What the Spending Review did and didn’t say

The Chancellor of the Exchequer, Rachel Reeves, announced in Parliament on 11 June the Government’s new spending priorities, nominally for the next five years.

She had created significant flexibility last year for new monies, with the redefinition of the Treasury Green Book, which increased the headroom for capital spending. It also revalued how to measure worthwhile business cases, with less emphasis on initial property values, which had given a previous headstart for projects in London and the Home Counties, and now opened more options elsewhere in the UK.

Spending pressures and priorities

There are large-scale external pressures such as greater spending on defence and counter-terrorism, and an insatiable call for more by the NHS and social security cases. This has limited resources for other revenue spending. The Chancellor stated that priorities were “to invest in Britain’s security and Britain’s health and to grow Britain’s economy so that working people are better off… Total departmental budgets will grow by 2.3% a year in real terms.”

Increases in revenue spending would be linked to tax receipts – implying little hope for projects expected to be loss-making unless there were other over-riding reasons for their authorisation. Nevertheless, the available operational funding would be “£190 billion more to the day-to-day running of our public services over the course of this spending review compared with the previous Government’s plans”. The spending review “provides the largest settlement in real terms since devolution was introduced, with £52 billion for Scotland, £20 billion for Northern Ireland by the end of the spending review period, and £23 billion for Wales”.

Later in the Commons debate, the Opposition Shadow Chancellor, Sir Mel Stride (Con, Mid-Devon) commented in broad terms that: “Our country is now vulnerable to even the smallest changes in the bond markets. Should we face a sudden external shock, we have no fiscal firepower left with which to respond, all thanks to the right hon. Lady’s choices. So can I ask the Chancellor: will she be open about what she has done? Will she admit that she has made a conscious choice to borrow more and to accept higher debts? Does she accept that this means interest rates and mortgages will be higher than they would otherwise have been, as the OBR itself has said?”

The Chancellor responded that: “In the spending review today, we set out the spending that we announced in the Budget last year and in the spring statement—not a penny more, not a penny less. I said in the Budget and in the spring statement that  public services must now live within the means that we have set, and we have achieved that. There will be a Budget later this year, and in that Budget we will set out all the fiscal plans in the round. But we have already drawn a line under the Tory mismanagement”.

Consequences of new fiscal rules

Rachel Reeves spent much time spelling out the consequences of changes in fiscal rules, by listing the range of revenue spending and investment projects which could now proceed. Examples included: £39 billion for the affordable homes programme, with related spending on a 10-year rent deal and new low interest loans; a further £10 billion for Homes England; widespread nuclear energy investment and research, including £14 billion for Sizewell C and £2.5 billion for new small modular reactor programme; pioneering work in carbon capture, usage and storage in various locations across Britain; and re-investment in steel-making at Scunthorpe, which was a national decision to maintain the UK’s capacity to make steel and not be so dependent on other countries.

£22 billion a year was allocated to innovation, £2 billion to back the Government’s AI action plan, £25.6 billion financial capacity for the ‘British Business Bank’ to help pioneering businesses”, and £1.2 billion a year by the end of the spending review to support over a million young people into training and apprenticeships. There was also to be large scale expenditure to upgrade the run-downenvironment in many communities.

She outlined the inter-dependence and consequences of one investment decision, on other parts of the national economy and regional well-being. Steel was an example: “Heathrow airport, where we are backing London by backing a third runway, has signed the UK steel charter—a multibillion-pound airport expansion backed by Labour and built with British steel. Building our train and tram lines, our military hardware and our new power stations will mean orders for steel made in Britain at Sheffield Forgemasters, where we are investing in nuclear-grade steel, and in Port Talbot, where the spending review confirms the £500 million grant to Tata Steel.”

So what does the Spending Review mean for transport and rail freight?

11 June saw the Department of Transport budget for day-to-day spend cut by 5%, though gains were a  four-year settlement for Transport for London “to provide certainty and stability”, while there would be a fourfold increase in local transport grants by the end of this Parliament.

However capital investment was talked up for passenger projects. £15 billion for urban transport across the Midlands and the North had been announced the previous week: buses in Rochdale, stations in Merseyside and Middlesbrough, mass transit in West Yorkshire and metro extensions in Birmingham, Tyne and Wear and Stockport. £2.5 billion was committed to East West Rail for the Oxford-MK-Cambridge project, and a further £3.5 billion to the TransPennine route upgrade. Road schemes included a further £1 billion spend by the Government on preparatory works for the Lower Thames Crossing.

Rachel Reeves confirmed funding for the midlands rail hub; also £445 million for railways in Wales over 10 years, “including new funding for Padeswood sidings [for more frequent passenger services] and Cardiff West junction”. “In the coming weeks I will set out the Government’s plan to take forward our ambitions for Northern Powerhouse Rail.” £25 billion was set aside over 5 years for continuation of the abbreviated HS2 project.

But there was no investment in essential rail freight projects. Nothing for relief of Haughley and Ely Junction bottlenecks on the key Felixstowe-Midlands rail corridor, nothing about infill electrification to enable electric haulage and faster acceleration times across other junction bottlenecks, nothing to relieve constaints on the cross-London rail corridors where London Gateway intermodal flows can now max out available junction space on Overground lines.

Meanwhile the Government’s own new priorities on carbon capture, Sizewell C, house building, and steel will generate foreseeably large-scale rail freight flows measured in tens of millions of tonnes per year. Capacity pressures at key junctions will impact on rail network reliability for both freight and passenger services. Julian Worth has assessed such impacts in a ‘Spending Review’ article in the July 2025 Modern Railways. Rachel Reeves has said herself in her speech: “But it is no good investing in new skills, new jobs and new homes if they are not properly connected.”

There are still possibilities in coming weeks. Labour‘s Infrastructure and Industrial Strategies are due to be published during July. Joined-up thinking would be really helpful to make explicit how national strategic priorities can be delivered on rail instructure where there is no visible financial underpinning for expansion of rail freight capacity.

By Jonathan Roberts
JR Consulting