Here’s where billions of public cash will go

U.K. Chancellor Rachel Reeves is delivering the government’s Spending Review on Wednesday, with all eyes on how billions of pounds’ worth of public money are split between departments and infrastructure projects.

We already know that “protected departments” such as health and defense will see big funding boosts — but losers could surface among “unprotected” units.

Departments like the Home Office and those overseeing local government and the environment could see their budgets squeezed as the government targets cost cutting.

Reeves started announcing her Spending Review to the British parliament at 12:30 p.m. London time and we’ll update this story with the headline announcements as they’re made.

“We are renewing Britain,” Reeves told lawmakers as she begins her address.

“This Government’s task, my task as Chancellor and the purpose of this spending review, is to change that,” she added.

The review covers two separate avenues of spending: resource expenses — the government’s day-to-day running and administration costs — for the next three years, as well as capital expenditure for the next four years; this goes toward improving infrastructure and public services such as new roads, hospitals and military equipment.

The Treasury has already said that day-to-day spending will rise by an average of 1.2% for each of the three years while investment (capital) spending will increase by an average of 1.3% a year for four years.

That “relatively modest” hike in day-to-day and investment spending means “sharp trade-offs are unavoidable,” the Institute for Fiscal Studies (IFS) think tank warned ahead of the review.

We’ve already had a raft of announcements from the government in the run-up to Wednesday’s spending announcement, detailing some of the money government departments will receive, ranging from science and housing investment to defense and education.

Here’s what Reeves has been announcing to lawmakers on Wednesday, and what we already knew:

The government has already announced that defense spending is set to rise from 2.3% of gross domestic product (GDP) to 2.5% by 2027, with the boost funded partly by cuts to the overseas aid budget.

Under pressure from the U.S. and NATO to increase defense spending to a potential 5% of GDP, Reeves on Wednesday announced that defense spending will now rise to 2.6% of GDP by April 2027.

The U.K.’s defense plans include building 12 new nuclear-powered attack submarines, a boost to the manufacturing of drone, missiles and munitions, as well as bolstering of cyber warfare capabilities.

After defense, the health service was also set to get a big funding boost as one of the government’s main spending priorities, although we were waiting to see the extent of the funding boost the National Health Service (NHS) received.

On Wednesday, Reeves announced what she described as “a record cash investment in our NHS” increasing real-terms, day-to-day spending by 3% per year for every year of the spending review. That’s an extra £29 billion per year for the day to day running of the NHS, she said.

The Treasury on Tuesday night announced that Rachel Reeves will unveil a £39 billion boost to social and affordable housing investment in the spending review. Access to state-subsidized social housing, or low-cost new homes, is a particular bugbear for many voters struggling to find affordable places to live.

Free school meals in schools will be expanded to more than 500,000 children whose parents receive a welfare payment known as Universal Credit, which is available to those who are on a low income, unemployed or unable to work. Previously, children outside of London were only been eligible for free school meals if their household income was less than £7,400 per year.

Reeves announced a £7 billion investment to fund 14,000 new prison places and said the government would put up to £700 million per year into the reform of the probation system.

She announced she would increase police spending power by an average 2.3% per year in real terms over the spending review period, equating to more than £2 billion over the next few years. An additional 13,000 police officers, police community support officers and special constables will be put into policing roles across England and Wales, she added.

Transport networks outside of the capital London will get a funding boost of £15.6 billion, focusing on the North and Midlands areas of the country.

London hasn’t been forgotten, with Reeves announcing a four-year settlement for the Transport for London network “to provide certainty and stability for our largest local transport network to plan for the future.” She further set out “a fourfold increase in local transport grants [capital grants] by the end of this parliament,” in 2029.

The government has said it will invest just over £14 billion in building new nuclear power station, Sizewell C, as well as £2.5 billion on smaller modular reactors. It noted the move would create 10,000 jobs and “deliver clean power to millions of homes, cut energy bills and boost energy security.”

The Spending Review is not a fiscal event, meaning there will be no announcements on taxation or borrowing on Wednesday.

Last fall, the government set out its budget and debt and deficit targets for the year ahead, with Reeves unveiling larger public spending, tax rises and changes to fiscal rules to allow her to borrow for longer-term investment.

We know that Reeves is looking to keep to “fiscal rules” set out last fall in her Autumn Budget, however. She also wants day-to-day spending to be funded by tax receipts rather than by borrowing — leaving herself around £9.9 billion worth of “fiscal headroom” to hit that target — and for debt to fall as a share of U.K. gross domestic product, by 2029/30.

Those tight fiscal rules have given Reeves little in the way of a financial buffer if U.K. borrowing costs rise to the levels we saw at the start of the year, or if economic growth falters. Economists expect further tax rises to be announced in the next Autumn Budget amid the pressure of higher public spending.

The opposition Conservative Party lambasted Reeves’ spending review after it was delivered, with the party’s rival finance chief Mel Stride saying it was “not worth the paper that it is written on.”

Stride said further tax rises would be announced by the Treasury in the fall, describing her review as a “spend now, tax later” plan.