The investment aims to improve the protection of the most sensitive information and networks used by the government. It also intends to apply technologies that reduce the impact of cyber attacks.
The chancellor said the government will also strengthen law enforcement capabilities to raise the cost of cyber criminality.
Hammond announced on Tuesday that a new cyber security research institute is also being created. The institute will be a government-funded virtual network of UK universities dedicated to technological research. It will focus on hardware and will look to improve the security of smartphones, tablets and laptops.
Richard Horne, cyber security partner at PwC
Only when UK organisations mirror the level of government initiative and strategic investment will the UK be a secure place in today's digital world
The National Cyber Security Centre will be based in Victoria, London, and will support businesses when they are hit by a cyber threat.
According to the chancellor, when businesses, government bodies or academic organisations report a significant incident, the centre will bring together the full range of technical skills from across government and beyond to respond immediately.
"They will link up with law enforcement, help mitigate the impact of the incident, seek to repair the damage and assist in the tracing and prosecution of those responsible", he said.
The government’s plans are in part a reaction to a number of “hostile foreign actors” that have developed offensive and destructive cyber capabilities, the chancellor said.
Hammond warned that these capabilities threaten the security of the UK’s national infrastructure and industrial control systems, but he added that he was ready to defend the UK’s cyberspace and strike back when attacked.
Richard Horne, cyber security partner at PwC said, "The UK government is leading the way with the cyber initiatives it is putting in place. However, the government cannot protect the UK alone. Businesses must understand the cyber threat their organisation faces and take strong protective action themselves.
“Getting cyber security right means changing an organisation to be securable and that requires all aspects of a business to be engaged - from tough decisions at a board level, to the consideration of cyber risk in all decision-making processes.
"Only when UK organisations mirror the level of government initiative and strategic investment will the UK be a secure place in today's digital world."
Manu Sharma, head of cyber security and resilience at Grant Thornton, said, “Cyber attacks on businesses continue to accelerate and while there are plenty of measures firms can implement to boost security, support from government is also key. The UK is taking a leadership role in that sense, redoubling its efforts to protect businesses and consumers from online criminals.
“Critical to the success of these prevention strategies is having people with the right qualifications in place to help prevent attacks and minimise their damage when they occur."