Rachel Reeves has announced an extra £29bn per year for the NHS, along with funding boosts for defence and housing, as she set out the government’s spending plans until the end of the decade.
The chancellor also promised more money for AI and transport projects, saying “renewing Britain” was at the heart of her plans.
But the Spending Review also saw some departments squeezed in day-to-day spending, including the Foreign Office and the environment department.
Reeves said the review would deliver security, economic growth and “an NHS fit for the future”, but Conservative shadow chancellor Mel Stride said it was a “spend now, tax later review”.
He predicted “a cruel summer of speculation” ahead of the autumn Budget, when he said the chancellor would announce tax rises.
Ahead of the chancellor’s announcement in the Commons, Prime Minister Sir Keir Starmer told his cabinet the day marked “the end of the first phase of this government, as we move to a new phase that delivers on the promise of change for working people”.
The government will hope that, following a bumpy first year, increased spending in health and investment in longer-term projects will reassure voters but many departments will still have to grapple with frugal day-to-day spending allocations.
The Spending Review marked the culmination of weeks of discussions between Reeves and her cabinet colleagues.
Negotiations have been particularly drawn out with Housing Secretary Angela Rayner and Home Secretary Yvette Cooper, with agreements not being reached until Sunday and Monday respectively.
Rayner’s department secured £39bn across 10 years for social and affordable housing in England.
Reeves said the funding of police forces would rise by 2.3% by 2029 – which will include money from council tax bills – and pledged to end the use of hotels to accommodate asylum seekers by the end of the Parliament, expected in 2029.
The BBC has been told that will be achieved by reducing the number arriving by small boats and housing asylum seekers in different ways. The housing department has been given a pot of money to provide alternatives.
Health was the big winner in the review, with the NHS budget increased by 3% per year across three years for day-to-day running costs.
The government had already said it would be increasing defence spending from 2.3% of national income to 2.6% by 2027, which includes intelligence spending.
This was confirmed in the Spending Review but it did not include progress towards reaching 3%, which the government has said it hopes to hit by 2034.
The chancellor is restricted in how much can she spend as a result of her two self-imposed rules – that day-to-day spending should not be funded through borrowing and that government debt as a share of national income should fall by 2029-30.
Her decision to increase spending on health, means other departments will see their budgets tighten.
The Foreign Office loses 6.9% a year, mainly in aid spending; Transport, loses 5% a year over the next three years, and the environment department loses 2.7%.
Paul Johnson, director of the Institute for Fiscal Studies said spending limits would put pressure on public sector pay and budgets for schools would be particularly tight, particularly as demand for special education continues to rise.
Other policies announced ahead of the spending review include £86bn for science and technology projects, £15bn for transport and an expansion of the number of children receiving free school meals at a cost of £1bn.
Despite the tightening of some budgets, Reeves was keen to insist she was not returning to the austerity policies of the coalition and Conservative governments of 2010 to 2016.
She said austerity had been a “destructive choice for the fabric of our society and a destructive choice for our economy” adding: “My choices are different.”
With announcements for investment in the longer term, the government hopes to see the economy growing, while the focus on NHS and defence budgets match government pledges on health and security.
But there is political risk for the government as they hope that voters, who may be drawn to Reform UK, do not get impatient as they wait for services to improve.
The chancellor aimed political jibes not only at the Conservatives, but also Reform, who she said were “itching” to replicate the “disastrous” spending policies of Liz Truss.
Reform UK’s deputy leader Richard Tice said “spending was out of control” and said the government could learn from his party’s efforts to cut waste in local councils.
Liberal Democrat Treasury Spokesperson Daisy Cooper called for more money for social care telling MPs: “Putting more money into the NHS without fixing social care is like pouring water into a leaky bucket.”
She said the chancellor could boost growth by pursuing a closer trade deal with the EU.
The SNP’s Dave Doogan said the chancellor had mentioned Reform UK and its leader Nigel Farage more than Scotland.
Green Party Co-Leader Adrian Ramsay accused the chancellor of “balancing her spreadsheet on the backs of some of the worst off in our society” and urged the government should introduce a tax on the “super-rich”.
