Chancellor Rachel Reeves has been warned by top economists that rising defence commitments make it impossible to fully invest in growth, public services, and net zero goals. The warning comes just over a week before she unveils the government’s new spending review.
The Institute for Fiscal Studies (IFS) says the Treasury faces “unavoidably tough choices” ahead of the 11 June announcement. While the government plans to raise defence spending to 2.5% of GDP within two years, Defence Secretary John Healey says the UK is on track to hit 3% by 2034.
According to the IFS, these defence increases will dominate the upcoming review. Economist Bee Boileau explained that most of the future investment budget has already been absorbed by military funding, leaving little room for other priorities.
“Simultaneously prioritising additional investments in public services, net zero and growth-friendly areas within this envelope will be impossible,” Boileau said. The flow of new funding, she noted, has slowed to a “trickle” after a spending surge last autumn.
Reeves also faces internal resistance. Deputy Prime Minister Angela Rayner’s Ministry of Housing, Communities and Local Government has yet to settle its budget with the Treasury. Officials say several departments missed the informal deadline to finalise spending plans ahead of the review.
The Local Government Association is now calling for a “significant and sustained” rise in council funding. Chair Pete Marland warned that without new support, councils could face an £8 billion funding gap by 2028–29.
He said many local authorities are already struggling after a decade of cuts and warned that further underfunding will leave vital services at risk. Marland stressed that local governments are crucial to achieving national reform and growth targets.
Meanwhile, the Liberal Democrats urged the government to direct more money toward social care. They argue that proper funding for vulnerable citizens must not be sidelined.
The spending review will outline day-to-day departmental budgets for the next three years and investment plans for the next four. Reeves must now balance these commitments under severe financial constraints.
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