What does the Spending Review 2025 mean for Greater Birmingham businesses?

Emily Stubbs, head of policy at Greater Birmingham Chambers of Commerce, provides a comprehensive overview of what the Chancellor's 2025 Spending Review means for local businesses.

What is the Spending Review 2025?

The Spending Review 2025 (‘the Spending Review’), delivered by the Chancellor of the Exchequer Rachel Reeves on 11^th June 2025, sets out the government’s departmental budgets for day‑to‑day spending until 2028‑29, and until 2029‑30 for capital investment, with total departmental budgets growing by 2.3% across the Spending Review period. It also sets devolved government block grants for the same period.

Capital Spending Plans

The government increased the capital envelope by over £100 billion at the 2024 Autumn Budget (£107 billion from 2025‑26 to 2029‑30) and by a further £13 billion over the same period at the 2025 Spring Statement. Taken together, the Chancellor states that the government is investing an additional £120 billion over the Spending Review period compared with the plans set out at Spring Budget 2024.

The Spending Review 2025 allocates this additional investment while remaining within Spring Statement 2025 total capital spending plans.

To try and ensure that the growth benefits of capital spending plans are realised more quickly and drive improvements in public services, the Spending Review also brings forward £3.3 billion in capital spending into 2026‑27 from later years.

The Chancellor stated at the Spending Review that the government is committed to ensuring that the benefits of capital spending plans are felt across all nations and regions of the United Kingdom. To support this, it will be:

• Providing £15.6 billion in total by 2031-32 for the elected mayors of some of England’s largest city regions – including the West Midlands - via Transport for City Regions (TCR) settlements, supporting them to invest in their local transport priorities, including zero emission buses, trams and local rail. This is expected to more than double real terms city region transport spending per year by 2029-30, compared to 2024-25
• Investing directly in local communities, including establishing a new local growth fund for specific mayoral city regions in the North and Midlands with the highest productivity catch‑up and agglomeration potential, and new investment in up to 350 deprived communities across the UK
• Implementing a new approach to appraisal in the public sector by reforming the Green Book and how it is used to provide objective, transparent advice on public investment across the country, including outside London and the South East.

Defence

In February, the government announced plans to increase defence spending to 2.6% of GDP from 2027, with an ambition to reach 3% in the next Parliament when economic and fiscal conditions allow. In this Spending Review, the Chancellor confirmed these plans for defence spending and set out intentions to increase budgets for the UK’s intelligence agencies by £600 million in real terms over the Spending Review period. This is intended to support use of cutting-edge technology and to keep pace with rising threats from hostile states, in alignment with ambitions set out in the recent Strategic Defence Review.

Energy Security

Through the Spending Review, the government has allocated significant funding for the nuclear sector, with £14.2 billion for development of Sizewell C over the Spending Review period - the first state-backed nuclear power station since Sizewell B began construction in 1988 – as well as over £2.5 billion to enable one of Europe’s first Small Modular Reactor programmes, with Rolls‑Royce SMR selected as preferred bidder to partner with Great British Energy – Nuclear, subject to all relevant approvals. The Chancellor also announced over £2.5 billion of funding for nuclear fusion.

The government is also seeking to provide a pathway for privately-led advanced nuclear technologies. Great British Energy - Nuclear has been tasked with assessing proposals within a new framework, expected to be published shortly, with the National Wealth Fund exploring potential investment opportunities and the Department for Energy Security and Net Zero exploring revenue support for viable projects.

It is anticipated in the Spending Review that Great British Energy and Great British Energy – Nuclear will invest more than £8.3 billion over this Parliament in ‘homegrown’ clean power.

The Spending Review additionally aims to support the government’s Plan for Change commitment to accelerate to net zero while driving growth, including by:

• Allocating £9.4 billion to Carbon Capture, Usage and Storage (CCUS) over the Spending Review period
• Committing £2.6 billion capital investment to decarbonise transport from 2026-27 to 2029-30. This includes £1.4 billion to support the continued uptake of electric vehicles, including vans and HGVs, and £400 million to support the rollout of charging infrastructure
• Supporting the production of Sustainable Aviation Fuel in the UK by extending the Advanced Fuels Fund through the Spending Review period, allocating £616 million for Active Travel England from 2026-27 to 2029-30 to support local authorities (LAs) to build and maintain walking and cycling infrastructure, and funding research into transport decarbonisation to unlock innovation and support technologies of the future
• Investing to upgrade homes across the country through the Warm Homes Plan

The government has also announced that it will be investing in climate adaptation and the natural environment to increase the UK’s resilience to the effects of climate change and to protect the ecosystems that underpin the economy and food security. This will include investing more than £2.7 billion a year in sustainable farming and nature’s recovery until 2028‑29.

The Spending Review further commits £4.2 billion over three years, from 2026‑27 to 2028‑29, to build and maintain flood defences across the country.

Innovation and R&D

The Chancellor has committed to increasing R&D funding to £22.6 billion per year by 2029‑30, which the Spending Review states is an above-inflation increase. This is expected to include increased support for the UK’s science base, including through UK Research and Innovation and association to Horizon Europe and its successor.

The government outlines that this increase will deliver:

• £500 million for a new R&D Missions Accelerator Programme, intended to leverage a further £1.5 billion of private investment into innovation challenges that support the government’s missions
• New opportunities for top talent, including fellowship schemes designed to attract scientists to the UK. The government is exploring expanding eligibility of the High Potential Individual visa, looking to double the number of qualifying institutions, whilst maintaining the focus of the route on individuals that will have the most benefit to the UK workforce, and ensuring that any necessary safeguards are in place; improving access to the Global Talent visa, and reviewing the Innovator Founder visa to support entrepreneurs
• At least £1 billion over the Spending Review period to scale up the Advanced Research and Invention Agency (ARIA), the UK’s high-risk, high-reward research agency
• Up to £750 million for a new supercomputer at Edinburgh University expected to be the largest supercomputer in the UK, serving scientists across the country in a broad range of fields from the development of future drugs and vaccines to climate and weather prediction and fusion power research

The government has also stated an intention to ensure the benefits of innovation are felt across the UK. As part of this it is launching a new £410 million Local Innovation Partnerships Fund, giving local leaders a central role in co-creating R&D programmes to support local economies.

Artificial Intelligence

At this Spending Review, the government announced allocation of £2 billion for artificial intelligence (AI) from 2026-27 to 2029-30, intended to harness the transformative potential of AI, as set out in the AI Opportunities Action Plan, building  the UK’s sovereign AI capabilities, funding at least a 20-fold expansion of the UK’s AI Research Resource and backing UK AI companies to grow and scale through the new UK Sovereign AI Unit.

The Chancellor also stated that the government is funding collaboration between business and the UK’s world-class universities to develop new AI courses, launch new AI fellowships and establish a prestigious new AI talent scholarship to develop the AI skills of the future. The government set out that it will also support AI diffusion through a new AI Adoption Fund.

Access to Finance

The Chancellor announced in the Spending Review that the government will be increasing the British Business Bank’s total financial capacity to £25.6 billion, which is expected to enable a two-thirds increase in support for UK innovative businesses compared to 2025-26 and crowd in tens of billions of pounds more in private capital. This expansion will take British Business Bank investments to around £2.5 billion each year.

With additional capital, and greater flexibilities from a set of strategic reforms, it is anticipated that the British Business Bank will be able to continue flagship programmes, such as Start-Up Loans and the Nations and Regions Investments Fund.

Growth Mission Fund

The government has announced that it is establishing a Growth Mission Fund to directly support local economic growth. The Spending Review set out that this fund will invest £240 million of capital from 2026‑27 to 2029‑30 in projects that enable local job creation and the economic regeneration of local communities. Further detail on this fund and the criteria that will be applied for project selection will be set out later in the summer.

Industrial Strategy

Ahead of the Industrial Strategy’s publication, the Spending Review sets out some of the government’s commitments to support growth-driving sectors, with full details expected to be made available in forthcoming sector plans:

• Advanced manufacturing – over £3 billion R&D and capital funding over the next four years to unlock investment across the UK
• Clean energy industries – significant additional funding to ensure the clean energy mission delivers growth across the UK
• Creative industries – a significant increase in funding to support regional growth and drive innovation, develop creative places, and ensure the UK’s creative industries remain world-leading
• Digital and technologies – over £2 billion to drive the government’s AI Action Plan including a 20-fold increase in support for compute capacity, with £160 million for TechFirst to ensure people have the right skills to deliver technological change
• Financial services – the Spending Review stated that the government’s Financial Services Growth and Competitiveness Strategy will be published alongside the Chancellor of the Exchequer’s Mansion House address on 15 July
• Life sciences – up to £600 million from 2026‑27 to 2029‑30 in collaboration with the Department for Science, Innovation and Technology (DSIT) and the Wellcome Trust to launch the world’s first Health Data Research Service to accelerate the discovery of life-saving drugs, and up to £520 million life sciences manufacturing funding from 2025-26 to 2029-30 to build resilience for future health emergencies
• Professional business services – significant additional support to cement the UK’s position as a global leader

Ahead of the publication of the Defence Industrial Strategy sector plan, the Chancellor stated that the government is also taking steps to try and ensure the funding provided for defence drives growth. Defence spending is expected to be weighted towards capital and prioritise R&D and innovation. The Spending Review states that defence R&D budget will be over £2 billion in 2026-27 and will rise each year; 10% of the Ministry of Defence’s equipment procurement budget will be protected for the pull-through of innovative technologies; and UK Defence Innovation will be established with an initial budget of £400 million per year from 2025-26 to fast-track innovative technology to the frontline while supporting the UK tech sector.

The Defence Industrial Strategy sector plan is expected to set out measures to grow the skills base needed for defence; reforms to contracting, regulation and procurement to remove barriers to delivery; and to launch Defence Growth Deals across the UK, leveraging defence investment to create regional industrial clusters across priority sectors. The Defence Investment Plan in the autumn is anticipated to then build on this by demonstrating a shift in how defence investment is being geared towards long-term economic growth.

Employment and Skills

Through the Spending Review, the government announced increased funding for employment support to over £3.5 billion by 2028-29, intended to help people to access the skills they need to progress, tackle economic inactivity and ensure more people can access in better jobs. This is expected to include providing personalised employment and health support for anyone on out of work benefits with a work-limiting health condition or disability, as set out in the Pathways to Work green paper.

The Chancellor also stated that the government is extending funding for eight youth guarantee trailblazers and nine inactivity trailblazers, as set out in the Get Britain Working white paper. These trailblazers are intended to test new approaches of supporting young people into employment and education, and bring together health, employment, and skills support to those who are inactive.

The Spending review set out provision of £1.2 billion of additional investment per year by 2028-29 for the skills system. This is expected to include funding to support over 1.3 million 16–19-year-olds to access high-quality training, supporting 65,000 additional learners per year by 2028-29. This is in addition to the £625 million allocated between 2025-26 and 2028-29 to train up to 60,000 skilled construction workers, as announced at Spring Statement 2025.

It is anticipated that the government will set out further detail on its plans in a strategy for post-16 education and skills later in the year.

Schools

The Spending Review further sets out plans to grow the schools budget by £2 billion in real terms over the review period. This will provide a £4.7 billion cash increase per year by 2028‑29 (compared to 2025‑26), which the government states ensures average real terms growth of 1.1% a year per pupil.

Additionally, around £2.4 billion per year is expected to be invested in a School Rebuilding Programme over the next four years, reaffirming the government’s commitment to rebuild over 500 schools.

Cost of Living

The government also made commitments in the Spending Review to try and reduce cost of living pressures for working families. This includes expanding Free School Meals eligibility in England to all children with a parent receiving Universal Credit, capping bus fares at £3, capping the cost of school uniforms, and committing a further £13.2 billion between 2025‑26 and 2029‑30 for the Warm Homes Plan.

The Chancellor additionally stated that the government will continue to invest in and expand the Family Hubs programme, working with parents to help give children the best possible start in life.

Further, the Spending Review allocated funding for government plans to deliver breakfast clubs to every primary-aged child in England. From the start of this term, 750 schools are receiving funding to deliver a free breakfast club as Early Adopters, reaching more than 180,000 children and 70,000 pupils from schools in the most deprived parts of the country. The government intends to  use the learning from these Early Adopters to confirm details of national rollout in due course.

This Spending Review also announced investment of a total of almost £370 million across the next four years to support the government’s commitment to deliver school-based nurseries across England.

And, the Chancellor announced provision of an additional £1.6 billion per year by 2028-29, compared to 2025-26, to continue the expansion of government-funded childcare for working parents, boosting children’s life chances and work choices for their parents.

The Spending Review also included support for:

• Direct assistance to families most at risk of poverty through the Healthy Start scheme, and establishing a new Crisis and Resilience Fund supported by £1 billion a year (including Barnett impact) through the Spending Review period to replace the Household Support Fund
• Addressing high housing costs, and improving access to safe homes, through commitments including a new, 10 Year Affordable Homes Programme and the Warm Homes Plan
• Expanding mental health support teams to 100% of schools in England by 2029-30

This autumn, the Spending Review states that the Department for Culture, Media and Sport will publish a new National Youth Strategy, setting out plans for how the government will support young people in all aspects of their lives. Ahead of that, the government has committed to a programme of capital investment to build new youth centres, and improve and equip existing facilities. Between 2024 and 2028, the Spending Review sets out plans for £132.5 million of dormant assets to be unlocked to support disadvantaged young people to access music, sport, and drama through investment in facilities and libraries.

Homes

Through Phase 2 of the Spending Review, the Chancellor has stated that the Government plans to deliver further on its housebuilding ambition. It has been announced that this will include:

• £39 billion for a new 10-year Affordable Homes Programme
• £4.8 billion in financial transactions (FTs) from 2026-27 to 2029-30, intended to catalyse additional private investment to further boost house building
• Investing in infrastructure and land remediation to deliver new housing schemes in partnership with the private sector

The government has also announced plans to launch a permanent, UK-wide Mortgage Guarantee Scheme in July to ensure the consistent availability of mortgages for buyers with small deposits.

Immigration

In addition to increased funding for border security, the Spending Review settlement included £200 million of funding to accelerate plans for transformation of the asylum system and to end the use of asylum hotels in this Parliament. The government state that the latter will be achieved by clearing the asylum backlog, increasing appeals capacity and continuing to return those with no right to be in the UK. The Chancellor stated that these measures will reduce asylum costs by at least £1 billion per year by 2028‑29 compared with 2024-25.

Health

Through the Spending Review the Government has announced allocation for a £29 billion real terms increase (£53 billion cash increase) in annual NHS day‑to‑day spending from 2023‑24 to 2028‑29. This will take spending to £226 billion by 2028‑29, equivalent to a 3.0% average annual real terms growth rate over the Spending Review period.

It is intended that this investment will support the NHS to deliver the government’s Plan for Change commitment that by the end of the Parliament, 92% of patients will start consultant‑led treatment for non‑urgent conditions within 18 weeks of referral.

The Spending Review also announces a £2.3 billion real terms increase (£4 billion cash increase) in the Department of Health and Social Care’s annual capital budgets from 2023‑24 to 2029‑30 to invest in the NHS, including in new technology, hospitals and primary care. The Chancellor stated that this will deliver the largest ever health capital budget, representing a more than 20% real terms increase by the end of the Spending Review period.

The Spending Review additionally sets out plans to improve productivity and reduce bureaucracy in the NHS as part of wider public sector reforms.

Policing

To support the justice system, the Spending Review announced provision of £7 billion from 2024‑25 to 2029‑30 to build 14,000 new prison places, alongside up to £700 million per year by 2028‑29, compared with 2025‑26, to transform the probation system.

The Chancellor stated that police spending power will increase by an average 2.3% per year in real terms over the Spending Review period. This is intended to support frontline policing levels across England and Wales and help restore public confidence in policing.

Local Government

The government has stated in the Spending Review that it is providing an additional £3.4 billion of grant funding in 2028‑29 compared to 2024‑25, intended to return local government to a sustainable financial position. The government has calculated that this will equate to an average annual real terms increase in overall local authority core spending power of 3.1% across the Spending Review period.

Public sector reform

The Spending Review also set out plans for public sector reform, intended to increase productivity and value for money, including the £3.25 billion Transformation Fund, first announced at Spring Statement 2025, an additional £1.2 billion across the Spending Review period to drive forward cross‑cutting digital priorities and £1.7 billion over four years to fund an additional 5,500 compliance and 2,400 debt management staff, intended to enable HMRC to raise £7.5 billion a year in extra tax by 2029-30.

In addition to this, the Review announced reductions in back‑office costs, with all government departments expected to reduce their administration budgets by at least 16% in real terms by 2029‑30. This reduction is expected to be delivered through savings and efficiencies, supported by the £150 million announced at Spring Statement 2025 to help deliver employee exit schemes, and with greater embedding of a cost-conscious culture across Whitehall, including reducing travel costs.

The government has also committed to continuing to bring down the costs of spending on external consultants over the Spending Review period. The government expects to save over £700 million per year by 2028‑29, reducing spend by half compared to previous trends.

What is the Greater Birmingham Chambers of Commerce Response to the Spending Review 2025?

There were a number of announcements made in today’s Spending Review which are likely to be welcomed by the local business community as the Chancellor looks to bolster business confidence after a rocky few months.

The additional investment in transport infrastructure across the city region – specifically the money allocated to the West Midlands Mayor to unlock private sector investment for the proposed Sports Quarter - had been heavily trailed, however, it was also pleasing to see a commitment for the Midlands Rail Hub – the GBCC has long argued for the importance of this investment which needs to be aligned with maximising the wider benefits of HS2.

It was pleasing to hear additional funding for skills and training investment – the key is to ensure this funding is aligned with the needs of local businesses.

Additional funding for R&D investment, Artificial Intelligence, defence spending and housing is also welcomed - we look forward to hearing how this relates to the wider industrial strategy and ten-year infrastructure strategy.

Nevertheless, without the scrutiny of the Office for Budget Responsibility, questions will be asked around the cost implications of these measures and whether the country will be facing further tax rises as we approach the Autumn Budget, should the fiscal situation worsen.

The Chancellor will need to use the coming months to set out a sensible plan to reduce the crippling cost pressures firms are facing – a roadmap for bringing down employer NICs, reviewing business rates, tacking the unintended consequences related to the Employment Rights Bill and making it easier for businesses to trade overseas will need to figure highly.