Beyond the headlines: What the Spending Review 2025 means for councils and communities

With the Spending Review 2025, Labour’s inaugural and also the first multi year review in a decade, the shape of the government’s reform agenda is becoming clearer. It’s a stable and sedate budget, neither splurging nor radically reforming public services, instead emphasising investment. The certainty of a multi year settlement review and committed funding in jobs and housing will likely be its most welcome feature.

In this blog we analysis the announcements to see what they mean for local authorities, communities and public services.

Much has already been announced and analysed:

• Expanding Free School Meals to all children on Universal Credit, helping 500,000 children and costing £410 million. This is a benefit worth three times its cost to working parents
• Returning Winter Fuel Payments to nine million pensioners living on less than £35,000 is now a decent policy that addresses our main concerns
• Cutting £6.4 billion from PIP and other disability benefits leading to a corresponding increase of £1.9 billion to the cost of Universal Credit, will see the worst hit regions facing three times the impact
• Adding over 500 new ‘fraud and error’ staff. We call for more effort to tackle underclaiming, make it easier to comply and to be careful that sanctions and deductions don’t lead to poverty and homelessness

When delivering the Spending Review 2025 speech, there were telling shifts in tone, toward investment and employment from the Chancellor:

• Labour is focusing on working people, a phrase the Chancellor repeated nine times, emphasising access to opportunities
• Labour’s offer to disabled people has shifted to better healthcare and employment opportunities, with the Prime Minister earlier that day reinforcing Labour’s restriction of access to disability benefits
• While keeping the fiscal discipline messaging, the Chancellor proudly owned the 2.3% a year real terms increase in public spending, in stark contrast to the doom and gloom messaging in her first Autumn 2024 budget

Though Labour didn’t mention tax rises, the Institute for Government hinted that ‘fiscal decisions’ will be needed, and Prime Minister’s questions saw Keir Starmer pushing political opponents on the point that if they back the spending, they must back the revenue raising.

Core local government spending power is projected to grow by 2.6% annually in real terms, from £69 billion to £79 billion a year.

• However, only 1.1% a year is funding from MHCLG. The majority, 1.5% a year, requires local authorities to continue increasing council tax by 5% each year, 3% core council tax and 2% adult social care precept
• Adult social care will continue to place pressure on budgets. Treasury is vague on details, announcing £4 billion for adult social care. But a £4 billion real terms increase is only just better than standing still, according to The Health Foundation, and possibly not even that, depending on wages and tax increases, says the LGA.

Beneath that, there is very good news on increased funding certainty:

• Councils will receive multi year allocations, offering much needed stability
• As promised at Autumn Budget 2024, London, North East, West Yorkshire, South Yorkshire and Liverpool City Region will receive integrated settlements from 2026‑27, though the LGA argues these integrated settlements are “still restrictive”
• It is welcome that the £1 billion Crisis and Resilience Fund, which replaces the Household Support Fund and Discretionary Housing Payments, is simpler and now multi-year, but it is worth 22% less in real terms compared to 2022-23. That said, multi year funding means councils now have the certainty needed to plan, partner with third sector providers and invest in data driven targeting
• Homelessness and rough sleeping funding is protected, though we’d appreciate the detail beneath this headline, plus the government announced a £100 million Transformation Fund for prevention

Read: How LB Redbridge intervenes early and prevents homelessness using LIFT

Announcements to tackle child poverty, on top of already announced Free School Meals, include:

• Breakfast clubs for every primary school aged child in England
• £370 million across four years for school based nurseries
• £133 million for cultural and sports facilities
• Expansion of Family Hubs and Families First (mental health support)

We welcome the expansion of these programmes, however they can only help if they reach the child.

Read: How LB Lambeth, Lewisham Council and Wandsworth Council used data to auto enrol 1,500 children in Free School Meals 

What we didn’t see was Sure Start or national water social tariff funding. Is the government waiting for the Autumn budget?

Turning to children’s safety, children’s social care was an unexpected winner, with:

• £555 million in operational budgets announced over the Spending Review, plus £560 million of capital to reform children’s social care through earlier intervention and new homes
• £760 million to reform the SEND system. This is a welcome injection of funding, but with councils’ concerns over soaring costs and accrued deficits leading to insolvency, they must wait until the Schools White Paper in the autumn for details on the governments’ plans.

We hope reform of children’s social care includes using data already held by existing agencies, making it easier to share across services so multi-agency safeguarding teams can intervene early to keep children safe.

Read: How councils in West Midlands and South Wales securely share data between safeguarding professionals to make more informed decisions using MAST

Housebuilding was a big theme, which should help control councils’ costs. Announcements included:

• £39 billion 10 year Affordable Homes Programme and £4.8 billion in financial transactions to catalyse private supply
• £950 million for Local Authority Housing Fund for temporary accommodation supply
• £560 million capital for children’s social care, including building new homes
• The £13.2 billion Warm Homes Plan for energy efficiency measures survived, despite rumours it would be cut to pay for the Winter Fuel Payment reversal

One of the biggest political announcements on housing and accommodation was the ending of hotels for asylum seekers. If delivered, and it’s a big if, this will free up hotel supply but could add pressure on permanent housing supply.

On investments, Spending Review 2025 saw substantial investments in transport and energy, particularly in areas outside of London. For local authorities, announcements include:

• A £240 million Growth Mission Fund
• A Local Growth Fund to regenerate 350 deprived areas
• New place based business cases, which will improve local authorities’ ability to secure funds for regeneration projects with jobs, services, housing and transport

Unsurprisingly, training and apprenticeships featured in the Spending Review with announcements of extra funding worth £1.2 billion a year, and a little-trumpeted boost to childcare entitlements for working people, worth £1.6 billion a year.

Other important announcements include:

• Extending the £3 bus fare cap, which disproportionately supports low income households
• £100 million to support adults with complex needs through Community Health Partnerships

Read: Councils like Haringey are connecting young people and working parents to employment support using LIFT

As with many government fiscal events, the devil is in the detail.

In the Departmental Efficiency Delivery Plans, page 37, table 2.14, the Treasury reveals that DWP has committed to £113 million savings in 2026-27 from digital improvements to services.

We are big proponents of using data and technology to improve the effectiveness and productivity of services, but even we think the schedule to deliver 60% of the third year savings in the first year is overly ambitious. With government procurement processes often lasting over a year, unless that project is already in beta testing, we believe that timing is unrealistic.

The Treasury usually demands that departments ‘absorb’ any savings lost due to delays, so missed targets could lead to fewer staff anyway, with service quality suffering.

To end on a positive note, MHCLG’s efficiency savings, which include funding simplification, are expected to save local government money. According to the footnote in Table 2.7 on page 23, these savings can be recycled into frontline services, which is good news for cash strapped councils.

1. Join our webinar: Understanding the impact of disability benefits reforms on local authorities, Wednesday 27 August. Register here
2. Learn more about how local authorities can improve the value for money using data and technology contact us