The recent Spending Review delivered by Chancellor Rachel Reeves sets out government spending plans for the next several years, with significant implications for both public services and UK businesses. While the headlines focus on the NHS, schools, and major infrastructure, there are several key takeaways and potential actions to consider.

Understanding the 2025 Spending Review

The Spending Review determines how government departments will allocate funds over the coming years, impacting everything from public sector pay to capital investment in infrastructure and innovation. This year’s review was notable for its ‘zero-based’ approach, meaning each department had to justify its budget from scratch, with the aim of ensuring value for money across all areas.

Key priorities included:

• Protecting core public services (NHS, education, justice, local government) from cuts, albeit with smaller real-terms increases than in previous years.
• Increasing capital investment, particularly in transport, energy, housing, and business innovation.
• Promoting fiscal responsibility while supporting growth and decarbonisation missions.

Cost pressures and efficiency

The review highlighted that cost pressures remain widespread. Public sector pay rises are being partly funded through expectations of increased productivity, signalling that efficiency is a priority not just for government but for all organisations.

If you supply to public sector organisations:

• Prepare for more rigorous scrutiny of your pricing and performance.
• Ensure your value proposition is clear and well-documented.
• Consider benchmarking your costs and processes to remain competitive.

Capital investment and opportunities

There is a notable increase in capital investment for infrastructure, including transport, social housing, and scientific innovation. For businesses in construction, technology, or related sectors, this could translate into new opportunities, though realistically many projects will be rolled out over several years.

Key points:

• Increased funding for the British Business Bank, raising its capacity to £25.6 billion, may make it easier for small businesses to access finance through Start Up Loans and other schemes.
• Investment in AI and tech infrastructure, including a new supercomputer in Edinburgh, could create demand for specialist services and support innovation-led growth.

Skills, training and business support

The government is allocating £1.2 billion per year to support training for young people, with additional funding for increasing the skills of construction workers. This investment in skills could help businesses address talent shortages and improve productivity.

Actions for business owners:

• Explore government-funded training opportunities for your team.
• Consider upskilling existing staff to take advantage of new technologies and market opportunities.
• Keep informed about grants or support for adopting digital tools and AI in your business.

Tax and HMRC

While the Spending Review didn’t announce major new tax changes, businesses are still adapting to earlier increases, such as the recent rise in employers’ National Insurance Contributions. These changes have increased the cost base for many, making it more important than ever to review your payroll, tax planning, and overall profitability.

Chancellor Rachel Reeves has stated that all spending commitments have been fully costed. However, several commentators and analysts have raised concerns that, given the scale of spending increases, further tax rises may be required in the Autumn to balance the books and support the additional costs. 

At this stage, no formal announcements have been made, so there’s likely to be a period of speculation. We can only wait and see what the Autumn fiscal events bring, so for now we’d recommend focusing on the day to day and trying to avoid the supposition and risk of distraction that brings.

We will of course keep you posted on any firm information that’s released.

Recommended actions:

• Review your payroll processes and NICs exposure.
• Be sure you’re maximising tax-efficient remuneration and profit extraction wherever possible.
• Monitor updates from HMRC (we’ll make this one as easy as possible!) and ensure you’re adjusting for any new requirements.

Final thoughts: planning ahead

The 2025 Spending Review re-emphasizes the importance of efficiency, and adaptability for businesses of all sizes. With ever-increasing pressure on costs and a renewed focus on investment in growth sectors, now is a really good time to review your own business plans and budgets to put yourself and your business in the best position for the coming months, particularly if there are tax increases to come.

As ever, if you have any questions around these, do get in touch.