- Overdue DIP frustrating UK SMEs, amid Labour infighting and election concerns
- Reported £28bn funding gap fuels MoD–Treasury clash
- Most likely: partial funding—protect nuclear/GCAP and boost munitions and drones, while delaying or cutting conventional kit and personnel
The new deadline set by the UK Government to publish its own – long-delayed – Defence Investment Plan (DIP), could finally provide an answer as to the expected winners and losers, both in terms of industry and the military services they supply.
In a 1 June parliamentary written response by UK Minister for Defence Readiness Luke Pollard, it was stated Prime Minister Keir Starmer was “determined” to publish the DIP before the Ankara Nato Summit on 7 July.
Discover B2B Marketing That Performs
Combine business intelligence and editorial excellence to reach engaged professionals across 36 leading media platforms.
Prior to that, the UK Government must negotiate an attempted usurpation by a movement within the ruling Labour Party to remove the Prime Minister via the Makerfield by-election, where Manchester Mayor Andy Burnham is seeking a return to Parliament and a direct leadership challenge with Number 10.
There is potential for the DIP to be released ahead of the Makerfield by-election, due to take place on 18 June, should it be deemed politically expedient to do so.
“Our aim is to ensure decisions in the DIP are robust and support the development of both current and future capabilities, helping to drive the transformation of our Armed Forces described in the Strategic Defence Review,” Pollard stated in the 1 June written response.
A key sticking point is a widely reported £28bn black hole in funding required to complete the existing set of capabilities outlined from previous Equipment Plans, with the Ministry of Defence (MoD) at loggerheads with the Treasury over resources.
Despite the DIP delay, which was due to be published in the Autumn of 2025, the MoD said that it has been able to award contracts as required.
“In the meantime, routine budget management and prioritisation decisions in the MoD are being conducted in a way that is coherent with the DIP,” Pollard stated.
Army Technology has spoken with a number of defence SMEs and OEMs in recent weeks, with the overriding emotion one of frustration that the strategic guidance that the DIP would provide has been so long in coming.
Worst still has been the impact on the lack of demand signal from the MoD on SMEs looking to move into the defence space. One operator detailed to Army Technology their dissatisfaction that contract awards in emergent areas like drone technology appear concentrated towards the primes and established foreign companies, rather than smaller UK enterprise.
In particular is the so-called drone hub in Swindon, where established defence operators were benefitting far more than those looking to break into the sector, said one SME.
How will the DIP be funded?
There is effectively zero headroom left for the UK Government to increase spending without a corresponding increase in taxes, at a time when the cost of living and a youth employment crisis could plunge the country back decades.
With government spending in key areas like health, education, and welfare ringfenced, cutting from other departments appears a possible course of action.
Also likely will be the continued drawdown of the UK’s foreign aid budget, which stood at 0.7% in 2025 but is being cut to 0.3% by 2027/28 followed the decision to invest those funds into the defence sector.
According to parliamentary data, when aid spending bottoms out at 0.30% of GNI, it will total an estimated £9.2bn. A further reduction of foreign aid to 0.2% would provide the MoD with around £3bn, or £6bn should it be reduced to 0.1% of GDP.
Former Conservative Defence Secretary Ben Wallace, posting on social media platform X, suggested that key programmes could be moved to the right as a result of funding pressures.
With the DIP potentially imminent, Army Technology has explored what the possible outcomes could be, given the apparent funding deficit across the equipment plan.
Indeed, the line from Pollard regarding “prioritisation decisions” being made that are “coherent with the DIP”, offer an indication of the possible direction of travel, with recent contracts mainly centred on missiles technology and autonomous systems.
The UK has long claimed to be increasing defence spending, but recent reports from Nato point to a country falling far behind its European peers. Additionally, plans to boost it to 2.6% of GDP will require creative accounting, Army Technology previously discovered.
Scenario 1: Full Funding
The UK Treasury stumps up the cash and pushes through an additional £28bn in funding over the next decade to help fill the holes, enabling all key programmes to go ahead. This includes programmes like the GCAP next-generation fighter, being developed jointly with Japan and Italy, and modernisation programmes like the British Army’s Boxer and Challenger 3 procurements, in addition to the planned Land Mobility Programme (LMP).
Wider investment into missile and munitions stockpiles will go ahead, along with development of new uncrewed capabilities to augment existing force structures.
The pair of untouchable naval programmes – the Dreadnought ballistic missile submarines and SSN-AUKUS attack submarines – will be maintained.
In addition, the defence industry will benefit from strong demand signal, increased investor confidence, and more long-term procurement commitments. Expanding the UK’s meagre air defence network could also be on the cards.
The ambitions of the 2025 Strategic Defence Review are preserved.
Scenario 2: Partial Funding
The most likely option, this will combine reallocation of resources from other government programmes like foreign aid to defence, and the delaying or scaling back of existing military procurement programmes.
As suggested by Wallace (above), this will mean programmes being moved to the right, creating a short-term saving but a long-term cost increase, effectively pushing the problem further down the road.
This will see core strategic programmes protected and conventional capabilities trimmed or delayed. The GCAP could see development timelines stretched, potentially an issue for partners Italy and Japan, while the UK will likely reduce its fast jet commitments for F-35B, and continue to draw down older tranche Typhoons.
SSN-AUKUS will be maintained, along with the Dreadnought deterrent, but these commitments could come at the cost to surface combatant numbers, already at a historic low. Further frigates will be withdrawn and not replaced on a one-for-one basis, as government makes the case for ‘combined Nato/JEF’ fleets.
The British Army could see a reduced number of armour acquired, such as Boxer and Challenger 3, and smaller batches of utility vehicles acquired for the LMP. The service is forced to embrace the Type 44 regiment structure, along with a reduction in headcount.
Munitions stockpiles are expanded, but below SDR aspirations. The UK Government declines to reveal stockpile limitations due to national security requirements, but the UK would likely only be able to maintain high intensity combat operations for a matter of weeks.
Defence primes maintain access to wider MoD spending, but SMEs are increasingly cut out of market access. Nuclear, missiles, and drones, all favoured sectors.
Scenario 3: Funding Reduction
Defence ambitions scaled back; focus shifts almost entirely to nuclear deterrence and highest-priority capabilities. Dreadnought and SSN-AUKUS kept on, potentially with extended timelines requiring further costly life extension programmes for existing Vanguard and Astute classes.
Widespread cuts to Royal Navy surface fleet, including mothballing or sale of one of the two Queen Elizabeth-class aircraft carriers due to personnel shortages and poor availability record.
GCAP could be at risk, with partners unwilling to pay more to keep programme running, resulting in a loss of aerospace expertise in UK defence sector and international prestige.
British Army could see cuts of 10-20,000 personnel, reducing Type 44 structure further still or cutting regiments. Challenger 3 is cancelled, with the UK committing to joining future European offerings. Theoretical expansion of reservists, to allow claimed force numbers to be retained.
Air defence systems focussed entirely on sites of critical national infrastructure, likely offering little-to-no intermediate-range or high-altitude intercept capability. Widespread ‘Ukrainisation’ of military structures, adopting low-cost models with mass integration of FPV drone teams.
Space sector loses out to Co-Co contracts with commercial and defence suppliers, and loss of sovereign-owned assets. Defence sector as a whole contracts around the UK primes and looks to outsource mid- and lower-tier industrial capabilities. UK SMEs move HQs and manufacturing overseas to explore potential in other markets.
Projected outcome
Whenever the DIP is released, it is clear the UK Treasury is unable to offer the funding required to pay for all the extant procurement programmes, never mind additional capabilities.
Given this, funding will seek to secure the nuclear deterrent, protect GCAP, increase spending on munitions and drones, and find the remaining savings through delays, quantity reductions and stretched delivery schedules across conventional programmes.
This is fundamentally how the MoD has operated across successive governments when tasked with filling a defence affordability gap. While the forecast £28bn, decade-long shortfall is large, it will likely not force the cancellation of key strategic programmes.
Rather, the UK will adopt a two-tier force structure, with a few high-end crewed platforms or capabilities in each of the domains, backed up by untested and immature uncrewed systems.
Personnel numbers will continue to shrink, forcing the military services into a doom loop of cutting platforms through lack of trained operators and increased use of autonomy.
