UK’s Defence Investment Plan diverts funds from energy projects

The Defence Investment Plan

On 30 June 2026, Prime Minister Sir Keir Starmer unveiled the UK’s Defence Investment Plan (DIP), detailing the investment choices the Government is making for the UK Defence sector.  The DIP outlines how the recommendations from the 2025 Strategic Defence Review will be translated into a costed four-year programme backed by £298bn of investment.

For more information on the key outputs of the DIP and the implications for the defence sector, see our briefing: From strategy to spending: How the UK’s £298bn Defence Investment Plan affects industry and investors

A key message of the DIP is how efficiencies in other governmental departments will fund the £15bn of additional investment.  On the same day the DIP was launched, the Chancellor of the Exchequer, Rachel Reeves, laid out the Government’s plans for funding the investment outlined in the DIP.  In a ‘reprioritisation’ of public spending, the DIP investments will be funded by a reallocation of budgets from other governmental departments, in particular, the Department for Energy Security and Net Zero (DESNZ) and the Department for Transport (DfT).  DESNZ will be required to find savings of £2bn (including £400m in financial transactions), while continuing to deliver renewable and nuclear build-out, and protecting the UK from future gas price spikes.  The full detail of the impact of this ‘reallocation of funding’ will be shared in Autumn 2026, with an initial saving of £100m to be made in the 2026-27 spending year, with significantly greater savings required to be made from the 2027-28 spending year onwards.

Energy sector impact

Funding the DIP – energy and road projects to go by the wayside?

In his speech to launch the DIP, the Prime Minister stated that some capital projects would not go ahead as planned, referring specifically to road and energy projects.  Having made this remark, the PM gave no further indication as to which projects would be affected, how they would be affected (complete cancellation or scaling down), or whether one technology type would be more greatly affected than others.  For many, significant projects are already underway, for example under the second Hydrogen Allocation Round or the offshore wind leasing round 5.

With the UK speeding towards its net zero commitment deadlines, and a focus on transitioning from traditional fuels such as oil and gas projects, it may be difficult to see which energy projects are not “immediately vital”.  The uncertainty risks unnerving investors in the UK energy market, who may be more inclined to take their investments further afield.

There is, however, a sense from industry that this latest announcement is likely to lead to delays to projects, rather than outright cancellations – although experience suggests that delays can, at times, lead to projects being cancelled or withdrawn.  There is also expected to be a greater reliance on grant funding for projects where this is available.  DESNZ has indicated that its aim is for a large proportion of the savings to be made will be found through ‘efficiencies’ – could this be in the form of job cuts within DESNZ?

Clarity is needed from the government quickly as to the impact of this announcement, and which projects are most likely to be affected.  With delays to publications such as the long-awaited Hydrogen Strategy, the promise of “more detail in the Autumn” will perhaps leave some developers and investors more than a little sceptical as to how much clarity will be provided in the Autumn, and the energy sector will no doubt be waiting with bated breath for the 2026 Autumn Statement.

Opportunity knocks?

With plans to improve the defence estate, there will be opportunities for those in the energy sector focused on energy efficiency upgrades, such as boilers.  The DIP recognises the benefits of investing in renewable energy and water efficiency to reduce costs and create a more efficient defence estate.

Exploring newer technologies, such as battery storage and advanced modular reactors, is a clear ambition of the defence sector, which currently owns 1% of all land across the UK, but is significantly lacking in generation capacity.  The DIP commits to new investment opportunities to secure more of the defence sector’s energy from “sovereign and resilient sources” including renewable energy.

The offshore wind sector is reliant on the safety of UK waters, including undersea cables and pipelines.  An investment of £330m has been pledged over the next four years on critical underwater infrastructure protection, with the Ministry of Defence (MOD) looking at ways to partner with industry to bring more funding into underwater cable protection.

Earlier this year, the MOD announced the purchase of specially designed air defence radars intended to mitigate against anomalies created by offshore wind farms.  These will be installed from early 2029, and are intended to ensure the continued deployment of offshore wind farms in UK territorial waters.

Defence nuclear continues to be a priority, with the ring-fence for nuclear spending established in 2023 remaining in place, and an investment of £290m in nuclear skills.  While not contributing to nuclear energy generation, an intended consequence of prioritising defence nuclear development will be critical infrastructure upgrades and new fuels programme (backed by £1.7bn of investment) – both opportunities for the energy sector, sharing technology, expertise and infrastructure requirements between defence and civil nuclear industries, as indicated by the UK’s Industrial Strategy (June 2025).

Further reading on the Defence Investment Plan

From strategy to spending: How the UK’s £298bn Defence Investment Plan affects industry and investors

The UK Defence Industrial Strategy: what is in it for the defence industry? | Eversheds Sutherland