Chancellor of the Exchequer, Rachel Reeves, has unveiled her much anticipated 2025 Spending Review, setting the tone for Labour’s fiscal strategy through to the end of the decade. Expectations were high—but so were the constraints. This review has been framed as a defining moment for the Labour government, revealing how it plans to balance fiscal discipline with its promises of renewal and reform for the country.
While this latest spending review avoids the deep austerity of the 2010s, it also lacks the fiscal headroom of the post-COVID 2021 review. Today’s review, while ambitious in rhetoric, reveals the tightrope Reeves must walk between economic credibility and delivering on social promises to keep Labour’s literal and political constituencies content. Reeves framed the review as a plan to “make working people better off,” signalling a focus on cost-of-living relief, public service investment, and economic growth. However, the underlying fiscal constraints paint a more complex picture.
Fiscal Restraint Amid High Expectations
As the UK’s public finances remain under pressure, Reeves reaffirmed her commitment to fiscal rules. The Office for Budget Responsibility has projected minimal real-terms growth in departmental spending. It was therefore no surprise that several departments faced real-term cuts as Reeves seeks to balance manifesto commitments with more recent pledges, such as a hike in defence spending, while meeting her fiscal rules that promise to fund day-to-day spending through revenue.
Winners and Losers in Departmental Budgets
The review protects spending on NHS England, core school budgets, and defence, but this means unprotected departments—including DEFRA, local government, and culture— suffer from real-terms cuts, although Rayner will be pleased with a capital injection for social housing.
Investment vs. Austerity 2.0?
Reeves insists this is not a return to austerity, highlighting a 2.3% annual real-terms increase in total spending. However, critics argue that the squeeze on unprotected departments amounts to austerity by another name. Labour is keen to emphasise the huge investment going into infrastructure projects that should help with long-term economic growth as well as Labour’s strategic priorities, but that’s of little solace to unprotected departments that must now cut their cloth accordingly.
Reeves’ review is a political tightrope act. On one hand, it reassures nervous markets and centrist voters of Labour’s fiscal discipline and determination to get the UK back on a secure economic footing. On the other, it risks alienating parts of the Labour base expecting more transformative change. Today’s spending review sets the stage for a government that wants to be seen as both responsible and reformist. The challenge will be whether Labour can deliver tangible improvements in public services and living standards within these tight fiscal constraints whilst also retaining economic credibility.
The message for any business must be to think about how you can help the government achieve its objectives – not what you can get from the government – and how can you do it with as little or no cost to the taxpayer.
Experts in effecting change
At Whitehouse Communications, we are experts in helping businesses shape their messaging to speak to the priorities of government and cut through the noise. If you want to understand more about what this latest spending review means for you and your business, then do please get in touch with us.
