What is the Spending Review and what could Rachel Reeves announce? | Personal Finance | Finance

Chancellor Rachel Reeves will deliver her first full Spending Review next week, outlining how much each Government department will receive through to the end of the decade.

The review, which will take place on Wednesday, June 11, will set both day-to-day budgets – covering salaries and services like the NHS – and capital investment in long-term infrastructure, such as schools, hospitals and transport. It follows the interim 2025–26 budget allocations Ms Reeves announced last October during her Autumn Budget. However, the fiscal outlook is tight. Borrowing rose to £20.2billion in April, £1billion higher than the same month last year, due to rising welfare and debt costs – despite increased tax revenue from employer National Insurance Contributions.

Ms Reeves must also comply with the Government’s two self-imposed key fiscal rules that daily spending is funded by tax revenue, not borrowing, and that debt falls as a share of national income by 2029/30.

Current forecasts project a slim £9.9billion surplus – the third-smallest on record – which leaves little room for unexpected shocks.

That limited “headroom” already shrank earlier this year due to sluggish growth and higher debt interest, prompting Ms Reeves to announce £14billion in savings, including £4.8billion in welfare cuts.

Next week’s review will show how Labour aims to balance investment in public services with these constraints. So, what exactly could Ms Reeves address?

What has already been announced?

In response to the growing threat from Russia, the Government has committed to increasing defence spending from 2.3% to 2.5% of GDP by 2027 – an annual rise of approximately £5billion. Ministers also aim to boost spending further, targeting 3% of GDP by 2034.

It has committed to giving public sector workers in England a pay hike of 3% to 5% in 2025/26, rather than the 2.8% that the Chancellor had originally planned for. This is set to cost an extra £2billion to £3billion.

The Government will also extend free school meals to around 500,000 children whose parents are receiving Universal Credit, regardless of their income. The Government has set £1billion aside to fund this.

In addition, Ms Reeves has confirmed plans to revise Labour’s decision to limit winter fuel payments to those who receive means-tested benefits. Full details of the new eligibility criteria are expected to be announced later in the year.

Ms Reeves announced a £15.6billion package to fund extensions to trams, trains, and buses in Greater Manchester, the Midlands, and Tyne and Wear, on Wednesday.

What else can you expect?

Ms Reeves said during a speech on Wednesday that not every Government department will “get everything they want” and that a squeeze on funding is a “product of economic reality.”

Jason Hollands, managing director of the wealth manager Evelyn Partners, said non-protected departments are expected to face “steep cuts” if the Chancellor continues to stand by her non-negotiable fiscal rules.

In terms of tax changes, the Spending Review is not a “fiscal event” like the Spring Statement and Autumn Budget, so there shouldn’t be any changes to borrowing or taxes, according to the Treasury.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said there is a chance Ms Reeves tweaks her fiscal reporting rules, as the International Monetary Fund (IMF) suggests.

She said: “This has the potential to give the Chancellor a bit more wiggle room as the Government might not be forced to make such frequent spending changes in reaction to changes to the economic outlook, which as we know is currently in a state of flux due to the unpredictability of US trade policy.”

There have been reports that Ms Reeves could announce a new nuclear power station in Suffolk and potential plans to build mini nuclear power stations (small modular reactors, known as SMRs) in England and Wales.

Ms Reeves may also address the current two-child benefit cap. Education Secretary Bridget Phillipson has said the Government is looking to scrap it following criticism that the policy, which prevents most families from claiming means-tested benefits for any third or additional children born after April 2017, had pushed people into poverty. However, Ms Phillipson has said removing the cap would “cost a lot of money”.

The Spending Review is expected to be announced at around 12.30pm on Wednesday, June 11.