Your take on the Spending Review

Accountants weigh in on how pledges will help British business.

Chancellor Rachel Reeves delivered her first spending review this week with a focus on “national renewal” and a commitment to invest in Britain’s security, health and economy.

The UK, she said, is currently the “fastest growing” economy in G7, with the government “acting quickly” to secure trade deals with the United States, India and the European Union.

The Chancellor’s “non-negotiable” fiscal rules – which ensure public sector spending is balanced by tax revenue by 2029/30 and public sector debt falls by 2029/30 – are the “foundation of stability and investment.”

Reeves announced new funding and investment measures for public sector and government departments across health, housing, defence and infrastructure as well as further investment in education and training, along with science and technology.

In addition, Scotland, Wales and Northern Ireland are set to receive additional funding and investment packages.

Spending announcements which are likely to impact British businesses include:

Defence: £11 billion spending increase.

Health: An extra £29 billion a year for the NHS, including £10 billion on technology and digital transformation.

Skills and training: A promised £1.2 billion extra a year for skills by the end of the parliament.

Research and development: R&D funding will rise to a record £22 billion a year by 2029.

Artificial Intelligence: £2 billion investment in “home-grown” AI.

Transport: £15 billion funding increase for transport infrastructure across the North and the Midlands.

Energy: £30 billion investment in nuclear power which includes £14 billion towards a new state-funded nuclear power station and £9.4 billion for carbon capture and storage.

Devolved nations will also receive funding packages: Scotland – £52 billion, Wales – £20 billion, Northern Ireland – £23 billion.

Social housing will also receive a £39 billion cash injection – the biggest in fifty years – and schools will receive £2.3 billion a year to repair and maintain school buildings in addition to £2.4 billion for new schools.

Taken together, the funding and investment measures announced by Rachel Reeves this week totals nearly £200 billion. Shadow Chancellor Sir Mel Stride described the review as “spend now, tax later” and warned of tax rises in Autumn to fund the new public sector spending.

But what do accountants and bookkeepers think? We spoke to several across the UK for their views.

You can read AAT’s perspective here.

The spending review signalled a return to long-term thinking

Ellis Harris-Boulter MAAT, Founder and Director, FieCo Accountancy

The spending review might not sound like a party, but there’s a cake and Reeves is cutting up the slices to award departmental limits. This review had a more jovial feel; it’s also the first multi-year review not clouded by Covid in years.

This review signalled a return to long-term thinking; £113 billion investment in NHS technology, nuclear power (including modular reactors), carbon capture, Northern rail projects, artificial intelligence, science and technology, social housing and more.

For too long, governments have been focused on short-termism, so this is genuinely refreshing to see.

Some quick-fire wins: an additional £1.2 billion annually for skills by the end of parliament, a community renewal for 350 communities (libraries, pools, parks), and restoring Winter Fuel Payment for 7.5 million more pensioners.

We expected the cut to international aid, but it doesn’t make it any less disappointing to see. Additionally, alongside a strong indication of council tax increases forthcoming, stealth taxes continue to haunt us (personal allowance freeze) and employers continue to be hit by taxes. With additional borrowing comes additional debt interest, and don’t forget, controlled discretionary spending that this review is based on makes up less than half of the UK economic spending.

I’m generally quite encouraged. But I’d like to have seen much more.

Verdict: The spending review signalled an encouraging return to long-term thinking.

£500m investment for HMRC is welcome but detail is needed

Matt Watkins, Tax Disputes and Disclosures Expert, Menzies LLP

In the 2024 Autumn Budget, the Government set out its commitment to increasing tax receipts by modernising HMRC’s IT systems and data. This was set to improve HMRC’s productivity and better taxpayers’ experience of dealing with the tax system.

The Chancellor this week announced a £500 million investment for HMRC, with a significant proportion earmarked for AI initiatives.

The announcements were light on detail so follow-up will be important. The true test will be whether the investment set out by the Chancellor will improve taxpayer and agent experience when dealing with HMRC.

Despite the challenges of implementation, the UK needs a modern tax authority that is efficient and where processes can be automated, they should be.

It is encouraging that the Government is starting to embrace AI and these initiatives will go a long way in helping HMRC’s MTD programme.

Verdict: The £500m investment for HMRC is welcome but the announcement is light on detail.

NHS and science fields gain against a background of cuts

Ellis Bennett FCCA, Director, EA Accountancy

Wins:

The NHS got a much-needed, serious boost; school funding is up; infrastructure investment is back with funds funnelled into major rail and regional projects; the boost to social housing was long overdue. Plus, the Government is clearly backing future industries with funds awarded in science and technology including AI, carbon capture, and nuclear.

Losses:

However, the Home Office, Foreign Office and Culture departments are all getting squeezed with real-terms cuts. There is also no major help for SMEs: no new tax breaks, grants, or reliefs for business owners.*

*AAT notes that the British Business Bank’s funding is increasing to £25.6 billion, meaning continued backing for Start-Up Loans and regional investment.

Local government was also left behind with no extra help despite rising demand and costs.

It would have been good to see a clearer SME strategy but there’s no real support for hiring, growth or innovation at the small business level.

Verdict: The funding boost to the NHS and increased spending in infrastructure and science and technology fields are positive developments but at the expense of cuts in other areas.

Would you like to contribute to future articles like this one? If so, please get in touch with Annie Makoff-Clark at [email protected].

Annie Makoff is a freelance journalist and editor.