This week, the Chancellor of the Exchequer, Rachel Reeves, outlined the government’s spending plans for the remainder of this Parliament. This briefing details the key decisions and their implications for the rail and skills sectors.
Headline announcements
Confirmed Spending Commitments:
- HS2: £25.3 billion allocated over the settlement period.
- Regional Transport Investment: £15.6 billion designated for transport projects in city regions outside London, including buses, trams, metros, and new rail lines across the North and Midlands.
- TransPennine Route Upgrade (TRU): An additional £3.5 billion to advance work on the rail corridor between Manchester and York.
- East-West Rail: An additional £2.5 billion to support the delivery of the line connecting Oxford and Cambridge.
- Midlands Rail Hub:Â Funding confirmed for this regional project.
- Welsh Rail Funding: £445 million allocated for Welsh rail infrastructure over the next decade.
- Transport for London (TfL): £2.2 billion allocated over three years for capital upgrades (excluding operating costs).
- Local Transport Grants: Set to quadruple by 2029–30, with funding supporting local schemes such as bus lanes, cycling infrastructure, and metro extensions in areas including Tyne & Wear, Greater Manchester, and West Yorkshire.
- Youth Training: £1.2 billion per year by 2028–29 allocated to support training for over 1.3 million 16–19-year-olds, aiming to provide 65,000 additional trainees annually.
Rail and Rail Funding:
- Capital Spending: The government’s commitment to the projects listed above translates into a significant increase in transport capital spending. Excluding HS2, Department for Transport (DfT) investment in capital projects is projected to grow by an average of 3.9% annually between 2025/26 and 2029/30, reaching £10.2 billion specifically for rail infrastructure by 2029.Given the prevailing fiscal climate, this level of capital commitment is highly welcome.
- Day-to-Day (Operational) Spending: The picture for day-to-day spending is less favourable. The DfT faces the steepest real-terms reduction in growth of any department, with an average decline of 8.4% over the review period. While much of this is attributable to reductions in HS2 spending, the department’s operational budget excluding HS2 is still expected to fall by approximately 5% in real terms, equating to a drop of around £800 million by 2028–29 compared to this year.Although some of this may be offset by rising passenger numbers and expected efficiency savings, the scale of the cut is likely to result in workforce reductions. Nonetheless, this outcome is more favourable than the double-digit cuts that had been anticipated.
Treasury Green Book Reform:
The Chancellor also announced a review of the Treasury’s investment framework, including proposed reforms to the Green Book. This is a hugely welcome and significant development, aiming to address long-standing concerns that current appraisal methods disproportionately disadvantage infrastructure projects in less affluent regions, particularly the North and Midlands.
Northern Powerhouse Rail and Proposed Manchester to Liverpool Line:
While not explicitly confirmed in yesterday’s announcement, widespread reports and the Chancellor’s indications strongly suggest approval for the Liverpool–Manchester rail scheme. This potential project marks an important shift towards devolved delivery models for major rail schemes. An official announcement is anticipated within weeks.
The government also reaffirmed its commitment to Northern Powerhouse Rail, though no further specific details were provided at this time and will be announced as part of the ten-year infrastructure strategy.
Skills and Skills Funding:
- Overall Funding & Sector Outlook: Overall education funding is projected to grow modestly but sustainably, rising by an average of 0.8% per year in real terms, from £100.9 billion in 2025–26 to £109.2 billion in 2028–29.
- Further Education Focus: The Spending Review allocates the largest share of new funding to further education (FE), a rare and highly welcome development. The planned increase in day-to-day spending for FE, an additional £1.2 billion annually by 2028–29, is a significant win. While details on exact spending allocations are pending, it is confirmed to be focused on training for 16–19-year-olds.
- Impact of Defence Investment on Rail Skills:Â A significant increase in defence spending, also part of this Spending Review, is expected to affect the rail sector. Given the substantial overlap in transferable skills between defence and rail (e.g., engineering, project management, technical roles), the higher demand in defence may draw skilled workers away from the rail workforce. Both industry and government need to be prepared for this potential competition.
- Impact of Rail Investment on Skills Demand:Â The announced increase in rail investment will inevitably lead to an increase in demand for new workers and skills to successfully deliver these projects. Without proactive and strategic action, this growing demand risks significantly exacerbating the existing skills challenge within the rail sector.
Analysis
The Spending Review delivers welcome investment in rail infrastructure. This is a positive development, though not without challenges, particularly the need to build the workforce required to deliver these projects.
There are also pressures from reductions in day-to-day spending, which will be challenging to manage, even if the scale of the cuts is less severe than many had initially feared.
The most consequential outcome of this announcement is the commitment to review the Treasury’s Green Book. This has the potential to transform how rail projects are assessed and prioritised, enabling a shift toward recognising their full social, economic and environmental value.
On skills, while further clarity is needed on the detail of funding and delivery, the outlook is considerably more favourable than expected, especially given the widespread anticipation of deeper cuts.
If you would like to discuss the budget and how it may impact on you, please do not hesitate to get in contact:Â Edward.hughes@nsar.co.uk