What was in the Labour spending review?
When Rachel Reeves stood at the despatch box for Wednesday’s spending review her message was clear. The era of austerity was over. Fifteen years after George Osborne entered the Treasury, Reeves branded austerity as “a destructive choice for our economy…creating a lost decade for growth, wages, and living standards”.
Reeves' first year in office has so far been largely defined by cuts to Winter Fuel Payments and looming cuts to PIP, but what was included in the Chancellor’s plans for the rest of the Parliament? And how could a closer relationship with Europe help her mission?
1) Homes under the hammer
One of Reeves’ headline acts was to commit £39 billion towards social housing over the next decade. The move, which housing charity Shelter labelled as a “watershed moment”, gives renewed hope to the government’s ambition to build 1.5 million homes by the end of the parliament.
However, it is important to note that cash alone is not enough to address the structural issues within the construction industry. Naomi Smith, Best for Britain CEO responded to the spending review by calling for the removal of the technical barriers to trade which “artificially increase the cost of equipment”. Further alignment with the EU on environmental standards would also lower the cost of construction materials, meaning that the government’s investment into the sector could go further and faster.
The youth experience scheme promised at the recent UK-EU Summit could also help the UK’s construction sector address its shortage of builders. The Home Builders Federation has criticised Brexit for creating skills shortages, warning in December that the UK needed tens of thousands of new recruits to meet Labour's housing targets.
2) NH-Yes
Another of Labour’s key manifesto commitments was to mend the NHS after 14 years of Tory neglect. The Chancellor announced a 2.8% annual real terms increase for the Department of Health and Social Care budget over the next three years. Whilst waiting lists for treatments have been falling, concerns remain in the industry about the likelihood of hitting targets before the end of the Parliament. Current projections by the Department of Health believe that 80% of patients will be seen within 18 weeks by 2029, rather than the 92% target.
To give the NHS the best possible chance to hit these targets, the government should work alongside the EU to undo some of the damage caused by Brexit. At a time when the UK is struggling with a shortage of medical professionals, research by the Nuffield Trust shows that there are 4,000 fewer EU doctors working in the NHS than there would otherwise have been without Brexit. More damning still, almost 2,000 companies reported medicine shortages in 2024 alone, driven by “a reduction in EU imports”. By easing the technical trade barriers at the border, pharmaceutical goods could cross the channel more freely, cutting costs and improving reliability. Not to mention the extra tax revenue generated for public services if we realised the +2.2% GDP growth that could be generated by our Common Sense Deal with Europe.
3) Money for munitions
The spectre of Russian expansionism and American isolationism continues to hang over Europe and with NATO head Mark Rutte repeating his desire for NATO members to increase defence spending to 3.5% of GDP, it was no surprise to see Defence Secretary John Healey emerge as a big winner on Wednesday. The Ministry of Defence will see an £11 billion increase in spending, focused on increasing capital spending in munitions and nuclear submarine production.
Like any manufacturing sector, defence production relies on complex trans-national supply chains and benefits from smooth trade across borders. By pursuing deep alignment in goods and services with the EU, the UK government could reduce these technical barriers to trade, easing friction and cutting costly red tape for the UK’s manufacturing sector. Additionally, as with the health services, a common sense deal with the EU would go a long way to building the growing economy the UK needs to be able to fund the capital investment in defence in the long term, as explained by Sophia Gaston of KCL to the UK Trade and Business Commission.
4) Education, education, education
When Labour entered office last year, the education system was in disarray. Crumbling classrooms, chronic underfunding and swollen class sizes are still limiting the potential of British children. In an attempt to change that, the Chancellor has confirmed that the government is planning to invest £4.7 billion to fix crumbling classes and rebuild dilapidated schools. Further, Reeves announced that free school meals will be extended to half a million extra kids, lifting around 100,000 children out of poverty according to the Department of Education.
The government also announced that they would spend an extra £1.2 billion a year by the end of 2028 to get a million young people into training and apprenticeships, attempting to cut the number of young people not in education or employment.
A closer relationship with Europe could help the Chancellor by giving young Brits the opportunity to pursue training or work in the EU currently unavailable to them. Importantly there is a precedent, in 1993 the British embassy in Berlin estimated that 40,000 Brits were working in the German construction industry and improving their craft. And the government should agree to the mutual recognition of professional qualifications with the EU so that those who have benefited from the Chancellors investment in tertiary education can work across the continent with ease.
5) Devolution’s evolution
In an attempt to address growing regional inequality between the four nations of the United Kingdom, Reeves announced record investment into Scotland (£52 billion), Northern Ireland (£20 billion) and Wales (£23 billion).
However, independent research carried out by Frontier Economics on behalf of Best for Britain suggests that one of the best ways to undo regional inequality across the UK is to pursue deeper beneficial alignment with the EU on goods and services. The research suggests that the Midlands and Yorkshire would benefit most, while the shielding effect of deep alignment with the EU from American tariffs is particularly pronounced in Scotland, Wales and Northern Ireland. For example, in Wales rather than experiencing a 0.18% annual fall in GVA (Gross Value Added, a key indicator of economic performance) as a result of Trump’s tariffs, the nation would see a 0.18% annual rise in GVA due to the offsetting effect of deeper UK-EU trade.
The provisions of the spending review are an important step forward, and away from austerity. But to truly unlock Britain's potential and renew the nation, the government must pursue the more ambitious relationship with the EU that voters want.