Rachel Reeves, the UK’s Chancellor of the Exchequer, has revealed the Government’s Spending Review 2025 (SR25) setting out departmental budgets until 2029 and capital investment until 2030.
The SR25 is in line with the Government’s ambitions to fix the foundations of the UK economy, kick-start and support economic growth, improve the healthcare system, increase defence spending, and secure domestic energy supply (amongst others).
The Government’s overall spending will increase by 2.3% a year in real terms and the Government will commit £113 billion in public investment to develop key sectors of the economy with the primary objective of boosting economic growth. Such substantial new capital is possible because of the Chancellor’s decision last year to reform the UK’s fiscal rules to enable borrowing to fund investment. The SR25 prioritises greater investment in:
- Research and development
- Defence;
- Energy and infrastructure; and
- Healthcare.
On the face of it, for the business community this means that the biggest winners of the SR25 will be those investors and companies who are:
- Actively participating in the AI revolution in terms of creating AI solutions that can be implemented in the workflow across various industries;
- Working on cutting edge technologies to modernise the UK’s defence and warfare capabilities;
- Focused on creating digitalised solutions that can be implemented by the Government in boosting its efficiency (including the NHS);
- Focused on creating efficient manufacturing processes that can be applied across industries; and
- Vested in creating alternative clean energy solutions that can be applied in the net-zero transition and the UK’s push for energy independence.
Science, innovation and technology
Around £22 billion will be invested into research and development, of which £2 billion will be allocated to support the Government’s AI action plans aiming to boost the AI revolution, and £6 billion to encourage start-ups to grow and scale in the UK.
The SR2025 prioritises research and development which would include increased support for the UK’s science base, including UK Research and Innovation and Horizon Europe. The increase will deliver:
- £500 million for the new R&D Missions Accelerator Programme, which will leverage a further £1.5 billion of private investment into innovation challenges that support the Government’s missions.
- At least £1 billion to scale up the Advanced Research and Invention Agency, the UK’s high-risk, high-reward research agency.
- Up to £750 million for a new supercomputer at Edinburgh University, which will be the largest supercomputer in the UK, serving scientists across a broad range of fields from the development of future drugs and vaccines to climate and weather prediction and fusion power research.
- Up to £520 million in funding for life sciences manufacturing to build resilience for future heath emergencies.
- Up to £600 million in funding to launch the world’s first Health Data Research Service to accelerate drug discovery.
Defence
There is greater focus on defence spending, which will rise to 2.6% of GDP by 2027, with the objective of reaching 3% of GDP in the next Parliament, in recognition that increased investment leads not only to enhanced national security but also to further economic growth.
The Defence Investment Plan, which will be published later in the year, will include:
- Nuclear: a £15 billion investment in a sovereign warhead programme.
- Directed energy weapons: Approximately £1 billion of new funding to deliver the first European laser-directed energy weapon in service.
- Autonomous systems: Over £4 billion will be invested in autonomous systems, including £2 billion for land drone swarms.
Energy and infrastructure
The Government will also allocate substantial resources investing in nuclear power and carbon capture, with £30 billion to be invested across several nuclear power projects, aiming to give the UK greater energy security and climate resilience.
Improving infrastructure to drive growth is also on the Government’s agenda, with £15.6 billion to be invested in improving transport in city regions across England, pivoting investment away from London towards the country’s cities and surrounding towns.
The Government’s Plan for Change aims to deliver clean power by 2030 and accelerate to net zero by supporting key decarbonisation sectors.
Some of the new capital projects include investing £14.2bn in Sizewell C, the first state-funded nuclear power station since 1988, and £9.4 billion to be invested in carbon capture utilisation and storage projects.
Conclusion
The spirit of the SR25 represents a clear attempt to kick-start economic growth, increase national security and secure home-grown energy. The SR25 aims to address one of the main reasons for the UK’s slow growth over the last decade, namely “under investment”. Whether the increased spending across the country’s key sectors will be enough to boost the UK’s productivity and solve its growth problems in such challenging times remains to be seen.
Velyana Borisova, Associate at Ropes & Gray, contributed to this article.
