Thursday, 12 June 2025
The Chancellor Rachel Reeves unveiled her record spending plans yesterday in her much-awaited Spending Review.
Rahul Mukherjee, Associate Professor of Economics, gives his reaction to the announcement.
“Ultimately, the Spending Review is reflective of the unenviable list of pressures that Rachel Reeves faced on both the income and expenditure fronts. Campaign promises not to raise the ‘big three’ of income tax, employee national insurance and VAT have limited her revenue options to weaker instruments. A series of cuts that were unpopular among Labour MPs and/or their constituents, such as for fuel subsidies, called for them to be at least partly reversed.
The daunting challenges on the NHS, affordable housing and national defence fronts had to be prioritized. And finally, external shocks in the form of international tariff wars cut into GDP growth and tax collection forecasts. These constraints meant that any increases in departmental budgets inevitably led to inaction or cuts elsewhere, especially given Reeve’s earlier self-imposed promises of fiscal prudence."
“Overall, Reeve’s game plan appears to be twofold. First, to boost medium- to long-term growth through investment in infrastructure such as transportation and energy. This is a long shot in my view because the announced increases by themselves are too small to make a sizeable difference to growth. Second, to improve public services such as health and housing enough in the shorter run for them to make a noticeable difference to living standards, and hence, voter satisfaction.
“Therefore, the best way to understand this Spending Review is as a play for time using these shorter run improvements, while the longer run investments bear fruit. The latter, in turn, should be seen as a package together with planning, pension and other reforms that in theory should lead to complementary increases in productivity and private investment.”
Story credits
More information is available from Rahul Mukherjee, Associate Professor of Economics, via rahul.mukherjee@nottingham.ac.uk
Notes to editors:
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