Government plans to redirect funding from departmental capital budgets to support higher defence spending have prompted concern across the construction industry about the potential impact on the infrastructure pipeline and project delivery.
The newly published Defence Investment Plan (DIP) sets out an additional £15 billion in Ministry of Defence spending over the next four years, above the funding agreed in the latest Spending Review.
Defence Secretary Dan Jarvis has confirmed that all government departments will contribute 1% of their capital budgets this year towards the increase.
The Department for Transport (DfT) and the Department for Energy Security and Net Zero (DESNZ) have also been asked to make additional contributions because of their larger resources.
Image: A46 Newark Bypass - Highways England
Some road and energy infrastructure projects are no longer expected to proceed as planned according to the current Prime Minister Keir Starmer.
Dr David Crosthwaite, chief economist at BCIS, said the DIP is a tale of two halves for construction.
“Greater clarity over the government’s long-term funding intentions hopefully gives the industry a slightly firmer basis for planning – a key concern raised at the latest meeting of the BCIS Civil Engineering Tender Price Index Panel,” he noted.
“However, uncertainty remains around how the DIP will be funded. The next prime minister will reportedly need to identify almost £5 billion to support the programme. If that funding cannot be secured, it could affect investment in the defence estate and slow activity across this part of the infrastructure sector.
“The announcement by Starmer that funding for some roads and energy projects will be redirected towards higher defence spending also raises questions about the wider infrastructure pipeline. This appears difficult to reconcile with the government’s wider ambition to use investment in construction to support economic growth.
“Balancing these competing priorities will be a significant challenge for the next prime minister. Increased defence spending may be necessary, but construction must not become the sacrificial lamb to pay for it.
“Sustained investment in construction is critical to supporting economic growth and delivering the infrastructure needed for future prosperity. If the government gets that balance wrong, it risks undermining its ability to invest across multiple priorities in the years ahead.”
Potential changes to individual projects have not yet been confirmed. However, according to a government explainer, reductions to the DfT’s capital budget are expected to contribute around £700 million in savings, while the DESNZ is expected to provide a further £2 billion.
The DfT will also consult on changes to the third Roads Investment Strategy. These include the potential cancellation of the A38 Derby Junctions and A46 Newark Bypass schemes, both of which have yet to enter the construction contract stage and are less advanced than other road projects.
