Chancellor Rachel Reeves put a £29 billion-a-year rise in NHS funding at the heart of her plans for “renewing Britain”, with extra cash also promised for schools and transport.
Ms Reeves acknowledged that “too many people in too many parts of our country” were yet to feel the benefits of the change they voted for when Labour was swept to power last year.
Prime Minister Sir Keir Starmer said the spending review marks the start of a “new phase” of his government.
But critics warned the state of the public finances meant further tax rises were “almost inevitable” when Ms Reeves delivers her budget in the autumn.
The Chancellor said across the review period – lasting until 2028-29 for day-to-day spending and 2029-30 for capital investment – departmental budgets would grow 2.3% a year in real terms.
But that has been front-loaded by the cash injections made since Labour took office, meaning that from 2025-26 the increase is a more modest 1.5% on average.
And the scale of the spending on the NHS in England – increasing to £226 billion by 2028-29, equivalent to 3% annual increases in real terms – means squeezing other areas of public expenditure.
The Home Office, Ministry of Housing, Communities and Local Government, Department for Culture, Media and Sport, Department for Transport and Department for the Environment, Food and Rural Affairs are all in line for real-terms cuts in day-to-day spending.
The Foreign Office is also in line for real-terms cuts, mainly as a result of a reduction in aid spending.
Departments were ordered to find 5% savings and efficiencies by 2028-29 and reduce administration budgets by at least 16% in real terms by 2029-30.
Ms Reeves said: “This is a spending review to deliver the priorities of the British people: Security – a strong Britain, in a changing world.
“Economic growth – powered by investment and opportunity in every part of Britain.
“And our nation’s health – with an NHS fit for the future.
“I have made my choices. In place of chaos, I choose stability. In place of decline, I choose investment.
“In place of pessimism, division and defeatism, I choose national renewal.”
The review marks a watershed moment for the Government, almost a year after Labour’s election landslide.
At a Cabinet meeting ahead of Ms Reeves’s announcement, Sir Keir told ministers the spending review “marks the end of the first phase of this Government, as we move to a new phase that delivers on the promise of change for working people all around the country”.
Measures announced included:
– The schools budget will grow by £2 billion at an average real-terms growth of 1.1% a year per pupil.
– In addition, some £2.3 billion per year will go to fixing “crumbling classrooms” and £2.4 billion per year to rebuild 500 schools.
– A further £3.5 billion of investment to upgrade the TransPennine rail route that links York, Leeds and Manchester and £2.5 billion for East West rail between East Anglia and Oxfordshire.
– £7 billion to fund 14,000 new prison places and up to £700 million per year into reform of the probation system.
– Universities and high-tech industries will get a boost in research and development, with it rising to £22 billion per year by the end of the spending review, with £2 billion to support “home-grown AI”.
– Confirmation of previously trailed announcements of £30 billion for nuclear projects, including £14.2 billion for Sizewell C, £39 billion over 10 years for social housing and £15 billion for public transport projects in England’s city regions.
As well as changing Treasury rules to support investment in England’s regions, Ms Reeves said the spending review period would provide £52 billion for Scotland, £20 billion for Northern Ireland and £23 billion for Wales.
In a sign of the difficulties that Sir Keir and the Chancellor face, migrants continued to cross the English Channel in small boats on Wednesday.
Ms Reeves promised funding of up to £280 million more per year by the end of the spending review period in 2028-29 for the new Border Security Command and committed to end spending on hotels for asylum seekers by the next election.
In an attack on the Conservative legacy, she said: “The party opposite left behind a broken system: billions of pounds of taxpayers’ money spent on housing asylum seekers in hotels, leaving people in limbo and shunting the cost of failure onto local communities.
“We won’t let that stand.”
She said: “We will be ending the costly use of hotels to house asylum seekers in this Parliament”, with funding to cut the asylum backlog, hear more appeal cases and return those with no right to be in the UK.
The plan would save taxpayers £1 billion a year, Ms Reeves said.
With the Chancellor insisting she would stick to her “fiscal rules” – including meeting day-to-day spending through tax receipts – critics warned that any economic shock could push her plans off course.
Stephen Millard, interim director of the NIESR economic research institute, said: “The Chancellor has yet again said that her fiscal rules are ‘non-negotiable’.
“But, given the small amount of headroom at the time of the spring statement and the increases in spending announced since then, it is now almost inevitable that if she is to keep to her fiscal rules, she will have to raise taxes in the autumn budget.”
Paul Johnson of the Institute for Fiscal Studies said 3% a year increases in NHS spending “does mean virtually nothing on average for current spending elsewhere”.
Shadow chancellor Sir Mel Stride said “this is the spend-now, tax-later review” adding Ms Reeves “knows she will need to come back here in the autumn with yet more taxes and a cruel summer of speculation awaits”.
