Fiscal discourse should prioritize public funding as its core element.

Fiscal discourse should prioritize public funding as its core element.

The UK government has unveiled a comprehensive strategy to redefine public investment, focusing on well-being, equity, and sustainability, as outlined in the Spending Review 2025. This multi-faceted approach aims to generate enduring public value through decentralization, digital transformation, and long-term infrastructure commitments.

One key aspect of this strategy is devolution and local empowerment. The government plans to transfer power and decision-making from central government to local leaders, boosting local autonomy and ensuring investments address community-specific needs. This will be achieved through new integrated settlements and funding for mayoral strategic authorities[1].

Targeted regional investment is another significant component. Investments will be directed towards local communities, with a new local growth fund targeting mayoral city regions in the North and Midlands that have strong productivity catch-up potential. Furthermore, funding will be allocated to up to 350 deprived communities across the UK to foster more balanced economic development[1].

The government has also pledged a significant investment in digital infrastructure, AI, cybersecurity, and intelligence modernization. This investment aims to enhance public service delivery, resilience, and national security, reflecting the changing technological and security landscape[2].

However, this ambitious plan comes with challenges. Balancing central control and local autonomy demands strong local capacity and governance to ensure funds are effectively used. Ensuring transparency and objectivity in investment decisions requires overcoming institutional inertia and complexity to reliably assess value beyond traditional financial metrics, particularly for regional and social outcomes[1].

Managing risk and complexity in large-scale infrastructure projects requires flexible but disciplined budget management and the ability to adapt to changing priorities, technology, and economic conditions over many years[4]. Navigating security and economic growth tensions involves investments in security and technology that balance national security needs without stifling innovation and private sector growth[2][3].

Addressing regional inequality requires coordinated multi-sector efforts and continuous evaluation. Despite targeted investments, complexities in delivering impact to deprived communities and regions with lower productivity remain[1].

The UK needs a coherent public investment plan to attract private investment in major public initiatives. Success in public investment should be measured by how lives are improved, not just by how much is spent. The conversation around public investment should refocus on why, what, and how public money is spent[5].

The Spending Review 2025 signals a shift from 'spending' to 'investment,' reflecting a cultural shift needed in the public sector to adopt an investor mindset that links money spent today to public value delivered tomorrow. Institutional reform is required to improve public investment, including the development of more participatory and transparent budgeting processes[6].

OMFIF is collaborating with EY on a project to improve public finance management, with a focus on allocating funds for better fiscal, economic, and societal outcomes. A 10-year Infrastructure Strategy with £725bn of government funding has been announced, but it remains focused on inputs and delivery pipelines rather than public value and long-term societal outcomes[7].

The government's credibility with investors relies on clear, long-term strategies and stable, inclusive policy environments. Short-term political incentives discourage sustained investment in projects with long-term returns. Capital markets are increasingly focused on sustainability and social outcomes, making a coherent public investment plan crucial to attract private investment[8].

A research report from this project will be published in November, providing insights into the implementation of these strategies and the challenges that lie ahead. It is clear that the UK's 2025 Spending Review presents an opportunity to redefine public investment, but it also requires political will and institutional mechanisms that promote long-term thinking in fiscal policy to ensure its success.

1. The government's focus on well-being, equity, and sustainability in public investment includes a promise to invest significantly in digital infrastructure, AI, cybersecurity, and intelligence modernization.
2. The UK government's multi-faceted approach to public investment will involve transferring power and decision-making to local leaders, aiming to boost local autonomy and address community-specific needs.
3. A key challenge in achieving the government's ambitious plan for public investment is ensuring transparency and objectivity in investment decisions, which may require overcoming institutional inertia and complexity to assess value beyond traditional financial metrics.
4. To attract private investment in major public initiatives, the UK needs a coherent public investment plan that measures success by how lives are improved, rather than just by how much is spent.
5. The Spending Review 2025 signals a shift in the public sector toward an investor mindset, requiring institutional reform, such as the development of more participatory and transparent budgeting processes.
6. Managing risk and complexity in large-scale infrastructure projects requires disciplined budget management and the ability to adapt to changing priorities, technology, and economic conditions over many years, while also addressing regional inequality through coordinated multi-sector efforts.

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