On Wednesday 11 June Chancellor Rachel Reeves revealed the outcomes of the Government's multi-year spending review. It's the first such review since 2021 and, as the Institute for Fiscal Studies (IFS) has made clear, it's the start of a period of sustained dilation in the size and scope of the state. For public sector leaders, this presents a dual challenge: how to deliver more within a constrained fiscal envelope, and how to do so in a way that's sustainable, equitable, and future-focused.
The growth created by the Spending Review masks a deeper tension. Much of the increase is absorbed by rising health costs, pensions, and debt interest. The NHS alone is set to receive 3% real-terms increases annually, while other departments face flat or declining budgets in real terms. This creates a 'squeezed middle' of public services: local government, justice, education, and social care, that may need to do more with less, especially if demand continues to outstrip funding growth.
Over the past ten years, the UK has quietly entered a new fiscal era – one defined not by retrenchment, but by the steady and sustained stretching of the state. The Spending Review 2025 confirms what many in the public sector have already felt. The state isn't shrinking. It's expanding significantly, both structurally and strategically.
Public spending is now projected to reach 21.5% of GDP by 2028–29, up from 18.6% just before the pandemic. This isn't a temporary response to crisis, but a long-term shift in the role of government. Health, pensions, and debt interest are driving much of this growth, reflecting demographic realities and political commitments. But the implications go far beyond the numbers.
This is a decade where the state is being asked to do more – supporting an ageing population, delivering Net zero, investing in infrastructure, and responding to rising citizen expectations. Yet this expansion is happening in a context of modest economic growth and tight fiscal margins. The result is a growing state, but not necessarily a richer one.
For public sector leaders, this means navigating a paradox – rising responsibilities without proportionate increases in discretionary funding. It demands a new kind of leadership: strategic, collaborative, and digitally-enabled. It also calls for a renewed focus on value – not just how much we spend, but how well we spend it.
This is a period of opportunity. A growing state can be a more responsive, resilient, and inclusive one – but only if we make the right choices now. That means investing in transformation, rethinking delivery models, and building the capabilities needed for a more complex and connected public sector.
Local authorities are on the front line of this fiscal squeeze. Despite growing demand for services, particularly in adult social care and housing, funding remains uncertain beyond 2026. The Spending Review offers little clarity on the future of the Fair Funding Review or business rates reform. It did, however, provide welcome relief in some areas.
Targeted funding aims to enable earlier intervention and reduce crisis-driven costs, offering opportunities for service innovation and partnership.
A 10-year rent settlement and increased capital investment in the affordable homes programme provides a more stable environment for housing providers and developers.
Additional funding for transport and regeneration projects may unlock new opportunities for collaboration between councils and private sector partners.
A recommitment to multi-year funding gives councils greater certainty, enabling more effective long-term planning and procurement.
Despite these gains, the review doesn't fully address the underlying financial fragility of the sector.
Many councils remain under significant financial pressure. Without further reform, difficult decisions around council tax increases and service reductions are likely to continue.
While additional funding is provided, it's unlikely to meet the scale of demand or address long-term workforce and capacity issues.
With cumulative deficits projected to reach £5 billion by 2026, over half of councils face potential insolvency when the statutory override ends – unless a national solution is found.
The current funding model remains outdated. The Local Government Association has called for a clear roadmap to a more sustainable and equitable system.
The Spending Review is a step in the right direction – but not a solution in itself. Councils will need to remain agile, collaborative, and forward-looking. Financial resilience reviews, transformation planning, or strategic partnerships are key tools for navigating this evolving landscape.
Councils can leverage new funding to drive innovation in service delivery, housing, and regeneration. Multi-year settlements also support more robust financial planning.
Financial resilience remains a concern. Councils must continue to manage uncertainty, particularly around high needs deficits and adult social care.
The sector must now double down on its efforts for proactive transformation:
We've looked at the key announcements and analysed the potential impacts on departments, services, and infrastructure across the country.
The Spending Review arrives at a critical juncture for the UK’s health system. With the NHS grappling with record, albeit reducing, waiting lists, rising demand, and productivity and financial challenges, the review offers a mixed picture. There are some targeted investments, but limited scope for the transformative change expected to be outlined next month in its 10-year plan.
The Department of Health and Social Care (DHSC) will see an average 2.8% real-terms annual increase in funding through 2028–29. While this represents continued support, it falls short of the 4% annual growth recommended by health economists to restore services and meet future demand. The NHS revenue budget is projected to reach £198 billion by 2028–29, assuming modest productivity gains. Pressure will remain on delivering more from this increased settlement – driving more productive and efficient care – and demonstrating sustainable change and progress over the medium term.
A major highlight is the £10 billion investment in NHS digital transformation by 2028–29 – a nearly 50% increase from 2025–26. Key initiatives include:
While capital budgets remain largely unchanged, NHS England plans to explore off-balance-sheet investment models to unlock new and much-needed funding for hospital upgrades and estate renewal – potentially a game-changer if implemented effectively.
The Spending Review includes a headline commitment of an additional £4 billion for adult social care by 2028–29 compared with 2025–26. While this is a step in the right direction, it still falls short of the estimated £6.4 billion needed to improve access and quality across the sector. Without a clear strategy for how this funding will be deployed, the risk remains that care gaps will persist.
The Government has also made a verbal commitment to a Fair Pay Agreement for NHS staff – a potentially significant move toward addressing workforce morale and retention. However, the absence of costed details or implementation timelines raises questions about its deliverability and impact.
These measures, while welcome, underscore a broader truth: without sustained, strategic investment, the transformational change needed to reset and restore NHS services is unlikely to succeed. The system requires not just more funding, but smarter funding – aligned with long-term goals for prevention, integration, and equity.
The Spending Review provides incremental progress in health and mental health services, but lacks the scale and ambition needed to address the NHS’s deep-rooted challenges. Without a bolder investment in prevention, workforce, and social care, the system risks continued strain and widening health inequalities.
The Government has chosen to maintain capital investment at 2.6% of GDP, high by historical standards, but not increasing. This suggests a shift from expansion to consolidation. For public sector organisations, this means:
The Spending Review outlines a strategic shift toward modern, sustainable transport networks. The Department for Transport’s capital budget is set to rise to £31.5 billion by 2028–29, supporting a suite of transformative projects.
Support for key infrastructure schemes is continuing, including HS2, East West Rail, and TransPennine route upgrades, along with a number of focused investments, particularly in the North and Midlands, such as Leeds City Station. Further details will be contained in the infrastructure strategy to be published shortly.
There will be much-welcomed investment of over £15 billion in a number of tram systems in the Midlands and across the North, along with bus and cycle infrastructure reflecting a commitment to greener, more accessible urban transport. The £3 bus fare cap, due to end in 2025 has also been extended to March 2027.
Regional connectivity remains a priority, with funding directed at reducing disparities between London and other UK regions.
Energy infrastructure receives a substantial boost, with the Department for Energy Security and Net Zero seeing a 16% increase in core spending, alongside targeted project funding.
The Government’s £14.2 billion investment in Sizewell C signals a renewed commitment to nuclear power as a cornerstone of energy security.
There's backing for the Acorn and Viking carbon capture and storage (CCS) clusters positions, which failed to gain support in 2024. Information on the quantum of support offered now was lacking, though rumours indicate the value will be significantly lower than Track 1 projects.
Continued development of GB Energy, the state-owned clean energy firm, will accelerate deployment of renewables and support energy independence. The institution formally known as GB Nuclear, set up by the Conservative Government in 2023, will become Great British Energy–Nuclear, and take 30% of GB Energy’s budget.
These investments reflect a broader strategy to future-proof the UK’s infrastructure, stimulate regional economies, and meet climate targets. The long-term certainty provided by the Spending Review enables both public and private sectors to plan with confidence, laying the groundwork for a more connected and sustainable UK.
Digital remains the most underutilised lever for public sector reform. With constrained headcount and rising expectations, automation, AI, and data analytics are no longer optional. They're essential. We urge public sector leaders to:
The 2025 Spending Review isn't a return to austerity, it's a call to action. Public sector leaders must make strategic choices about priorities, partnerships, and performance.
The Government's choices set the stage for incremental progress, but the scale of the UK’s infrastructure, health, and economic challenges demands more than cautious optimism; it calls for bold, coordinated decisions.
Government and public sector leaders must now focus on driving productivity, not just through digital transformation, but by rethinking how resources are allocated and outcomes are measured. This means targeting investment where it can deliver the greatest social and economic impact – whether that’s in preventative healthcare, low-carbon transport, or skills and innovation.
The opportunity is to move beyond short-term fixes and build a resilient, high-performing public sector that delivers for citizens today and generations to come. The blueprint is emerging – what’s needed now is the political will and collaborative leadership to bring it to life.
For more insight and guidance, get in touch with Phillip Woolley.
