Keir Starmer said some road and energy projects that are not “immediately vital” would be scrapped to pay for increased defence spending.
The Prime Minister ruled out funding the defence investment plan through defence bonds, calling them “borrowing by another name”.
He said: “We’ve looked at this very carefully, but the fact is doing this through borrowing would push interest rates higher at a time when one pound in every 10 already goes on paying debt interest.”
Sir Keir also said he would not cut day-to-day spending to fund defence.
He said: “Slash funding to our public services in favour of defence, and we would be fundamentally weaker as a nation, more fractured as a society, less able to defend ourselves when our enemies prey on social division.
“So the hard truth is there are no easy answers, but the settlement I’m setting out today is the right choice for the country.
“It delivers the decisive action we need on defence in a way that is within our fiscal rules and that will not take resources away from day-to-day spending on frontline services like health and education.
“Instead, it is funded by reallocating spending from across Government departments, reallocating capital budgets by one penny in every pound, while still maintaining public investment at the highest sustained levels since the 1970s.”
He added: “Therefore, some capital projects, for example on roads and energy, which are important but not immediately vital, will no longer go ahead as planned.”