UK spending review: Are you not entertained?
Josh Groves
2nd June 2025
Written by Josh Groves
Entertained, yes! Convinced? Not so much. This was the verdict put forward by Robert Shrimsley in his Financial Times assessment of Rachel Reeves’ first spending review this week. But what exactly did he mean, and what does this mean for the UK government?
Well, Keir Starmer has made a big move in what is a pivotal term for the Labour government, following 14 years of conservative rule. The review announced a real-terms increase of 1.2% in day-to-day public spending (mostly towards healthcare and defence sectors). In addition, there will also be a 1.8% real increase in investment spending for the remainder of the parliamentary term.
This is largely what the public wanted, capital spending and more funding for the NHS. The UK economy contracted by 0.3% in April2, the worst monthly performance since 2023, so the spending review seems appropriate to offset this and has therefore been positively received.
It’s exciting to see large amounts of funding for transport, energy and social housing come into play, and there’s no doubt this will create sustainable growth and jobs (recall unemployment hit a 4-year high this week). The total investment package is set to be approximately £113bn and we’ll all get to monitor the progress of these projects, or whether they get curtailed when money gets tight.
However, the UK spending review is not all sunshine. Most notably, there are valid concerns about the source of this funding. At the end of November 2024, the UK’s public sector net debt was 97.3% of GDP, which is not a figure the government will be comfortable with.
For this reason, Rachel Reeves has not ruled out the possibility of tax rises this autumn to fund this large cash splash. There is hope that funding can come from AI efficiency savings, such as £9bn a year (from 2028 onwards) in the healthcare sector, but this is optimistic.
Additionally, capital spending yields long-term benefits, which means voters may not see the full materialised gains by the time it comes to elections. It will therefore come down to the execution of this plan to determine whether it was a good idea for labour to pull out the big guns at this early stage of their term.
So, while Rachel Reeves hasn’t yet stunned her audience like Russell Crowe in Gladiator, she has certainly put on a decent show for us all so far.
