Chancellor Rachel Reeves’s Spending Review 2025, now less than a month away, is due at a critical time for the economy and Sir Keir Starmer’s Government. Treasury chiefs are drafting the multi-year settlement for Whitehall departments, due on June 11th, against a backdrop of low growth and signs of a cooling labour market.
Recent official data showed GDP (Gross Domestic Product) grew by 0.6% between December and February while the CPI (Consumer Prices Index) measure of inflation rose by 2.6% in the 12 months to March. A Bank of England base rate cut last week provided some relief for households and businesses. However, the latest employment figures showing the number of workers on payrolls fell in the first few months of this year while the number of job vacancies is declining.
Spending Review 2025, the first from a Labour chancellor since 2007, will set out budgets for Whitehall departments to 2028/29. For businesses, the review is more than just an accounting exercise; it provides crucial insights into the Government’s fiscal strategy and economic priorities and can significantly impact the business environment.
The Government’s primary objectives for the Spending Review are to balance the books while fostering economic growth. This means tough decisions about allocating resources and making cuts. One of the key elements to watch out for will be reform of the Green Book, the Treasury’s guidance for checking that policies, projects and programmes deliver value for money. These reforms, which could be trailed in the days running up to the Spending Review’s publication, will address how projects across different regions are evaluated. Regional mayors anticipate a more equitable distribution of resources and a more transparent evaluation process to be unveiled.
Treasury officials will be hoping for smoother negotiations in Whitehall than those in the run up to the Budget last autumn. Some commentators have suggested the Treasury’s power to impose its will on departments has been weakened by pressure from Labour backbenchers following recent local election losses for the party.
Another area to watch will be infrastructure spending and projects. Last year the Treasury was reported to be looking for cuts worth billions of pounds to such projects. Ministers are now understood to be so concerned about this perception that they are rowing back on planned infrastructure building. It will be instructive to see whether ministers propose projects which can start soon and be completed within the current parliamentary term to provide Labour with achievements to trumpet in an election campaign.
Reform UK’s response to the Spending Review will be closely watched at Westminster following the party’s success in local elections earlier this month. Reform may be looking to position itself to the left of Labour on economic policy while remaining conservative on social issues to try to broaden its appeal across different parts of the country.
In preparing her Spending Review, the Chancellor faces a balancing act to keep both the financial markets and the Labour benches calm while delivering on the Government’s growth plans.
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