Growth for Good
Last week's Government Spending Review laid out a very clear direction of travel for the UK focused on top level priorities and a run down of the numbers behind the spend. This was a highly anticipated budget drop and an important opportunity for the Labour Government to lay out its agenda to "Rebuild Britain" based on the early caveats outlined when they came into power last year.
'Before the election, I said that we would face the worst inheritance since the Second World War.' - Rachel Reeve, Chancellor of the Exchequer, 29 July 2024.
To back up the Government's Plan for Change, the Spending Review gives the clearest indication of focus areas - there are some winners and losers in terms of Government Departments and civil servants have been hovering over ministerial announcements and briefings for some time to get their teeth into some new projects and how reductions could impact (notable reductions include DEFRA, Department for Culture, Media and Sport, Foreign and Commonwealth Office and Overseas Development Aid).
You can get a more detailed summation of what the Review means from:
• Institute for Fiscal Studies
• The Chancellor's full speech from last week
• The 2025 Spending Review Document in Full
Austerity: is it over?
The Review confirms that spending is increasing. The State is growing, this is not going to be an austere term but there's also not suddenly oodles of cash knocking around. There is big interest in capital investment and everything that it can unlock.
Business priorities are a good thing for all organisations and let's be honest here, we have not seen this for a while from our government leaders. Both professionally and personally, we should all just take a moment to reflect on this amongst the noise of media news reports on chewy issues. It was never going to be easy.
It is clear that there has been some tough decision making implemented ahead of this Review. Whilst there are of course high risks around increased spending over the next three years - with reports over the past week of a potential need for an Autumn tax rise - here are some of the highlights and positives from the review to ponder.
The Positives
There are two main beneficiaries of increased funding - Health (workforce and waiting lists) and Defence with obvious pressure to increase funding at a time of geopolitical escalation and everything that entails. Britain looks pretty confident as it builds back its brand on the world stage.
Education will be a tighter envelope and further investment comes with an expectation about balancing future cost savings and investments across this sector but it is positive to see an increase in support for SEND and pupils who are living in poverty. There's not much in the Review for universities. Overall the Department for Education will see a drop in its administrative budget - we expect more focus and key priorities to emerge soon.
A major component of the future spending (around £86 billion) is for research and development and innovation and this will create opportunities for higher education and the regions. as well as tech and sciences businesses - this will require whole hearted partnership and collaboration. It's what Rachel would want. Are these partners ready for new approaches to collaboration? The Industrial Strategy is the new hot ticket in the next few weeks so keep all eyes and ears peeled for this.
It's reassuring to see more funding coming on stream for skills development - particularly in construction, defence and Artificial Intelligence aimed at 16 - 19 year olds. We know there are huge talent gaps here and challenges to access to early career routes. There's more to come down the road for Post-16 Education with the Skills White Paper and along with this there are hints of a wider reform of the current apprenticeship and higher degree routes to ensure the supply and demand for innovation can be maintained.
One big concern about this Review is the passing on of rising costs in the public sector with some ominous warnings from local authorities which are overwhelmed and increasingly frustrating their council tax customers. There's a lot of work to do to investigate a new model for council tax and efficient service provision at local government level over the next term. (Further information on the position is picked up by the Local Government Association).
So how did it all land? Well there's a lot of scepticism out there right now in Blighty. You Gov's most recent poll reveals that the public remain sceptical and only 23% feel the economy is being handled well. Again the Government knows this and has its term to ensure this work can start to deliver on promises of change and rebuilding the country.
Gains for Social Good
We've seen a big shift in the approach and language used by this Government and welcome the approach to highlight the need for growth balanced with devolution priorities and investment in community, place and real world people.
There are still many difficult issues to balance here but it is important that we reflect on the positive momentum created for certain sectors on the back of these changes. There is, as we have highlighted above, more detail to come.
Wins include big ticket items such as £39 billion investment in social and affordable housing, support via education for the most disadvantage with expansion of free school meals which will lift 100,000 children out of poverty, a focus on spending on Health including investment in prevention and health inequalities and a little bit more to Health and Social Care (There's some really good info here from the Health Foundation).
In the age of disruption, all organisations and sectors are having to balance their books so the Review does not go far to alleviate concerns around rising costs (Check out the useful summary at NCVO on rise in National Insurance) but we could expect some changes on this in the coming term as well as some policy U-turns.
The Review saw a modest increase in investment for the Charity Commission which is great to see because of the role of charities (VCSEs) in delivering change and service across the county and strong lobbying to ensure increased demand is met.
But we warmly welcome that the Government has also confirmed that is is looking at social impact investing to "support mission delivery" and this would look at bringing together "socially motivated investors, philanthropy and civil society experts". This is one that social good, philanthropists, funders and ESG types should be keeping a very close eye on and it's a really exciting development that will unlock higher impact investment to support the UK's growth agenda.
These Government priorities provide a good starting point for organisations to think about alignment with their priorities and strategies. But this is a time when creating change and nurturing growth requires cross sector collaboration. We want to see more of this in our regions and the blueprint and ecosystems required are already in place. It's a positive change but we need to work together to scale things differently.
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