Spending review 2025: welcome improvements to the process but no total "rewiring"

The ultimate test of a spending review’s success is the outcomes it enables a government to achieve, something which has often been hampered by an outdated and inadequate spending review process setting out unrealistic spending plans.

The spending review announced on Wednesday, setting out where government will spend almost two trillion pounds over the rest of this parliament, provided more detailed plans than we have seen in the past and point towards important, and much-needed improvements to the process – many of which we recommended previously. But to fulfil the chancellor’s ambition of “totally rewiring” public spending to deliver the government’s plan for change, more reform was required, and indeed will be needed over this parliament and at the next spending review in 2027.

Several changes to the spending review process have allowed for better decisions

Departments were tasked with doing a line-by-line, ‘zero-based’ review of existing policy – a welcome attempt to counter the failure of some past spending reviews to properly dig into the value for money of existing spend. While it seems likely this has made decisions more evidence-informed than they otherwise would have been, it is hard to see this within the spending review documents themselves. It is not clear if the review identified any specific poor value for money programmes that should be stopped, and the lack of focus on evaluation – to ensure the gaps in the evidence-base are filled to inform spending decisions in the future – is disappointing. This should be a focus of the upcoming programme of thematic value for money reviews, recommended by us and then the Office for Value for Money, that will feed into the next spending review in 2027.

But there have been big improvements in the detail provided on where departments will find efficiency savings – with departments now committed to finding 1% savings per year as an ongoing target. Spelling out how government expects to do that – as an accompanying document to the spending review – is a welcome move away from the damaging pattern of assuming blanket savings, without saying how they can realistically be achieved. However, even with this detail it is difficult to assess whether the plans are robust enough to deliver the ambitious £14bn of savings in the next three years, and in some areas it is not clear whether these plans include genuinely new initiatives, or just restate existing efforts to save costs. Nonetheless, this is a big step in the right direction, and crucially this enhanced transparency will mean greater accountability for whether government manages to deliver savings.  

Reeves has also provided greater certainty through longer-term plans for capital spending, and 10-year budgets, with separate budget lines, for some major infrastructure such as Sizewell C. The commitment to publish all major project business cases will improve accountability for ensuring this money is well spent. The allocation of a transformation fund to support a focus on prevention and productivity is also positive. Going forward, the regular two-yearly cycle of spending reviews will provide greater stability for departments in planning future spending. Together these changes – which we have called for previously – make for a much-improved spending and planning framework.

Missions drove some prioritisation, but not cross-departmental collaboration

This was meant to be a ‘mission-driven’ spending review, guided by the government’s ‘Plan for Change’, to counteract the tendency for the spending review process to set strategy by default. The government’s six milestones have guided prioritisation, but if this spending review was a moment to set out how the government will deliver cross-cutting mission outcomes, then this opportunity was missed.

There was little evidence of cross-departmental working. There were no substantial joint budgets, or suggestion that spending or savings in one department might impact upon another. The ministerial mission groups were not mentioned, and the mostly siloed presentation of spending review settlements suggests a process that reinforced departmental boundaries rather than fostering collaboration to enable joined up planning that could drive long-term value for money improvements.

A performance framework should have guided decision-making in the spending review, but was not part of Wednesday’s announcement and will instead come in the months ahead. When published, it should include more detail on the outcomes government hopes allocations will achieve, including on the missions and milestones, and how departments will be held accountable for delivering them.  

The next spending review should build on these reforms  

For spending review 2027, improving cross-departmental working should be a top priority. Incentives should be aligned around key priorities, through shared budgets, and through outcomes that departments are jointly responsible for delivering. This should be accompanied by a greater focus on finding allocative efficiencies from moving spending between departments and levels of government to where it can best be used to deliver long-term benefits. A more transparent and robust baselining process would help. Greater clarity over where money goes now across government would help inform decisions about where allocative efficiency can best be improved in future.  

More comprehensive trade-offs across the breadth of government activity – including welfare spending and tax reliefs – would also drive better value for money in the round. Plans to restore the winter fuel allowance and changing the two-child limit in benefits suggests broader trade-offs may be happening behind the scenes, and cuts to disability benefits in March were part of maintaining the spending review envelope, but welfare and tax reliefs should be more explicitly and directly reviewed alongside department’s budgets.  

Spending reviews are defining moments for the direction of government. Important changes to the process have likely led to better spending choices from the chancellor this week, but when the next spending review comes around the opportunity for further reforms should not be missed.