Category Archives: Business

Policy Spotlight: Energy and Net Zero

Foreword

Scott Dodsworth, Managing Director and Senior Partner at GK Strategy

The central part of Labour’s election pitch to the country last year was unlocking economic growth. Over Labour’s first year in office, it remains clear that Energy Secretary Ed Miliband, with the backing of the Prime Minister and Chancellor, sees delivering energy security and the net zero transition as central to that.

The consistently high cost of energy, against the background of an ongoing cost of living crisis and struggling public finances, is contributing to growing scepticism about the transition to net zero – largely from the Conservatives under Kemi Badenoch, and an increasingly popular Reform party. Despite this, the Prime Minister has doubled down on net zero as part of the UK’s industrial strategy.

After something of a false start after the 2024 general election, the government is now moving at pace. It sees the remainder of 2025 as a crucial period to deliver on its promises to an impatient electorate: to bring down energy bills and push to 95% clean power by 2030. Since the spring, we have seen the government publish its Industrial Strategy, of which green industries were seen as a frontier sector. Ed Miliband also secured a healthy departmental budget in the June spending review despite cuts elsewhere. These, together with the wider cross government approaches to planning, infrastructure and the National Wealth Fund, are all signals that the government is kicking up a gear on its net zero delivery.

To deliver on its promises, the government is looking for solutions from businesses. There is a renewed willingness across Whitehall to engage with those who can partner with government to unlock the private investment to fund these commitments at the pace and scale required. There is also impatience within mission-driven departments to ‘get on with the job’ – including for DESNZ’s ‘Mission Control’ – so speed is of the essence. Good government relations have rarely been so important to businesses that want to be on the right side of the relevant policy debates underpinning this mission.

Our cross-sector and connected team at GK Strategy is immersed in energy and industrial policy. We work to support businesses and investors to better understand the political and regulatory environment and align our advisory services around your strategic and commercial aims. This report takes a closer look at the key pillars of the government’s net zero agenda: energy efficiency, grid and power supply, and transport decarbonisation.

In politically febrile times like these, it is important that organisations are consistently making their case to government so that they can maximise opportunities where they arise, as well as mitigate risk. We look forward to working with you to realise opportunities.

Energy efficiency – the quiet engine powering Labour’s net zero agenda

Sam Tankard, Senior Associate

In the race to net zero, energy efficiency is perhaps one of the less glamourous parts of the policy puzzle. The government’s mission to achieve 95% clean power by 2030 has dominated public messaging and policy bandwidth. But while clean energy generation captures the headlines and the government’s attention, reducing demand through insulation and electrified heating remains one of the more cost-effective levers available to a government with little money to throw around.

Retrofit and ‘fabric first’ measures – such as insulation upgrades and draught-proofing – are proven, scalable technologies that deliver immediate benefits, not least on household bills. After all, the cheapest energy is that we don’t use. With many households still feeling the impact of the cost-of-living crisis, voters are likely to judge the success of the energy transition by whether they feel it’s becoming cheaper to heat their homes. In that context, energy efficiency should be seen as not just central to climate strategy, but to the government’s economic and electoral strategy.

The Warm Homes Plan: A consolidated approach

The government’s flagship Warm Homes Plan aims to consolidate and scale existing schemes including the Warm Home Discount, Boiler Upgrade Scheme, and the Social Housing Decarbonisation Fund. It also introduces new Minimum Energy Efficiency Standards (MEES) across both the private and social rented sectors. Energy Secretary Ed Miliband successfully secured the full £13.2 billion needed to deliver the scheme in the June spending review – no small feat in a fiscal environment defined by restraint. This commitment is a clear signal of Labour’s intent to start to put energy efficiency on a par with clean energy generation – and of Ed Miliband’s strength within the Cabinet, despite the negative briefings against him.

Will the Plan deliver a genuinely integrated approach to home decarbonisation, or is it a rebranding of legacy Conservative programmes? The recent restructure of DESNZ – giving the Plan its own delivery team – suggests it will. Energy efficiency is also being linked to job creation, supply chain development, and regional growth. However, if this ambition is to be realised at scale, subsidies alone and piecemeal grants will not suffice. The sector needs a long-term investment framework that can attract institutional capital and mobilise private finance – one that de-risks retrofit projects, supports innovation across the supply chain and gives confidence to the investor community. This framework has not yet been brought forward, and its absence may hamper large-scale investment in the space.

Regulation will drive the market

Regulation is beginning to move the dial. Reforms to the Energy Performance Certificate (EPC) methodology will require more homeowners and landlords to invest in fabric-first improvements, smart controls, and low-carbon heating. From 2026, new MEES requirements and an updated Decent Homes Standard are set to kick in, compelling landlords to upgrade their properties by 2030. These reforms are expected to drive significant market demand through the remainder of this Parliament – providing a welcome growth stimulus for retrofit supply chains, innovators and engineers.

Clean heat still stuck in second gear

Progress on the clean heat transition continues to lag behind the government’s targets. Labour has consulted on expanding the Boiler Upgrade Scheme to include air-to-air heat pumps and heat batteries, reflecting a desire to support a range of technologies. However, political caution looms large. The backlash faced by Germany over heat pump mandates has made ministers wary of appearing prescriptive, particularly where upfront costs for consumers, and particularly for lower income households, remain high for these technologies.

Heat pumps are still significantly more expensive than gas boilers, both in terms of installation and ongoing energy costs. Public funding falls short of matching the scale of ambition set by national targets. As of May 2025, the UK had just 412 heat pumps per 100,000 people, compared to over 3,000 per 100,000 across comparable European countries, highlighting the significant implementation gap in the UK.

The electricity pricing trap

Underlying many of these challenges is a structural pricing problem. The UK’s gas-heavy energy mix means that gas sets the marginal price of electricity 98% of the time, compared to just 39% in other European markets. As a result, electricity remains artificially expensive, making the economics of clean heat harder to justify. Labour’s clean power push aims to shift this overreliance on gas but change will take time.

In the interim, the government is considering options such as rebalancing environmental levies away from electricity and onto gas, or absorbing them into general taxation. These options are politically sensitive and the nettle is yet to be grasped. The recent debate over zonal pricing in the electricity market review signals deeper tensions in how costs are distributed geographically and socially.

The pricing debate about who pays for energy in a way that is fair will be back soon enough. How this will impact the decarbonisation of heat will be one businesses should follow closely, and take the opportunity to share their view accordingly.

Energy efficiency may not dominate the net zero headlines, but for a Labour government seeking to deliver tangible economic outcomes, reduce bills, and meet its climate targets, it is increasingly central to the political and policy equation. The coming months will reveal whether this this is matched by delivery, investment, and a market framework robust enough to make retrofit a genuine national success story.

Clean power meets smart tech

Noureen Ahmed, Adviser, and Arth Malani, Researcher

The government’s Clean Power 2030 Action Plan, published late last year, positioned wind and solar energy as the backbone of the UK’s future energy system.

It also highlighted how these developments will support the rapid growth of Artificial Intelligence (AI) and the digital infrastructure underpinning it, particularly data centres. It is no surprise that clean energy and AI remain central pillars for this government, as they underpin both economic competitiveness and energy security in an increasingly volatile global environment.

The government is committed to securing a cost-effective, low-carbon energy system while catalysing the growth of new energy and technology industries. Leveraging cutting-edge technologies such as automation and AI will be crucial to accelerating the decarbonisation of the grid, reducing emissions, and enhancing system resilience. Against a backdrop of rising geopolitical tension and global energy market instability, the Action Plan – and the subsequent strategy documents like the Clean Energy Industries Sector Plan and Solar Roadmap – underscore the urgency of fortifying the UK’s energy infrastructure. These initiatives also work towards derisking much of these large scale renewable generation projects – particularly through changes to the contracts for difference auction programme.

Grid connections still an obstacle

One of the most pressing challenges identified in recent strategy documents is the exponential growth of the grid connection queue, which has expanded more than tenfold over the past five years. Financial and regulatory barriers have slowed progress, stalling renewable projects at a time when urgency is paramount. In response, the government is pivoting toward a more agile, readiness-driven grid connection regime. By reforming planning frameworks and moving toward a “get on or get out” approach to the queue with Ofgem and the National Energy System Operator, the government is sending a strong signal to renewable developers that this government is about more than just subsidies to stoke supply. The intended outcome is twofold: accelerating the deployment of renewable infrastructure while enabling the co-location of energy-intensive facilities, such as data centres and transformers, near these clean power sources. This strategic alignment demonstrates the increasingly symbiotic relationship between AI technologies and the energy transition.

This approach reflects the growing economic footprint of the UK data centre industry, which currently contributes £4.7 billion in Gross Value Added (GVA) annually, a figure projected to rise to £44 billion by 2035. Unlocking the productivity and innovation gains associated with AI and data centres will be key for the UK’s global competitiveness. Yet the growth of this sector brings significant energy challenges. As one of the most energy-intensive industries, data centres demand not only increased capacity, but a cleaner, more reliable energy supply to keep compliant with many businesses’ own climate ambitions – as well as the government’s. The path to net zero must therefore keep pace with the evolving needs of the digital economy. A coordinated approach between the Department for Energy Security and Net Zero (DESNZ) and the Department for Science, Innovation and Technology (DSIT) will be fundamental in aligning energy and digital infrastructure planning.

Powering the AI transition

To help navigate these challenges, the government has established the AI Energy Council, a cross-sector forum of energy and technology leaders focused on ensuring the energy system can accommodate the explosive growth of AI. The Council has a dual remit: to guide infrastructure planning for AI-related growth, and to assess the more than 200 bids from local authorities vying for designation as AI Growth Zones – regions earmarked to become hubs for AI development and deployment. These zones sit at the intersection of energy policy and regional growth, dovetailing with the government’s broader devolution agenda, which aims to empower local leadership in strategic authorities to unlock economic potential.

The AI Energy Council has recognised that without targeted interventions in energy security and infrastructure, AI-led growth could stall. Ensuring a stable, clean, and scalable energy supply for AI-intensive industries is not just a technical challenge, but an economic one. Preventing energy-related bottlenecks will be key to enabling innovation across all sectors – from manufacturing and transport to healthcare and financial services. As the UK accelerates its clean energy transition, AI will not only be a consumer of energy but also a catalyst for smarter, more resilient energy systems. AI-enabled grid forecasting, predictive maintenance, and autonomous energy trading are already beginning to redefine how power is generated, distributed, and consumed.

Taken together, these developments mark a new phase in the UK’s industrial strategy – one where the convergence of clean energy and digital technology is central to the nation’s economic, environmental, and geopolitical goals. As such, AI and energy should not be seen as separate policy challenges, but as intertwined pillars of a modern, secure, and sustainable economy.

Little slack in the government’s decarbonisation tightrope, especially for transport

James Allan, Senior Adviser

The government is walking a decarbonisation tightrope. Nowhere is this clearer than in its approach to transport. As the net zero consensus is fracturing, most acutely under building pressure from the right of the British political system, onlookers will have noticed a few shifts in government policy impacting transport decarbonisation. This includes a watering down of the Zero Emissions Vehicle (ZEV) mandate and a previously unthinkable policy position on Heathrow expansion for a Labour cabinet. These are the perhaps inevitable concessions that have to be made in the face of a seemingly undeniable fact: decarbonising the transport sector entails an element of economic trade off.

These two decisions, measured against what Labour committed to in its election manifesto, throw into sharp relief a common critique of this government: that the manifesto’s language was sufficiently opaque to allow for a significant degree of wiggle room. Now in government, there is plenty of talk of change, but a continuing weakness on policy detail and substance, not least concerning transport decarbonisation.’

Understanding the rationale behind the government’s policy choices will be critical for businesses and investors looking to engage with ministers. As policy positioning subtly changes in government from bold rhetoric to balancing economic pragmatism with climate ambitions, sectors such as aviation, freight and automotive will need to recalibrate their expectations. Businesses will need multiple channels of influence as transport decarbonisation spans a range of policy areas, priorities and government departments. For the Department for Energy Security and Net Zero, the focus is clean energy by 2030; for the Department for Transport, it is rail nationalisation and infrastructure delivery.

Backing Heathrow expansion

Expanding Heathrow is a long way off despite the government’s recent support. Ministers have set out four tests for approval, including i) compatibility with the UK’s climate change targets, ii) mitigations to increases to noise pollution, iii) and air pollution, as well as iv) providing economic benefit to all parts of the UK, not just London and the South East. The fast-tracked review of the Airports National Policy Statement will provide substance to these four tests and commitments to sustainable aviation fuel (SAF) are expected to feature strongly when the refreshed policy statement is published later this year.

The justification is clear. The expansion of Heathrow, while mandating that the industry transitions to SAF (which is in short supply globally) is immensely costly and requires high levels of capital investment to deliver. To support the transition, the government is legislating for a revenue certainty mechanism that aims to de-risk and attract private investment into this nascent technology. It is the familiar carrot and stick approach to transport decarbonisation of mandate and incentives.

Mild tweaks to the ZEV mandate

The government’s tweaks to the ZEV mandate reinstated the 2030 target of banning the sale of internal combustion engine (ICE) cars but relaxed the rules around which vehicles can be sold until 2035, including hybrid vehicles and ICE vans, and introduced greater flexibilities for manufacturers. The mixed reaction from the automotive industry suggests that ministers may have struck a workable compromise – a willingness to trade speed for political and economic deliverability.

Key to pulling off the transition to EVs is scaling up the deployment of EV infrastructure and chargers. Consumer confidence to purchase and drive an EV across the country is an important precursor of the transition to EVs. A lack of publicly available chargepoints risks this and stokes the flames of range anxiety often cited as a major barrier to buying an EV vehicle. Government work toward mitigating this risk is chiefly being delivered through the Local EV Infrastructure (LEVI) Fund but buried deep within the spending review published in June was £400 million to support the roll out of charging infrastructure from 2026-27 to 2029-30.

Walking the government’s tightrope

For businesses and investors, the key message is that the government’s transport decarbonisation agenda is no longer linear, but layered, tactical and coloured by a degree pragmatism. Backing Heathrow and making tweaks to the ZEV mandate indicate that the terms of reference are not solely climate related but also economic. Labour’s policy decision making has shifted from the aspirational and broad ambitions set out in its manifesto, to a slow recalibration of understanding better the trade-offs involved. For investors looking to capitalise on transport decarbonisation and businesses operating in associated sectors, the implication is clear: aligning with the government’s transport decarbonisation goals now requires a credible case for job creation and economic growth and cost efficiency. Those that can anticipate and influence shifts in government thinking stand to benefit, while those that wait for clarity may be too late to adapt and overcome.

Contact Information

Contact: 020 7340 1150

Louise Allen // Senior Partner & Chief Executive // louise@gkstrategy.com

Scott Dodsworth // Senior Partner & Managing Director // scott@gkstrategy.com

Lizzie Wills // Senior Partner and Head of Private Equity // lizzie.wills@gkstrategy.com

Sam Tankard // Senior Associate // sam@gkstrategy.com

From farm to fork: An ambitious food strategy published by Defra

The government has published its food strategy, setting out a vision for a healthier, more affordable, sustainable and resilient food system. It is ambitious in scope and designed to reconcile often competing objectives from farm to fork.

The food strategy identifies three interlocking dynamics of the UK food system:

i) a junk food cycle driven by our appetite for highly processed, energy-dense foods and the strong commercial incentives this creates to produce foods high in sugar and fat,

ii) the invisible cost to nature which fails to reward sustainable and environmentally friendly food production, and

iii) a resilience gap that means the UK is highly exposed to multiple and increasing risks, such as climate change.

The next step for ministers and officials is to develop an implementation plan, as well as metrics and indicators to measure progress towards achieving the strategy’s ten priority outcomes. This will take time and require ministers to engage with industry and business to ensure the government’s transition to a ‘good food cycle’ is achievable. It will also need to align with forthcoming strategies in Defra’s to-do list to deliver real, joined-up change across the entire food system. To name a few – the Land-Use Framework, the Food and Farming Decarbonisation Plan, the Farming Roadmap and Farming Profitability Review, and the Circular Economy Strategy.

What does the food strategy mean for agri-tech?

There is a huge opportunity for businesses in the space to engage with government off the back of the publication of the food strategy. Ministers clearly see innovation as critical to resolving system challenges in everything from public health to food security. Agri-tech businesses should take note: the government is not only signalling interest but actively investing in solutions that can deliver measurable impact.

To maximise this opportunity, businesses should look to demonstrate how they can support the government in achieving the food strategy’s core objectives – boosting productivity, enhancing resilience and delivery environmental sustainability. Collaborating with early adopters to demonstrate real-world use cases can help build a compelling evidence base that convinces policymakers of a solution’s viability and impact. Engaging with policymakers means staying ahead of regulatory change and shaping policy and market reforms to establish pathways to commercialisation.

Agri-tech may well represent the silver bullet policymakers are searching for, but unless the sector speaks up and showcases its impact, those solutions risk going unnoticed.

If you need help with demonstrating how you can become a key player in the government’s food strategy, contact GK Strategy today.

The case for agri-tech in public health

The public health problem

Over one in four adults are obese, with an additional 36% classified as overweight in England. The prevalence of obesity has been steadily rising since 1993, with little evidence to suggest this trend is slowing. This is not solely an adult issue. The sharpest increases in obesity have recently been observed among children. Currently, 15% of children aged 2 to 15 are obese, and a further 27% are overweight. Projections from the Royal Society of Public Health suggest the situation will get worse. 39% of children are expected to be obese or overweight by 2029–30, rising to 41% by 2034–35.

The cost

The government estimates that obesity is costing the NHS £6.5bn a year and is the root cause of diabetes and heart disease and the second biggest preventable cause of cancer after tobacco smoking. Less conservative estimates that account for wider consequences suggest that poor diets cost the UK £126bn a year. There is a strong rationale for public health intervention and the Labour government is demonstrating a willingness to intervene. One of health secretary Wes Streeting’s big three healthcare shifts set out in this week’s NHS 10 Year Plan is a shift from treatment to prevention, and for public health this means intervention.

Government action

Trailing the publication of the NHS 10 Year Plan alongside an obesity strategy, the government has announced a new standard for food retailers to make the average shopping backet of goods healthier. Big food businesses will be required to report on healthy food sales and will be overseen by the Food Strategy Advisory Board. This builds on a government consultation launched in May on plans to tighten the sugar levy by reducing the minimum sugar content level from 5g to 4g and remove the exemption for milk-based drinks. This signals a clear appetite within government for more interventionist policies. Such an approach will undoubtedly incur backlash from anti-nanny state politicos and big industry actors. However, it also creates an opportunity for innovators.

Agri-tech innovators

A contested political environment driven by a firmer stance on obesity and healthy foods by ministers, creates a window for pragmatic, science-driven solutions. Crop biofortification to increase the nutritional profile of foods. Precision fermentation to produce low-fat dairy and bioactive compounds. Modified starches with a lower glycaemic index. The agri-tech sector is well-placed to engage and support the government to achieving public health outcomes. Junk food advertisement bans might grab the political headlines, but ministers will need solutions that measurably change health outcomes and improve the health of the nation.

What next

The NHS 10 Year Plan and the obesity strategy will feed into Defra’s set piece item due for publication later this year: the national food strategy. Broadening access to healthy foods dominates the political discourse around this food strategy. Improving public health and tackling obesity have shot up the political agenda and joining this up with food and farming policy is the key to successfully achieving these policy aims. Aligning with the government’s thinking and offering solutions to public health priorities will strengthen the agri-tech sector’s positions to shape policy and work alongside ministers and policymakers.

Push to raise foreign taxes on US assets a risk for foreign investors

By Lizzie Wills, Senior Partner & Head of Private Equity

A bill making its way through the US Congress could present meaningful new taxes on US holdings of investors domiciled in the UK, as well as several EU member countries – another in a series of new risks to emerge from the newly fraught relationship between America and its historic allies. While passage of the bill is not guaranteed, potentially impacted parties should begin to think now about how to react to potential changes.

The effort in the US Congress to impose new taxes on many foreign investments in the US is part of a broader tax and spending package that recently passed the US House of Representatives and is currently being debated in the Senate. The bill would be passed under a legislative vehicle known as reconciliation, which allows a bill to pass under restricted circumstances with simple majorities of both the House and Senate, circumventing the usual requirement to secure 60 Senate votes.

The foreign investment tax package is known as Section 899 for the new section of the US tax code required to implement it. Section 899 would impose incremental taxes above current rates on the value of income or sale proceeds of many US holdings (US Treasury securities would be exempt) held by institutional investors, individuals and governments domiciled in countries that have imposed what the bill characterises as “discriminatory” taxes on the US. The discriminatory threshold would automatically include countries that have levied Digital Service Taxes (DSTs) on US-based technology firms – which includes the UK, France and Spain – as well as taxes imposed under the Undertaxed Profits Rule, a standard developed by the Organisation for Economic Co-operation and Development (OECD) to attempt to impose minimum tax rates on multinationals.

Since the House version of the reconciliation bill passed on 22 May 22, critics have dubbed Section 899 the “revenge tax”, predicting that if passed the provisions would hurt US asset prices, cause interest rates to rise and the US dollar to tank considering the US$30 trillion in US assets held by foreigners. The Tax Foundation, a US think tank, estimates the new taxes would impact some 80% of the foreign direct investments into the US. Yet US policymakers appear to be largely unmoved thus far by the opposition. The Senate Finance Committee has released draft language pegging the incremental taxes at 15% (5% per year for each of three years) starting in 2027, watering down the House version but keeping it largely intact. The notion of raising taxes on foreign investors is completely consistent with the “America First” mindset of the Trump administration and Republican congressional leaders. The Congressional Budget Office (CBO), a non-partisan body that estimates the fiscal impact of proposed legislation, has forecast that the House version of Section 899 would raise US$116 billion over the 10-year budget forecast window, important considering the CBO’s forecast that the bill would add trillions to the already yawning US budget deficit. The Senate’s version of the bill would raise less, given the 15% maximum (versus 20% in the House bill) but would still be expected to generate meaningful revenue.

The broader reconciliation bill has drawn opposition from multiple factions of the Republican party. However, the bulk of the criticism has focused more on the bill’s proposed cuts to the Medicaid health-insurance programme (for moderates) and the projected further widening of the federal budget deficit (for conservatives). By comparison, criticism of Section 899 has been muted. And even if the current version of the bill is scaled back, the temptation for a party that controls the White House, Senate and House to pass a bill through reconciliation is huge – the vehicle was used to pass the tax-reform bill in Trump’s first term, in 2017, as well as the Inflation Reduction Act (IRA) under President Joe Biden in 2021.

Sample countries that have imposed Digital Service Taxes (DSTs) on US Firms

Austria	Denmark	Belgium
Canada	Hungary	Turkey
France	Italy	Peru
India	Poland	Colombia
UK	Spain	Kenya

Source: Tax Foundation

What can non-US investors with US holdings do in response? Both the Senate and House versions of the bill specify that the new taxes will only be imposed on entities with greater than 50% equity ownership outside the US. Jointly held funds with divided US/non US ownership could shift majority control back to the US partner. Other strategies will surely emerge to adapt to the new rules should they come to pass. But investors would do well to start thinking about them sooner rather than later.

If you’re interested in discussing this in more detail please be in touch with Lizzie Wills on lizzie.wills@gkstrategy.com.

Key Takeaways from the Spending Review: A future that is less generous than the past

GK had the pleasure of hosting former Treasury and education minister David Laws and the Financial Times’ Economics Commentator Chris Giles in our latest webinar on Thursday (12^th June) to discuss the winners and losers from the government’s spending review, and what it means for business.

The spending review is a significant moment in the political calendar. The settlements it confirms set departmental day-to-day budgets for the next three years (2026-27, 2027-28 and 2028-29) and capital expenditure for the next four (until 2029-30). It is also the moment when No.10 and the Treasury must publicly commit the funds to support their political objectives – in essence, we get to see where spending is going to be prioritised and where it is not.

In the webinar, David and Chris detailed what the spending review means for overall public spending, where the government could come undone, and the possibility of future tax rises. You can read a summary of their key takeaways below:

The spending review is not about making new money available or introducing new taxes.

Spending reviews are all about the allocation of a pre-determined spending envelope which, in this instance, the Chancellor set out in the October budget last year. It does not introduce any new taxes or make new money available. Instead, it confirms what areas of public spending the government wants to prioritise, and which departments will have to be squeezed.

The departmental settlements do not represent a return to the austerity years.

While the overall spending envelope is tight – especially given growing pressure on public spending across health, pensions and defence – day-to-day spending is still rising by 1.2% per year in real terms (i.e. accounting for inflation) over the spending review period. This means it is broadly in line with the departmental spending settlements put forward by various governments since 2019.

A lot of the spending assumptions depend on public sector productivity improving, which is no guarantee.

Public sector productivity has declined since the Covid-19 pandemic and in 2024 it fell by 0.3%. The Office for Budget Responsibility (OBR) has historically assumed quite generous improvements in public sector productivity each year which is a key component of its overall economic growth metric.

If the OBR significantly revises down its assumptions about improvements in productivity, this could seriously impact the funds it is projecting the government will have to work with over the spending review period. This increases the likelihood of the government having to do introduce large tax rises at the autumn budget.

Defence will continue to put pressure on the government’s overall spending envelope.

Since the end of the Second World War, successive governments have used cuts to defence as a means of boosting other areas of public spending, most notably health. Persistent global instability and geopolitical uncertainty means that higher levels of defence spending are likely to continue for the foreseeable future. No.10 and the Treasury will have to contend with this new spending pressure as demographic challenges continue to pile up and economic growth remains sluggish.

The NHS is the big winner from the spending review, albeit with a smaller settlement than it has historically received.

Health secretary Wes Streeting will undoubtedly be the happiest around the Cabinet table following the confirmation of the Department of Health and Social Care’s settlement, with spending on the NHS set to grow by 3% per year in real terms. However, this is below historic average rises of approximately 4-5%. With a growing elderly population and people living with complex conditions for longer, the funding put forward in the spending review settlement is unlikely to significantly move the dial on the performance of the NHS.

Small tax rises are likely at the autumn budget to meet the Chancellor’s fiscal rules.

The government has committed to meet day-to-day expenditure through its own revenues by 2029-30. This means its current budget will have to be in balance or surplus by the end of the decade, and any money the government does borrow will be to invest. If the OBR projects that the government is not on course to meet this fiscal rule (or any of its others), then Chancellor Rachel Reeves will be forced to come back for a second round of tax rises or decide to break a fiscal rule. Either look fairly unpalatable to the government given where they currently are in the opinion polls.

A cabinet reshuffle should be expected in the second half of 2026 as the government begins to ramp up to the next general election.

2026 is projected to a big election year in the UK. Elections are due to take place for the Scottish Parliament and Welsh Assembly, along with a series of newly created unitary authorities. Should the results prove poor for Labour, as current polling indicates they will, then Prime Minister Keir Starmer is likely to reshuffle his cabinet to get his top team in place as the No.10 machine starts to think about the next general election in 2029.

Health and welfare reform – will work, work?

The government has made its stance on health and welfare clear. The overarching narrative underpinning the Department for Work and Pensions’ (DWP’s) green paper on welfare reform, published in March 2025, is ‘good work is good for health and being out of work can worsen health’.

Coupled with the Secretary of State for Health and Social Care Wes Streeting’s recent comments that an over-diagnosis of mental health conditions is preventing people from working, it is evident that the government sees work as a key component of the welfare state.

This marks a distinct shift in how work, health and welfare have historically interacted in policymaking. Where once the welfare system was seen primarily as a safety net, it is now being recast as a springboard that supports individuals back into the labour market.

The government recognises that something has shifted in the labour market post-Covid-19. There has been a 45% increase in health-related benefits claimants since 2019-20 and more than 9.3 million people out of work. There are swathes of statistics which demonstrate that Britain’s workforce has not fully recovered from the pandemic and the current level of sickness and absenteeism is unsustainable.

Given the scale of the issue, the government has sought to identify how improving health outcomes might support people into work and enable them to stay there. Ideas such as offering weight loss jabs, dubbed ’jabs for jobs’, were floated at the end of last year. This gives a clear signal that the government is keen to encourage people back into the workplace and is open to non-conventional methods of doing so.

While DWP consults industry and businesses on its planned welfare reforms, an opportunity has arisen for those focused on supporting the government’s vision for work and welfare. Employers should be prepared to play a larger role in supporting the workforce to remain engaged in the labour market. This offers significant opportunities for occupational health providers who can support employers to promote the health and wellbeing of their staff.

Schemes such as mental health and wellbeing programmes will become increasingly common in employment offerings as businesses take on a growing role in a broader, work-led approach to welfare. Occupational health providers who can help fill this gap between welfare, health and long-term employment are well placed to help facilitate the government’s policy objectives.

Reducing economic inactivity is a key priority for the government in its mission to kickstart growth. By implementing supportive workplace schemes and collaborating with private occupational health providers, employers can not only improve individual outcomes but also contribute to broader societal and economic resilience.

The question now for policymakers is exactly how occupational health providers can support businesses to deliver on the government’s objectives for welfare reform. Ministers, civil servants and parliamentarians are keen to understand the art of the possible and how they can work with providers to support workers to remain as active participants in the UK’s workforce.

Please contact Lauren Atkins (lauren.atkins@gkstrategy.com) if you would like to discuss occupational health and the government’s welfare reforms in more detail.