Blog by Jamie Selig, Political Consultant for the Economy and Financial Services
This Spending Review will write the story of this Government.
It will reveal not just how the Government plans to spend, but what it stands for. Every spending decision will signal a priority, every omission a choice. For Keir Starmer, this is the clearest expression of the kind of Government he intends to lead.
The Government has faced high-stakes trade-offs since taking office, most notably at the Autumn Budget 2024 and the 2025 Spring Statement— and each one has built towards this moment.
Through this year, the Government has gone to great lengths to protect the spending envelope, shielding it from cuts. They plan to show off £113bn of capital investment; much of it made possible by the “Investment Rule.”
Still, this is no spending spree. With only £20bn in new money to allocate, according to the Resolution Foundation, the Government faces the same tough trade-offs that have defined Starmer’s premiership.
Unlike the annual Autumn Budget, which sets spending plans for one year, the Spending Review will set out the Government’s plans for departmental spending for four years, and capital investment for five.
Although spending reviews are routine, this one is different. The Government has said that they are conducting a zero-based review, which means every line of spending will be justified from the ground up. This is the first zero-based review in 17 years, with a focus on value for money. The UK’s fiscal position is precarious and dominated by uncertainty.
The Spending Review is the Prime Minister’s opportunity to make clear the values and ambitions driving his Government. Money talks — and this is the opportunity for the Government to do its talking.
On 11 June, Starmer will publish the draft of his story; a Spending Review that sets the stage and charts the narrative arc of his Government.
But what are the Government’s priorities?
In many ways this question is what has proved to be so problematic for the Government. Although previous attempts to communicate their vision have come through the “Plan for Change”, it’s fair to say that this hasn’t cut through. According to the latest data from YouGov, 54 percent of people are unclear what the Government stands for; up from 42 percent in August. That’s a striking figure for a Government elected in a landslide less than a year ago.
In the absence of clear leadership and communication, both internally and externally, ideological divisions have deepened within the Parliamentary party — with Labour MPs publicly confronting Number 10 over benefits reform and winter fuel cuts.
Competing Visions
At its core, these tensions stem from competing visions of what the story of this Government should be, which, in turn, has led to confusion internally over its purpose.
As Sir John Curtice said last week, “You need to define what a Government is about”. For now, this purpose is unclear; even amongst Labour backbenchers.
So far, the theme of this Government has been to “fix the foundations”, with an emphasis on the “iron clad” fiscal rules. The Government has reasoned that in order to borrow significant amounts of money to fund its investment plans, bond markets need to be reassured that effective institutional guardrails are in place to restrain them. With high levels of Government debt, small fluctuations in gilt yields can lead to significant increases in interest payments — a situation the Government is desperate to avoid.
This strict fiscal stance has led to a series of unpopular cuts throughout the past year. Cuts to the Winter Fuel Allowance, disability benefits, and up to 7 percent “efficiency” cuts to departmental spending have soured optimism around Westminster.
Many Labour MPs are now asking: is this really all this long awaited Labour Government has to offer?
Symbolic of this schism is the debate around the Government’s benefits reforms. According to the Secretary of State for Work and Pensions, Liz Kendall, “there is nothing Labour about accepting the cost of this economic but, above all, social crisis, paid for in people’s life chances and living standards.”
But Neil Duncan-Jordan MP has argued that “saying that you go to work or we cut your benefit, is not the way to do it and I don’t think it’s a Labour way either.”
Either way, frustration among the Labour backbenchers has continued to grow over this perceived lack of ambition.
What is the Government going to do about it?
In opposition, the Labour Party spent 14 years condemning underinvestment in social infrastructure, which has borne the brunt of cuts in years past. Labour MPs have made it known that they want to see significant investment in those areas that have suffered the most.
This rift is not solely between the front and backbenches; addressing Britain’s housing crisis exemplifies the tensions at play. Disagreements over the funding of social housing have already led to clashes between the Deputy Prime Minister and Chancellor. The FT has characterised this conflict as “Rayner vs the UK Treasury”, in which Rayner’s department has been embroiled in a “particularly brutal fight for funds.”
Since 1980, England has seen a “dramatic depletion” in its affordable housing stock, with numbers dropping by over a third. For backbench Labour MPs, increasing the stock of social housing is not only a priority, but a fundamental tenet of their beliefs. Significant government investment will be needed to increase the stock of both affordable and social housing. But sticking to Reeves’ “non-negotiable” fiscal rules, in an uncertain economic climate may mean this level of investment just isn’t possible.
Similarly, over the past decade, the NHS has suffered from a lack of investment into its social capital stock. The NHS now has one of the lowest levels of capital intensity in the OECD. To make up this difference, the Government will have to invest heavily.
Yet prioritising social infrastructure brings trade-offs — especially when growth remains the Government’s primary mission. Social infrastructure investment delivers only three-quarters the growth impact of economic infrastructure — making it a harder sell within this growth-first narrative. Under pressure to accelerate measurable growth, the Government risks sidelining these areas in favour of headline-grabbing “growth boosting” policies. But investment in public services remains one of the most progressive tools available and one that speaks directly to the values the Government claims to champion.
Where the Government chooses to invest is as important as how much it chooses to invest.
Winners and Losers
As with any Spending Review, there will be winners and losers, in turn, writing Starmer’s story. What his Government chooses to prioritise now will dictate his legacy.
Capital spending will dominate this Review, while day-to-day budgets are expected to tighten. The Government plans to underline that message with a high-profile “infrastructure week” to follow.
The two protected departments, health and defence, will very likely emerge as winners. House building and energy infrastructure are also expected to receive a sizable boost. In contrast, departments such as MHCLG, DEFRA and the Home Office are likely be forced to tighten their belts.
Starmer will be hoping this investment is compelling enough to begin a new chapter and clarify the story he wants to tell. Every decision in this Spending Review writes a line in the Government’s story. What’s missing may say as much as what’s included.