UK needs £800bn in new funding by 2040 to meet defense commitments, report says

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The British government will need to mobilize more than £800 billion in new funding for defense projects and wider strategic infrastructure by 2040 if it is to meet ambitious NATO-related targets set under pressure from Donald Trump, an analysis has found.

The UK has promised to increase its defense spending to 3.5 per cent of GDP by the middle of the next decade, with a further 1.5 per cent to be spent on wider security-related needs, as the US president pushes his allies to contribute more to their own defence.

To meet this 5% target, the government will need to raise a cumulative £804 billion by 2040 to finance projects that have not currently received funding, according to EY Parthenon, a consultancy. This would represent 41 percent of total unfunded investment 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 investment projects expected to start or be completed by 2040, ranging from health programs and transport projects to energy infrastructure.

It identifies government investments that are not yet formally funded in official plans, or for which only part of the necessary funding has been allocated. The government’s spending review in June outlined detailed capital spending plans, but these only apply until 2029-30.

The unfunded defense pipeline includes construction of new barracks, development of new autonomous systems, munitions factories and spending on naval hubs. Additional investments will be needed in the road and rail sectors to improve military mobility, supply chain resilience and strategically critical technologies.

NATO allies promised at a summit in The Hague in June to spend 5 percent of their GDP per year on defense requirements and security-related spending by 2035. Of this amount, at least 3.5 percent of GDP will be based on the agreed definition of NATO defense spending.

Governments agreed to submit annual plans showing a credible and progressive path to achieve this goal. But senior British military officials have called on Prime Minister Sir Keir Starmer to toughen up his ambitions to increase defense spending, fearing tough choices will be postponed.

Labor plans to increase core defense spending to 2.5 per cent of GDP by 2027 – from around 2.3 per cent when it came to power – by reallocating foreign aid money.

However, the commitment to increase defense spending to 3 percent of GDP in the next legislature and to 3.5 percent by 2035 is not yet spelled out in the financial forecast.

Taking into account other unfunded projects in areas such as energy, health and transport, the UK will need to raise a total of £1.96 billion of funding for capital projects by 2040, EY said, with defense accounting for the largest share, assuming the 5 per cent target is met.

If the UK only meets the 3% defense spending target, the total value of unfunded programs will still be £1.7 trillion over the period.

Based on historical patterns of public spending, EY estimates that around £1.1 trillion of the total investment gap covering all sectors, including defence, will ultimately be filled by increased public spending by 2040. But this leaves a further gap of £817 billion that needs to be filled.

“New defense priorities are reshaping the country’s capital agenda,” said Mats Persson, EY’s head of macro and geostrategy in the UK. He added that the UK will face increasing funding needs over the next 15 years due to “simultaneous transitions” in energy, infrastructure, health and defence.

A Treasury spokesperson said: “At the Budget, the Chancellor protected additional capital spending worth more than £120 billion 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 £5 billion of additional funding for defense in 2025-26 and our ambition is to spend 3% of GDP on defense in the next Parliament when economic and fiscal conditions allow. »