The newly-published Defence Investment Plan will primarily be funded by reallocating money from capital budgets across government departments.
The plan, which implements the vision set out in last year’s Strategic Defence Review, includes an extra £15bn for the armed forces on top of existing budgets.
It 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”, the chancellor Rachel Reeves said in a written ministerial statement on Tuesday.
Reeves said £10.3bn of budget reallocations have been identified so far for 2026-27 to 2029-30.
She said a further £4.7bn for those four years would be confirmed at the 2026 Budget. Reeves said ministers “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”.
Reeves said departments will also monetise assets including underused land and buildings so that they secure the maximum value from the £1.9trn of assets the government holds.
As part of the DIP exercise, all departments have been asked to contribute 1% of their capital budgets from this year. Those with larger capital resources – the Department for Transport and Department for Energy Security and Net Zero – have been asked 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 in financial transactions. Reeves said 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”.
The chancellor said a further £3.4bn in spending power has been generated through removing burdens on defence, unlocking new investment in the DIP. She said this includes £0.4bn income from rationalising the MoD estate, and £0.6bn from reprioritising MoD spending.
Reeves said HMT is also freeing up £2.4bn 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.
She said this frees up cash from the MoD’s budget which it can invest elsewhere in the DIP.
Reeves said more detailed plans will be shared by autumn.
Annnouncing the plan, outgoing prime minister Keir Starmer said the government is already delivering the "biggest sustained increase" in defence spending since the 1980s, and the increase in funding by a further £15bn will set “a new record".
Starmer said the previous Conservative government spent £54bn on defence per year before his government came to power, which he says will increase to "almost £80bn" per year by 2029 – “a real terms increase of 27%”.
Defence secretary Dan Jarvis said most of the extra day-to-day spending will be for training and improving availability of ships and aircraft to increase the country's war-fighting readiness.