In her first major fiscal announcement, Chancellor Rachel Reeves has unveiled a spending review that seeks to balance ambitious infrastructure plans with tight departmental budgets.
The plan includes a staggering £113 billion capital investment boost, funding energy, transport, and housing projects. However, day-to-day government spending will be squeezed, with potential cuts affecting policing, education, foreign aid, and local councils.
While Labour promises a “generational shift” in investment, it faces backlash over stretched resources and unresolved internal disputes across departments. The Treasury insists the changes are only possible under Labour's new fiscal rules, rules the Conservatives and Reform parties opposed.
Capital Projects to Define Labour's Economic Vision
The core message of the review is clear: infrastructure is the new growth engine. Reeves has earmarked £113 billion in capital spending to modernise energy systems, expand transport across the North, and revive housing initiatives.
A key highlight is the proposed investment in nuclear energy, with the Sizewell C plant given the green light. In transport, a £15 billion commitment across northern England is pitched as fulfilling Conservative promises the Tories couldn’t fund. Housing will receive a "down payment" of £2 billion for affordable homes, but internal tensions with Angela Rayner over insufficient follow-up funding remain.
Departmental Cuts Trigger Political Tensions
Despite the fanfare over capital projects, most government departments face tighter operating budgets. The review confirms real-terms spending will grow just 1.2% annually over the next three years, down from 2.5% in the previous two.
Departments like policing and education are under strain. Teachers will receive a 4% pay rise, but schools must cover £400 million from existing budgets. The justice system faces expansion plans, yet must also contend with full prisons and sentencing changes.
Internal Cabinet Rows Reveal Deep Divides
The biggest flashpoint has been between Reeves and Home Secretary Yvette Cooper over police funding. Six police chiefs, including Met Commissioner Sir Mark Rowley, urged for more resources, warning manifesto promises on crime may be missed without extra support. Though not facing real-terms cuts, the police budget is still unresolved.
Angela Rayner has also clashed with the Treasury, arguing the social housing budget is inadequate despite its priority status. Meanwhile, Environment Secretary Steve Reed is fighting to secure funding for flood defences and faces cuts to post-Brexit farming support after 2026.
NHS and Net Zero Get a Lift
Two departments stand to benefit: Health and Energy. Wes Streeting’s Department of Health is a major winner, securing funding to launch a new 10-year NHS plan focused on tech, community care, and prevention.
Yet this success may be undermined by looming doctor strikes and budget wrangling over drug pricing. Energy Secretary Ed Miliband fought hard to protect home insulation funding under Labour's net zero strategy. His team retained £3.4 billion over three years for energy efficiency and fuel poverty schemes. Nuclear and energy infrastructure investment is also expected to rise.
Education and Justice Under Pressure
Education Secretary Bridget Phillipson announced that 500,000 more children on Universal Credit will receive free school meals from 2026. Still, school budgets remain under pressure, with calls for savings via reduced energy costs and cuts to level 7 apprenticeship funding.
Justice Secretary Shabana Mahmood secured an early settlement, unveiling a £4.7 billion plan for three new prisons. Yet this expansion comes with warnings that existing jails will be full again by November, forcing early release policies and sentencing reviews.
Fiscal Realities and Future Tax Rises
Despite a £190 billion uplift over five years, the Institute for Fiscal Studies has warned that delivering Labour's promises could require "chunky tax rises" by autumn.
The combination of new child poverty plans, reinstated winter fuel allowances, and inflationary pressure may strain public finances. The real-terms growth of 1.2% annually hides the reality that much of the uplift is skewed towards defence and health, leaving other departments with static or shrinking budgets.
Conclusion
Rachel Reeves' spending review delivers a bold vision for Britain's future, rooted in capital investment and long-term reform. Yet it exposes internal tensions and fiscal limits that may test Labour’s unity and credibility. The true challenge lies ahead: balancing ambitious promises with economic realities.
Frequently Asked Questions
What is the total amount of Labour's new spending plan?
Labour's spending review includes a £113 billion capital investment package and £190 billion in additional spending compared to previous Conservative plans.
Which departments will benefit the most from the review?
The Department of Health and the Department for Energy and Net Zero are among the biggest winners, receiving major funding boosts for NHS reform and green infrastructure.
Will any departments face cuts?
Yes, many departments such as Education, Justice, and the Home Office face tight budgets or real-terms reductions, despite not being explicitly cut.
Are tax rises expected following this spending review?
Yes. The Institute for Fiscal Studies has suggested significant tax increases may be needed in the autumn to support the announced plans.
What is happening with housing investment?
Labour has allocated an initial £2bn for affordable housing but internal disputes remain about the adequacy of long-term funding, especially for social homes and regional growth.
