Rachel Reeves’s Spending Review: What It Could Mean for Your Taxes

On the 11th of June, Chancellor Rachel Reeves delivered Labour’s first multi-year Spending Review since taking office. This review outlines how the government plans to allocate departmental budgets over the next three to four years, and accounts for around 40% of total government spending. The remaining 60% is determined annually, depending on economic conditions and unforeseen demands.

Following the Spending Review, the government has doubled down on its commitment to long-term investment, releasing its 10-Year, £725 billion Infrastructure Strategy¹. This plan provides further details around the shape and scope of the projects it is planning over the coming decade, outlining how it proposes to deliver a “lifetime of opportunities”.

Together, these announcements reinforce the government’s “Plan for Change”—a strategy focused on growth, reform, and fiscal discipline. While the scale of investment is significant, questions remain about how it will be funded, especially in light of rising inflation and current economic uncertainty. With increasing speculation around the borrowing requirements of the government and concerns around the possibility of tax rises, all eyes will be glued on how these plans start to take shape and any announcements in the run-up to the Autumn Budget.

What does "real terms" mean?

When spending is described in real terms, it means the figures have been adjusted for inflation. This gives a more accurate picture of whether the government is actually spending more or less in terms of purchasing power—not just in pounds.

What’s in the Review?

As part of the government’s “Plan for Change”, departmental budgets will grow by 2.3% annually in real terms from 2023-24 to 2028–29 . Some of the departments seeing the largest increase in their budget in GBP terms include:

Health
NHS day-to-day real budget will rise by an average of 3% annually, reaching £226 billion by 2028-29². An additional £10 billion is earmarked for digital transformation and efficiency improvements.
Defence
Spending will rise to 2.6% of GDP by 2027, growing to an annual real budget of £42 billion in 2028-29². This includes £11 billion in new funding and a £600 million boost for intelligence agencies.
Education
Education will see a 1.5% real-term increase in average annual budget². Within that, schools account for just under 70% of the Education department’s 2028-29 budget and will see a more modest increase over the period of 0.4%, with free school meals being extended to half a million or more children.
Energy
A key part of the “Plan for Change” is to have the UK’s electricity system secured with domestic, clean power by 2030². To meet this, the government is investing £9.4 billion in carbon capture, usage and storage (CUS) technology; £14 billion for Sizewell C (the first state-backed nuclear power station since 1988); £2.5 billion for researching power generation from nuclear fusion; and an additional £8.3 billion into “homegrown clean power” in various forms.

Additionally, following the release of the Spending Review, the government also released its Infrastructure Strategy, a £725 billion, 10-year plan³. This plan is aimed at reversing decades of underinvestment and modernising the country’s infrastructure, and provides details about the specifics where the government is looking to make investments, including:
- £15.6 billion for urban transport systems, including road, rail and trams.
- £39 billion for the Affordable Homes Programme, with the government re-affirming its plan to build 1.5 million new homes.
- Water companies investing to quadruple investments in facilities, including 9 new reservoirs.

Economic Backdrop

The UK economy has shown signs of resilience in early 2025, with GDP growing by 0.7% in the first quarter, ahead of expectations and many international peers⁴. This was driven by strong performance in areas like retail, manufacturing and exports, with sunny weather and pre-tariff trade activity providing a boost. However, this positive momentum was tempered by higher-than-anticipated inflation. The Consumer Prices Index (CPI) rose to 3.5% in April, up from 2.6% in March and ahead of market expectations of 3.3%⁵. In response, the Bank of England (BoE) cut interest rates to 4.25% in May, its second cut this year, aiming to support growth while keeping inflation in check⁶. Against this backdrop, the International Monetary Fund (IMF) revised up its UK growth forecast in May, projecting 1.2% growth for 2025, reflecting cautious optimism about the UK’s economic trajectory, but asserted that Reeves’s sticking to her plans to lower public borrowing were an important part of this⁷.

The Office for Budget Responsibility provides independent economic forecasts and analysis of public finances, which are typically used as the basis for the government’s fiscal policy decisions. There is speculation that the OBR may revise down its current growth forecast for the next five years, which could lead to a hole in the proposed budget of £20 billion⁸. This could provide further impetus for a revision to the current plan in Autumn. Following the Spending Review, the Public Sector Finances were released, providing details of the government’s borrowings in the first two months of 2025-26. The current borrowing level is in line with the OBR’s expectations, but they highlighted that spending data in the early parts of the year is highly provisional⁹.

Why are people concerned?

Whilst excitement has remained around the planned outgoings from the Review, there has been increasing focus on the funding side. Although Reeves has reiterated that there will be no increases to National Insurance, income tax, or VAT, the scale of planned investment and increase in borrowing have kept speculation alive. The government’s fiscal rules require day-to-day spending to be covered by tax receipts, and with inflation still above target, there are concerns that the Autumn Budget could see spending cuts or targeted tax changes.

For those with significant assets or retirement income, the key takeaway is this: while no immediate tax changes were announced, the Autumn Budget could bring changes. These may not target headline rates but could involve changes to allowances, thresholds, or property-related taxes. Council tax is currently expected to increase by 5%¹⁰.

Reeves has emphasized that she won’t “write future budgets in an uncertain world” but the scale of planned investment will keep everyone’s eyes locked onto the growth projection and any conversations in the run up to the Autumn Budget.

How we can help you

Whilst uncertainty is never a fun place to be, there is no need to panic. The Spending Review signals a shift toward long-term investment in public services and infrastructure, which could support economic growth and stability. However, the potential for tax changes later this year remains present. We will continue to monitor developments closely and provide updates to you as news unfolds. And in the meantime, if you have any questions about how this might affect your financial plan, please get in touch with your financial planner.

The information in this article should not be regarded as financial advice. Information is based on our understanding in June 2025. Investment growth isn’t guaranteed and it’s possible that you could get back less than you paid in. Aberdeen is not responsible for the information, accuracy and views of external sources.