UK Spending Review 2025 Explained: What Changed, Who Gains, Who Faces Pressure
Published 15.09.2025
The 2025 Spending Review sets departmental budgets through the end of the parliament with real spending growth overall, yet it leaves difficult trade-offs—particularly for unprotected areas—made more complex by fresh national security pledges and a stubbornly uneven economy.
When it happened and what it is
The Chancellor presented the Spending Review to Parliament on Wednesday 11 June 2025. This wasn’t just a mid-year tidy-up; it set plans for day-to-day spending until 2028–29 and for capital investment out to 2029–30, giving departments a multi-year envelope to plan against. In the round, total departmental budgets are set to grow by around 2.3% across the period, a headline number the Treasury has emphasised to signal that this is not a return to the sharp austerity of the 2010s. That said, the distribution of that growth remains the crux of the debate.
The economic weather the review sailed into
The Review arrived against a backdrop of easing but still-above-target inflation, a labour market that has loosened, and activity indicators that suggest the post-winter bounce is fading. Official data show headline Consumer Price Inflation (CPI) running at 3.4% year-on-year in May, a notch lower than April, with some of the heat coming out of services prices; the Bank of England’s minutes have placed recurring emphasis on seeing more progress in these underlying components. At the same time the unemployment rate has drifted up to about 4.6% in the three months to April, a near four-year high, as business surveys and vacancy data point to softer demand for labour. On growth, GDP fell in April after a robust first quarter, leaving the three months to April up 0.7% but with momentum looking less secure as one-off supports fade.
What changed inside the Review
Spending Review 2025 fixes multi-year resource and capital budgets and confirms that day-to-day departmental spending will expand modestly in real terms. But the profile is uneven. Independent analysis by the Institute for Fiscal Studies and others finds that while most departments are set to be better off by the end of the parliament than at the start, several will still see real-terms squeezes, particularly outside priority areas such as health and defence. The Resolution Foundation’s take is plain: with much of the largesse concentrated early in the parliament and with specific priorities ring-fenced, the arithmetic implies real-terms pressure elsewhere. In practice, this means the big political choice was not whether to spend more overall, but which services to protect and which to allow to tighten in per-person terms.
The Treasury also spelt out administrative savings requirements, aiming to reduce back-office costs and “rebalance” spending toward frontline delivery. Departments are tasked with double-digit, real-terms cuts to administration budgets across the period. This is not the whole story of the squeeze, but it is a concrete lever the centre can pull, and it underlines the message that efficiency savings are supposed to fund part of the plan. Critics argue that such reductions are easy to announce and far harder to deliver without degrading service quality or hollowing out capabilities needed for reform.
The defence and security wrinkle that arrived after the Review
Two weeks after the Review, the government set a new long-term marker: national security spending at five per cent of GDP by 2035, split between 3.5% for core defence and 1.5% for wider “security and resilience.” The pledge came in the National Security Strategy and at NATO-focused events, giving the commitment an international frame as well as a domestic one. In fiscal terms, the Institute for Fiscal Studies cautioned that this headline does not, by itself, put new cash into this parliament’s profile; rather, much of the 1.5% “resilience” share would be met from departmental budgets already allocated at the Review, with the bigger implications pushed into the next parliament and beyond. Core defence is still scheduled to reach 2.5% by 2027, in line with earlier statements, with an ambition to go further over the next parliament. The symbolism is large, but the near-term effect on the June envelopes is smaller than the headlines might suggest.
Who gains and who feels the strain
Protected services such as the NHS remain the main beneficiaries of the overall growth. By contrast, multiple analyses highlight that several unprotected departments face either flat or falling spending in real-per-person terms over the period. External think-tanks have pointed to pressure for the Home Office and Transport, with the latter affected by the unwind of extraordinary rail support and the former by policy-driven shifts in asylum and enforcement spending. Education does better than many feared, but even there commentators note that per-pupil funding gains are modest and uneven once you strip out early-period front-loading and compare to pre-2010 peaks. This is not uniform pain; it is an exercise in prioritisation in which some services advance while others must shrink their ambition or find productivity breakthroughs to stand still.
How the macro backdrop complicates delivery
Raising productivity in public services is the policy north star; delivering it amid softening growth, tightening labour markets in specific skills, and still-elevated input costs is the rub. Services-sector PMI readings through early summer showed expansion but also signs that pricing power was ebbing as costs cooled, a dynamic that might be welcome for inflation but that leaves suppliers and contractors with less room to absorb real-terms rate cuts. The housing market, a bellwether for household confidence and moving-related spending, has lost momentum again after stamp duty changes and higher borrowing costs earlier in the year, with major lenders reporting that annual house price growth cooled to around the low twos by June. If consumers are cautious, tax-rich spending can underperform; if nominal wage growth proves sticky, departmental pay settlements can be harder to land within cash envelopes.
The political economy of headroom
Because the Review set multi-year totals, much of the political heat now shifts to how those totals are lived within and whether economic outturns deliver more headroom by the Autumn Budget. If nominal GDP surprises on the upside and gilt yields cooperate, the Chancellor can claim space to ease the pinch points. If growth falters or yields stay elevated, the “efficiency” lines in the Red Book start to look like hard choices. That is why outside observers have described the 2025 exercise as neither austerity revived nor largesse unbound, but as a careful rationing under unusual geopolitical and macroeconomic constraints. The Review’s durability hinges on inflation continuing to trend lower, on the Bank of England progressing with an orderly rate-cut cycle, and on wage growth cooling without a sharp rise in unemployment.
What to watch next
There are three tests in the months ahead. First, whether the promised administrative savings materialise in practice rather than on paper. Second, how the five per cent national security commitment is operationalised across multiple departments, particularly given the intent to hit 1.5% for resilience by the late 2020s without fresh cash. Third, whether the macro path offers the Treasury any wiggle room by November. The early dataprint into the summer was mixed: inflation had eased on headline measures, the jobs market was loosening at the margins, and growth was stumbling from a strong first quarter. If those trends extend, the Bank’s August rate cut becomes the start, not the end, of a gentler monetary backdrop, which would help the fiscal arithmetic at the margin. If not, the Review will look more like a ceiling than a floor.
Bottom line
The Spending Review 2025 is best understood as a prioritisation document anchored to a still-fragile macro narrative. It protects the services elected officials have decided to champion, it leans on efficiency to square the circle, and it keeps options open in case the economy gifts the Treasury unexpected space. The subsequent national security pledge raises big questions for the 2030s, but it does not, by itself, rewrite the numbers for this year and next. In the months to come, delivery discipline will matter more than declarations.
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UK Spending Review 2025 Explained: What Changed, Who Gains, Who Faces Pressure
The 2025 Spending Review sets departmental budgets through the end of the parliament with real spending growth overall, yet it leaves difficult trade-offs—particularly for unprotected areas—made more complex by fresh national security pledges and a stubbornly uneven economy.