Spending Review 2025: Digital Transformation must lead the charge for efficiency

Today’s Spending Review, unveiled by Chancellor Rachel Reeves, sets the course for UK public spending with over £2 trillion allocated across the next three years. Against a backdrop of fiscal constraints, including £22 billion in unfunded pressures inherited from the previous government, the Chancellor has prioritised economic growth and public service reform.

The message is unequivocal: government must deliver more with less. Digital, data, technology, and AI are not just tools but the backbone of this ambition, offering a path to smarter, more efficient public services.

The Review’s commitment to a “mission-led, technology-enabled, and reform-driven” approach is promising. With £86 billion for science and technology by 2029, targeting AI, semiconductors, and biotech, the government aims to cement the UK’s place at the forefront of global innovation.

Yet, as techUK rightly argues, ambition must translate into action. Their call for digital infrastructure, skills, and regulatory reform to drive productivity resonates widely. Industry partnership is non-negotiable; government cannot transform in isolation.

It's estimated that AI adoption could lead to £17 billion in public sector savings by 2035. But progress will require a strong mandate if government is to overcome legacy IT systems, bureaucratic funding models, and short-term cost-cutting.

The Performance Review of Digital Spend exposed these barriers, noting that complex approval processes hinder long-term digital investments. The government’s pledge to streamline funding for AI and digital projects, embracing a “test and learn” model with staged investments, is a vital step forward. Early successes like GOV.UK Chat demonstrate the power of agile approaches.

The £3.25 billion Transformation Fund, including £42 million for AI-driven “Frontier AI Exemplars” in 2025-26, signals intent to modernise operations and cut bureaucracy. If scaled, these initiatives could deliver transformative efficiencies.

However, as the Institute for Government warns, this fund - spread across the entire public sector - is modest and must sit within a broader reform strategy. Addressing legacy technology is equally critical. Minister Patrick Vallance’s focus on upgrading outdated IT through investments in cybersecurity, cloud computing, and AI aligns with calls to shift from input-focused to outcome-driven funding models, as noted in Hansard discussions on digital spend.

Fiscal realities - high taxes, rising debt, and global uncertainty - mean tough choices. The NHS secures £30 billion over three years, and defence gains a new Growth Board, but other departments face potential cuts. Politically, the government’s unpopularity, demands a compelling narrative. Digital transformation offers that story: better services, lower costs, and tangible value for taxpayers.

These issues - and the opportunities they present - will be explored in depth at the Government Transformation Summit (24-25 June), where leaders from government, industry, and academia will unpack the implications of today’s Spending Review.

A highlight will be the keynote from Andrew Western MP, Parliamentary Under-Secretary of State (Minister for Transformation), who will share insights on AI’s role in driving the Department for Work and Pensions’ transformation journey. The Summit offers a critical platform to shape the tech-enabled reform agenda.

Three priorities must guide action. First, accelerate the AI Opportunities Action Plan with clear timelines and funding to replace legacy systems. Second, simplify digital project funding, building on the Government Digital Service’s efforts to empower innovation. Third, deepen collaboration with the tech sector to co-design solutions, leveraging ideas like the National Data Library or digital ID systems to cut fraud and boost efficiency.

Today’s Spending Review is more than a budget - it’s a call to reimagine public services. By harnessing digital, data, technology, and AI, the government can deliver on its promise of reform. The opportunity is vast, but the clock is ticking. Let this be the moment we commit to bold, tech-enabled transformation.