The art of the ask: Navigating a lean Spending Review

Ahead of any Spending Review, jostling between departments and the Treasury is par for the course. The Treasury machine is wired and incentivised to control expenditure; departments, by contrast, want the power to spend.

This often means Spending Reviews are not finalised until late in the day. Last week, the Chancellor was reportedly still facing showdowns with four of her cabinet ministers over their budgets (in the Home Office, DfE, MHCLG and DESNZ) and it was only on Sunday that the Spending Review was finally settled.

This year’s negotiations were made even more difficult by a perfect fiscal storm: a high debt-to-GDP ratio, elevated borrowing costs, sluggish growth and high public sector pay demands – all of which are placing significant pressure on the public finances. As a result, the Chancellor is expected to increase Government day-to-day spending by just 1.2% – not far off what the Conservatives were pledging before the election. Once you account for above-average settlements for health, childcare and defence, unprotected departments are facing real-terms cuts of over 1 per cent – forcing Ministers to deliver more with less.

For obvious political reasons, the Government is wanting to avoid the optics of austerity associated with the Osborne-era cuts of 2010 and 2015. To that end, we expect to see Reeves not only protect but increase the capital spending budget, freeing up over £100 billion – an unusual decision given the context, but one driven by political considerations of holding Labour’s broad but shallow voter coalition together. Capital investment is seen as not only a long-term driver of growth, but a way of signalling that Labour is committed to modernising the state, not shrinking it.

This shift is likely to change the way officials make spending decisions. With revenue spending stripped back, we may find departments committing more to procurement and investment rather than day-to-day delivery.

What does this all mean if you are seeking to deal with the Government? Firstly, now that these departmental allocations have been confirmed, engagement must intensify. The squeeze to day-to-day budgets means less to go around, and departments will be looking for quick, easy, low-cost wins. Clear value-for-money cases, backed by credible delivery plans, are likely to attract ministerial interest – especially in departments under pressure to show results without significant new funds.

It also means officials will be actively seeking opportunities to deploy their increased capital budgets. Those who can frame spending as investment – particularly in capital or transformation terms that align with Labour’s missions and values – will stand a better chance of unlocking funding.

What might the Spending Review tell us about Labour’s future economic strategy? Reeves is keen to set the narrative that the Government is ambitious, innovative and capable of delivering a modern economy for Britain within her fiscal rules. This positioning is especially important ahead of the publication of the Industrial Strategy and Trade Strategy. However, many in her ranks feel she is not going far enough. The Spending Review has, perhaps for the first time since the election, revealed an open Cabinet split – between Reeves’s fiscal rectitude and a more expansive economic vision championed by the likes of Miliband and Rayner.

At Luther, we help clients navigate the changing environment strategically – crafting Treasury-friendly narratives, identifying the right levers of influence, and positioning offers in ways that resonate with both policy and political priorities.

Contact the Luther team if you’re interested in the support we offer: health@luther.co.uk