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The UK government will need to mobilise more than £800bn of new funding for defence projects and wider strategic infrastructure by 2040 if it is to meet ambitious Nato-related targets set after pressure from Donald Trump, analysis shows.
The UK has promised to lift defence spending to 3.5 per cent of GDP by the middle of the next decade, with an extra 1.5 per cent due to be spent on wider security-related needs, as the US president pushes allies to contribute more to their own defence.
Meeting that 5 per cent target implies the government will need to mobilise a cumulative £804bn by 2040 to pay for projects that currently have not been allocated funding, according to EY Parthenon, a consultancy. That would represent 41 per cent of total unfunded capital projects by the end of the next decade.
The report is based on an assessment of the UK’s pipeline of more than 1,000 capital projects that are scheduled to start or be completed by 2040, ranging from health programmes and transport schemes to energy infrastructure.
It tallies up the government investments that are not yet formally allocated funding in official plans, or where only some of the necessary funding has been allocated. The government’s June spending review has laid out detailed capital spending plans, but these only run until 2029-30.
The unfunded defence pipeline includes construction of new barracks, the development of new autonomous systems, munitions factories and spending on naval hubs. Further investments will be needed in road and rail to enhance military mobility, supply chain resilience and strategically critical technologies.
Nato allies promised at a summit in The Hague in June to spend 5 per cent of their GDP annually on defence requirements and security-related spending by 2035. Of this, at least 3.5 per cent of GDP will be based on the agreed definition of Nato defence expenditure.
The governments agreed to submit annual plans showing a credible, incremental path to reach this goal. But senior figures in the UK military have called on Prime Minister Sir Keir Starmer to harden his ambitions to raise defence spending, amid concerns that tough choices are being deferred.
Labour has mapped out raising core defence spending to 2.5 per cent of GDP by 2027 — up from around 2.3 per cent when it took office — by reallocating money from overseas aid.
However a commitment to raise defence spending to 3 per cent of GDP in the next parliament and 3.5 per cent by 2035 is not yet laid out in financial forecasts.
Factoring in other unfunded projects in areas such as energy, health and transport, the UK will need to mobilise a total of £1.96tn of funding for capital projects between now and 2040, EY said, with defence the biggest slice, assuming the 5 per cent target is met.
If the UK meets only a 3 per cent defence spending benchmark, the total value of unfunded programmes will still be £1.7tn over the period.
Using historic patterns of government spending, EY estimates that about £1.1tn of the total investment gap covering all sectors including defence will ultimately be covered by rising government spending by 2040. But this leaves a further shortfall of £817bn that it will need to close.
“New defence priorities are reshaping the country’s capital agenda,” said Mats Persson, EY’s UK macro and geostrategy leader. He added that the UK faces rising funding requirements in the coming 15 years because of “simultaneous transitions” across energy, infrastructure, health and defence.
A Treasury spokesperson said: “At the Budget, the Chancellor protected additional capital spending worth over £120bn compared to the previous Government’s spending plans and previously changed the fiscal rules so we can invest in our long-term future, alongside the private sector.
“We have already provided additional funding of £5bn for defence in 2025-26 and our ambition is to spend 3 per cent of GDP on defence next parliament when economic and fiscal conditions allow.”