Here’s what to expect from the UK’s Spending Review on 11 June – including government job cuts
The government faces several difficult questions as it prepares to deliver its Spending Review on 11 June.
The Spending Review is the process the government uses to set all departments’ budgets for future years. This covers both the services the public uses every day, like the NHS, schools and transport, and how the government will invest in research, energy security and infrastructure to drive economic growth across the country.
In the same way that households budget what they spend, the government does this with public money. This is to ensure it is spent effectively.
Notably, the Spending Review on 11 June will be the first multi-year Spending Review since 2021, and the first to happen outside of a pandemic since 2015.
This means it could prove to be one of the most significant domestic policy events of this parliament, said the Institute for Fiscal Studies (IFS), one of the UK’s leading independent economics think tanks.
Because headline real growth rates are relatively modest, sharp trade-offs are unavoidable, the group said.
“Achieving stated objectives in some areas will likely require real-terms cuts elsewhere. If the government wishes to reduce the scale of those cuts, or avoid making them altogether, overall spending plans could be topped up,” the group said.
“Indeed, historically, Spending Reviews have been a point at which spending envelopes have been topped up, as governments are faced with the need to specify departmental-level cuts.”
But, importantly, this Spending Review is taking place outside of the fiscal event process. That is, unlike in recent cases (the 2021 Spending Review was concluded alongside the Autumn Budget of that year, for example, and the single-year 2024 Spending Review took place alongside that year’s Autumn Budget), the 2025 Spending Review is not coinciding with a Budget and a new set of forecasts from the Office for Budget Responsibility (OBR).
This, combined with the tight fiscal situation more generally, makes a loosening of the overall envelope at the Spending Review less likely, the IFS said.
The IFS broadly identified four main issues which will need to be addressed in one way or another during the review:
- How much to spend on health and the NHS?
- Defence spending: how much further and how fast?
- What to cut and squeeze – and how?
- More public investment, but in what?
Cuts expected
Absent a top-up to the overall spending envelope, which would be unusual outside of the full fiscal event process, and which would affect performance against the fiscal rules, some areas of spending will almost inevitably face real-terms cuts after this year, the IFS said.
“The scale of these cuts can be reduced if the NHS gets a low funding growth settlement (by NHS standards), but this will make it much harder to achieve the government’s aspirations for reductions in hospital waiting times and broader service improvements.
“Increasing defence spending further or faster than currently planned – a real possibility – only makes these cuts elsewhere more likely,” the group said.
Cuts to public services would not be impossible to make, particularly since they would come after rapid increases in spending on most services in recent years. But they would still be challenging and require ruthless prioritisation, the IFS said.
“Even if we see improvements in public sector productivity, which should be a focus across government, a combination of reductions in public sector employment, public sector pay and the range of public services the government provides would likely be required.
“If the government promises cuts without a realistic plan for how to achieve them, this could undermine confidence in the credibility and deliverability of the government’s spending plans and, by extension, the fiscal forecasts.”
Government job cuts on the cards
As many as one in ten UK government jobs are facing the axe under the current government, the Financial Times reported this week. This equates to some 50,000 jobs.
A 10% reduction in the civil service headcount is seen in Whitehall as manageable, given the significant rise in the central bureaucracy in recent years, notably after Brexit and the Covid-19 crisis, the report states.
Chancellor Rachel Reeves has previously announced that the government’s running costs would be cut by 15% by 2030, a target that includes job cuts, a streamlining of the government estate and moving some posts out of London.
“In sum, it is difficult to see how average funding increases of 1.2% per year can be delivered without public sector pay restraint (i.e. public sector pay awards below those expected in the private sector, and in line with inflation), heroic cuts to non-staffing costs, slower-than-expected growth in – or cuts to – public sector employment, or some combination of all of the above,” the IFS said.
“Making these choices will be a key part of Spending Review decisions about where to cut and about where to focus on productivity improvements.”
