The U.K. Government Spending Review 2025

FounderX Magazine
4 days ago
4 min read

Bad news for our entrepreneurial readers at FounderX Magazine

***The Chancellor of the Exchequer, Rachel Reeves, heads out of Number 11 Downing Street to deliver her Spending Review statement to the House of Commons***

Whilst it is welcome to see the Government setting out detailed expenditure plans for the coming 3 years, and investment budgets until the end of the decade—in a move to provide economic certainty—this is nevertheless a Spending Review that does not fix the fundamentals needed for entrepreneurial confidence.

On a (limited) positive note:

To give credit where it is due, the Chancellor of the Exchequer, Rachel Reeves, did make some pertinent announcements on growth-orientated expenditure; such as a 7.4% average real terms rise over the next 3 years in the budget for the Department of Science, Innovation and Technology (with £2bn ring-fenced for an AI “opportunities action plan”; and £750m granted for the reinstatement of a previously cancelled supercomputer at the University of Edinburgh). “Multiplier” (and levelling-up) effects are also likely to be seen from the £15.6bn of capital expenditure earmarked for local transport projects in cities outside of London between 2027 and 2031. Such investment, with a focus on productivity and connectivity, is the sort of Government expenditure that can actually boost entrepreneurship and provide a strong ROI. Not all state spending is made equal, though.

The spendthrift Chancellor:

When it comes to other day-to-day Government departmental spending, rather than capital investment, the Chancellor tried to give the impression of fiscal prudence—with average real terms departmental cuts over the next 3 years in the Home Office (-1.7%), Ministry of Housing, Communities, and Local Government (-1.4%), Transport (-5%), and the Foreign Office (-6.8%). This kind of restraint with the nation’s purse strings is welcome.

But the 3 largest Government budgets (accounting for a combined 35% of overall expenditure), however, have been turbocharged even further—with an inflation-busting 3% average real terms rise over the next 3 years in the NHS (by 2029, the budget is expected to reach a whopping £226bn). The core schools budget is set for an average real terms rise of 0.4% over the next 3 years (and is predicted to hit £69.5bn by 2029; with a £490m annual cost added from September 2026 by extending free school meals to 500,000 more children). And the Ministry of Defence is primed to receive an average of 0.7% real terms spending increases over the next 3 years (with defence expenditure due to rise from 2.3 to 2.5% of GDP by 2027). One can want adept public services, whilst also pointing out the unsustainable nature of such a bloated state bureaucracy; rife with inefficiency and waste.

This, of course, is also before we even consider the largest Government spending item of all—with the welfare budget set to come in at an eye-watering £316.1bn for 2025-2026 (of which £65bn is currently paid out on sickness and disability benefits; and forecast to rise to £100bn by 2029). Excessive social security and economic inactivity of this kind is not only damaging to the country’s finances, it also limits the talent pool available to entrepreneurial employers, not to mention being a mental health detriment to those individuals who do not have the sense of dignity and community afforded by work.

A taxing time for Founders:

Taken altogether, therefore, this Spending Review does nothing to control the ever increasing upwards trajectory of public expenditure in the UK—with Founders and Entrepreneurs now heading into the summer looking ahead with gloom at the inevitable tax rises on the horizon for the Autumn Budget later in the year (expected to be held in October or November). Last year (30th October 2024), in her first Budget as Chancellor, Mrs Reeves already increased the burden of National Insurance on employers—by lowering the threshold from £9,100 to £5,000; and increasing the rate from 13.8 to 15%. The Government predicted that this would add a total cost onto business of £24.5bn.

We are indebted to you, Chancellor:

The alternative would be for the Chancellor to borrow the extra money to finance the spending splurge in the Spending Review—but, on top of an existing budget deficit in 2024-2025 of £137bn (and a cumulative national debt of £2.8tn; some 95.5% of GDP, and amounting to £98,000 per household), this would be the height of fiscal irresponsibility. Entrepreneurs can ill-afford a rise in the interest rate on Government bonds pushing up the broader cost of borrowing in the market; at a time when they are already struggling to meet the increased tax burden placed upon them (and with a weakening economic outlook; GDP having contracted by 0.3% in April).

***No laughing matter: The Chancellor sits down after a announcing a spending splurge that is bound to generate extra taxes for—and more borrowing in the name of—UK entrepreneurs***

The entrepreneurial solution …

What the Government should be doing is lifting the tax burden on entrepreneurs; based on the time old truth that the way to maximize tax revenue is to expand the tax base, not tax rates. In other words, by boosting the incentive for entrepreneurship and innovation, through lower taxes, the Chancellor could unleash the kind of dynamic growth that actually increases the overall tax revenue for public services and to reduce Government debt (as per the principle of the Laffer Curve).

**The Laffer Curve: How to maximize Government tax revenue (R) by picking the optimal tax rate (t) - The case for incentivizing entrepreneurship and growth (Please listen, Chancellor!)**

The old tax and spend model is dead. Wealth needs to be created before it can be distributed. Our entrepreneurial readers at FounderX Magazine are the real solution!