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The UK government will need to raise more than £800 billion of new funding for defense 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 pledged to increase defense spending to 3.5 percent of GDP by the middle of the next decade, with an additional 1.5 percent spent on security needs, as the US President pushes allies to contribute more to their defence.
According to EY Parthenon, a consultancy, meeting the 5 per cent target means the government will need to raise a cumulative £804 billion by 2040 to pay for projects that are not currently allocated funds. This will represent 41 percent 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 due to commence or be completed by 2040, ranging from health programs and transport schemes to energy infrastructure.
It matches government investments that have not yet been formally allocated funds in official plans, or where only some of the required funds have been allocated. Detailed capital expenditure plans have been introduced in the government’s June expenditure review, but these will last only till 2029-30.
The unfunded defense pipeline includes spending on construction of new barracks, development of new autonomous systems, munitions factories and naval bases. Further investment will be required in road and rail to enhance military mobility, supply chain resilience and strategically important technologies.
At a summit in The Hague in June, NATO allies pledged to spend 5 percent of their gross domestic product annually on defense needs and security-related spending by 2035. Of this, at least 3.5 percent of GDP will be based on an agreed definition of NATO defense expenditure.
Governments agreed to submit annual plans showing a credible, incremental path to reaching this goal. But senior figures in Britain’s military have called on Prime Minister Sir Keir Starmer to toughen his ambitions to increase defense spending, amid concerns that tough choices have been avoided.
Labor plans to increase core defense spending to 2.5 per cent of GDP by 2027 by reallocating funds from foreign aid – up from about 2.3 per cent when it took office.
However a commitment to increase defense spending to 3 percent of GDP in the next parliament and to 3.5 percent by 2035 has not yet been made in the fiscal forecasts.
Taking into account other unfunded projects in sectors such as energy, health and transport, the UK will need to raise a total of £1.96tn for capital projects between now and 2040, EY said, with defense the largest share, assuming the 5 per cent target is met.
Even if the UK only meets the 3 per cent defense spending benchmark, the total value of unfunded programs over this period will be £1.7tn.
Using historical patterns of government spending, EY estimates that approximately £1.1tn of the total investment gap covering all sectors, including defence, will ultimately be covered by rising government spending by 2040. But that leaves a further £817bn shortfall that would need to be closed.
“New defense priorities are reshaping the country’s capital agenda,” said Mats Persson, EY’s UK macro and geostrategy leader. He said the UK faced increasing funding needs over the coming 15 years due to “simultaneous transformation” across energy, infrastructure, health and defence.
A Treasury spokesperson said: “In the Budget, the Chancellor protected more than £120 billion of additional capital spending compared to the previous government’s spending plans and first changed the fiscal rules so we can invest in our long-term future alongside the private sector.
“We have already provided £5 billion of additional funding for defense in 2025-26 and our ambition is to spend 3 per cent of GDP on defense in the next Parliament when economic and fiscal conditions allow.”
