Chancellor Rachel Reeves’ first Spending Review marks a clear shift in tone and intent from her predecessors, signalling a move away from austerity-era orthodoxy toward targeted public investment. Announced yesterday, the review commits to real-terms growth in departmental budgets of 2.3 per cent per year through to 2029, alongside £113 billion in additional capital spending. Reeves has loosened the Treasury’s fiscal rules, allowing net public debt to rise in the short term, provided it is forecast to fall by the end of the period.
Markets reacted calmly. Sterling reached a three-year high against the euro before easing, and 10-year gilt yields saw only modest fluctuations. Analysts suggested that while the shift in borrowing rules narrows future room for manoeuvre, investors were broadly reassured by the review’s emphasis on long-term infrastructure and productivity.
The centrepieces of the review include a £29 billion annual uplift for the NHS, with £10 billion ringfenced for digital upgrades, and a ten-year £39 billion housing programme — the largest cash injection into social and affordable homes in half a century. Defence spending is set to rise to 2.6 per cent of GDP by 2027, and the energy transition is backed with £13.2 billion for national insulation and £8.3 billion in equity for the new Great British Energy company. But for business, it is the emphasis on innovation, enterprise and skills that has drawn the most attention.
Ash Gawthorp, Co-founder and Chief Academy Officer at Ten10, welcomed the investment in R&D and workforce development. “The announcement reflects a welcome shift towards an economy that invests in innovation, skills, and enterprise,” he said. “The £22 billion annual commitment to R&D and the £2 billion for the UK’s AI Action Plan are clear signals that government intends to back world-leading science and homegrown technology. Done right, this can generate high-quality jobs, attract global investment, and cement the UK’s place as a leader in emerging industries like AI and green technology.”
Gawthorp also pointed to the potential of a more joined-up industrial strategy, noting that universities and technical education providers “stand to benefit” if funding is well-targeted and industry voices are included in programme delivery. “This review lays a promising foundation,” he said. “Now it’s about execution.”
Skills, labour market health, and delivery risks —
That sentiment — one of cautious optimism tethered to delivery risks — was echoed by many across the business and employment landscape. Naomi Clayton, Chief Executive at the Institute for Employment Studies, noted the wider context of labour market fragility. “Today’s Spending Review is set against a backdrop of growing concern over a stalling labour market and global economic uncertainty,” she said. “With 2.8 million people currently out of work due to long term ill health, it is encouraging to see the Pathways to Work additional investment of £1 billion by 2029-30 protected.”
Clayton highlighted the continuation of employment programmes such as Connect to Work and WorkWell, and the planned national rollout of Youth Hubs to support the 12.5 per cent of young people not in education, employment or training. However, she cautioned that questions remain about whether “this investment will be sufficient, and delivered quickly enough, to mitigate the impacts of planned benefit cuts”.
The new funding for apprenticeships and youth training — totalling £1.2 billion — is intended to support over one million young people into vocational pathways. Gawthorp welcomed the move as a response to a “persistent barrier to growth — the skills mismatch,” and described the potential to “strengthen the talent pipeline across industries”.
Still, others questioned whether the review went far enough. Ben Willmott, Head of Public Policy at the CIPD, offered a more critical perspective. “The plans announced today provide a welcome boost for a number of the UK’s key sectors, but we need to see greater ambition from the government if we’re to improve productivity and living standards across the country,” he said.
He warned that “some of the biggest challenges facing businesses across all sectors of the economy” — including workforce health, technology adoption and management standards — were not adequately addressed. “Tackling these challenges requires a joined-up workforce strategy for the UK,” he said, calling for improvements to “policy around skills, business support, employment relations, occupational health and labour market enforcement.”
Willmott noted that while investment in apprenticeships is “welcomed”, a clearer plan from Skills England is needed to support employers in both upskilling staff and growing apprenticeship access. He also criticised the absence of new resources for Acas or labour market enforcement bodies, highlighting that “smaller businesses in particular will need access to support and clarity on when new regulations are coming into force to ensure they don’t fall foul of the new laws.”
Alongside these structural concerns, questions persist about the economic climate in which the review will be delivered. Inflation remains stubborn, with CPIH reaching 4.1 per cent in April. Interest rates, though trimmed by the Bank of England to 4.25 per cent last month, are forecast to fall only slowly, with year-end expectations around 3.75 per cent. GDP growth is forecast at just 1.0 per cent for 2025, rising slightly to 1.2 per cent the following year.
The review’s housing and infrastructure ambitions may also be tempered by implementation realities. Planning approvals for new homes in England hit a 13-year low earlier this year, and despite reforms to accelerate consent for major brownfield projects, bottlenecks remain. The government has pledged to reform the system further, but no additional capital was set aside in the review to address local authority capacity.
If the 2025 Spending Review represents a turning point in the UK’s economic strategy — one that prioritises public investment over deficit-first budgeting — its impact will be judged not by pledges, but by progress. From apprenticeships to AI, and from housing pipelines to hospital IT systems, delivery will determine whether the review’s promise translates into real productivity gains and long-term resilience.
For now, the direction of travel is clear. But as business leaders, employment experts and policymakers agree: direction alone is not enough.
