Spending Review 2025: Takeaway points for your business, plus implications of a cooling labour market
Today we place a spotlight on last week’s spending review from the Chancellor, and take a look at the implications of a cooling labour market.
Spending Review 2025: Takeaway Points for Your Business
Last week, the Chancellor unveiled her Spending Review setting out how government departments will allocate money over the coming years. While much of the focus was on large-scale public services like the NHS and schools, there are some important signals here for businesses to take note of – both in terms of opportunity and outlook.
Zero-based Review
A theme of the review was scrutiny. The Chancellor described the exercise as a “zero-based” review – meaning department budgets were built from scratch, rather than from making changes to what was already in place. The aim, according to the government, was to focus spending only where it delivers value for money.
This may strike a chord with you as a business owner. As you plan for upcoming months, there’s something to be said for taking a zero-based approach yourself.
You could do this by questioning whether each cost is still serving the business. This may help you see areas where reallocating funds could help the business grow or be more efficient.
Everyone is Under Pressure with Costs
Public sector pay rises in education and healthcare are being part-funded through expectations of increased “productivity” in those sectors.
This provides a reminder that cost pressures are widespread and efficiency will be a watchword in public contracts and procurement. If you supply to public sector organisation, you may need to be prepared for closer scrutiny of your prices and performance.
Increases in Capital Investment
Elsewhere, the review confirms increased capital investment in areas like transport infrastructure and social housing. Over time, this may bring new opportunities for construction and related industries. However, spending will be spread over a long period.
Similarly, investment in AI, tech and scientific infrastructure (including a new supercomputer in Edinburgh) could create demand for highly specialised services, but the benefits may take time to filter through.
Speeding Up Infrastructure Projects
The Chancellor also flagged changes to the way the Treasury evaluates infrastructure projects, promising a more modern approach. This might affect which types of projects get greenlit and how quickly – something worth watching if you’re bidding for public contracts or working in the built environment.
Final Thoughts
While headlines may focus on big numbers and high-level priorities, the underlying message of this Spending Review is relevant for businesses of all sizes: pressure on budgets, rising expectations of value, and a focus on getting more from what’s already being spent.
If you’d like help reviewing your own budgets or planning for the year ahead, we’re here to support you.
See: https://www.bbc.co.uk/news/articles/clyr170qm19o
Hiring Slows as Costs Rise
New data from the Office for National Statistics suggests that UK businesses are continuing to slow down recruitment, with job vacancies falling by 63,000 between March and May.
While this doesn’t indicate a full-blown jobs crisis, it’s a clear sign that the labour market is cooling. The unemployment rate rose to 4.6% (from 4.5%), the highest it has been in nearly four years.
What’s Driving the Change?
Rising employment costs are a big factor. From April, employers have had to pay higher National Insurance contributions, and the national minimum wage has gone up too. The figures suggest that these changes are affecting how businesses manage staffing.
According to the ONS, some employers are choosing not to replace staff when they leave or are putting off recruiting new workers altogether.
While average wage growth between February and April slowed slightly to 5.2%, it still outpaces inflation, which rose to 3.5% in April. This suggests that although wage pressure is slowing, employers still need to carefully manage pay expectations.
What This Means for Your Business
If you’re finding recruitment more difficult or too expensive, the figures suggest that you’re not alone.
This could be a good time to:
- Review staff roles and make sure people are focused on the tasks that really help the business succeed right now. You might find some responsibilities can be reshuffled or streamlined to save you time and money.
- Think about more in-house training. Someone already working for you might be able to take on more with the right training. This could be a better option than hiring someone in with those skills.
- Check what support is available. There may be grants, training funds or wage subsidies on offer in your area that could help with staff development and easing your costs.
If you need help with reviewing your staffing strategy or payroll planning, please give us a call. We would be happy to help you!