On Wednesday, Chancellor Rachel Reeves will present her ‘Spending Review 2025’. This will set day-to-day budgets for all government departments for the three years from 2026-27 to 2028-29, and investment spending plans for a further year, to 2029-30.
As usual, many of the details have already been revealed. In particular, ministers have trumpeted a ‘transformative £86 billion boost to science and tech to turbocharge [the] economy’. This ‘£86 billion’ figure has been widely reported, but it also illustrates a long-standing problem with how spending plans are presented.
Rather than taking these headline numbers at face value, it is worth asking four questions.
First, what types of spending are included in the figure?
In this case, the ‘£86 billion’ lumps together any government spending that could reasonably be described as ‘research and development’ (R&D), broadly defined as work to increase the stock of knowledge or to come up with new ways to apply existing knowledge.
The biggest chunk is spending by UK Research and Innovation (UKRI). But the ‘£86 billion’ also includes spending by higher education funding bodies and by government departments. The ONS publishes more details here.
So far, so good. ‘Science and tech’ might be lazy shorthand for the breadth of activities covered by ‘R&D’ (for example, the ‘£86 billion’ also includes research in the arts and humanities), but we can let that pass.
Second, what period does the figure cover?
This is where the problems start. The ‘£86 billion’ is the total spending planned over the full four years. The figure for the annual spending is more meaningful – and this would ‘only’ be £22.5 billion in 2029-30. Still a large number, but obviously less eye-catching.
Third, is this in cash or real terms?
It is also important to know that the ‘£86 billion’ is a cash figure, so it is boosted over time by rising prices. It is usually better to present the figures in real terms, which strip out the impact of inflation. ‘Real terms’ therefore gives a more accurate picture of what the money can actually buy.
Moreover, if you only look at the figures in cash terms, the Government is almost always spending ‘record amounts’, on everything. This is a truly vacuous soundbite.
Fourth, how does this spending compare with previous plans?
This is often the killer question – especially if the Government is claiming that the new spending will ‘turbocharge’ growth.
In this case, the Government had already allocated a ‘record’ £20.4 billion to R&D in 2024-25. The upshot is that the new figure of £22.5 billion by 2029-30 is only a 10% increase in cash terms, and essentially flat in real terms. Put another way, R&D spending is actually planned to fall as a share of GDP. It is very difficult to see how a real terms freeze in spending can provide a ‘transformative boost’ to anything.
This is frustrating for lots of reasons. For a start, the Government could be more honest about this spending and still have a positive story to tell. Ministers could have said something like, ‘despite the pressure on the public finances we have protected the R&D budget, for a full four years…’
Moreover, these statistical sleights of hand help to undermine public confidence in anything politicians have to say.
This is not the only example. The Times has reported that the Chancellor will announce a cash increase of about £30 billion to annual day-to-day NHS spending by 2028-29. But as the newspaper also noted, this is only about £17 billion in real terms (see my question three).
This boost is based on real growth of 2.8%, but this is not actually that big by past standards (see my question four). The average annual increase from 2023-24 to 2025-26 was 3.5%. Indeed, the OBR had assumed (for the March Budget) that spending would rise by 3.6% a year after 2025-26, in line with the average since 1949-50. The upshot is the slower growth of 2.8% cannot be ‘transformative’ either.
To be fair to the current Government, these tricks are nothing new. Spending ministers obviously like to present the numbers in the most favourable way. Generally, this means the bigger the better – but not always.
We had a good example of this dilemma when the Government confirmed the financial costs of the deal to hand the Chagos islands to Mauritius. The official costings are an annual average of £101 million and a total cost of £3.4 billion. But others have proposed a figure as high as £30.3 billion.
The irony is that all these figures are in some sense ‘correct’. In fact, that just crunch the same numbers in different ways. The £30.3 billion is simply the sum of all the cash payments over the initial 99-year period of the deal, assuming 2% annual inflation.
The £110 million is the equivalent annual payment in real terms, while the £3.4 billion is the net present value of all those payments over 99 years, discounted back to the present day.
The £3.4 billion number is perhaps the most meaningful (though the discount rate is arguably too high here). But Government ministers can hardly complain if their opponents use the much higher cash total when ministers themselves are happy to do the same when it suits them!
In short, we should be sceptical about all of these soundbites. Asking those four questions may help to shed more light on what these figures really mean, and whether the hype around them is justified.
Plain-speaking Economics 