The June 2025 Spending Review sets out ambitious plans for economic recovery and long-term growth with a strong emphasis on digital transformation and modernising labour force skills. How should UK businesses react and how could it affect them?
Impact on sectors and skills
Overall, government day-to-day spending will increase by 1.7% per year, while capital investment will grow by 3.6% per year to 2029–30. This amounts to a £113 billion increase in capital spending compared to the previous government’s plans. The main sector to benefit from this is the healthcare sector, with the NHS said by some analysts to account for 90% of the net uplift in government spending. Defence will obviously gain too, as should transport infrastructure.
As well as the movement between departmental budgets impacting where government spending falls, the changed priorities towards digital transformation and re-skilling the UK workforce will inevitably move work over to professional service providers in the IT and training industries. Manufacturing will gain from defence rises and the construction sector from infrastructure spending.
Higher investment in green technologies and sustainability
A significant re-allocation of resources towards green technologies and sustainability initiatives and away from legacy fossil fuel applications is at the heart of the Spending Review 2025. Businesses in the renewable energy, electric vehicle and energy-efficiency sectors can look to substantial funding and tax incentives.
The government’s reinforced commitment to achieving net-zero emissions by 2050 is obvious from such measures as grants for green innovation, subsidies for low-carbon infrastructure projects and tighter environmental regulations. Both opportunities and challenges will flow from this. Companies in the environmental sector can expect growth, other industries will inevitably face higher compliance costs.
SMEs and the regions
SMEs are a major focus of this Spending Review 2025. The government is setting aside funds for low-interest loans, grants and mentorship programs to help SMEs to grow and innovate. Additionally, regional development programs are set to receive a much-needed boost, with targeted investments in areas traditionally under-served by public spending.
The strategic objective is to reduce regional imbalances and create thriving local economies. For local businesses, this should eventually mean access to infrastructure improvements and more skilled labour resources.
The downside will be that accessing these benefits will inevitably involve navigating complex funding application processes and demonstrating alignment with government priorities, which will be a huge challenge for smaller, less well-resourced firms.
Digitalisation and innovation
The Spending Review 2025 allocates significant resources for digital transformation, recognising the importance of new technologies. The intention is that businesses across all sectors will ultimately benefit from this focus, though this will inevitably be a long and slow process. Initiatives include investment in nationwide high-speed internet, support for AI research and development, and incentives for adopting digital technology.
This focus on digitalisation offers businesses the opportunity to streamline operations, engage customers more effectively and explore new markets. At the same time, it highlights the vital importance of skills development within their workforces. Companies will need to invest in training programs to bridge the digital skills gap and fully leverage emerging technologies.
Challenges in the labour market
The Spending Review 2025 also seeks to influence the UK labour market, with investments in education, vocational training and apprenticeships. By prioritising skills development, the government expects to create a national workforce capable of serving the more exacting needs of high-demand sectors such as renewable energy, healthcare and technology.
For businesses, the benefit will be a better pool of staff resource, although achieving this will require companies to commit to upskilling their existing employees by allocating the required financial and training resources. Businesses, which can’t or won’t adapt to the evolving skills landscape run the very real risk of quickly becoming uncompetitive and are likely to suffer increasing difficulties in retaining and recruiting staff.
Cost sharing and increased regulation
The government is looking for help from the private sector to fund its ambitious plans. Although the Spending Review 2025 studiously avoids any reference to higher taxes for obvious political reasons, it does propose measures aimed at ensuring that large corporations contribute their fair share through measures such as the proposed levy on multinational companies operating in the UK.
Regulatory reforms are promised, aimed at simplifying bureaucracy and easing compliance. Even so, sectors more heavily affected by environmental or digital regulations will have increased regulatory burdens. Businesses will need to remain agile and proactive in adapting to these changes.
Global issues
The Spending Review 2025 has to be set against a background of constantly changing global economic challenges. Inflationary pressures, volatile energy prices, unpredictable trade policies and other geopolitical tensions, each adding new levels of uncertainty. While its measures aim to boost the domestic economy, businesses trading internationally are bound to encounter global supply chains issues and currency instability.
Can it be delivered?
All of these worthy objectives rely on the government not only planning and explaining in detail how it will change the way it operates, but then actually delivering on them. This in turn assumes a willingness by businesses to invest in being able to interact with this re-born public sector, which is asking a lot in a time of ongoing uncertainty and with such a sluggish UK economy.
The Spending Review 2025 represents both opportunities and challenges for UK businesses. On the plus side, it promotes innovation, sustainability and regional growth. On the other, it will require adaptability in the face of significant regulatory change and global uncertainty. Businesses willing to take change seriously, invest in green technologies and upskill their staff are the most likely to succeed in this altered environment.
As the policies in the Review are fleshed out and their effects become clearer, the dominant strategies for UK businesses in the short and medium term need to be resilience, adaptability and heightened risk awareness. The jury remains out on how much of this ambitious programme of change will become reality.
If you are seeking professional advice for your business, Opus is here to help. You can speak to one of the members from Opus, who can discuss options with you. We have offices nationwide and by contacting us on 0203 995 6380, you will be able to get immediate assistance from our Partner-led team.