Chancellor John Healey has delivered his 2026 Budget, framed around giving households 'breathing space for today' and 'fresh hope for the future', balancing fiscal discipline against the rising cost of living. 

Key announcements include increased defence investment and a new Innovative Defence Finance Task Force, a new Data Centre Covenant and grid access for strategic data centres, an expansion of challenge-led procurement to support British businesses, a confirmed fiscal devolution roadmap with increased business rates retention for local government, and an independent review into AI opportunities in the NHS. 

Below, our legal experts share their reaction to the Chancellor's headline announcements and set out the practical implications for our clients across a range of sectors, including:

• Defence and public finance institutions.
• Data centres.
• Changes to public procurement.
• Fiscal devolution roadmap.
• AI in the NHS.

Defence and public finance institutions 

The government announced plans for a fully funded Defence Investment Plan, a new Innovative Defence Finance Taskforce and increased defence investment via public financial institutions.  

Tom Saunderson, Partner specialising in defence, commented: "The defence sector has been here before. Fully funding the Defence Investment Plan and confirming the 3% GDP target for 2030 are meaningful commitments, but headline numbers without contractable pipelines do not fill supply chains. The detailed spending blueprint, including how the government intends to meet NATO's longer-term 3.5% commitment, has been deferred to next year's Spending Review, which means the legal and commercial architecture needed to translate political ambition into signed contracts remains to be built. 

"The most legally significant announcements for industry today are the Innovative Defence Finance Taskforce and the opening of formal treaty negotiations with Finland, Poland and the Netherlands on a Multilateral Defence Mechanism. The Taskforce's remit covers financing structures, contracting models and the mobilisation of private and institutional capital alongside public funding, and goes to the heart of what has historically blocked investment: a procurement framework that private capital cannot contract against with confidence. Key legal questions remain unanswered, including whether National Wealth Fund and BBB investment, part of the £5bn in funding and lending the government has earmarked for defence, dual-use technologies and sovereign capability, counts towards GDP spending commitments, and on what commercial terms that capital will actually reach industry. 

"The Taskforce runs only until next year's Spending Review, and that is a tight window in which to address the barriers that have historically kept private investment on the sidelines: procurement reform, access for SMEs, and the conditions on which international capital can participate in defence programmes. The appetite across industry is there. What is still missing is a legal framework it can build a business case around, and that work needs to start now." 

Nick Pearson, Principal Associate in the government team with experience of PFIs, said: “The decision to channel defence investment through public financial institutions represents an opportunity for bold, forward-thinking partnership between public and private capital that can make real progress, while bringing returns to the taxpayer in the form of economic output and job creation.  

“The 2018 moratorium on PFI should always have been the starting point for reform of public-private partnerships (PPPs), not a permanent retreat – and it is encouraging to see government now returning to that territory, having already acknowledged potential use cases for PPPs in developing neighbourhood health centres.  

“Enhancing sovereign defence capability takes decades, not years, and that makes it ideally suited to the type of long-term, structured investment that PPPs have previously been used for, such as in developing infrastructure like hospitals, schools and transport schemes. 

“The critical question now is whether the legal and contractual framework behind these PuFin investments is built to the standard the model demands – transparent, proportionate in risk allocation, and with strong governance. Defence businesses, procurement authorities and funders will want to see this addressed in the forthcoming Defence Financing and Investment Strategy.”

Data centres

The Chancellor announced a new proposed Data Centre Covenant for approving new strategic data centre projects and supporting with energy connectivity. 

Darren Ashworth, Partner in real estate specialising in data centres, added: "The government appears to be listening, and the Budget's proposed British Data Centre Covenant puts that into practice. Developers who can show real local benefit and responsible water use are likely to be better placed to secure quicker access to power and, where needed, a more workable route to on site generation. The impact will be measured by who qualifies, how compliance will be evidenced, and whether the prioritisation process is transparent and applied consistently. Developers and investors should treat those requirements as part of the project critical path from the outset." 

Ben Standing, Partner in planning and environment, said: “Recognition of the impact imposed on communities that host vital public infrastructure such as data centres is an important first step in securing broad public support for building these sites. 

“Too often, decisions taken nationally without considering how these will be felt locally, which is why we have seen growing opposition to major developments – whether in housing, renewable energy or, more recently, data centres. 

“It’s therefore heartening to hear government making a firm commitment to investing in those communities that host such infrastructure so they share in the rewards via local benefit plans. If developers can be proactive in making improvements to local priorities such as transport, public spaces and access to key services, there is a greater chance of new data centres being supported, or at least accepted, by communities.” 

Changes to public procurement 

The Chancellor announced an expansion of challenge-led procurement to support British businesses and plans to redefine the term ‘UK supplier.’ 

Peter Ware, Partner and Head of Government, said: “Using the power of public procurement to back British businesses is exactly the right ambition, and the expansion of challenge-led procurement is a genuinely significant shift in how government thinks about its role in the market. 

“Rather than simply buying what already exists, government becomes a first customer and co-creator of the solutions it needs, which changes the dynamic considerably for innovative British firms that have historically struggled to break into public sector supply chains. 

“But the new definition of UK supplier is where the legal complexity lies. The WTO's Government Procurement Agreement prohibits discrimination against overseas suppliers in above-threshold procurements. 

“The national security exemption gives government more room to manoeuvre in defence contracting specifically, but that won't cover the full breadth of what's being proposed here, and getting the definition legally watertight will be critical to its success.” 

Fiscal devolution roadmap

Healy confirmed that a fiscal devolution roadmap is to be published, with local leaders to retain 100% of business rates by 2030 and a share of income tax.

Peter Ware, Partner and Head of Government, said: “Assigning a share of income tax revenues and increasing business rates retention for English mayors marks the most significant shift in the fiscal relationship between Westminster and local leaders in a generation. 

“What's particularly notable is that this goes beyond a simple funding transfer. The roadmap envisages mayoral authorities being funded increasingly through locally generated tax revenues rather than short-term Whitehall grants, with a share of business rates from 2027, income tax assignment from 2028, access to new borrowing powers, and greater flexibility over how funding is spent locally. That is a fundamentally different model of local and regional government.  

“The argument that local leaders can only go so far without genuine control over the money has always been correct. The government is effectively recognising that by giving mayors a direct stake in growth, while also introducing safeguards such as funding floors and equalisation mechanisms designed to prevent places falling too far behind.  

“But this is explicitly an English model, and that raises a question the roadmap does not fully answer: what does fiscal empowerment look like for communities in Cardiff, Swansea, Belfast and Edinburgh, where the same mayoral structures do not exist? 

“The government's commitment to Barnett consequentials and engaging devolved governments is noted, but it is not a substitute for a genuinely UK-wide conversation about fiscal autonomy. The Spending Review is the moment to have it.” 

AI in the NHS 

The Chancellor announced plans for an independent review into AI-related opportunities in the NHS.  

David Hill, Partner in healthcare regulation, said: “Commissioning an independent review into the opportunities AI presents for NHS productivity is a sensible first step, but the emphasis needs to be on rigour as much as speed. 

“There are established, evidence-based use cases – diagnostic imaging, ambient voice technology – where deployment at scale is achievable now. Beyond that, the value of individual tools becomes much harder to assess, and the risk of more haste, less speed is real. 

“Critically, AI must be evaluated across the whole patient pathway, not just individual touchpoints. Accelerating one element without addressing capacity elsewhere risks moving bottlenecks, rather than resolving them, and frustrating both patients and staff. 

“The review also needs to confront the infrastructure question: fragmented procurement pathways and the absence of a coherent health data framework have consistently undermined previous technology ambitions in the NHS. Mark Bailie's review will only be as credible as the implementation architecture that follows it.”