What will be in the spending review? The winners and losers

Times

21 hours ago

The spending review is make-or-break time for Rachel Reeves.
The chancellor's first year in office has been challenging — imposing unpopular tax rises and cutting winter fuel payments for millions of pensions, which she has subsequently been forced to reverse.
Reeves sees the spending review as a chance to stamp her authority and present voters with a clearer narrative about the purpose of this government. She will say that the government will invest to renew Britain, focusing on three central pillars: security, health and the economy. Growth will be the order of the day.
There will be clear winners — the NHS and the Ministry of Defence will be at the front of the pack — and Reeves will have £113 billion to invest in infrastructure and other capital projects. But there will also be clear losers. The Home Office was the last to settle and Yvette Cooper, the home secretary, is unhappy with her settlement. There are also suggestions of significant cuts to Angela Rayner's Ministry of Housing, Community and Local Government.
The NHS will be the biggest overall winner in the spending review, receiving a £30 billion rise in its day-to-day spending budget, making up about 60 per cent of the cash increase in the chancellor's overall day-to-day spending envelope, according to the Institute for Fiscal Studies.
But health service managers are still warning it will not be enough to meet the government's ambition for reducing waiting time targets. In fact, Wes Streeting, the health secretary, initially asked for a real-terms 4 per cent rise in his budget but had to settle for a 2.8 per cent rise.
There are also concerns in the department that although day-to-day spending will rise, infrastructure budgets will remain flat in real terms.
NHS managers have long warned that it is hard to improve productivity in the health service when staff have to work in buildings that are not fit for purpose and with outdated IT infrastructure. Reeves has concluded she wants to target infrastructure spending in other areas, such as transport and net zero, where the government is more likely to get an economic return on its investment.
The agreement is also complicated by the need for the NHS to pay more for medicines amid pressure from President Trump and to boost Britain's life sciences industry. The Treasury has refused to allocate extra funds, insisting that the department find the additional cash within existing budgets.
The other big winner from Wednesday's announcement will be the armed forces, which will see their budgets increase to hit the government target of spending 2.5 per cent of GDP on defence by 2027.
The increase will be funded by cuts to international aid and will leave defence spending about £6.4 billion higher than if it had remained at the existing level.
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A key decision Reeves and Sir Keir Starmer will have to make on Wednesday is whether to go beyond this and increase spending still further towards the end of the decade to meet the prime minister's aspiration of hitting 3 per cent of GDP in the next parliament, 'as economic and fiscal conditions allow'.
The announcement comes before a meeting of Nato leaders this month, which is expected to agree to Trump's demand of increasing core defence spending to 3.5 per cent, accompanied by a further 1.5 per cent on defence-related infrastructure. No date has yet been set for when Nato members will have to meet this pledge.
Ministers have already announced that schools will receive an extra £4.5 billion a year in core funding by 2029, in part to pay for reforms under which more children with special educational needs will be taught in mainstream schools.
The rise includes spending pledges that have already been made, including the cost of expanding free school meals for all pupils whose families claim universal credit and the £615 million allocated to schools to fund the new pay settlement for teachers.
But while this extra money may sound generous on paper, in practice schools will receive £1.5 billion each year up until 2028-29, when the cumulative increase reaches £4.5 billion compared with this year. Boiled down, this means the spending rise for education in this review totals a real-term lift of 0.4 per cent.
Luke Sibieta, a research fellow at the Institute for Fiscal Studies, said it was also unclear if the money included the teacher pay settlement reached last year.
If so this would probably mean a real-terms budget freeze — although a shrinking school-age population means this would still result in a 3 per cent rise in spending per pupil by the end of the parliament.
Despite being among the last few ministers to agree their spending settlement with the Treasury, Ed Miliband's department is likely to emerge as one of the biggest winners of the spending review as Reeves doubles down on Labour's clean-power pledge.
Miliband will get more than £14 billion to fund the new Sizewell C nuclear power station, as well as a further £2.5 billion to develop a new generation of smaller modular reactors, and additional funding for carbon capture and storage.
The energy secretary has also won out in a Whitehall row over the future of the government's warm-homes plan. The Treasury had looked to reduce some of the £13.2 billion earmarked for the scheme, which will subsidise households to install energy efficiency measures such as solar panels and insulation. Miliband is expected to get the vast majority of this funding in an effort to meet Labour's pledge to cut household energy bills by 2030.
The Home Office was the last government department to settle its spending plan with the Treasury after it was in effect imposed upon Cooper.
Reeves has refused to meet her colleague's demands for extra police funding, despite warnings that it means the government could miss its flagship pledges on law and order and a public intervention by police chiefs who said they faced 'stark choices'.
It is understood that police spending will increase in real terms each year of this spending review period, which ends in 2028-29. However, it remains unclear whether this boost will match the more than £1 billion that officers say is needed to cover existing gaps.
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Cooper is unhappy with the final settlement amid concerns it is not enough to meet the government's pledge to recruit 13,000 neighbourhood officers by 2029. The real-terms rise in police funding will also mean deeper cuts to other areas of her department.
The Border Force has warned that any cuts made to its £1.2 billion budget could result in anything from longer queues at airports to threats to 'national security'.
Rayner, the deputy prime minister and housing secretary, has also clashed repeatedly with Reeves over potential cuts to her budget. Negotiations did not close until Sunday and were dominated by two big rows.
First, Rayner was attempting to secure billions of pounds in capital funding to build more social housing, arguing that the government's pledge to build 1.5 million homes by the end of this parliament would be missed otherwise. She has previously said that the government needs to double the rate at which it is building council houses to meet this pledge.
The second row was about funding for local authorities, which are facing mounting pressure because of the spiralling costs of providing social care. A number of local authorities have declared themselves in effect bankrupt, but as an unprotected area of spending councils could see their real-terms spending power fall further.
There are also likely to be changes to the UK Shared Prosperity Fund, which was established to support the long-term economic development of towns and cities in place of EU funding after Brexit. Reeves will cut future allocations for London to zero — and other English regions could lose out as well.
Reeves is once again looking to farmers as she seeks to pare back government spending. This time the debate is over Britain's flagship post-Brexit farming subsidies, which appear likely to be slashed for all but a few small farms.
Sources at the Department for Environment, Food and Rural Affairs, led by Steve Reed, said that the subsidies, which financially reward farmers for sustainable practices, will be severely cut in the spending review.
Labour will honour its budget promise of £5 billion in farming funding for 2024-26, so cuts would hit many farms from 2026 onwards.
The package of subsidies was introduced to replace the European Union's common agricultural policy after Brexit. It is designed to encourage farmers financially to look after nature and the soil instead of rewarding them for growing crops or tending livestock.
In future the scheme will be targeted at small farms, meaning larger, wealthier farms will lose access to funding for nature-friendly practices.
Coming off the back of the government's decision to reduce inheritance tax relief for farmers, it is likely to go down badly with rural communities.
Reeves announced £15 billion worth of funding for local transport infrastructure, predominantly in the north of England and the Midlands.
The transport spending will be focused on seats that Labour needs to hold in the face of a growing challenge from Reform. The focus will be on projects that will bring spades in the ground by the time of the next election.
Reeves has told colleagues that she wants people to see and feel the outcome of the investment, which includes trams in Manchester and Birmingham, the Tyne and Wear Metro and a mass-transit system around Bristol.
There is not expected to be money for big transport projects in London as ministers look to rebalance spending away from the capital.
The government has said it will spend £86 billion on the science and technology sector by the end of this parliament as it looks to support the tech industries to boost economic growth.
The package will help fund research into drug treatments and longer-lasting batteries, and include up to £500 million for regions across the UK. Local leaders will have a say on how it is spent.
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While this may sound like a lot of money, the £86 billion figure is the sum of all government spending on 'research and innovation' over four years and the annual spend will be £22.5 billion by 2029-30. This represents a 3 per cent real-terms rise in budget in 2029-30 compared with the present financial year.
Three prisons will be built, starting this year, after a £4.7 billion funding commitment in the spending review in an attempt to grapple with the prisons crisis.
The justice secretary Shabana Mahmood's speedy settlement was crucial as she was forced to announce plans to curb prison overcrowding when government projections showed that jails would fill up in November.
The plans for 'record expansion' of the prison estate came alongside measures that meant offenders would spend only 28 days on recall to prison if they breached their licence conditions.