Office - May face cuts as other departments are prioritised.
- Other Departments - Unprotected areas could see real-terms reductions to fund headline commitments.
The spending review has now been delivered, so what happened?
The key takeaways from Rachel Reeves' plan were:
Defence
- Defence spending’s going up from 2.3% to 2.6% of GDP by 2027, with an extra £11bn in the pot and £600m more for the security and intelligence lot.
- Glasgow's getting £4.5bn for making more munitions, and there’s over £6bn to sort out the nuclear subs.
- If things go well, the aim is to hit 3% of GDP on defence next Parliament.
NHS and Health
- The NHS is getting a big boost—an extra £29bn a year, which means a 3% real-terms rise, hitting £226bn by 2028-29.
- Tech budget for the NHS is nearly 50% bigger, with £10bn to get everything digital.
- Biggest ever health capital budget, with a 20%+ real-terms increase by the end of the review.
Asylum and Border Security
- Border security’s getting £280m more a year by 2028-29 for the new Border Security Command.
- No more hotels for asylum seekers by 2029 but extra cash to clear the asylum backlog, speed up appeals, and send home those who can’t stay. These measures should save about £1bn a year.
Energy and Climate
- £14.2bn going into Sizewell C, the biggest nuclear build in 50 years.
- £2.5bn for a new small modular reactor programme.
- Altogether, £30bn committed to nuclear energy.
- £13.2bn for the Warm Homes Plan from 2025 to 2030.
Science, Tech, and AI
- R&D funding's hitting a record £22bn a year by 2029-30.
- £2bn going into home-grown AI.
- £1.2bn for digital transformation and AI across public services.
Housing
- £39bn for social and affordable housing over 10 years—the biggest cash boost in 50 years.
- £10bn through Homes England to unlock loads more homes.
- Target is 1.5 million new homes by the next election.
Transport
- £15bn for new rail, tram, and bus networks in the West Midlands and North.
- New Liverpool-Manchester rail line is a go.
- Investments in buses, train stations, and metro lines in Rochdale, Merseyside, Birmingham, and West Yorkshire.
- Transport for London gets a four-year settlement, and local transport grants are up fourfold.
- £3 bus fare cap sticks around till March 2027.
Rest of the UK Nations
- Scotland's getting £52bn.
- Northern Ireland gets £20bn.
- Wales gets £23bn.
- Biggest devolved settlements in real terms since 1998.
Justice and Policing
- £7bn to fund 14,000 new prison places.
- £700m a year to sort out the probation system.
- £2bn to hire 13,000 more police officers in England and Wales.
- Police spending power up by 2.3% a year in real terms.
Education and Training
- Free school meals for over 500,000 more children, aiming to lift 100,000 out of poverty.
- £2.3bn a year to fix up classrooms; £2.4bn to rebuild 500 schools.
- £1.2bn a year for training and apprenticeships, helping over a million young people.
- School-based nurseries get £370m.
- Core schools budget up by £3.5bn a year.
Local Government
- Extra £3.4bn grant funding for local government by 2028-29.
- 3.1% average annual real-terms rise in local authority core spending power.
Civil Service and Public Sector Reform
- All departments have to cut admin budgets by at least 16% in real terms by 2029-30.
- At least 5% savings and efficiencies needed from all departments by 2028-29.
- Big investment in digital, data, and tech to modernise public services.
- Moving civil service jobs out of London resulting in 12,000 fewer London-based civil servants by 2030.
Other Key Points
- £3.25bn Transformation Fund to modernise the state and push for more preventative public services.
- £1.7bn over four years for HMRC compliance and debt management staff, aiming to raise £7.5bn a year in extra tax by 2029-30.
- Four interest rate cuts since July 2024, with real wages up and the national living wage rising by £1,400 a year for millions.
Large infrastructure projects (such as Sizewell C, transport upgrades, and housing) are being funded through increased government borrowing. The government is borrowing an additional £120 billion over the review period for capital investment, compared to previous plans. This is within the fiscal rules set out in the Autumn Budget 2024 and Spring Statement 2025, which allow borrowing for investment but not for day-to-day spending.
All departments are required to deliver at least 5% savings and efficiencies by 2028-29, and administration budgets are being cut by at least 16% in real terms by 2029-30. These savings are being redirected to fund frontline services and priority projects.
£1.7 billion is being invested over four years in HMRC compliance and debt management staff, with the aim of raising an extra £7.5 billion a year in tax revenue by 2029-30.
The Spending Review included a “zero-based review” of spending, with every department now scrutinising its budgets to identify and reallocate low-value spending toward higher priorities.
Block grants to Scotland, Wales, and Northern Ireland are funded through the Barnett formula, as usual, based on overall UK government spending.