Resolution Foundation calls for prioritising health and housing to raise living standards
Chancellor Rachel Reeves has been warned that “tough trade-offs” lie ahead as the Government prepares for its summer spending review, with new analysis urging her to focus investment on key public services such as health and housing.
A report published by the Resolution Foundation think tank has advised the Treasury to prioritise investment from its “limited pot” in areas most likely to boost living standards, warning that failure to do so could hamper long-term growth and widen inequality.
The spending review, due to be finalised in June, will set departmental budgets for the next three years, determining day-to-day spending for both protected and unprotected departments. While funding for the NHS, defence, and schools is safeguarded, other departments—including local government, justice, transport, and culture—will be under intense scrutiny.
“The Chancellor must now decide how to allocate a limited pot of capital spending in a way that both addresses the UK’s legacy of frayed infrastructure and supports future ambitions for growth and higher living standards,” the report stated.
The Foundation’s report calls for direct government investment to be concentrated on sectors that have experienced historic underfunding, with particular attention to affordable housing and the healthcare system. It argued that such investment would not only address long-standing deficiencies but would also help achieve the Government’s broader ambitions of driving economic growth and improving daily life for working families.
Capital spending, which refers to funding major projects such as building new hospitals or upgrading transport infrastructure, differs from day-to-day expenditure such as wages or utility costs. At last year’s Autumn Budget, Ms Reeves pledged to increase capital spending and introduced four new “guardrails” to ensure greater accountability and efficiency.
However, the Resolution Foundation estimates that the Treasury will have between £20 billion and £50 billion available for capital investment over the next five years, if it wishes to avoid severe reductions in departmental budgets elsewhere. Within that constraint, the think tank recommends prioritising social infrastructure.
“Investment that is likely to be well targeted across both historical neglect and future growth potential includes social investment in housing and health,” the report noted. “Spending on prisons and well-targeted transport infrastructure in the UK’s second cities should be seen as secondary priorities.”
Rachel Reeves herself has acknowledged the need for a shift in approach, telling the BBC earlier this year that the Government “can’t just carry on like we have been, spending on the same things that the previous government spent on”.
James Smith, research director at the Resolution Foundation, said: “The upcoming spending review offers a unique opportunity to reverse Britain’s terrible record on public investment. But make no mistake—tough trade-offs lie ahead for the Chancellor.”
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He added: “Ms Reeves should look to prioritise investment that boosts public services, economic growth, and family living standards. Affordable housing, in particular, should be targeted in major cities where supply constraints are holding back both people and businesses.”
According to Mr Smith, this kind of targeted investment—especially when combined with improvements to commuter transport links—would enable cities to better attract new firms and skilled workers, driving productivity in the process.
A Government spokesperson responded by saying: “Since taking office the Government has committed over £100 billion in additional capital spending and is prioritising investment to drive growth.”
They added: “The spring statement increased capital investment by a further £13 billion, and the OBR has concluded that the Government’s landmark planning reforms will result in UK housebuilding reaching its highest level in over 40 years. This is a major step forward in our Plan for Change mission to build 1.5 million homes.”
With the spending review now underway, the decisions made in the coming months will define not only the fiscal direction of the current Government, but the tangible quality of public services and infrastructure for years to come.
