Capital Rich, Resource Poor: The Treasury’s Comfort Zone

The Comprehensive Spending Review offers a glimpse not just into the Government’s fiscal choices, but into its worldview – one still shaped by the long shadow of the Truss budget and the perennial instincts of the Treasury.

For all the rhetoric of economic renewal, this was a Review that hugged close to orthodoxy: capital spending up, departmental budgets down, and a continuing allergy to fiscal risk.

Constraints and Continuity
The economic backdrop was bleak. GDP growth is forecast at just 1% in 2025 and remains sluggish throughout the spending period. That put the Chancellor in a bind: one fiscal event a year, a vow not to raise taxes, strict fiscal rules, and above all, a determination not to rattle the bond markets. It’s no surprise, then, that this package leans heavily on previously announced measures and capital investment – politically less painful and easier to defer if needed.

There’s a deliberate absence of ambition on day-to-day spending. Departmental budgets are being quietly eroded by inflation and demographic pressures. The NHS is, predictably, protected. Defence – following the Strategic Defence Review – gets another boost, doubling as a tool of economic policy and geopolitical signalling. But plenty of Departments are left facing real term cuts.

Securonomics or Status Quo?
The Government wants to reframe the economic narrative – from “fixing the foundations” to “driving growth.” Rachel Reeves’ chosen frame is “securonomics”: a proactive, interventionist state focused on resilience, defence, and industrial strategy. It’s an ideological shift from austerity-era caution – at least in theory. But in practice, securonomics still fits comfortably within Treasury limits.

There were a few announcements to suggest momentum: reforming Green Book rules for investment appraisal could unlock some much needed growth in the years to come (good policy, zero short-term political impact). There was also some smart politicking such as moving asylum seekers out of hotels (they’ll still need housing somewhere) and the previously mentioned boost for NHS budgets.

Saving Up Trouble
There’s a gamble at the heart of this strategy. Investment is being front-loaded in the hope that growth will materialise in time to pay for it. But if it doesn’t – or if tax revenues fall faster than expected (as with road tax and other fading levies) – the Government will be forced into one of three unpalatable options: raise taxes, borrow more, or cut further. And if public sector workers demand higher pay? That calculus becomes even trickier.

For now, the Government is stockpiling political fights for later. Welfare reform, immigration charges, pay restraint, public sector reform – each one a potential flashpoint.
The bet seems to be that voters will be mollified by long-term plans and announcements – but many will judge success by the quality of public services today. And with day-to-day spending squeezed, expectations are likely to be disappointed.

There are also personnel risks. Ministers have spent months scrapping over their slices of the pie. For everyone in Cabinet, this was their first exposure to the realities of a full Spending Review cycle – and relationships were tested. The carve-up was always going to be difficult, but it’s even trickier in a government still learning to navigate the machinery of power. A future reshuffle would only compound the challenge: incoming ministers would be handed budgets they didn’t negotiate, locked into spending plans they don’t own.

The Real Legacy
The most significant decision in this Review may be the least discussed: the technical tweak to Green Book rules. If it sticks, it could rebalance infrastructure investment towards the regions and embed a more political approach to capital allocation. But its impact will be felt well beyond the next election.
In the meantime, departments now need to work out what to do with the money they’ve been given. That process will define the remainder of this Parliament and it opens up plenty of opportunities for influence and engagement. With industrial, infrastructure and housing strategies expected in the coming weeks, the real battles over policy and priorities are just beginning.

By Tom Anelay, Head of Public Affairs at Citypress