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What are some of the key takeaways from the recent Spending Review that could help businesses in the South West?
17 June 2025
The Chancellor's 2025 Spending Review is meant to lay the groundwork for "renewing Britain" through sustained investment across defence, housing, infrastructure, clean energy, and innovation, which should also benefit the South West.
See also our earlier article: Spending Review heralds tax rises on the way, but where?
In essence, the Spending Review accelerates into the 2026/27 year around £3.3 billion capital spending, but total capital spending over the period remains at the level announced in the 2025 Spring Statement.
However, a further £9.6 billion will be accessible via loans and equity to support growth through entities such as the British Business Bank.
Defence spending receives an uplift, increasing to 2.6% of GDP by 2027 (now including the intelligence services), with an ambition to reach 3% by the next Parliament. It is notable that since the review, the UK government has signed up to the NATO defence-spending target of 5% of GDP (3.5% on core defence and 1.5% on defence-related infrastructure).
An additional £11 billion is earmarked, including £600 million specifically for intelligence and cybersecurity.
Crucially, 10% of the MoD’s procurement budget is now ring‑fenced for emerging and innovative technologies (AI, cyber, drones), which amounts to roughly £400 million upfront, with plans to expand over time.
Gloucestershire, already home to cyber hubs like Cheltenham’s GCHQ and growth‑stage tech firms, is poised to benefit directly from this shift. Expect new R&D, supply‑chain opportunities, and defence‐tech apprenticeships in the region.
Adding to this, a Defence Growth Board, co‑chaired by the Chancellor, will help to drive modernisation, streamline procurement, and open doors to SMEs.
For SMEs with capabilities in cyber and advanced electronics, alignment with MoD demand could unlock new contracts and partnerships.
A decade‑long £39 billion Affordable Homes Programme is confirmed, catalysing private finance (£4.8 billion in loans and equity) to fast‑track social and affordable housing across England. See our separate article on housing associations.
For the South West, facing ongoing housing supply pressures, this translates to accelerated delivery capacity, streamlined planning, and mixed‑tenure developments. Local developers and construction firms should stand to benefit.
Transport investment is also high on the agenda: £2.5 billion for East‑West Rail, and £3.5 billion for the Transpennine upgrade, with another £15.6 billion allocated to city‑region transport systems. While the South West isn’t directly on these routes, improved regional connectivity could boost inward investment and make it easier for businesses to tap into wider talent pools and supply chains.
The Spending Review also provides funding for clean energy: £14.2 billion for Sizewell C nuclear, £2.5 billion for SMRs, and £9.4 billion for carbon capture, alongside £13.2 billion for home insulation and Warm Homes Plan.
For the South West, already leading in green innovation, this means greater opportunity for local engineers, modular manufacturers, and installers.
The £4.2 billion flood defence investment over three years is equally relevant (given our region's vulnerability to river‑based flooding). Local councils and contractors should position themselves for national and regional bids tied to these funds.
R&D and digital infrastructure receive upfront boosts. Alongside a £1.9 billion total investment by the Department for Science, Innovation and Technology (DSIT), the new National Digital & AI Roadmap creates long-term clarity. By 2029‑30, annual R&D spend climbs to £22.6 billion.
For South West innovative businesses (including GCHQ spin‑outs and university-linked start‑ups), this signals continuing public support and possible new R&D collaborations or centres.
Additional support via the National Wealth Fund, British Business Bank, and Great British Energy will help local firms scale and take part in national clean‑tech and cyber supply chains.
Day‑to‑day public spending across all departments will grow by 2.3% annually, with local authority grants up 3.1% per year.
Schools receive a £4.7 billion annual uplift by 2029, and health sees £29 billion extra annually, offering scope for local public sector employment, digital transformation, and community investment.
Policing will increase by 2.3% annually, funding 13,000 more officers across England and Wales, supporting safer communities.
The Spending Review 2025 turns Spring Statement commitments into funded plans, confirming long‑term investment in defence innovation, construction, green energy, and public services.
For the Southwest, it’s a clear opportunity: companies equipped with cyber, clean‑tech, construction, and community‑service capabilities will be well‑placed to win contracts, form partnerships, and drive regional economic renewal.
If you would like to discuss how recent or possible future changes could impact you or your business, contact your usual Bishop Fleming contact.
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