11 June 2025
If you are covering the Chancellor’s spending review, please see the following comment from Lindsay James, investment strategist at Quilter:
“The Chancellor’s spending review was geared up as a defining moment for the current parliament following a decidedly challenging few months. While the overall level of spending had already been announced, today’s review spells out exactly how it is being allocated, and the main focus is on the unavoidable areas of defence and healthcare.
“At the headline level, investors have been growing increasingly cynical about government spending plans and fiscal rules. We’ve witnessed a cycle of reduced growth forecasts from the OBR, for all sorts of reasons including some that are outside the government’s control. Shrinking fiscal headroom, leading to a round of tax increases and spending cuts has caused a growth slowdown, pushing a balanced budget even further out of reach.
“Since March we’ve seen the economy hit by the impact of these tax rises. Jobs data out this week showed that payrolled employee numbers fell by a staggering 274,000 year on year, while growth forecasts have been cut for this year and next. Certainly, concern around export tariffs have been a factor, but an increased tax burden is another.
“The high level of uncertainty around the next autumn budget, including what the shortfall will be and how it will inevitably be filled with tax rises, has also been weighing on growth. Yet the pressure to increase spending has continued, and today’s spending review will have done little to quell fears that further tax rises are still to come.
“While the Chancellor laid out her plans to spend, it's not clear where any cuts will come from. For example, a 3% real terms commitment to the NHS implies real terms cuts will be needed elsewhere, yet there was simply no mention of this.
“Aside from the NHS, there is a clear priority to see the Midlands and the North reach its economic potential through investment in transport and housing, with value-for-money investment guidelines in the Green Book re-written in order to allow for a place-based approach. This growth-centric approach is encouraging, but recent experience suggests a healthy degree of cynicism is needed about the ability to deliver large scale infrastructure projects.
“The defence commitment avoided any mention of when the 3% level would be reached, but meaningful spending on munitions and nuclear submarine production facilities will be welcome by the defence sector. Energy has seen decisive backing for nuclear with both traditional nuclear and SMRs selected for investment, while education too has enjoyed a budget uplift amounting to around 7% over 3 years.
“Defence and healthcare have dominated today’s announcements, and arguably these are areas the government had to address. Looking ahead, the UK will need to see an uplift in growth before the government can be more ambitious beyond this.”
