Three success factors in the pursuit of National Renewal

Spending review 2025: our insights

The June 2025 Spending Review is the Labour Government’s first in over 15 years and is presented as a significant strategic shift from incremental budgeting to a mission-led, zero-based funding approach. The commitments made through the SR reflect our national priorities (health, house building, national energy security, and digital transformation) whilst also recognising the increasing global threats that we face and how we must be ready to respond (addressed through an increase in the defence budget envelope).

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The Spending Review has set out how the Government plans to deliver “Britain’s renewal: its security, health and economy”, and is their path to delivering the Plan for Change.  The direction was set out in the Budget, and through a series of policy announcements by the Prime Minister and other Government Ministers, which gave a flavour of what the government would be spending and investing to the end of Parliament. The full announcement means that we can now explore the implications for the organisational health of public sector, private sector, and third-sector organisations across the UK.

Introduction to the 2025 Spending Review

The SR sets out how the government will invest in key national priorities, including:

• Health: The NHS will receive an additional £29bn a year, representing an annual rise of 3% on current levels, which reflects the need for ongoing investment to improve operational performance, shrink the backlog, and invest in the future capabilities that will be needed to deliver a world-class health system. The NHS technology budget has also received a separate increase of £10bn to bring the “analogue health system into the digital age“.
• Defence: The MoD’s budget will rise to 2.6% of GDP by 2027 (equivalent to £11bn), which reflects the need for the UK to be ready to respond to increasing global instability and ensure we have the right equipment and capabilities. Investment in hardware makes up much of the 3% capital spending uplift for defence, and this is being paid for by a reduction in the International Aid budget (controlled by the Foreign, Commonwealth and Development Office).
• Energy security: Nuclear Power has been identified as a central enabler of the UK’s plan to strengthen our energy independence and security. The Spending Review commits an investment of £14.2bn in Sizewell C, as well as a £2.5bn investment in the new Small Modular Reactor (SMR) programme, where Rolls Royce have been earmarked as the Government’s provider of choice. 

• Housebuilding: Social and affordable housing will receive £39bn over the next 10 years, with a further £10bn for financial investments that will be managed and delivered through Homes England. This will support the government’s plan to build 1.5 million new homes.

• Economic growth: To support the aim to lead the G7 in economic growth, the SR announced significant investments in the UK transport network (equivalent to £15bn) and in our research and development capabilities (£22bn per year) to support the upcoming Industrial Strategy.

• An investment in the modernisation of government, specifically through targeted investments in new digital and AI technology, cross-cutting prioritisation of initiatives, and a core focus on government productivity and efficiency. The SR sets out targets for all departments to reduce administration budgets by at least 16% in real terms by 2030, as part of a broader 5% savings and efficiency target by the same date.

• Arm’s Length Bodies: There was a mixed picture for ALBs, with some (such as Homes England) receiving boosts to funding, whilst others (such as the Nuclear Decommissioning Authority) had real-terms cuts; whilst the government has expressed a desire to reduce the number of “quangos”, they still perform vital roles in the delivery of public services and will therefore need the right capabilities and plans to deliver their mandated outcomes.
• Devolved nations received settlements of £20bn for Northern Ireland, £52bn for Scotland and £23bn for Wales.

What does this mean for organisations?

1. Strategic focus and value for money

The Spending Review’s shift toward mission-led planning and clustering of financing is welcomed, but the UK has historically struggled to deliver large, cross-cutting programmes at pace and scale. With billions committed to capital spending programmes, the ability to execute plans effectively must improve if we are to see real benefits.

To do that, the government should look to:

• Build the right strategy execution capabilities at the centre and within regions, clearly articulate the critical path to deliver the desired outcomes, and assiduously manage risks, dependencies, and issues across departments involved in each mission.
• Create coalitions and ecosystems that are focussed on outcomes (including by re-setting relationships between Central and Local Governments, and the Devolved Authorities, to be more collaborative), and use the Challenge Panels to constructively review, assess, and improve delivery plans – especially where they rely on cross-department working.
• Build delivery confidence through rigorous benefits tracking and independent assurance, with the right balance of short-term benefits and long-term sustainable outcomes.

Ambition must be matched with excellence in delivery. Last year, we shared how a Strategy Management Office could be the answer to delivering the Government’s 5 Missions. Talk to us about how an SMO could help your organisation successfully execute large-scale transformation.

2. Doing more with less

Whilst many departments saw real-term increases in funding, others such as the Home Office, Foreign Office and DEFRA will be working within a smaller envelope. They still have significant priorities to deliver but will now be required to “do more with less”. In the past, this has meant working harder with fewer people, fewer tools, and tighter budgets – but in this Government, there needs to be a real shift of that mindset. This government needs to create what permanent secretary to the UK Treasury and head of the Government Finance Function Cat Little called the “Productive and Agile State”. To do this we need to create the permission to stop legacy programmes that aren’t delivering benefits, test new approaches, and reward leaders who take smart risks in the pursuit of outcomes.

Creativity and innovation are born from the constraints of not having enough, and departments who are feeling the pinch can leverage that.

That means:

• Conducting a systematic review of activity to understand and assess what is draining time, energy, and resources, which could be stopped, changed, or automated.
• Using AI in targeted and creative ways to drive efficiency, not to replace human beings necessarily, but to free them up from repetitive tasks so they can focus on complex problems and citizen outcome work.
• Creating space for teams to experiment without fearing the risk of failure – teams across all departments need to be more agile, and have mechanisms to scale promising innovations in process, technology, and ways of working across their organisation.

Simple cost-out from departments and ALBs will not drive the progress or outcomes that departments with lower budgets are still required to deliver. Doing more with less is about unleashing ideas, technologies, and talent that the organisation already has in new ways, it is about scaling home-grown innovations across public sector boundaries and leveraging the wider public sector ecosystem in ways that force multiply beyond reduced budgets, to the benefit of all. There are examples of where the public sector has done this in the past and present…we must do more of this going forward.

If departments can combine cost control with scalable innovation, they will create a platform to drive true efficiency and productivity.

3. New places to recruit and retain talent

The investments in housing and improved transport connectivity represent a deliberate attempt to rebalance growth across all regions of the UK. Beyond the “Northern Powerhouse”, investments in regional train links (such as the East-West Rail project that will connect Oxford to Cambridge) as well as for the Devolved Authorities provide an opportunity for talent re-distribution across the whole country, building on hybrid and remote working first embraced during the pandemic.

For government departments and businesses, this represents an opportunity to:

• Assess their location strategy and explore opportunities to lower real estate costs by moving out of costly metropolitan properties and into regional offices, whilst also unlocking new labour markets.
• Design new workforce models that reflect regional strengths, knowledge, and culture, creating greater connections to the customers and citizens they serve, rather than simply replicating London HQs.
• Build opportunities for partnership and co-development of important ecosystems that attract knowledge-based industries (e.g., academia, research and innovation, digital and AI) into high-potential towns and cities.

Investing in regional talent development and co-locating delivery teams, digital specialists, and policy functions in regional hubs could enable faster decision-making, support place-based innovation, and improve citizen outcomes. The government has set out a challenge for the Civil Service to improve productivity and efficiency and make real-world savings of 5% by 2030 – new regional offices could act as the engine rooms for this creativity, productivity, and modernisation agenda.

To unlock these benefits, organisations must focus on embedding a clear vision, shared purpose, and common ways of working, especially as roles become more geographically dispersed. Regional hubs bring greater understanding and local connectivity but need to remain connected to prevent further silos forming. It becomes even more critical that everyone understands what they are working towards and how, ensuring alignment across teams and clear-eyed delivery of the Government’s missions for the whole UK.

Conclusion

The Spending Review has provided much needed clarity on how the government will invest and spend over the next 5 years – but this is just the beginning. The fundamental shifts outlined by the Chancellor, and the expectations placed on all departments to be more agile, more modern, and more efficient whilst delivering better outcomes, will present challenges for departments in how they reform a legacy delivery system. Siloes must be broken, inefficiency must be rooted out, and strategies and plans must be delivered on time and to budget.

Departments that have received multi-billion-pound settlements and investments must be ready and able to show results and build confidence from government and the taxpayer that money is being invested wisely.

AI is a huge part of our future, but it isn’t a magic wand – it must be targeted at the areas it can drive the most value and unleash the skills and capacity of the Civil Service to focus on solving the complex problems that our citizens face in their everyday lives. Listen to our podcast, Applications of Generative AI in the Public Sector.

Creating regional clusters of talent and innovation will support national growth, but the government must ensure that the investments they are making in housebuilding and improving transport connections are delivered on time, so citizens have the confidence to move from urban centres such as London into these new and vibrant “places”.

If we can successfully deliver the right combination of strategy execution, creativity, and talent redistribution, National Renewal is possible.

Talk to us

As always, we’re here to support your journey. If you’re navigating the changes that the Spending Review has had on your department, or on your organisation, we’d love to discuss how we can help. Get in touch or check out our work in the Public Sector space.

Q5 Partners We are all about organisational health, which separates good organisations from the great. Whether our clients are at the top of their game (and want to remain there) or are in ‘turnaround’ mode, we all need to work on our organisational health. Whatever the situation, be it a strategic conundrum, a market opportunity, or an operational gripe, we combine the art and science of organisational health to help our clients improve and excel.