Director Weekly Left wanting more

The Spending Review unveiled by the Chancellor on Wednesday was a major milestone for the government. By setting out departmental budgets for day-to-day spending until 2028-29, and until 2029-30 for capital investment, it shapes the broad direction of policy for years to come.

Here are three key takeaways.

Public spending is growing There are clear winners in the 2025 Spending Review: the NHS and defence. Overall, public sector current spending will grow by 1.2% in real terms over the spending review period – following an average increase of zero in the previous three years. This Spending Review will see the government spend more money, not less.

But infrastructure spending will continue to decline The Chancellor focused heavily on infrastructure in her speech. Capital budgets will be £120 billion higher than pre-election, and recent announcements on transport and energy infrastructure have revealed where some of that investment will go – while the British Business Bank’s capacity to lend has been increased, too. Those steps are to be welcomed – yet public sector net capital investment will actually fall by 0.6% per year in real terms over the period. The upshot? The private sector will have to do much of the heavy lifting if the government is to meet its aspirations for lifting total investment.

Public sector productivity will be critical IoD members have long sought improvements in public sector productivity, so new civil service efficiency targets and recommendations from the Office for Value for Money are to be welcomed. They do not, however, look particularly challenging. Given the pain that has been heaped on employers, directors may expect the government to do rather more to improve public sector productivity, especially in the NHS.

Challenges ahead

Looked at in the round, much of what the government has talked about in this Spending Review and other announcements over the past year – infrastructure investment, planning reform, deregulation – is sensible. But what it has done – including hiking National Insurance contributions and the National Minimum Wage – has had the effect of deterring investment. The labour market reforms still hanging over employers’ heads only add to the problem.

That contradiction is a concern both for long-term growth, and for our prospects this year. The latest data shows a disappointing 0.3% contraction in April, as new taxes kicked in and US tariffs created shockwaves around the world – a reminder, if one was needed, of the headwinds that the UK economy continues to face from overseas.

For the Chancellor, those headwinds make a difficult job harder. She has left herself little wiggle room if the fiscal situation worsens in the coming months – and the risks she faces are increased by the U-turn on winter fuel payments. It is a relatively modest sum, yet the U-turn chips away at the government’s proclaimed determination to stick to its fiscal rules.

In the end, business is still waiting for the promised pro-business environment to materialise. On one hand, the government has made a number of sensible, welcome policy choices; on the other, businesses are being hammered by tax rises that stop them taking decisions essential for boosting economic activity.

That contradiction has long been evident in this government’s policy agenda. Unfortunately, this week’s announcements fail to decisively tilt the balance in favour of growth.

Read the IoD’s response to the Spending Review here.