The Spending Review 2025 - what it does and does not involve and why it matters - 9th June 2025

The Spending Review, due to be announced on Wednesday 11 June 2025, has received considerably more attention than many of its predecessors, almost garnering a pre-Budget round of publicity and teaser announcements. However, strictly speaking the Spending Review is not a ‘fiscal event’ as it deals only with spending, not taxes. That explains why the Government got itself in knots last month when the Prime Minister said that an announcement on the new rules for Winter Fuel Payment would have to await a fiscal event. Rachel Reeves has since suggested otherwise – the plans might even emerge this week. 

Whereas Budgets are often arcane affairs for Joe Public, the results of a Spending Review can appear more immediately relevant in terms of everything from NHS waiting lists to filling the proverbial pothole. In the current rounds of departmental negotiations with the Treasury, the potential impacts of spending – or not spending – have grabbed media headlines.

You could be forgiven for thinking that the attention the Spending Review receives means it will cover all Government expenditure, but that is not the case. Spending reviews deal with the more predictable parts of Government expenditure – the day-to-day spending and capital projects. The demand-led and less stable costs, such as welfare funding and debt interest are generally handled in Budgets. By a small margin they represent the greater slice of total Government spending. 

Spending reviews have usually covered three-year periods, so that departments can make financial plans rather just live year-to-year. Having said that, since 2013 the triennial cycle has been the exception rather than the rule for various reasons, including elections and the pandemic. Rishi Sunak was the last Chancellor to present a three-year review in autumn 2021, which covered 2022-25.  

In theory work on a new review should have started in 2024, but in the Spring Budget of that year Jeremy Hunt kicked the can down the road until after the general election, which at the time was being pencilled for autumn 2024. Jeremy Hunt’s procrastination meant that he did not have to put flesh on the bones of spending plans which the chair of the Office for Budget Responsibility (OBR), had branded as being so thin as to be worse than a work of fiction. Had Jeremy Hunt spelt out the spending challenges he faced, then the subsequent election might have seen the main parties being more honest about the need for tax increases.

When Labour won the election, there was some speculation that Rachel Reeves would produce a 2025-28 spending review in the autumn, alongside her first Budget. However, that did not happen and as a result 2025/26 spending effectively became the subject of a one-year review (like 2020/21 and 2021/22), merged into the Budget.

Deferring the review so that it took effect from 2026/27 gave more time for a detailed, zero-based exercise (as was George Osborne’s first review in 2010). In theory a zero-based review – beloved of finance directors – starts with spending set to nil and then adds in everything that must be done on a value for money basis. This approach is designed to avoid the bloat that can arise when the existing budget is the starting basis to which changes – up or down – are considered. 

The Spending Review 2025 will cover:

• Day-to-day (resource) spending for three years (2026/27 to 2028/29):

• Investment (aka capital) expenditure for four years (2026/27 to 2029/30). 

The so called ‘spending envelope’ – how much could be spent – was set in the Autumn 2024 Budget and updated in the Spring 2025 Statement. Tomorrow we will consider the underlying numbers in a Bulletin examining the economic and fiscal aspects of the Spending Review. 

The Government has decided that from now on, spending reviews will be biennial exercises, albeit still setting departmental limits for at least three years. One consequence of this is that the figures beyond the second year (i.e. 2027/28 onwards) are even less robust than usual. Spending reviews have often been tailored with a wind down of spending in the last year to help meet Budget targets. In practice by the time the final year arrives, the spending numbers have often been revised upwards, thanks to the discovery of cash at the back of the proverbial Treasury sofa. With the next review starting from 2028/29, it becomes easier to tweak the final/first year number. Perhaps not by coincidence, 2028/29 is almost certainly the period leading up to or containing the next general election.

Source: Techlink Professional