UK's new defence plan faces funding gap, lags European peers on military spending: Report

The UK government's newly released Defence Investment Plan (DIP) has drawn mixed reactions, with analysts saying it outlines an ambitious military modernisation programme but raises serious questions over funding and Britain's declining position among Europe's biggest defence spenders.

According to Chatham House, the plan follows nearly a year of discussions that began with the Strategic Defence Review (SDR) launched in July 2024.

However, the think tank says the process was marked by uncertainty over funding and exposed differences between the Ministry of Defence, the Treasury and the Prime Minister's Office over the future shape of Britain's armed forces.

The report says the Defence Investment Plan is intended to transform the armed forces, strengthen Britain's defence industry and reinforce the UK's leadership within Nato. However, analysts argue that achieving those goals will require significantly higher defence spending than what is currently planned.

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UK trails Germany and France on defence spending

One of the biggest concerns highlighted in the report is that the plan does not provide a clear path for the UK to meet its longer-term defence spending commitments.

While London has pledged to spend 3 per cent of GDP on defence during the next Parliament and agreed at the 2025 Nato Summit to raise core defence spending to 3.5 per cent of GDP by 2035, the current plan projects defence spending to level off at around 2.7 per cent of GDP.

The report also estimates that the plan contains an annual funding shortfall of around £1.2 billion, meaning the government will have to identify additional resources to deliver its commitments.

Britain's defence spending is also expected to lag behind several European allies in the coming years. Chatham House notes that Germany plans to spend €188.4 billion, or around 3.7 per cent of GDP, on defence by 2030—roughly twice the UK's projected £79.1 billion. France is also expected to slightly overtake the UK, ending Britain's long-held position as Europe's largest defence spender in Europe.

Focus shifts to drones and future warfare

Despite concerns over funding, the report says the Defence Investment Plan marks a significant shift towards preparing for modern warfare. Greater investment has been proposed in autonomous systems, drones, digital infrastructure, integrated air and missile defence, and what the government describes as a "hybrid navy."

These priorities reflect lessons from recent conflicts, including Russia-Ukraine war and the growing use of drones, missiles and other advanced technologies by Iran and other regional actors.

The plan also sets aside a larger pool of unallocated funds to allow the Ministry of Defence to respond more quickly to future technological developments.

Greater emphasis on defence partnerships

The UK is also placing greater emphasis on international defence cooperation. Collaborative programmes such as the AUKUS security partnership with the United States and Australia, are among the biggest beneficiaries of the investment plan.

Britain also plans to deepen cooperation with Germany on long-range strike weapons and artillery while exploring a joint amphibious fleet with the Netherlands.

Chatham House says the creation of a new National Armaments Director Group is intended to make international defence collaboration more efficient by taking a broader, long-term approach to military procurement.

Questions remain over UK's military ambitions

Despite the proposed reforms, the report says Nato allies are likely to view the plan as a mixed package. Britain's defence spending is expected to remain below some of its major European partners, while an increasing share of the defence budget—from 20 per cent to 25 per cent—will be allocated to maintaining the country's nuclear deterrent.

The report says the plan includes a modest increase in day-to-day military spending to improve the readiness of Britain's armed forces, an area that had come under scrutiny earlier this year.

However, it concludes that unless additional funding is secured, questions will remain over whether the UK can match its military ambitions with adequate financial support.