Chancellor Rachel Reeves set out departmental budgets through to 2028/29 (2029/30 for capital expenditure) in the latest Spending Review.
The review provides £1.7bn to HMRC across four years, funding an additional 5500 compliance and 2400 debt management staff. The government estimates this will enable the tax department to raise an extra £7.5bn by 2029/30, described in the review as “the most ambitious ever package of measures to close the tax gap”.
This is an increase of 1.8% in spending growth over the period, compared to 0.7% in the previous period. The current year budget is £5.9bn, while 2026/27 will be £7.3bn, before falling back to £7.1bn (2027/28) and £6.9bn (2028/29).
Digital driver
Digital infrastructure and AI are big areas of focus for the review. In relation to HMRC, this means a further £500m investment into digital services over the review period.
The government estimates that, by 2029/30, a “minimum” of 90% of customer interactions will be digital self-serve, from the current figure of 70%.
“This will improve services so people can easily and quickly get the information they need without having to call or write to HMRC.” Alternative channels, including phonelines, will “still be there for those who need them”.
The tax department has pledged to eliminate all outbound post, “with limited exceptions such as letters which generate revenue for the Exchequer”, saving £50m a year by 2028/29.
The moves reflect “a continued commitment to the step change in the government’s efforts to close the tax gap, improve customer service, and modernise and reform HMRC,” the review states. HMRC has also committed to delivering at least 5% savings and efficiencies over the coming years.
Economic investment
In terms of the economy, an additional £120bn will be invested over the review period (in comparison to the position at Spring Budget 2024). This includes:
- £15.6bn in total by 2031/32 through the new Transport for City Regions (TCR) settlements, to give metro mayors of some of England’s largest city regions long‑term transport settlements;
- £39bn for a new ten‑year Affordable Homes Programme;
- £14.2bn for Sizewell C over the review period, the first state‑backed nuclear power station since 1988; and
- £22.6bn per year for research and development by 2029‑30, in support of the government’s forthcoming modern Industrial Strategy.
A further £3.3bn of capital spending will be brought forward from later years.
The review allocates £9.6bn in additional transactions, such as loans and equity investments, to support growth. This includes increasing the capacity of the British Business Bank and Great British Energy.
In totality
Total departmental budgets will grow by 2.3% across the Spending Review period: to 2028/29 for day-to-day spending and 2029/30 for capital investment.
The key departmental ‘winner’ is the Ministry of Health and Social Care. It will experience real growth of 2.8% over the Spending Review period, equating to a £29bn annual increase by 2028/29. A key aim is to reduce waiting times for consultant treatment to within 18 weeks of referral.
The schools budget will increase by £2bn in real terms over the Spending Review period, including funding for skills that can be accessed by 16- to 19-year-olds.
