The UK government will require departments including health and education to identify additional savings in next year’s spending review to support a £10 billion increase in defence funding, Treasury officials have indicated. Recent figures released by the Treasury show that departments achieved more than £7.2 billion in cash savings and £9.1 billion in efficiencies over the past year, exceeding the 2025-26 target set by Chancellor Rachel Reeves in her 2024 budget.

Despite these savings—equivalent to 4.1 percent of day-to-day government spending—officials suggest further reductions will be necessary to meet Chancellor John Healey’s commitment to allocate 3 percent of gross domestic product (GDP) to defence by 2030. Emma Reynolds, chief secretary to the Treasury and minister responsible for the spending review, emphasized that enhanced efficiencies could enable better public services while reallocating funds to defence.

“We have already delivered the largest sustained increase in defence spending since the Cold War by reprioritising budgets from other departments,” Reynolds said. “There are opportunities to go even further with efficiencies, which will help deliver improved outcomes and maintain control over public spending.”

The savings achieved were driven largely by reductions in workforce costs, renegotiation of external contracts, and service redesign. However, only a small fraction—around 4 percent—resulted from digital transformation efforts. Last year’s spending review had set a goal for all departments to cut costs by 2 percent, partly through adopting technology and improving interdepartmental collaboration. Additional capital investments were provided to support new digital services across frontline bodies including the National Health Service and HM Revenue & Customs.

The Department of Health reported £3.9 billion in savings alongside £6.3 billion in efficiencies, representing about 5 percent of its day-to-day spending. The Department for Education identified £1.1 billion in cash savings and nearly £900 million in efficiencies. Reynolds noted that further progress is expected by expanding the use of technology including artificial intelligence in government functions, citing ongoing initiatives in the NHS, HMRC, and the Ministry of Justice.

Originally anticipated for the spring, the spending review is now expected to be delayed until autumn to align with the budget. This postponement aims to provide the government with a clearer picture of the fiscal outlook and potentially lower borrowing costs, easing the challenge of funding increased defence spending without resorting to tax rises.

The Institute for Fiscal Studies recently warned that inflation has significantly eroded departmental funding settlements, estimating that Chancellor Healey might need to identify as much as £35 billion in additional resources to avoid cuts to public services while meeting defence spending targets. The institute cautioned that generating this sum through tax increases could require raising all income tax rates by three percentage points or imposing a similar hike in VAT, measures that would conflict with Labour’s manifesto pledges.

In preparation for the spending review, Reynolds is reportedly conducting a comprehensive audit of government expenditures to uncover further savings opportunities. Healey has also communicated to cabinet members that any new spending commitments must be accommodated within existing departmental budgets. Reynolds stressed the importance of ongoing efficiency drives, describing them as a critical framework for the upcoming spending review.