Spending review ‘natural point’ to put UK on path to further boost defence
1 June 2025, 00:39
Chancellor of the Exchequer Rachel Reeves is expected to focus on NHS and defence spending in the upcoming spending review on 11 June.
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The Chancellor’s upcoming spending review on 11 June provides a “natural point” to put the UK on the path to further boost defence spending, an economic think tank has said.
Defence and NHS spending will dominate the review, the Institute for Fiscal Studies (IFS) said in an analysis.
It said Rachel Reeves will face “unavoidably” tough choices on 11 June, when she announces the Government’s day-to-day departmental budgets for the next three years and investment budgets for the next four.
One of the central trade-offs will be how much funding goes to the NHS, as increasing it at anything like the historical average rate would mean real-terms cuts for other “unprotected” departments, the IFS said.
Read more: Government announces £1.5bn in extra funding for military homes
In the spending review Ms Reeves will confirm the path for defence spending.
“This would be a natural point for the Government to put the UK on a path towards spending 3% of GDP on defence, or to speed up the timeline at which the UK will reach 2.5%, if it views this as necessary,” the think tank said.
The Government has previously set out its “ambition” to reach 3% in the next parliament, after meeting its pledge to ratchet up defence spending to 2.5% by April 2027.
Defence Secretary John Healey has said getting to 3% by 2034 is a firm commitment, telling The Times there was “no doubt” Britain would be spending 3% “in the next parliament”.
IFS research economist Bee Boileau said funding elsewhere will likely slow to a “trickle” at the spending review.
She said: “At the spending review the Government faces some unavoidably tough choices, particularly as, after turning on the spending taps last autumn, the flow of additional funding is now set to slow to more of a trickle.
“Take capital spending: Government investment is set to be sustained at historically high levels in the coming years, but most of the increase happened last year and this year, and it looks as if all of the remaining increase in funding over this Parliament has already been allocated to defence.
"Simultaneously prioritising additional investments in public services, net zero and growth-friendly areas within this envelope will be impossible.”
Sir Keir Starmer is facing pressure from within Labour to scrap the two-child benefit cap at a cost of around £3.5 billion and has already signalled a partial U-turn on cuts to winter fuel payments for pensioners.
Measures aimed at saving money from the welfare bill and encouraging people on benefits into work could also be watered down in the face of a backbench revolt.
Former Cabinet minister Louise Haigh urged the party to “rip up” its tax rules and impose a wealth tax in a speech on Saturday.
“The Spending Review must represent an economic reset. I welcome the Prime Minister’s review of winter fuel, but we must go further — ripping up our self-imposed tax rules and taxing the country’s vast wealth,” she said at the Compass centre-left think tank.
The Local Government Association said that councils need a “significant and sustained” boost to funding to deliver services.
“Councils in England face a funding gap of up to £8 billion by 2028/29 and have already had to make huge savings and efficiencies over the past decade,” LGA chairman Pete Marland said.
"Without adequate funding, councils will continue to struggle to provide crucial services, with devastating consequences for those who rely on them, and it will be impossible for them to help the Government achieve its reform and growth agenda.”
The Liberal Democrats urged the Government to put money into social care, with the party’s Treasury spokeswoman, Daisy Cooper noting “ending the crisis in our NHS must be a top priority", but "unless they fix social care, ministers will just be bailing water from a sinking boat with a spoon”.
She also urged the Government to urgently negotiate a bespoke UK-EU customs union, to boost the economy, before looking at “painful cuts to already stretched budgets”, from justice to farming.
The Conservatives said Ms Reeves was “losing control of the public finances”.
Shadow chancellor Mel Stride said: “Labour don’t need a spending review, they need a reality check. They have pushed up the cost of living, unemployment is rising, growth is stalling, and yet Rachel Reeves still clings to her tax-and-spend dogma like it’s the 1970s.“
A Government spokesperson said: “The plan for change is delivering what matters for working people – cutting hospital waiting lists, getting control of our borders and tackling the cost of living.
“This spending review will scrutinise every single pound the Government spends to ensure it’s delivering on our plan for change.”
