Chancellor Rachel Reeves has unveiled her 2025 Spending Review, arguing that it marks a decisive pivot in the UK’s economic strategy by rejecting austerity in favour of active state investment.
In a statement today (Wednesday 11 June), Reeves announced that departmental budgets will grow by an average of 2.3% in real terms annually, funded by earlier tax rises including the increase in employer national insurance.
Reeves said: “We are renewing Britain. But I know that too many people in too many parts of our country are yet to feel it. This government’s task, my task as chancellor and the purpose of this Spending Review is to change that, to ensure that renewal is felt in people’s everyday lives, in their jobs and on their high streets.
“The priorities of this spending review are the priorities of working people. To invest in Britain’s security, in Britain’s health and to grow Britain’s economy so that working people are better off.
She also highlighted an additional £113bn in capital investment, enabled by the fiscal headroom freed up through tax and rule changes in the autumn. Reeves avoided announcing new tax measures now, but critics argue further tax rises are inevitable, especially if productivity gains or private investment fail to materialise.
Matthew Amis, investment director, at Aberdeen said: “Going into today, the market was interested in two things: are tough decisions being made on day-to-day spending and will the investment plans generate much-needed growth? After all, growth and positivity is what the UK needs.
“The answer is ‘enough for now’. Today’s Spending Review offered just enough detail and security for the gilt market to focus away from the UK’s fiscal situation until the autumn at least.”
Defence spending stood out, rising to 2.6% of GDP by 2027 when intelligence agencies are included. The chancellor confirmed an £11bn real-terms rise in defence spending over the spending review period.
This uplift supports the long-term military modernisation, UK-based industrial supply chains and a more assertive security posture in response to global threats that the government has prioritised in recent months.
Aneeka Gupta, director of macroeconomic research at WisdomTree, said: “Defence has been positioned as a national industrial and security priority. It’s not just about readiness for conflict but stimulating industrial development, especially in the north of England and coastal areas.
“Unlike health or social care, which aim to stabilise the present, defence is structured to transform the future – economically, technologically and militarily.”
On infrastructure, Reeves has committed over £15bn to major transport projects, including East-West Rail, the TransPennine Route Upgrade and the Midlands Rail Hub.
These investments aim to rebalance growth across the regions while signalling a shift in Treasury evaluation criteria to favour place-based economic impact.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “Hopes appear to be kept alive that the focus on infrastructure spending will provide the essential ingredient to boost growth, which could increase the tax take and relieve pressure on government finances ahead.”
Energy and climate commitments are also backed by substantial capital, with £14.2bn for the Sizewell C nuclear reactor, £13.2bn for home insulation and £8.3bn for Great British Energy. These initiatives position the state as an active driver of the net-zero transition and are central to the government’s industrial strategy.
The NHS was another big beneficiary, receiving a record £29bn funding boost including up to £10bn allocated towards technology and digital transformation, thousands more GPs to be trained, rolling out mental health support to all schools and funding allocated to deliver an additional 700,000 urgent NHS dentist appointments a year.
Despite the expansive tone, not all departments benefit: the Home Office, Foreign Office and Defra face real-terms cuts while some local services remain under strain. Reeves has framed these decisions as necessary trade-offs to secure long-term economic renewal without a return to unsustainable borrowing.
Paul Johnson, director of the Institute for Fiscal Studies, summed up: “Much of the chancellor’s speech focused on capital spending, where she trumpeted her plans to spend £113bn more on capital investment over this parliament than planned by her predecessor. Here, genuinely big sums are to be spent, allowing for increases in priority areas such as green energy projects, transport infrastructure outside of London and the south-east, new prisons and housing.
“But if the government insists on accumulating the extra spending it’s planning over the full parliament, it seems only fair to also draw attention to the £140bn of extra borrowing we’re forecast to do over the same period. That borrowing incurs a cost in the form of additional debt interest – and one that’s bigger than it was a year ago.
“The question was always whether the extra investment would bring sufficient benefits to make that worthwhile. We now know more about what sorts of projects the government plans to invest in. The focus must now shift to delivery and avoiding the all-too-common project over-runs.”