Engaging with the 2025 Spending Review

Over the next six months, the Spending Review will determine the government’s spending priorities for the rest of this Parliament. 

In our recent webinar hosted by WA’s Founding Partner Marc Woolfson, WA’s Senior Advisers – Jennifer Gerber, who worked on Labour’s 2007 Comprehensive Spending Review as Special Adviser to the Chief Secretary to the Treasury; and Sir Philip Rutnam, former Permanent Secretary and senior Treasury Civil Servant – explored how Ministers and Departments will attempt to balance these competing political and economic demands, the likely spending priorities, and how businesses can shape these discussions. 

Priorities: 

The Chancellor faces a difficult balancing act: reassuring the markets on stability, rebuilding trust with business, and reiterating the promise of Change to the electorate. 

While the Missions, Milestones and Next Steps set out by the Prime Minister earlier this year establish the government’s priorities, and will form the political framework for evaluating spending decisions, the Chancellor’s financial options are increasingly narrow – with the £10bn of fiscal headroom identified in October’s budget evaporating as a result of low growth, sticky inflation, and a rise in the cost of government borrowing. 

In particular, the overall budget envelope for the spending review will be significantly shaped on 26th  March, when the Office for Budget Responsibility updates its economic forecasts.  

To meet her ‘iron clad’ fiscal rules, Rachel Reeves is likely to have to take further action to cut spending – which however unpalatable, will be preferable to raising taxes or increasing borrowing.  

This year’s Review is ‘zero based’, the first since 2007, meaning that every area of spending will be scrutinised. The Chief Secretary to the Treasury has mandated that funding for new priorities will only be considered if departments have already identified savings of 5%+ from their existing budgets. 

Timings: 

Across Whitehall, over the next 8-10 weeks departments will be modelling the effect of different financial scenarios. 

Later in the Spring, during April and May, the Treasury will combine departmental plans, and assess their feasibility and impact, while the Chancellor and Chief Secretary to the Treasury engage in political negotiations with Cabinet colleagues – for publication of the Review in mid-June. 

The length of the process runs the risk that other events may intervene, notably Trump’s threat of global tariffs, requiring further reassessment of the government’s economic or political priorities. 

Equally however, there is a real risk of policy paralysis, with action paused for months while spending decisions are finalised (an issue exacerbated by both Keir Starmer and Rachel Reeves’ process-centric style of government) – in turn feeding accusations of a lack of political narrative, which may reach a crescendo around the local elections in May.  

This period is likely to see an increase in Whitehall activity that doesn’t require immediate spending, with an array of strategies, priorities, reviews and pilots (for example the recently announced AI Opportunities Action Plan). In addition to seeking future spending commitments, businesses can use this time to raise their political profile today, by demonstrating how they are already supporting these government objectives. 

Decision-Makers 

This Spending Review is more centralised than most – with Rachel Reeves and Darren Jones holding a significant amount of decision-making power, and a structure of 1:1 discussions between the Treasury and individual spending departments. This contrasts notably with the Coalition Government’s ‘Star Chamber’ of cabinet colleagues,  

Instead, independent assessment of spending priorities will be undertaken – within departments – by ‘Challenge Panels’ including former senior leaders from Lloyd’s Banking Group, Barclays Bank and the Co-operative Group, as well as other local delivery partners, think tanks, academics and private sector experts.  

Their broad remit of these panels, to consider “what government spending is or isn’t necessary”, has the potential to provide strategic cut-through, and bring valuable business and front-line public service expertise to the heart of the spending review process. However, their value will depend on the time panel members can commit, and the options presented to them by departments – the result may be that panels assess only a top-line overview of department plans, and are largely a presentational device to demonstrate business and stakeholder input. 

In either case, the absence of a Ministerial ‘Star Chamber’ may reduce the degree of long-term, cross-government political support for what will be difficult decisions. 

It remains true that improved public services and significant cost savings can often be delivered by government departments working together to innovate and achieve shared priorities – however in this situation, these innovative structures are more likely to be achieved through individual collaborations between government departments, and likely to be formed on the strength of Ministerial relationships (for example seen in Wes Streeting and Peter Kyle’s shared promotion of the power of AI for the health service). 

In this context, four audiences are key for businesses seeking to make a case for spending priorities: 

• Spending Departments: Businesses can help by providing data, analysis and ideas. Beyond the small teams working specifically on the Spending Review, it is sensible to engage with the civil servants responsible for individual policy areas, providing the ammunition they need for discussions within their department as well as with HMT. 

• Departmental Non-Executives: Wise departments will be using their Non-Execs to test and challenge plans, to ensure the options presented to the Treasury are as strong as possible. The most successful will be using Non-Execs to build a wider hinterland of support for their plans across government. How departments use their Non-Execs is likely to depend on the personal relationships between the Board and Secretary of State. 

• The Treasury: Clearly it is beneficial to match engagement with spending departments with similar engagement with Treasury specialists, but across its 1,000+ civil servants, the teams looking at specific policy areas are relatively small (between 10-25 on most departmental issues), and so are likely to focus on the most complex, expensive, or politically sensitive issues.  

• Labour MPs: Every Secretary of State will want MPs to lobby the Treasury on behalf of their department’s spending priorities. Communicating the investment, jobs, and local electoral benefits of a proposal to relevant back benchers (e.g. by providing constituency-level data, or by identifying relevant Labour networks to partner with) is key.  

Ultimately, spending decisions are made by Ministers – meaning any proposals must pass both financial and political tests. With, in principle, £1.3 trillion of public spending under review, organisations that provide clearly thought-out suggestions, with easily-communicated political and economic benefits, are likely to cut through.  

• Understand the political context: Special Advisers and Ministers will gravitate to suggestions where the ‘sell’ has been thought through. As well as being operationally beneficial, how will your proposal be communicated to the public, other stakeholders, the media, and the wider industry? 

• Use your platform: Reports of low business confidence – in the economy, and the government – abound. Ministers will be keen to reset this narrative by securing the endorsement of key firms and business leaders to promote the outcomes of the Spending Review. The launch of the government’s Industrial Strategy in the Spring provides another key moment to offer this support. 

• Amplify your story: Match well-researched evidence with a compelling ‘surround-sound’ narrative – using media engagement, creative content, and policy influencers to illustrate how your proposals align with Labour’s principles, the impact for working people and public service users, and to highlight examples of business investment and economic growth. (But avoid high profile campaigns purely pleading a special interest, which are likely to be both ineffective, and frustrate Ministers and officials). 

To discuss how your business can prepare for the Spending Review, please contact Marc Woolfson: marcwoolfson@wacomms.co.uk.