Joanne Pitt, CIPFA Senior Policy Manager
While we know this year’s Spending Review will be challenging, we won’t have the full picture until Wednesday 11 June, when Chancellor Rachel Reeves sets out departmental budgets for the next three to four years. This will include both resource spending — covering day-to-day costs such as salaries — and capital spending, which funds long-term investments in infrastructure like hospitals and roads.
Under her own fiscal rules, the Chancellor has committed to ensuring that day-to-day spending is covered by tax revenues — a principle that mirrors the way local government budgets are set. Yet, just as local authorities face intense pressure to stretch limited income across growing demand, the same strains apply at the national level. In short: difficult decisions lie ahead.
There have already been signals about some of what’s to come. The government has pledged to increase defence spending from 2.3% to 2.5% of GDP by 2027, and committed to invest in public transport networks in Greater Manchester, the Midlands, and Tyne-and-Wear. But every new funding announcement is a reminder that there’s only so much of the pie to go around — additional money for one area often means less for another.
In our search for further clues, the Public Accounts Committee session in April on financial sustainability comes to mind. During this session, Conrad Smewing, Director General of Public Spending at HM Treasury, referenced the upcoming Spending Review in relation to local government. He acknowledged the extremely difficult financial situation facing councils, while also recognising the critical role local authorities play in delivering the government's broader missions, particularly in areas such as housing, economic growth and health.
This recognition must translate into action. If government wants to succeed in its outcome-driven missions, it must ensure that local government is equipped — both financially and structurally — to deliver. Many councils’ ambitions to be engines of local and regional economic growth are severely limited by current funding realities. Capacity and capability are being further stretched by ongoing reorganisation efforts. As for housing, many Housing Revenue Accounts are under enormous strain, and current legislation and planning frameworks are not aligned to meet the scale of the housing challenge.
Smewing also referenced the £3.25 billion transformation fund announced in the Spring Statement, which is aimed at supporting prevention and efficiency improvements across government. While prevention and efficiency are widely accepted as essential to financial sustainability, too often these conversations remain theoretical. Progress cannot be held back by the pursuit of perfection. Local authorities must be empowered to innovate, adapt and learn — but none of this will be possible without meaningful financial investment. At CIPFA, we’re particularly focused on prevention as a key enabler of long-term financial sustainability.
One of Smewing’s closing comments was particularly welcome. He stressed the importance of cross-departmental coordination, especially in the context of the Spending Review. For local government, this is vital. Too often, councils are caught in the crossfire of misaligned or fragmented policy initiatives, resulting in added financial burdens and service delivery challenges. Whatever is announced this week, we hope the Chancellor has taken these points — raised by her own Treasury officials — into account when slicing up this year’s fiscal pie.