Government has increased departmental spending by almost £400 billion - but Chancellor may still struggle to avoid cuts in Spending Review

5th June 2025

The Government has increased departmental spending by almost £400 billion since it came to power, with details of future plans to be set out in the Spending Review next Wednesday. But pressures to increase health and defence spending will make it hard to avoid cuts to other public services, the Resolution Foundation said (Wednesday 5 June 2025).

Spending Review 2025 offers the Chancellor the opportunity to detail spending giveaways after its first two fiscal events were dominated by tax rises, black holes, welfare cuts and higher borrowing.

The Foundation notes that since the Government has come to power departmental spending has already risen by £87 billion (in 2024-25 and 2025-26), with a further £305 billion of additional spending due between 2026-27 and 2029-30.

But the front-loaded nature of this spending and the NHS' dominance of day-to-day public service spending mean that, despite the increase, the Chancellor still faces tough spending choices.

Should health spending rise by 3.6 per cent in real terms over the Spending Review - the long-run average since 1949 – it would imply real per capita spending cuts across unprotected departments (such as the Home Office, Justice and Housing, Communities & Local Government) of around £4.8 billion by 2028-29.

Alternatively, limiting rising health spending to 2 per cent per year – still above the 2010s average of 1.8 per cent per year – would free up around £11 billion to spend (in 2028-29) across other departments, allowing the Government to fund key priorities.

However, the entirety of that extra funding would be taken up by defence if the Government brings forward its commitment to raise defence spending to 3 per cent of GDP to the end of the current Parliament (rather than the next).

Significant additional spending on public services like schools, social care and hospitals will provide an important boost to living standards via higher benefits-in-kind which matter for families, says the Foundation.

And while the big trade-offs centre around funding between health and other departments, smaller allocations of funding within departments can also make a big difference to living standards – from expanding Free School Meal provision via Education, to extending the Household Support Fund and bringing forward extra employment support via Work and Pensions.

The Foundation notes that a Spending Review settlement that included these living standards-focused boosts, alongside a 2 per cent annual increase in NHS funding and a 12 per cent annual increase to social care provision, would deliver benefits in kind worth around £270 for a middle-income household, rising to around £370 for the poorest fifth of families.

Meanwhile, the extra capital investment to be allocated at the Spending Review also offers an opportunity to boost growth, hasten the UK’s net zero transition, and tackle its housing crisis with extra funding for affordable housebuilding.

However, the scale of each of these challenges will require prioritising between competing ambitions. For example, building the 125,000 more social homes needed to clear the backlog of families in temporary accommodation in England would cost around £15 billion a year.

Finally, while the Spending Review will focus on allocating extra spending, more tough decisions will come at the Autumn Budget. Higher long-term interest rates (currently up 0.2 ppts on the Spring Statement) and the impact of tariffs on growth would on their own be enough to wipe out the Chancellor’s £9.9 billion of headroom against her fiscal rules.

Ruth Curtice, Chief Executive of the Resolution Foundation, said:

"After her first two fiscal events were dominated by tax rises, black holes and welfare cuts, next week the Chancellor will have an opportunity to tell a more positive story on growth and living standards, as she sets out the details of additional public spending over the next three years.

“By the end of this Parliament the level of departmental spending will be back to pre-austerity levels, but growing pressure to spend all this increase on health and defence could lead to continued public service cuts elsewhere. Whether or not the government can chart a course through health that leans on capital but restrains growth in day-to-day spending will be crucial to the outcomes for everyone else.

“Spending Reviews are important for living standards and this one is bigger than most. They also force trade-offs. We will learn which missions are the Government’s true priorities next week."