Spending Review: Whitehall faces axe to fund Reeves’ spending spree
Dramatic real terms cuts to departments such as the Home Office and the Department for Transport are to fund Chancellor Rachel Reeves’ multi-billion pound spending packages on the NHS and AI technology.
Reeves told MPs on Wednesday afternoon that the government would spend taxpayers’ money with “care” as she said the government had been “relentless” in cutting costs across Whitehall.
Savings in Whitehall worth £14bn a year, which have been described as “efficiency gains”, will also help to back government spending, a government document revealed.
With the help of the newly created Office for Value for Money (OVfM), the government will cut the costs of administration at the civil service, with departments expected to find just under £1.5bn in savings in admin by 2030 in total.
Government departments will also be recommended to deliver at least one per cent “technical efficiencies” each year as part of an effort to drive a “cost conscious” culture across Whitehall.
A document published by the government also revealed that departments such as the Home Office, the Foreign Office and the Department for Transport will suffer real terms cuts to budgets between 2026 and 2029.
The new details on funding for everything from affordable housing to new nuclear plants came during the Spending Review.
But other spending pressures, particularly after the government U-turned on a small cut of £2bn for winter fuel payments, which will now cost £1.25bn to fund, have put City analysts on high alert.
Reeves’ Spending Review growth mission
The government’s next set-piece event will come at this month’s industrial strategy, with ministers expected to set out infrastructure and energy policies for the next ten years.
It may be one of the last opportunities the government has to persuade the fiscal watchdog, the Office for Budget Responsibility (OBR), that growth projections should be higher than expected in March.
Reeves wil hope investment announcements on science and technology at the Spending Review, including £2bn on the government’s AI action plan and an extra £1.2bn for over a million young people to enrol in training and apprenticeships, could assuage City firms’ worries.
An upgraded forecast would lower the chances of Reeves’ small £9.9bn headroom, which recently received criticism from economists at the OECD, getting wiped out by the autumn.
Institute for Fiscal Studies director Paul Johnson said before the Spending Review that the government would have to make deep cuts to avoid increasing taxes.
But large cuts can often lead to splits within the Cabinet, with home secretary Yvette Cooper reportedly in favour of getting allocated more funds to back police units and border enforcement before settling on up to £280m a year more by 2029 for the Border Security Command.
An escalation of tensions with cabinet ministers such as net zero secretary Ed Miliband and housing minister Angela Rayner was avoided, with £30bn set aside for nuclear power and £39bn for affordable housing.