Here are the winners and losers as the UK unveils spending plans
U.K. Chancellor Rachel Reeves is delivering the government's Spending Review on Wednesday, all eyes on how billions of pounds' worth of public money are split between departments and infrastructure projects.
We already know that "protected departments" such as health and defense will see big funding boosts — but losers could surface among "unprotected" units.
Departments like the Home Office and those overseeing local government and the environment could see their budgets squeezed as the government targets cost cutting.
The review covers two separate avenues of spending: resource expenses — the government's day-to-day running and administration costs — for the next three years, as well as capital expenditure for the next four years, which goes toward improving infrastructure and public services such as new roads, hospitals and military equipment.
The Treasury has already said that day-to-day spending will rise by an average of 1.2% for each of the three years while investment (capital) spending will increase by an average of 1.3% a year for four years.
That "relatively modest" hike in day-to-day and investment spending means "sharp trade-offs are unavoidable," the Institute for Fiscal Studies (IFS) think tank warned ahead of the review.
We've already had a raft of announcements from the government in the run-up to Wednesday's spending announcement, detailing some of the money government departments will receive, ranging from science and housing investment to defense and education.
Here's a quick lowdown of what we already know:
The government has already announced that defense spending is set to rise from 2.3% of gross domestic product (GDP) to 2.5% by 2027, with the boost funded partly by cuts to the overseas aid budget. The U.K.'s defense plans include building 12 new nuclear-powered attack submarines, a boost to the manufacturing of drone, missiles and munitions, as well as bolstering of cyber warfare capabilities.
After defense, the health service is also set to get a big funding boost as one of the government's main spending priorities although we're waiting to see the extent of the funding boost the Department for Health receives.
The Treasury has already previewed several largescale infrastructure investments in the run-up to the Wednesday announcement, saying it will allocate £86 billion to fund research and development in the science and tech industries over the next four years, with the aim of boosting growth and innovation.
That money will fund research ranging from "new drug treatments and longer lasting batteries to new AI breakthroughs," the government said.
The Treasury on Tuesday night announced that Rachel Reeves will unveil a £39 billion boost to social and affordable housing investment in the spending review. Access to state-subsidized social housing, or low-cost new homes, is a particular bugbear for many voters struggling to find affordable places to live.
Free school meals in schools will be expanded to more than 500,000 children whose parents receive a welfare payment known as Universal Credit, which is available to those who are on a low income, unemployed or unable to work. Previously, children outside of London were only been eligible for free school meals if their household income was less than £7,400 per year.
Transport networks outside of the capital London will get a funding boost of £15.6 billion, focusing on the North and Midlands areas of the country.
The government has said it will invest just over £14 billion in building new nuclear power station, Sizewell C as well as smaller modular reactors. It noted the move would create 10,000 jobs and "deliver clean power to millions of homes, cut energy bills and boost energy security."
The Spending Review is not a fiscal event, meaning there will be no announcements on taxation, borrowing or spending on Wednesday.
Last fall, the government set out its budget and fiscal policies for the year ahead, with Reeves unveiling larger public spending, tax rises and changes to fiscal rules to allow her to borrow for longer-term investment.
We know that Reeves is looking to keep to "fiscal rules" set out last fall in her Autumn Budget, however. She also wants day-to-day spending to be funded by tax receipts rather than by borrowing — leaving herself around £9.9 billion worth of "fiscal headroom" to hit that target — and for debt to fall as a share of U.K. gross domestic product, by 2029/30.
Those tight fiscal rules have given Reeves little in the way of a financial buffer if U.K. borrowing costs rise to the levels we saw at the start of the year, or if economic growth falters. Economists expect there to further tax rises to be announced in the next Autumn Budget.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Bloomberg
36 minutes ago
- Bloomberg
Bessent Sees Deficit Falling Over 10 Years After Tax-Cut Bill
Treasury Secretary Scott Bessent said that there are a number of different assessments of the deficit impact of Republicans' signature tax-cut bill, and that his own expectation is it will shrink borrowing over a decade. There's 'varying scoring' of the tax bill, Bessent said in answering questions at a Senate Finance Committee hearing Thursday. 'It is my view that over the 10-year window, it will decrease.'
Yahoo
an hour ago
- Yahoo
Trump's agenda faces a $22 billion test from markets
Standard, boring bond auctions are drawing the attention of investors around the globe. The Treasury Department on Thursday will sell $22 billion worth of 30-year government bonds, in what will serve as a gauge of investors' appetite for US debt. All eyes are on whether there is weak demand, particularly from foreign investors. The Treasury auction, which is a regularly scheduled event, has become a closely watched barometer for how Wall Street is feeling about the Trump administration's policy agenda. A poor auction could reignite jitters about America's debt burden, President Donald Trump's 'One Big, Beautiful Bill Act' and the ability for lawmakers to get the country's finances in order. If there is weak demand for 30-year bonds at Thursday's auction, that would push yields higher. Bond yields and prices have an inverse relationship. When there is strong demand for bonds, prices rise and yields fall. Vice versa, when there is weak demand for bonds, prices fall and yields rise. Higher yields would squeeze the government with higher borrowing costs. Treasury yields are also benchmark interest rates for the economy, and higher yields can mean higher borrowing costs for consumers on everyday items including auto loans and credit cards. Long-term US debt, which is usually considered the safe, risk-free corner of the market, has come under scrutiny as Trump's tax bill is set to add to the federal debt burden. 'The idea that the US fiscal position is unsustainable over the long run has been frequently noted for years, but it has taken the current set of circumstances to get market participants to begin pushing back,' John Canavan, lead US analyst at Oxford Economics, said in a Wednesday note. Yields on 30-year Treasury bonds have soared this year as investors have demanded more compensation for what is looking like a riskier long-term loan to the US government. These concerns were exacerbated in May after Moody's downgraded the US, stripping the nation of its last perfect credit rating. 'The Moody's downgrade occurred as the ability to easily finance growing deficits increasingly comes into question,' Canavan said. 'Trump's tariff decisions are likely to raise inflation over the near term, while lowering economic growth and leading foreign investors to question the safe-haven allure of Treasury debt.' This is the first 30-year Treasury auction since Wall Street has begun focusing on the details of Trump's mega bill and the deficit, making it an important gauge of sentiment, Collin Martin, a fixed income strategist at Charles Schwab, told CNN. 'There's a concern that yields might need to rise to attract more and more investors to keep buying,' Martin said. 'If it's a weak auction, we'll probably see yields rise relatively sharply, because that might spook investors,' Martin added, 'and on the flip side, if it ends up being a pretty good auction, that would probably allow the markets to kind of breathe a sigh of relief that, okay, there is enough demand.' There is robust demand for shorter-term Treasuries like 10-year bonds, according to Chip Hughey, managing director for fixed income at Truist Advisory Services. An auction for 10-year Treasuries on Wednesday saw strong demand both for domestic and global investors. Yet investors have shown hesitancy about longer-duration bonds like the 30-year bond, Hughey said. Investors are increasingly uncertain about the long-term outlook for the US debt burden, giving them pause about the risk associated with loaning money to the government over a longer period. 'There certainly is a little bit of hesitancy about taking on a great deal of duration, just given the uncertainty around trade policy and deficits, and also what that would mean for your future debt supply,' Hughey said. 'The 30-year reflects the uncertainties around those more structural questions around budget deficits and the US debt load going forward.' In May, the 30-year yield spiked to its highest level since 2023 after a Treasury auction for 20-year bonds that saw weak demand. Pacific Investment Management Company, a global fixed income firm, said in a Tuesday report that bonds still look relatively attractive and affordable compared to stocks. However, Pimco expects to focus and be 'overweight' to 5- and 10-year bonds, while being less focused and 'underweight' to longer-term bonds. Martin at Charles Schwab said that while concerns about the deficit linger, investors are also assessing factors like inflation and the path of potential Federal Reserve rate cuts. The latest data showed that consumer prices cooled more than expected in May. Fixed income assets like bonds can become more appealing when inflation is cooling. 'We still find yields pretty attractive, and our outlook on the safety of US Treasuries hasn't changed,' Martin said. Elsewhere in markets, US stocks opened lower on Thursday. The Dow was lower by 250 points, or 0.6%. The broader S&P 500 fell 0.3% and the tech-heavy Nasdaq Composite slid 0.25%. The S&P 500 is hovering near an all-time high, but has stalled in recent trading and is coming off a day in the red. The US dollar broadly weakened on Thursday as investors wrestle with continued tariff uncertainty. The US dollar index, which measures the dollar's strength against six major foreign currencies, tumbled almost 1% and fell to its lowest level since 2022. This is a developing story and will be updated.
Business Insider
2 hours ago
- Business Insider
'Sell America' is in full force for elite investor Jeffrey Gundlach, who warns of a US debt 'reckoning'
Investor Jeff Gundlach expressed caution over the US debt load in recent remarks. He said the "untenable" debt burden in America is heading for a "reckoning." The so-called "King of Bonds" said his firm is starting to introduce foreign currencies to its funds. Elite investor Jeffrey Gundlach is doubling down on the '" Sell America" trade. The DoubleLine Capital CEO, previously coined as the "King of Bonds," raised concerns about dollar-denominated assets when speaking at the Bloomberg Global Credit Forum on Wednesday. At the core of his comments is growing concern over America's swelling debt load, which is expected to get even bigger if President Donald Trump's " Big Beautiful Bill" eventually passes. "There's an awareness now that the long-term Treasury bond is not a legitimate flight-to-quality asset," Gundlach said, warning that a "reckoning is coming." He's referring to recent volatility in long-dated government bonds, like 30-year Treasurys, which haven't been trading like the sure-thing safe bet they're supposed to be. And Gundlach's firm has been putting its money where its mouth is. The DoubleLine CEO said his firm has been allocating more fund holdings to foreign currencies, and recommended that investors broadly start to think about boosting non-dollar-denominated holdings. Gundlach also sees the tide turning in the global stock market. "Things always take longer than people think, but it's happening in real-time, and the next one will be selective emerging market equities as opposed to the US," Gundlach said. 2 signs of stress Reuters Gundlach highlighted multiple unusual patterns that have been flashing in US markets this year. He sees these as signs that markets are likely concerned about the US debt, and that faith in US assets is starting to fade, he added. The US dollar and stocks. When the S&P 500 falls, the value of the dollar typically moves higher relative to other currencies, Gundlach said. But in April, when the S&P 500 tanked 20% amid the turmoil from Donald Trump's tariffs, the US dollar also weakened in value. The US Dollar Index, which weighs the greenback against a basket of foreign currencies, traded around 97.8 on Thursday, down 9% from levels at the start of the year. US Treasurys. When the Fed cuts interest rates, the 10-year US Treasury yield, which is tied to long-term interest rate expectations in the economy, typically falls. But the 10-year yield has climbed around 74 basis points from its low in September, around the time the Fed issued its first rate cut. "So I think what we have is recognition is that the interest expense for the United States is untenable if we continue running a $2.1 trillion budget deficit and we continue to have sticky interest rates," Gundlach said of the market shifts. Foreign investors have steadily added exposure to the US market over the last 17 years, Gundlach said, noting that the foreign net investment position in the US currently hovered around $25 trillion. "It's not inconceivable that some of the $25 trillion that came in just a couple — not even two decades — could go out," Gundlach said. "You should be thinking about increasing your allocations to non-dollar investments. And it's already working." Where to go if you're "selling America" Gundlach said there were several areas where investors could find safety away from US assets. Gold. Gundlach said he's continued to hold gold when it reached the level around $3,000 an ounce, and that he also holds stakes in gold miners. Previously, he's said that he believes gold could rally to as high as $4,000 an ounce as concerns swirl over tariffs, geopolitical conflict, and rising debt levels in the US. "I think gold is a real asset class. It's no longer for lunatic survivalists and wild speculators," he said. India. Gundlach also said investors should look into Indian assets, suggesting that India could see a similar run-up in economic growth that China has seen over the past three decades. India is riddled with many of the same economic issue China faced 35 years ago, Gundlach said, though be believed many of those issues can be fixed. "I don't know how long it will take, but that's one you buy," he said. Gundlach has consistently sounded the alarm on rising deficits in the US for years, and encouraged investors to pile into safe-havens. But forecasters on Wall Street have cast doubt on the "Sell America" trade, which is hinges on the idea that US will stop outperforming other assets in the world. JPMorgan and Morgan Stanley are among those who have said that they believe US assets will continue to dominate global markets.
