Written statement: Defence funding update - June 30

Chancellor of the Exchequer (Rachel Reeves): The first job of any government is to keep people safe. Since I've been Chancellor, I've been clear that national security is central to our economic security, and we have invested record sums into defence. The government has today confirmed an additional £15 billion for the Defence Investment Plan between 2026-27 and 2029-30. That will mean this government will be spending over £60 billion more on defence over the next four years than if spending were maintained in line with plans set out by the last government in Spring Budget 2024.

This will move the UK towards warfighting readiness, modernising military capability to fight the wars of the future and drive economic growth. The DIP document sets out investments in detail totalling £298 billion over the next four years.

From 27-28 onwards, the UK will spend 2.7% of GDP on core NATO defence spending, solidifying its position as the NATO Alliance's third-largest cash spender, behind only the US and Germany. The Government has committed to increasing defence spending to 3% of GDP in the next Parliament, with funding and plans to be set out at the next spending review where defence must be the number one priority. Alongside NATO allies, the UK has committed to reach 3.5% of GDP on defence spending by 2035. The UK remains committed to meeting its obligations to the Defence Investment Pledge. All Allies will review the trajectory and spend in 2029, when NATO next reviews its capability plans.

This is more money for UK defence, spent more effectively to ensure our service personnel have the capabilities they need to deter and fight now, whilst driving out waste and inefficiency.

This will support £5 billion investment in drones and autonomous systems, the UK's largest ever investment in drone warfare, and learning the lessons of Ukraine. It will fund strike and surveillance drones, a new hybrid navy as well as uncrewed land vehicles. It will also support the next generation of RAF aircraft, with £8.6 billion investment under the Global Combat Air Programme with Italy and Japan, and £300m for the development of Collaborative Combat Aircraft. It will also support an £11 billion investment for munitions and weapons to increase UK stockpiles, at least six new energetics factories, and £3.2 billion in space capabilities. And it will deliver the UK's renewal of the nuclear deterrent, with £64 billion of investment to build new submarines, develop a sovereign warhead and buy F35A jets.

The Defence Investment Plan will provide long-term certainty over government procurement and innovation priorities, backing British business, and crowding in private investment and supporting high-value jobs and skills across the UK. By aligning defence spending with the Government's Industrial Strategy, it ensures that every pound invested strengthens national security while driving growth in key sectors, boosting regional economies and positioning the UK at the forefront of advanced manufacturing and technology.

At the same time, additional funding will support improved procurement and productivity, allocating £400 million towards the UK's contribution to the Multilateral Defence Mechanism, which will enable joint procurement with allies as well as supporting greater spending and our defence industrial base, and a £500 million Transformation Fund to enable transformation of the civilian workforce, reduce dependence on consultancies and deliver productivity improving investments in AI. This is also supported by £115 million the Department for Science, Innovation and Technology will spend to strengthen our defences against the risks of AI and a new £50 billion Defence Export facility to support British defence businesses to compete and create jobs.

These choices are necessary to ensure our capabilities are fit for today and to put defence on a sustainable footing. This includes moving towards more advanced, more effective technology. It also includes driving out waste and inefficiency, with a new commitment to deliver £250m of fraud recovery by 2029-30. There will also be a fundamental reset in MOD's financial management, with defence decision-makers accountable to the MOD Permanent Secretary on budget management, and annual DIP delivery updates to Parliament each year.

Funding

This package has been funded by reprioritising public spending, acting within our fiscal rules and without taking resources away from day-to-day spending on frontline services. It is funded primarily by reallocating budget from across government departments, with £10.3bn identified now. A further £4.7bn over four years will be confirmed at Budget 2026, in a fair and balanced way.

We will ensure that we focus this on finding efficiencies, cancelling or delaying lower priority programmes and remaining ruthlessly focussed on value for money for the taxpayer. Departments will also monetise assets including underused land and buildings so that we are securing the maximum value from the £1.9 trillion of assets the government holds. Departments will bring forward details in due course.

As departments with larger capital budgets, the government has decided to ask the Department for Transport (DfT) and the Department for Energy Security and Net Zero (DESNZ) to make further contributions. DfT will provide up to £700m of savings from roads funding. DESNZ will find an additional £2bn of savings including £400m Financial Transactions (FTs) while maintaining the fastest growing capital budget out of any department across this spending review period. DESNZ will reshape its capital budget in a way which continues to protect the clean power mission, drive renewable and nuclear build-out and insulate us from future gas price spikes on the path to energy independence. More detailed plans will be shared by Autumn.

A further £3.4 billion spending power² has been generated through removing burdens on defence. This unlocks new investment in the DIP. It includes £0.4 billion income from rationalising the MOD estate, and £0.6 billion from reprioritising MOD spending. HMT is also freeing up £2.4 billion by taking on responsibility for the cost of further support for ongoing international objectives which include Ukraine Security Guarantees in the case of a ceasefire, and unlocking additional savings from improved procurement. That frees up cash from MOD's budget which they can invest elsewhere in the DIP. This will bring total additional funding to £15 billion including £11.6 billion additional cash. This is new investment, on top of existing budgets.

Departmental control totals will be adjusted to reflect these choices in the usual way at Supplementary Estimates.

We are committed to fiscal sustainability. We are acting within our iron-clad fiscal rules to protect households and businesses from higher inflation and higher interest rates, while readying UK defence against emerging global threats.