The Spending Review is fast approaching, with government departments jostling for more money and chancellor Rachel Reeves facing some tricky decisions.
Savers and investors will be hoping there won’t be any unwelcome tax or pension announcements, while retirees are likely keeping their fingers crossed for significant changes to winter fuel payment eligibility rules.
The review will come less than three months after Reeves’s Spring Statement, and is the second phase of “Spending Review 2025”. The first part took place in the Autumn Budget, which confirmed departmental budgets for 2024-25 and set budgets for 2025-26.
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Susannah Streeter, head of money and markets at Hargreaves Lansdown, says the chancellor’s “fiscal juggling act” is becoming more difficult, with “multiple balls of pledges to be kept up in the air – from defence, to pay demands and relief for families and pensioners”.
According to the thinktank the Institute for Fiscal Studies (IFS), the Spending Review “could prove to be one of the most significant domestic policy events of this parliament”.
With this in mind, we look at what the Spending Review could contain, and when it will take place.
What is the Spending Review?
A Spending Review is the process the government uses to set departments’ budgets for future years. This covers services like the NHS, schools and transport, as well as how much money the government will invest to drive economic growth across the country, such as in big infrastructure projects or energy security.
The Chancellor of the Exchequer and chief secretary to the Treasury lead the Spending Review.
Reeves already set department budgets for 2025-26 in the Autumn Budget, so the Spending Review will confirm spending allocations for the following three to four years.
The review covers two categories of spending: day-to-day, which includes things like salaries, supplies and administration costs; and investment, which includes funding for infrastructure as well as new buildings like schools and hospitals.
The Spending Review will set out day-to-day expenditure for three years and investment spending for four years.
The upcoming Spending Review “will be the first multi-year Spending Review since 2021, and the first to happen outside of a pandemic since 2015”, according to the IFS.
When will the Spending Review take place?
The Spending Review will be delivered by Reeves in the House of Commons on Wednesday, 11 June.
The Treasury confirmed to MoneyWeek that it will take place around 12.30pm, following Prime Minister‘s Questions. The Spending Review documents will be published once Reeves finishes speaking, and she will then take questions from the house, which could last an hour or two.
What has already been announced ahead of the Spending Review?
The government has already made some announcements ahead of next week’s Spending Review.
For example, spending on defence will rise from 2.3% of gross domestic product (GDP) to 2.5% by 2027 – that's around an extra £5 billion a year – and there’s an aim to increase it further to 3% by the next parliament.
Then there’s the commitment to give public sector workers in England a pay hike of 3-5% in 2025/26, rather than 2.8% as the chancellor had originally planned for – which could cost an extra £2-3 billion.
Reeves is also set to unveil a £15.6 billion package to fund extensions to trams, trains and buses in Greater Manchester, the Midlands and Tyne-and-Wear.
There will likely be more announcements in the coming days as the Spending Review approaches.
Meanwhile, some decisions may not have been made yet: media reports suggest that Yvette Cooper, the home secretary, Angela Rayner, the housing secretary and Ed Miliband, the energy secretary, remain locked in discussions with the Treasury with just a week to go before the final decisions are announced.
What could be announced in the Spending Review?
During a speech in Manchester on Wednesday, Reeves said not every government department will "get everything they want" in the Spending Review, and that a squeeze on funding was a "product of economic reality".
So, some departments may be disappointed by their funding allocation, and need to make cuts.
Jason Hollands, managing director of the wealth manager Evelyn Partners, says: “Non-protected departments are expected to face steep cuts if the chancellor continues to stand by her ‘iron clad’ fiscal rules that she has previously claimed are non-negotiable.
“The Spending Review will be announced in the context of mounting pressure to significantly increase defence spending (with NATO telling member states to increase defence spending 3.5% of GDP), inflation-busting wage demands and brewing industrial action in the NHS, a revolt within the Labour Party over welfare cuts, and expectations of at least a partial U-turn on Winter Fuel Payment and the scrapping the two-child benefit cap.”
Indeed, away from department spending allocations, there is speculation that we could hear more about how the government will pay the winter fuel payment to more pensioners this winter. It’s currently not clear how many more pensioners will qualify and how the eligibility rules will be changed.
If the government wants to please backbenchers and campaign groups, it could also remove the two-child limit on benefits.
In terms of taxes, the Spending Review is not a “fiscal event” like the Spring Statement and Autumn Budget, so there will be no changes to borrowing or taxes, according to the Treasury.
Nevertheless, Hollands says “we may well see some expectation setting, as we saw this time last year, about ‘difficult decisions’ ahead, with the government potentially leaning into the twin factors of global trade uncertainties and rearmament as behind this”.
Streeter points out that Reeves might tweak her fiscal reporting rules, as suggested by the International Monetary Fund. “This has the potential to give the chancellor a bit more wiggle room as the government might not be forced to make such frequent spending changes in reaction to changes to the economic outlook, which as we know is currently in a state of flux due to the unpredictability of US trade policy,” she says.
Lindsay James, investment strategist at the wealth manager Quilter, says a rethink of the fiscal rules framework is likely to be a better approach than raising taxes in the Autumn Budget just so Reeves can “stick to her self-imposed fiscal rules”.
She adds: “While no one wants to see a repeat of the total disconnect with reality that led to the disastrous Truss Mini Budget, there is still scope for a different policy framework that minimises economic disincentives and distortions and prevents already underfunded departments from being asked to magic up further savings.”
If we were to see revenue-raising tax changes in the Autumn Budget later this year, experts highlight extending the freeze on income tax thresholds beyond 2028, clamping down on salary sacrifice, and overhauling the inheritance tax gifting regime, as frontrunners.
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