How the 2025 Spending Review will affect key economic sectors

Chancellor Rachel Reeves’ 2025 Spending Review marks a pivotal shift in the UK’s fiscal and industrial strategy, with significant ramifications for companies operating in the health, science & technology and defence sectors. 

Here, Olayanju Phillips, Colin Bell and Richard Hough share a summary of the key developments and their likely commercial implications.

Health — £29bn strategic investment and digital transformation

The Spending Review delivers a record £29bn annual uplift to NHS funding, representing a 3% real term increase in day-to-day spending. 

This is aimed at reducing waiting times, expanding clinical capacity and modernising infrastructure. 

Notably, £10bn is earmarked for digital health infrastructure, including enhancements to the NHS App and electronic health records. 

A 10-year health plan will underpin this investment, with a focus on increasing diagnostic capacity and streamlining patient pathways.

Commercial implications:

• Digital health providers and MedTech firms should prepare for increased procurement opportunities, particularly in AI diagnostics, telemedicine and patient data platforms.
• Regulatory scrutiny is expected to intensify around data protection, cybersecurity and interoperability standards, especially under the evolving NHS Digital and MHRA frameworks.
• Private healthcare operators may face competitive pressure but also opportunities to partner with the NHS on service delivery and innovation pilots.
• Private Partnerships (PPPs) — opportunities will expand for private providers to co-develop services with the NHS, but these will be subject to rigorous value-for-money and transparency assessments.

Science and technology — £86bn commitment to innovation

The Chancellor has committed £86bn to the science and technology sector over the current Parliament, with an annual “bumper funding package” worth £22.6bn in 2029/2030 for research and development.

Key initiatives include:

• £500m for a R&D Missions Accelerator Programme (which is intended to leverage a further £1.5bn of private investment) into innovation challenges, to break down barriers and accelerate the delivery of the Government’s missions.
• £500m for regions across the UK (£410m of which falling between 2026-2027 and 2029-2030) for a Local Innovation Partnership Fund to support local leaders to drive innovation excellence across the UK. Local leaders are part of the decision making to decide how to target their research investment, boost high skilled jobs and ignite growth.
• At least £1bn in funding to scale up the Advanced Research and Invention Agency (ARIA) to fund breakthrough R&D designed to catalyse future growth.
• £2bn for AI development — including funding of up to £500m for the creation of a new UK Sovereign AI Unit working with the British Business Bank to support the emergence of national AI champions, £48m for the Tech Expert programme to drive collaboration with universities and £240m for the AI Security Institute.
• £1.9bn for Building Digital UK to deliver the next phase in the transformation of the country’s digital infrastructure.
• £1.2bn annually by 2028-29 for skills and apprenticeships, reinforcing the UK’s industrial strategy.
• Up to £750m for a new supercomputer at Edinburgh University.
• Up to £600m investment to launch the world’s first Health Data Research Service in Cambridge to accelerate the discovery of life-saving drugs.

Opportunities for technology-based businesses

• Innovative and science and technology-based businesses should be aware of opportunities for funding, recruitment and collaboration as this is intended to be a key area of growth.
• Life sciences and biotech firms should consider alignment of R&D strategies with government priorities to access funding and collaborative opportunities.
• Tech companies — particularly in AI, semiconductors and green energy — should monitor regional funding calls and engage with local enterprise partnerships.
• Compliance with emerging standards in AI ethics (including around algorithmic transparency, clinical trials and genetic data), export controls and IP protection will be critical as regulatory frameworks evolve to match the pace of innovation.
• IP strategy alignment — firms should review IP portfolios to ensure protection and to benefit from R&D and other reliefs in priority areas (e.g., AI, biotech). Legislation and case law will also determine the balance between AI and Tech growth and protection of IP and the creative industries.

Defence and security — strategic reinvestment

Defence spending will rise to 2.6% of GDP from 2027, with: 

• £1bn in capital investment in a sovereign warhead programme
• £1bn to fund delivery of the first European laser-directed energy weapon in service
• £4bn to drive development of autonomous system
• £6bn investment in munitions. 

A new Border Security Command will receive £280m annually.

Commercial implications:

• Defence contractors and cybersecurity firms should anticipate increased procurement activity and stricter compliance with export controls and national security regulations.
• Logistics and infrastructure providers may benefit from expanded defence estate projects and supply chain localisation.

“Zero-based budgeting” approach

The Spending Review is underpinned by a “zero-based budgeting” approach, suggesting a more forensic review of departmental spending and a likely increase in performance-based funding models. 

While the tone is expansionary, the Chancellor has reaffirmed strict fiscal rules, indicating that future tax rises or spending reallocations may be necessary.

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