This is the story of two Spending Reviews. The one that the Chancellor wants to tell and the one that the public sector will not want to hear. Let’s start with the Chancellor’s story. The Government has bet big (to the tune of £113bn) that capital spending can stimulate growth. The Chancellor is hoping that this, combined with some extra cash for the NHS will be enough to deliver change that will be noticed by an electorate.
It is no accident that many of the capital projects will occur in ‘Red Wall’ constituencies – repeatedly name-checked in the Chancellor’s statement, which at times resembled a whistlestop tour of post-industrial Britain. Keir Starmer will be hoping that the move is enough to stop that Wall being redecorated again at the next election, but this is a big gamble. We are told that many of the projects are ‘shovel ready’ (which is an exaggeration), but few will be finished until well into the next Parliament. The Treasury will hope that an uptick in growth comes – and is felt – much earlier. This may depend as much on the whims of the White House on trade as it does on decisions in Downing Street.
For Health, there is more money for technology, with the Government promising up to £10 billion in NHS technology and digital transformation by 2028‑29. Overall capital budgets will increase by an additional £2.3 billion in real terms by 2029-30. This is very modest when compared to other areas of infrastructure spending. The Treasury apparently is yet to be convinced that investment in health infrastructure is as efficient a generator of wealth as other investments. We will need to wait until closer to the NHS 10 Year Plan to find out which hospital and technology projects will be greenlighted.
The second story is necessitated by the first. The capital splurge is only possible because the Chancellor tweaked the rules on investment in her post-Election financial statement. To reassure jittery markets, capital largesse is accompanied by day-to-day restraint. Where ‘additional’ money has been found this is largely to offset the deep cuts which were baked into the last Government’s plans, rather than creating ‘new’ resources. The exceptions are Health and Defence.
Following modest real-terms growth in revenue budgets over the past couple of years, many Government departments are now staring down the barrel of real-terms cuts. Set aside moves to draw a line under political missteps such as on Winter Fuel Payments, and there will be few good news stories. As recent interventions from welfare campaigners, the housing lobby, pensioners and even the police have shown, these cuts will be painful, jeopardising the deliverability of key Labour manifesto commitments.
So where does this leave health? In short, the Government still needs to write this story. In the context of the wider Spending Review, the NHS has done well. Most other Cabinet Ministers, left to fight over scraps of additional revenue expenditure, will be looking enviously at real terms growth of 2.8% per year (3% for NHS spending). It may be true that the Government has “maxed out” health funding for at least the foreseeable future, but, by historic terms, the settlement is not generous (since 1948, the average real-terms growth rate in spending on the NHS has been 3.6%).
Quite how far the additional money will go is debatable and there are already warnings that it will be insufficient to deliver on the Prime Minister’s flagship waiting list pledge. We are already seeing plenty of Government pitch-rolling ahead of publication of the NHS 10 Year Plan, but no amount of briefing will reduce the need for the difficult decisions and tough conversations that lie ahead. Just ask nurses and resident doctors, who are considering industrial action over pay, or service providers, which are already grappling with “eye watering” cuts.
There were hopes that the Government could put to bed the thorny issue of escalating rebates from the medicines pricing agreement, which are causing pain in the life sciences sector and diplomatic difficulties with the Trump administration. However, there is no additional money for this, meaning that the NHS must foot the bill for the rumoured £1 billion offer, cutting the money available for pay deals, transformation and waiting list initiatives. There is no guarantee that any offer will have the desired effect. With memories short and the global investment and trade environment febrile, this will be an expensive gamble. Keir Starmer, Rachel Reeves and Wes Streeting need it to pay off.
Health and Defence might be winners, but the risk is that additional spending is too little and too late, with increases becoming very expensive gestures which fail to deliver a level of improvement that will be noticed by the public or, in the case of Defence, our allies.
This makes the next few weeks critical. As the rest of Government gets to grips with making cuts work, attention in Health will shift to selling the Government’s vision for NHS reform. This will need to be compelling to the public and professionals. Securing their support for the changes necessary to move on Streeting’s ‘three shifts’ will be necessary but may not be easy.
The political need for a compelling story is immediate but the delivery imperative is also pressing. The Government is counting on reforms both taking effect and the benefits being noticed by voters in time for the next General Election. If the public does not see clear progress on the NHS, then hitting some targets on waiting times (not a given) will still feel like missing the point.
Should the economy grow faster, priority services show limited but noticeable improvements and other areas of the public sector prove to be more resilient than many fear, then – come the next election – there will be a plausible argument to be made that Labour is making progress and should be trusted to finish the job. This is the story the Chancellor hopes to tell.
However, it is a big gamble. If it fails, then the Chancellor’s story will be forgotten. Public services will be further diminished and trust in the Government destroyed, opening the way for Reform. The Spending Review sets the table for the rest of this Parliament and the stakes are high for both the Government and the NHS.
Spending Review at a glance
- Overall: +2.3% per year (£190bn)
- Health: +2.8% (£29bn per year)
- Defence: +2.6% of GDP by 2027
Capital investment
- Overall: £113bn
- DHSC capital: £2.3bn by 2029/30
- R&D across departments: £22bn per year by 2027
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