Spending Review sidelines waste resources sector as Defra faces major budget cuts

The UK Government's Spending Review 2025 has delivered a stark message for the waste management and circular economy sector, with minimal direct investment commitments and significant cuts to the department responsible for waste policy oversight.

Despite Chancellor Rachel Reeves announcing that total departmental spending will increase by 2.3 per cent in real terms across the Spending Review period, the Department for Environment, Food and Rural Affairs (Defra) faces one of the steepest budget reductions across government.

Defra's resource spending – covering day-to-day operations, policy development and regulatory activities – will decline from £4.8 billion in 2025-26 to £4.7 billion by 2028-29, representing an average annual real-terms cut of 2.7 per cent. Only the Foreign, Commonwealth and Development Office and Department for Transport face deeper cuts to their operational budgets.

The Spending Review provides remarkably few direct references to waste management or circular economy initiatives. The most significant commitment relates to local authority implementation of waste collection reforms, with the document stating: "The Local Government settlement also includes funding for local authorities to deliver Simpler Recycling as part of the Collection and Packaging waste reforms, which will help to stimulate investment in recycling services across the UK."

However, the government provides no specific budget allocation for these reforms, which will require many local authorities to overhaul collection systems. The Spending Review indicates that "local authorities will continue to receive additional income through the Extended Producer Responsibility scheme for packaging," suggesting EPR payments will be separate from general local authority funding rather than integrated into overall settlements, though questions remain how hypothecated this funding will be once allocated to councils. 

Capital investment bypasses waste infrastructure

While Defra receives £16 billion in capital funding over the Spending Review period – equivalent to an annual average real-terms growth rate of 2.5 per cent – this investment is heavily directed towards farming, nature recovery and flood defences rather than waste infrastructure or circular economy initiatives.

The government commits "more than £2.7 billion per year in sustainable farming and nature recovery from 2026-27 until 2028-29" and "£4.2 billion over three years (2026-27 to 2028-29) to build and maintain flood defences." No equivalent commitments appear for waste management infrastructure, circular economy programmes or resource efficiency initiatives.

This represents a notable absence given the government's previous commitments to developing a circular economy. The Spending Review's focus on "ruthlessly bearing down on waste through the first zero-based review in nearly 18 years" refers to government operational efficiency rather than material waste reduction.

Implementation challenges ahead

The combination of reduced operational capacity at Defra and undefined funding for local authority waste reforms creates potential delivery risks for the sector. Resource cuts will affect Defra's ability to provide policy development, regulatory oversight and implementation support precisely when local authorities face their most significant waste management transformation in decades, including the implementation of DRS, EPR and the inclusion of waste in the Emissions Trading Scheme.

Defra has committed to delivering "at least five per cent savings and efficiencies" including £144 million of technical efficiencies by 2028-29. The department plans to increase "in-house digital expertise to reduce spend on contractors" and invest over £300 million in digital transformation programmes between 2026-27 and 2028-29.

The broader economic context includes significant clean energy investments, with the government providing £14.2 billion for Sizewell C nuclear power and £9.4 billion for Carbon Capture, Usage and Storage programmes. However, these initiatives focus on energy generation rather than waste-to-energy or circular economy integration.

Mike Maudsley, CEO of enfinium, said: "enfinium welcomes the UK Government's announcement today of increased funding for carbon capture, alongside further backing for Wales in its efforts to transition to net zero. Leveraging this support, our Parc Adfer energy from waste facility in North Wales could play a critical role in removing up to 120,000 tonnes of carbon a year from the atmosphere."

Local authorities will receive an additional £3.4 billion of grant funding by 2028-29 compared to 2024-25, representing an average annual real-terms increase of 3.1 per cent in core spending power. Whether this increase adequately covers the costs of implementing Simpler Recycling remains unclear given the absence of specific allocations.

The Local Government Association warned that councils implementing waste reforms will remain under severe financial pressure. "All councils will remain under severe financial pressure. Many will continue to have to increase council tax bills to try and protect services but still need to make further cutbacks," said Cllr Louise Gittins, Chair of the LGA.

Environmental campaigners have expressed disappointment with the limited environmental focus. "While the government's commitment to increasing investment in clean energy is a positive step towards reducing reliance on fossil fuels, it is simply not enough to address the multifaceted environmental crisis we face," said Sian Sutherland, Co-Founder of A Plastic Planet & Plastic Health Council.

"Plastic is a climate issue not a waste issue, and cracking down on its use and production is a popular way to reach net zero without spending a penny. Being the first country to pledge a phase out of polluting plastics would put us at the forefront of negotiations for a strong Global Plastics Treaty."

Dr Amy McDonnell, Campaign Director of the Zero Hour climate and nature campaign, warned that "behind the headlines about a big government spending spree is the risk that investment in nature and biodiversity recovery is undergoing death by a thousand cuts, with Defra's budget falling."

"The Treasury's cavalier approach to our natural environment is exactly the wrong approach, and underlines the need for Britain's international climate and nature obligations to be placed in domestic law with a strong Climate and Nature Bill," she added.