Reeves pours billions into NHS, defence and nuclear in make-or-break spending review

Chancellor Rachel Reeves has set out the government's multi-year spending plans, framing the package as proof that Labour can rebuild public services while holding the line on the public finances. The review fixes departmental budgets for the years ahead, and the Treasury insisted the choices would leave working households better off by the end of the parliament.

Health and security were the clear winners. Ministers confirmed a substantial annual uplift for the NHS, alongside a sizeable increase in defence spending that puts the government on track to lift outlays towards 2.6 per cent of national income, with extra money earmarked for munitions manufacturing and the intelligence agencies.

Unlike a Budget, which typically focuses on taxation and the year immediately ahead, a spending review is the more strategic exercise in which the Treasury allocates resources between Whitehall departments over several years. By locking in those settlements now, Reeves has effectively defined the shape of the state for the remainder of the decade, leaving little room for manoeuvre should economic conditions deteriorate.

Where the money is going

Energy and infrastructure featured heavily, with billions committed to new nuclear capacity, including the Sizewell C project in Suffolk and a programme of small modular reactors. The review also trailed major investment in schools, apprenticeships, social housing and additional prison places.

The Treasury drew a sharp distinction between day-to-day spending, which covers salaries and the running costs of public services, and capital investment, which pays for long-lived assets such as hospitals, railways and power stations. Reeves has repeatedly argued that her revised fiscal rules give her greater latitude to borrow for investment, and much of the headline generosity in the review falls into that capital column rather than into departments' resource budgets.

The headline commitments announced alongside the review included the following priorities:

• A multi-year real-terms uplift for NHS England, with a portion ring-fenced for cutting waiting lists and expanding diagnostic capacity.
• Defence spending raised towards 2.6 per cent of national income, including new funding for munitions production and the security and intelligence agencies.
• Investment in new nuclear generation, anchored by Sizewell C and a fleet of small modular reactors.
• Capital funding for school rebuilding, apprenticeships and skills programmes.
• Additional resources for social and affordable housing and for new prison places to ease overcrowding.

Officials presented the package as a deliberate tilt towards the productive capacity of the economy, arguing that sustained investment in energy, transport and skills would raise growth over time and, in turn, make the public finances more sustainable. Critics counter that the benefits of such spending are uncertain and slow to materialise, while the pressures on stretched services are immediate.

“This is a spending review for working people. We are choosing investment over decline, but I will not pretend that every department has got everything it wanted.”

— Rachel Reeves, Chancellor of the Exchequer

The departments that lost out

Reeves was candid that the settlement involved trade-offs, acknowledging that some departments would see real-terms pressure on their day-to-day budgets. With health, defence and overseas commitments protected, the squeeze inevitably fell more heavily on unprotected areas, including parts of local government, the justice system and some economic departments.

Council leaders have warned for months that local authority finances remain fragile, with rising demand for adult social care and children's services absorbing an ever larger share of budgets. A Whitehall source acknowledged that several settlements had been the product of difficult negotiations that continued almost until the announcement, with some departments pressing for more generous terms until the final days.

Opposition parties seized on that admission, arguing that the headline figures masked tighter constraints elsewhere and questioning whether the sums added up against the Office for Budget Responsibility's forecasts. An opposition spokesperson said the review relied on optimistic assumptions about growth and efficiency savings, and warned that the gap between ambition and resource would eventually have to be filled by either higher taxes or fresh borrowing.

Background

The review lands against a backdrop of sluggish economic growth, elevated borrowing costs and persistent strain across public services following years of austerity and the lingering effects of the pandemic. Labour came to office promising to restore stability to the public finances while reversing what it described as the decline of the public realm, twin objectives that have proved difficult to reconcile in practice.

Reeves has staked her credibility on a set of self-imposed fiscal rules, most importantly a commitment to balance day-to-day spending against tax receipts and to get debt falling as a share of the economy over the medium term. Those rules constrain how far she can go in loosening departmental budgets, and they leave her exposed to any downgrade in the independent forecasts that underpin the Treasury's plans.

What happens next

Attention now turns to how the settlements translate into delivery on the ground, and to the autumn fiscal event at which Reeves may have to revisit her tax-and-spend choices if the economic outlook shifts. Departments will spend the coming months allocating their funding internally, and the true winners and losers will become clearer as detailed plans emerge. For the Chancellor, the political test is whether voters feel any improvement in the services they rely on before the next general election, a verdict that may ultimately matter more than the figures in the review itself.