Rachel Reeves has announced a significant £39bn boost for social housing, £29bn for the NHS, and £11bn for defence in her latest spending review.
It was welcomed by Labour but others are not so sure.
The Institute for Fiscal Studies has delivered its own verdict on the spending review:
Paul Johnson, the IFS’s director suggested Rachel Reeves is a “gnat’s whisker” away from tax rises in the autumn.
He said:” Ms Reeves is now going to have all her fingers and all her toes crossed, hoping that the OBR will not be downgrading their forecasts in the autumn”.
The UK economy contracted in April by 0.3% as businesses cut jobs and cancelled investment plans in response to higher taxes and the uncertainty created by Donald Trump’s tariff war.
Figures from the Office for National Statistics showed the economy went into reverse after growing by 0.2% in March and 0.5% in February.
The reading, which was the worst monthly drop since October 2023, overshot City economists’ expectations of a 0.1% contraction.
The UK Government has also announced a £14.2bn investment in the Sizewell C nuclear power station, which is expected to create 10,000 jobs and supply energy to 6m homes.
Manufacturing dropped by 0.6% after the car industry cut production, most likely in response to the US 25% levy on auto imports. Pharmaceutical production, which grew earlier in the year, also dropped back in April as the threat of tariffs loomed.
The Adam Smith Institute warns that the tax burden on workers in Britain is at its highest in 40 years and is projected to reach unprecedented levels within three years. This year’s “tax Freedom Day” fell six days later than last year, marking the latest date since 1985. The think tank predicts that by 2028, this day could be as late as June 24, surpassing historical tax burdens seen during the Second World War.
According to BDO’s Global Risk Landscape Report 2025, business leaders are becoming “paralysed” by ongoing crises, which is hindering growth opportunities.
So no sighs of relief yet for businesses.
Caution and cost control continue to be the strategy for a while yet.