UK Prime Minister Keir Starmer’s government is less than a year old. Yet Wednesday’s (Jun 11) Comprehensive Spending Review (CSR) will be one of the last big – diarised – events remaining, before the next general election in 2028 or 2029, for him to redefine the political terms of trade.
The review, while not technically a fiscal event with explicit tax-setting powers, will decide the public sector’s spending envelope for the rest of this parliament. So, it is a rare moment to try to define the political agenda for much of the rest of the 2020s.
A second reason why the occasion is so precious for the government is that ministers have had a challenging first 11 months in power. To be sure, they were buoyed by last Thursday’s Scottish parliament by-election which saw a surprise win for Labour in Hamilton, Larkhall and Stonehouse.
However, the bigger picture for the Starmer team is a series of continuing challenges that have cut short the political honeymoon that it might have expected to enjoy given the huge majority it won last July. So the government will be looking to Wednesday as a big reset moment to try to get on the front foot again.
The concept of CSRs – encouraging strategic, multi-year spending horizons in the public sector – was created during the last Labour governments of prime ministers Tony Blair and Gordon Brown from 1997 to 2010. Yet, while these may be good ideas economically, they relatively rarely raise big political ripples globally.
However, Wednesday’s CSR could be different. Many international investors are looking closely at the details of what may be the most important such statement for a generation by a UK government.
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The reason is that Starmer’s government is the first, since at least the 2010 to 2015 coalition led by then prime minister David Cameron, that may survive a full parliamentary term with relative stability, including no change of leader. Since 2015, UK governments have been comparatively weak with no less than six prime ministers in the form of Cameron, Theresa May, Boris Johnson, Liz Truss, Rishi Sunak and now Starmer.
Despite his challenging first year in office, it remains possible that Starmer could, in 2028 or 2029, become the first prime minister since Cameron in 2015 to win a second term. This would potentially allow him to deliver his pledged “decade of renewal” well into the 2030s.
Politically, the goal of Chancellor of the Exchequer Rachel Reeves on Wednesday will therefore be twofold. First, with the global economy reeling from policy uncertainty from US President Donald Trump, she will seek to depict the United Kingdom as a safe haven. In part, this is because of the City of London’s status as Europe’s key financial centre with the pound sterling still the world’s fourth-largest reserve currency after the dollar, the euro and the yen, amounting to around 5 per cent of global foreign exchange reserves.
Second, she will seek to set out a coherent, optimistic, forward-looking vision for the future of the country in the 2030s. While the public finances are still fragile, this will include a spending blueprint for what she proclaimed in her first Budget last October will be “a new era of public and private investment in hospitals, schools, transport and energy as momentous as any in Labour’s history”.
The intent is to draw comparison with the historic reform programmes begun in 1945 under then prime minister Clement Attlee which created the National Health Service (NHS), in 1964 under then premier Harold Wilson, and in 1997 under then prime minister Blair. By the end of the current term of parliament, no later than 2029, total government spending will have increased very substantially from when Labour took office in 2024.
The NHS and defence are set to be the big winners on Wednesday; so much so, that there is a joke of sorts in Westminster: that the UK government may soon comprise just “the NHS and the military, with the rest just bolted on”.
It is widely reported that the NHS will be handed around a 2.8 per cent annual increase in its day-to-day budget over at least a three-year period. This would amount to a cash increase of about £30 billion (S$52.3 billion) by 2028.
Meanwhile, the UK government has committed to increasing defence spending to 2.5 per cent of gross domestic product, which will mean spending around £13.4 billion more every year from 2027. Starmer has also pledged, outside of Wednesday’s CSR, to reach a target of 3 per cent of GDP in the next parliament, which the independent UK Office for Budget Responsibility has estimated would cost an additional £17.3 billion in 2029-30.
From the standpoint of investors, there is growing speculation about what this will mean for economic growth, plus the growing possibility of further, significant tax increases of potentially tens of billions of pounds.
Already, the new tax measures announced by Reeves last October amounted to around £40 billion. This easily exceeded the tax take in the first Budgets of the last two key UK Labour governments – Brown’s in 1997 and George Osborne’s in 2010, even when those figures are translated into today’s prices to reflect inflation. Indeed, the 2024 Budget was the biggest tax-raising fiscal event in half a century alongside then chancellor of the exchequer Norman Lamont’s in 1993.
Beyond tax, UK economic growth is also key for investors. Since the international financial crisis around two decades ago, growth has flatlined compared to the era immediately before, and Starmer and Reeves have said their No 1 mission is to get out of this financial funk. Yet, the Organisation for Economic Co-operation and Development recently downgraded further its estimate for UK growth in 2025 to 1.3 per cent, from 1.4 per cent, and in 2026 to 1 per cent, from 1.2 per cent.
With growth remaining relatively flat, Reeves is likely to highlight the impact of falling interest rates with four cuts since last July, plus also policy changes including infrastructure development. It is reported, for instance, that Reeves will announce on Wednesday an additional £113 billion a year in infrastructure spending designed to help grow the economy, such as the Sizewell C nuclear power plant and a new generation of mini reactors.
Taken together, the UK CSR is therefore shaping up to be a major milestone yet for Starmer’s government as it seeks to revamp itself after an uneven first year in power. The spending measures will help define the rest of this parliament, as the administration seeks to reset.
The writer is an associate at LSE IDEAS at the London School of Economics
