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Rachel Reeves has been warned that “tough trade-offs” await her at this summer’s spending review, with think tank Resolution Foundation urging the chancellor to focus spending on health and housing if she aims to increase living standards.
Reeves has pledged a £100bn-plus boost to capital budgets over the course of the parliament (2024-25 to 2029-30), and the country should know more details at this summer’s spending review. Capital spending refers to money allocated for projects such as new hospitals or road schemes instead of day-to-day running costs like salaries.
“The chancellor must balance new growth-boosting infrastructure projects with the need to rebuild Britain’s dilapidated hospitals and social housing when she sets out the details of the £100bn-plus boost to capital budgets at the Spending Review,” Resolution Foundation said in a new report.
The Treasury is conducting the review, which will set budgets for government departments for the next three years regarding day-to-day spending. The process will determine budgets for so-called unprotected departments, including local government, justice, transport, and culture. Protected departments include defence, the NHS (health), and schools within the education envelope.
In the budget in October 2024, Reeves announced more money for capital spending but also mentioned that “four key guardrails” would be introduced to ensure good value for money.
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“Ultimately, if the government wants to avoid dramatic cuts to departmental budgets, it will likely have around £20bn to £50bn of capital spending to allocate over the next five years,” the Resolution Foundation’s report said.
It added: “The government should prioritise investment in areas of particularly acute historical underinvestment, considering the future impacts on living standards and economic growth.
“Investment likely to be well-targeted across both of these criteria includes social investment in housing and health, with investment in the prison system and well-targeted transport infrastructure projects in the UK’s second cities as secondary priorities.”
The analysis also urges ministers to examine investment in the prison system and public transport during the June spending review, but it describes these areas as “secondary priorities.”
The Foundation suggested that the chancellor should aim to strike a balance between social and economic infrastructure projects, focusing on initiatives that address both needs. For instance, prioritising affordable housing investment in areas with high levels of temporary accommodation could also stimulate economic growth by increasing the housing supply in high-productivity urban centres.