Even for those of us who follow these kinds of things on a regular basis, the spending review is, frankly, a bit of a headache.

This is one of the biggest moments in Britain’s economic calendar – bigger, in some respects, than the annual budget.

After all, these reviews, which set departmental spending totals for years to come, only happen every few years, while budgets come around every 12 months (or sometimes more often).

Yet trying to get your head around the spending review – in particular this year’s spending review – is a far more fraught exercise than with the budget.

In large part that’s because the Office for Budget Responsibility (OBR), the quasi-independent body that scrutinises the government’s figures, is not playing a part this time around.

There will be no OBR report to cast light, or doubt, on some of the claims from the government. Added to this, the data on government spending are famously abstruse.

So perhaps the best place to start when approaching the review is to take a deep breath and a step back. With that in mind, here are five things you really need to know about the 2025 spending review.

1. It’s not about all spending

That might seem like a strange thing to say. Why would a spending review not concern itself with all government spending? But it turns out this review doesn’t even cover the majority of government spending in the coming years.

To see what I mean you need to remember that you can split total government spending (£1.4trn in this fiscal year) into two main categories.

First there’s what you might call non-discretionary spending. Spending on welfare, on pensions, on debt interest.

This is spending the government can’t really change very easily on a year-to-year basis. It’s somewhat uncontrolled, but since civil servants wince at that idea, they have given it a name that suggests precisely the opposite: “annually managed expenditure” or AME.

Then there’s the spending the government has a little more control over: spending in its departments, from the Ministry of Defence to the NHS to the Home Office.

This is known as “departmental spending”. This is what the spending review is about – determining what departments spend.

The key thing to note here is that these days departmental spending (actually, to confuse things yet further, the Treasury calls it Departmental Expenditure Limits or DEL) is quite a bit smaller than AME (the less controlled bit with benefits, pensions and debt interest costs).

In short, this spending review is actually only about a fraction – about 41p in every pound – of government spending.

You can break it down further, by the way. Because departmental spending can be split into day-to-day spending (Resource DEL) and investment (capital DEL). But let’s stop with the acronyms and move on to the second thing you really need to know.

2. It’s a “zero-based” review. Apparently

The broad amount the government is planning to spend on its departments was set in stone some time ago. The real task at hand in this review is not to decide the overall departmental spend but something else: how that money is divided up between departments.

Consider: in this fiscal year (2025/26) the government is due to spend just over £500bn of your money on day-to-day expenditure.

Of that, by far the biggest chunk is going to the NHS (£202bn), followed by education (£94bn), defence (£39bn) and a host of other departments. That much we know.

In the next fiscal year, we have a headline figure for how much day-to-day spending to expect across government. What we don’t have is that breakdown.

How much of the total will be health, education, defence and so on? That, in a sense, is the single biggest question the review will set out to answer.

Now, in previous spending reviews the real debate wasn’t over those grand departmental totals, but over something else: how much would they increase by in the following years?

This time around we are told by Rachel Reeves et al that it’s a slightly different philosophy. This time it’s a “zero-based review”.

For anyone from the world of accountancy, this will immediately sound tremendously exciting. A zero-based review starts from the position that the department will have to justify not just an annual increase (or decrease), but every single pound it spends.

It is not that far off what Elon Musk was attempting to implement with the DOGE movement in US government – a line-by-line check of spending.

That’s tremendously ambitious. And typically zero-based reviews tend to throw out some dramatic changes.

All of which is to say, in theory, unless you believed government was run with incredibly ruthless efficiency, if this really were a zero-based review, you’d expect those departmental spending numbers to yo-yo dramatically in this review. They certainly shouldn’t just be moving by small margins.

Is that really what Whitehall will provide us with in this review? Almost certainly not.

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3. It’s the first multi-year review in ages

What we will get, however, is a longer-range set of spending plans than government has been able to provide in a long time.

I said at the start that these reviews are typically multi-year affairs, setting budgets many years in advance.

However, the last multi-year review happened in the midst of COVID and you have to look back to 2015 for the previous multi year review.

That certainty about future budgets matters for any government department attempting to map out its plans and, hopefully, improve public sector productivity in the coming years.

So the fact that this review will set spending totals not just for next fiscal year but for the next three years is no small deal.

Indeed, for investment spending (which is actually the thing the government will probably spend more time talking about), we get numbers for four successive years. And the chances are that is what the government will most want to talk about.

4. It’s not “austerity”

One of the big questions that periodically returns to haunt the government is that we are heading for a return to the austerity policies prosecuted by George Osborne after 2010.

So it’s worth addressing this one quickly. The spending totals implied by this spending review are nothing like those implemented by the coalition government between 2010 and 2015.

You get a sense of this when you look at total public spending, not in cash or even inflation-adjusted terms (which is what the Treasury typically likes to show us), but at those figures as a percentage of GDP.

Day-to-day spending dropped from 21.5% of GDP in 2009/10 to 15% of GDP in 2016/17. This was one of the sharpest falls in government spending on record.

By contrast, the spending envelope for this review will see day-to-day spending increasing rather than decreasing in the coming years.

The real question comes back to how that extra spending is divided between departments.

Much money has already been promised for the NHS and for defence. That would seem, all else equal, to imply less money for everyone else.

But overshadowing everything else is the fact that there’s simply not an awful lot of money floating around.

5. It’s not a big splurge either

While the totals are indeed due to increase in the coming years, they are not due to increase by all that much.

Indeed, compared with most multi-year spending reviews in the past, this one is surprisingly small.

In each year covered by the 2000 and 2002 comprehensive spending reviews under Gordon Brown, for instance, capital investment grew by 16.3% and 10.6% respectively.

This time around, it’s due to increase by just 1.3%. Now, granted, that slightly understates it. Include 2025/26 (not part of this review but still a year of spending determined by this Labour government) and the annual average increase is 3.4%.

Even so, the overall picture is not one of plenty, but one of moderation.

While Rachel Reeves will wax lyrical about the government’s growth plans, the numbers in the spending review will tell a somewhat different story. If you can get your head around them, that is.

This spending review is a massive deal. It’s a massive deal because of the sums of money and capital the government is about to allocate – £600bn over the next three to four years.

But it is also a massive political moment as the Labour government tries to turn the corner on a difficult first year and show voters it can deliver the change it promised.

It is not, say No 10 insiders, another reset, but rather a chance to show ‘working people’ why they voted Labour. Look at the blitz of announcements over recent days, and this is a government trying to sell the story of renewal.

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On Tuesday, the prime minister and his energy secretary, Ed Miliband, announced the biggest nuclear building programme for half a century, with £14.2bn being poured into Sizewell C on the Suffolk coastline to create over 10,000 jobs over the next decade and provide energy security.

Last week, the chancellor announced £15bn for new rail, tram and bus networks across the West Midlands and the North. She’s also expected to green-light a new rail line between Liverpool and Manchester on Wednesday, and invest capital in housebuilding.

In total, there will be £113bn of additional capital investment, which the government will frame as the long-promised ‘decade of renewal’ around the three pillars of security, health and the economy.

But that is only one half of this spending review and only one half of the story we will hear on Wednesday, because the largesse of the capital investment – which the chancellor will say is only possible because of the choices she made in the first year of government – will be matched with spending settlements for day-to-day spending across Whitehall that will draw into sharp relieve the choices and priorities for this government.

Security and health are two of her pillars, and it will be defence and health that will take a bigger share of the spending pot.

Frustration in the Home Office

Having front-loaded day-to-day spending into the first and second years of this Labour administration, the overall pot will rise by 1.2 per cent in real terms every year for the rest of the parliament.

That is pretty modest growth and, bluntly, it means that if the defence and NHS budgets get a bigger share of the pot, there will be real terms cuts in some unprotected departments.

One to watch is the Home Office, where the home secretary was the last to hold out on a settlement and seems to have had it imposed on her by the chancellor.

Hers is a huge brief, spanning police – including the manifesto pledge to increase police on the beat by 13,000 – border security, immigration, and homeland security.

There is frustration in the Home Office that while ‘security’ is one of the government’s pillars, it is the Ministry of Defence that has been given the funding. If Yvette Cooper is to deliver on police numbers, what else might have to give?

Watch too for a squeeze on council budgets as the chancellor uses her capital budget to invest in house building, while day-to-day spending is squeezed across our councils, schools and courts.

Reeves under pressure to boost spending

This is the rub. Rachel Reeves will insist on Wednesday that spending is rising by £190bn more over the course of the parliament, partly because of those tough tax rises in her first budget.

But largesse in capital investment won’t be able to disguise the short-term pressures on day-to-day spending from a Labour Party and a set of voters fed up with cuts and feeling like their lives aren’t improving.

The winter fuel reversal is the proof point. The chancellor, who will not loosen her fiscal rule of funding day-to-day spending through tax receipts, has to find £1.25bn to pay the allowance to nine million pensioners this winter.

She is also under pressure to lift the two-child benefits cap, with Liz Kendall, Bridget Phillipson and Sir Keir Starmer all thought to want this to happen. That will cost up to £3bn.

There is pressure to change the disability cuts in order to get the welfare changes through parliament.

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The point is that the chancellor is under huge pressure to lift spending, not keep her foot on its throat, and that means into the autumn, the clamour for targeted tax rises will only grow.

Can Reeves sell this government’s ‘renewal’ story?

But amongst the top team, there is some guarded optimism.

The political pain of the winter fuel allowance U-turn has eased the pressure on the doorstep: one very senior Labour politician told me this week that last weekend was the first time in a long time that the matter didn’t come up on the doorstep and “the first time in a long while that it felt alright.”

On Wednesday, there will be pain. The headlines will scream cuts and open up talk about tax rises that will run right up to the budget in October.

But it will also be a moment where this Labour government can show voters in the form of dozens of projects and thousands of jobs, that it does have a plan to rebuild.

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It is a spending review that will define Labour in power for the rest of this parliament and how our country looks and feels for years to come.

The political aim is to do enough – be it on hospital waiting lists, energy bills, wages, or shovels in the ground – to persuade voters at the next election to give Labour another chance.

For months, MPs have been quietly grumbling that this Labour government is in power without a story to tell. On Wednesday, we’ll see how well Ms Reeves can write, and sell, the next chapter.