UK departments told to cut capital budgets by 1% to fund defence plan

British government departments have been instructed to trim their capital spending by 1% to cover a £4.7bn shortfall in the country's Defence Investment Plan, Chancellor John Healey has confirmed.

The fresh round of savings follows an earlier 1% reduction imposed on departmental investment budgets, which went toward funding an initial £10.3bn segment of the broader £15bn programme. Capital budgets support long-term infrastructure and development projects rather than routine operational costs. During the previous reduction round, several planned road improvement works were abandoned.

Healey faced pressure in the House of Commons over the timeline for expanding military funding to 3% of gross domestic product by 2030, alongside an overarching goal of reaching 3.5% by 2035. The Office for Budget Responsibility projects that hitting the 3.5% threshold by 2035 will require £35bn.

Addressing MPs during his Budget statement, the chancellor said a detailed pathway to those targets would be presented during the upcoming spending review next year. He acknowledged that reaching the thresholds would require examining public spending closely, while also pursuing private partnerships and international agreements. Healey outlined plans to negotiate a multilateral defence framework with Finland, Poland and the Netherlands to pool resources, while instructing the British Business Bank and the National Wealth Fund to deploy £5bn into dual-use technologies and defence capabilities.

Political opponents criticised the delay in laying out a comprehensive funding strategy. Conservative leader Kemi Badenoch claimed the chancellor offered only "a plan to have a plan" and argued he had failed to guarantee national safety. The Conservatives have previously suggested using welfare reductions to finance defence increases.

Within Labour, Tan Dhesi, who chairs the Commons defence committee, said that deferring vital funding decisions until the next spending review amounted to an unwelcome delay. However, Nato Secretary General Mark Rutte welcomed the direction, describing the UK as following a credible route toward meeting the alliance's investment targets.

Alongside the domestic adjustments, Healey announced a £10bn financial and military assistance package for Ukraine, delivered via loans and export guarantees. The provision includes £5.5bn backed by World Bank guarantees and £3bn arranged through UK Export Finance, adding to the UK's separate pledge of £3bn annually in military aid through at least 2030-31. Ukrainian President Volodymyr Zelensky praised the announcement, stating that additional support brings an end to the conflict closer.