Treasury sets out defence boost funding gap

Chancellor Rachel Reeves has told Parliament how the government will fund the £15bn Defence Investment Plan, reallocating capital budgets across Whitehall, with roads and energy spending among the areas reduced and £4.7bn still to be confirmed at the autumn Budget.

Opening her written statement with the line that “the first job of any government is to keep people safe,” Rachel Reeves confirmed the additional £15 billion for defence between 2026-27 and 2029-30, which she said would take the Ministry of Defence’s budget to almost £298 billion across the four years and amount to more than £60 billion more on defence over the period than under the previous government’s plans, framing the increase as proof that national security is “central to our economic security.”

The Chancellor said the package amounted to “more money for UK defence, spent more effectively,” and that it had been funded by reprioritising public spending within the government’s fiscal rules and, she said, without taking resources from day-to-day spending on frontline services, drawing primarily on a reallocation of capital budgets from across government departments.

Of the total, £10.3 billion has been identified now, with a further £4.7 billion to be confirmed at the autumn Budget, and the Treasury said departments would look for efficiencies, cancel or delay lower-priority programmes and sell off underused land and buildings, while remaining, in the Chancellor’s words, “ruthlessly focussed on value for money for the taxpayer.”

Two departments with large capital budgets have been asked to contribute the most, with the Department for Transport providing up to £700 million of savings from roads funding and the Department for Energy Security and Net Zero finding a further £2 billion, which the government said it would deliver while continuing to “protect the clean power mission” and to fund renewable and nuclear construction. A one per cent reduction in departmental capital budgets across Whitehall accounts for a further £4 billion of the package over the four years.

Alongside those savings, the government said £3.4 billion of additional spending power had been generated by removing burdens from the defence budget, including the Treasury taking on £2.4 billion of costs for ongoing international commitments such as Ukraine security guarantees in the event of a ceasefire, together with income from rationalising the Ministry of Defence estate and from the department reprioritising its own spending. Taken with £11.6 billion of new cash, the Treasury said, this brought the total to £15 billion.

The statement set out what the money would buy, restating the headline commitments in the plan, among them more than £5 billion for drones and autonomous systems, £8.6 billion for the Global Combat Air Programme with Italy and Japan, £11 billion for munitions and at least six new energetics factories, £3.2 billion for space and £64 billion for renewing the nuclear deterrent.

The government said the investment would take Britain to 2.7% of GDP on core NATO defence spending from 2027-28.

The Chancellor also announced what she described as a reset of financial management at the Ministry of Defence, with budget-holders made accountable to the department’s permanent secretary, a commitment to recover £250 million of fraud by the end of the decade and annual updates to Parliament on how the plan is being delivered. Reeves said the government was “committed to fiscal sustainability” and acting within its “iron-clad fiscal rules,” and with £4.7 billion of the funding still to be confirmed at the Budget and the steeper climb towards 3.5% of GDP resting on decisions at a future spending review, the statement fixes the immediate four-year total while leaving some of the longer-term funding to be settled later, with NATO allies due to review the trajectory of their spending in 2029.