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In his first Budget on Wednesday, October 28, Chancellor John Healey told MPs he is fully funding Britain's Defence Investment Plan, closing a £4.7 billion ($6.3 billion) gap in the plan through reprioritisation of spending across Whitehall departments.
"In today's budget, I am fully funding the Defence Investment Plan, including through capital reprioritisation across Whitehall. This honours the commitment made both by me — and by the prime minister," Healey told Parliament.
The gap arose because the Defence Investment Plan, published in June, promised £15 billion of extra funding for the UK defence sector but committed only £10.3 billion of it, leaving £4.7 billion for Healey to find. According to the Budget's Red Book, the remaining £4.7 billion will be found by further reducing departmental capital budgets by 1% from 2027-28 to 2029-30, raising £3 billion, with the additional £1.7 billion funded from "unallocated contingency in the Treasury's capital reserve."
Capital budgets pay for long-term investment, such as infrastructure and equipment, rather than day-to-day running costs. The new 1% reduction follows an earlier 1% cut to departmental capital budgets used to fund the first £10.3 billion of the plan, a round in which a number of planned road improvement schemes were dropped. Departments have not yet decided what will be cut under the new round.
Healey also said next year's spending review will set out how Britain will meet the NATO commitment of spending 3.5% of GDP on defence by 2035, with a target date of 2030 for reaching 3%. Defence spending is currently planned to reach 2.7% of GDP by 2027. He said meeting the higher targets would require "looking hard at public spending" and that he was "determined to use more innovative financing, alongside the private sector and our international allies."
As part of that work, Healey launched an Innovative Defence Finance Taskforce and said Britain will begin treaty negotiations on a Multilateral Defence Mechanism with Finland, Poland and the Netherlands to boost defence investment and joint procurement across NATO allies. He also said the National Wealth Fund and the British Business Bank will deploy up to £5 billion of investment and lending over four years for defence, dual-use technology and sovereign capability, and reaffirmed roughly £10 billion of economic and military support for Ukraine.
The announcement drew criticism from the opposition. Conservative leader Kemi Badenoch said Healey had offered only "a plan to have a plan," had not met his own pledge to set out a path to 3% at the Budget, and should resign, arguing he was "making our country less safe." Within Labour, Tan Dhesi, who chairs the Commons defence committee, said deferring vital funding decisions until the next spending review amounted to an unwelcome delay, while NATO Secretary General Mark Rutte welcomed the direction of travel as a credible route toward the alliance's investment targets.
Healey resigned as defence secretary under Keir Starmer in June over concerns about defence spending, before becoming Chancellor. He told MPs the Budget honours the commitment he made in that role and the commitment made by Prime Minister Andy Burnham.