Britain’s ambition to increase defence spending is widening an already substantial funding gap across the country’s infrastructure pipeline, raising fresh questions about how future capital projects will be financed. New analysis from EY-Parthenon estimates that between £1.7tn and £1.96tn of UK capital projects scheduled through to 2040 currently lack identified funding, up from £1.6tn a year ago.
The findings, published in EY-Parthenon’s latest Mind the (Investment) Gap report, suggest that while the government has made progress in unlocking funding for some projects, rising geopolitical pressures and commitments to increase defence spending are significantly expanding overall capital requirements.
The report builds on EY-Parthenon’s 2024 assessment of more than 1,000 UK capital projects spanning transport, energy, health and economic infrastructure. That earlier analysis concluded that inflation and wider economic pressures had pushed up costs and left a £1.6tn shortfall. Over the past year, EY-Parthenon says reforms to fiscal rules and targeted investment decisions have helped move several previously unfunded schemes closer to delivery.
However, the capital pipeline itself has grown. Plans to raise defence spending to 3 per cent of GDP in the early 2030s, and potentially to 5 per cent by the middle of the next decade, are now the largest single factor reshaping the outlook. Under a 3 per cent scenario, EY-Parthenon estimates the unfunded portion of the pipeline rises to £1.7tn, increasing to £1.96tn if defence spending reaches 5 per cent.
Based on historic patterns of public investment, the analysis suggests that government funding could cover around £1.1tn of capital requirements by 2040. That would leave a shortfall of £583bn under a 3 per cent defence scenario and £817bn under a 5 per cent scenario, compared with an estimated £670bn gap last year.
Mats Persson, EY-Parthenon’s UK macro and geostrategy leader, said the challenge was not a lack of ambition but the scale of overlapping priorities. He noted that energy transition, health infrastructure and defence modernisation were all competing for funding at the same time, requiring new approaches to delivery and finance.
Defence-related schemes now account for more than 40 per cent of unfunded projects, up from 16 per cent a year ago, reflecting major programmes across nuclear, naval, digital and autonomous systems.
To narrow the gap, EY-Parthenon points to a greater role for private capital, improved productivity during project design, and wider use of technologies such as digital modelling and artificial intelligence. Andrea Powell, EY’s UK and Ireland infrastructure leader, said better use of technology could help reduce costs and improve delivery confidence, making projects more attractive to long-term investors.
The report concludes that without such measures, rising defence commitments risk crowding out investment elsewhere, leaving the UK struggling to deliver the infrastructure needed to support long-term growth and resilience.
