Increased spending on UK defence programmes is set to increase the gap in funds allocated towards infrastructure projects to nearly £2tn, a report from EY-Parthenon has found.

A previous analysis from the firm in September 2024 assessed the UK’s full pipeline of more than 1,000 capital projects scheduled to commence or complete by 2040, ranging from transport and health programmes to economic and energy infrastructure. It was calculated that there was still around £1.6tn needed that had not been allocated from public spending thus far.

By using historic patterns of government spending on existing versus new projects, EY-Parthenon estimates that only around £1.1tn could be covered by government investment by 2040.

Since September 2024, the government has been forced to commit to further increases in military spending due to an unstable geopolitical environment and pressure from the US under President Donald Trump. But if defence spending rises to between 3-5% of GDP as expected, the current deficit overall would leave a shortfall of between £583bn and £817bn. Alongside existing deficits, this would leave a gap of between £1.7tn and £1.96tn in the UK’s expected infrastructure budget pipeline up to 2040 in total.

This is despite the analysis showing that the government has made “substantial progress” in unlocking more capital investment by reforming fiscal rules, with several projects that were unfunded in 2024 now receiving funding or on a clear path towards it. 

However, like other Western countries, the UK’s total pipeline of projects and programmes requiring capital investment between now and 2040 has also increased, driven primarily by UK defence spending priorities.

Mats Persson, EY-Parthenon geostrategy leader, said: “The government has made significant progress in addressing the UK’s infrastructure funding shortfall over the last year, with a slew of new capital investment unlocked for key projects. However, the 15-year funding requirements to achieve simultaneous transitions across energy, infrastructure, health and defence are also rising.

“New defence priorities in particular are reshaping the country’s capital agenda but should also create new opportunities to combine security and industrial objectives and, with the help of private finance, stimulate UK tech development, advanced manufacturing and national resilience.” 

The report identified a number of measures the government could take to close a large share of the investment shortfall by 2040. 

These include a range of alternative investment models to bring private enterprise onboard and regulated asset-based models that could prove attractive to worldwide pension funds. 

The report also recommends that infrastructure projects incorporate a series of efficiency improvements, with particular focus on opportunities to enhance productivity during the design phase. Evidence from large-scale infrastructure and industrial programmes have found that design-led coordination can reduce the average cost of a capital project by 20-25% and cut delivery times by 10-15%, it said.