Britain’s defense sector vies for stretched government funding on path to 2.5%

Liverpool, ENGLAND — British defense officials are vying to secure more funding as Finance Minister Rachel Reeves’ upcoming Autumn budget risks exacerbating already beleaguered efforts to boost military investment.

Maria Eagle, the U.K.’s minister of defense procurement, joined a chorus of voices that called on the sector to prove that it could be more efficient under the new government, as the Treasury grapples with allocating its stretched finances.

“We’ve got to make sure that there is an understanding across government — and especially in the Treasury — that spending money on defense is a good way to spend it,” Eagle told a packed room of delegates at the Labour Party conference over Sept.22-25.

“Let’s try and make sure that we can persuade the Treasury that we’re good enough custodians of the 2.5% that we’re aiming at,” said Eagle, who assumed the post in July. “If we show we can spend the money better, we cut the waste, and we have a common understanding of what we need and how to get it.”

Prime Minister Keir Starmer in July reiterated his commitment to increase U.K. defense spending to 2.5% of gross domestic product (GDP) — a goal mirrored by many fellow NATO members — but he has not yet set a time frame for that objective.

Meanwhile, the war in Ukraine has cast a spotlight on deep inefficiencies within Britain’s defense sectors, provoking calls for reform.

A 72-page House of Lords report published Thursday last week warned of “burdensome bureaucracy” in military recruitment and “cumbersome” procurement processes. Unless “laser-sharp priorities” are set, even 2.5% might not be enough to meet the country’s defense needs, it said, adding that the government must acknowledge the essential need for higher defense spending and communicate that to the public.

The industry is now awaiting Reeves’ Oct.30 budget statement, during which she will provide an update on spending plans for the Ministry of Defense (MoD) and other departments over the coming years.

The chancellor has already made clear that there will be cross-department budget cuts and few, if any, giveaways, after saying her party discovered a £22 billion ($29 billion) “black hole” in the public finances and with national debt now running at 100% of GDP. Reeves’ predecessor Jeremy Hunt from the rival Conservative Party has denied the claims as “fictitious.”

The measures are expected to pile the pressure on already stretched military spending. The U.K.’s National Audit Office last year warned that the armed forces face the largest deficit since records began in 2012 — an issue exacerbated by inflation. As such, the MoD last month reportedly asked industry suppliers to identify areas for immediate budget cuts.

“The MoD already is in a budgetary crisis this year,” Malcolm Chalmers, deputy director general at defense and security think tank RUSI, said last week.

“The budget for this year is substantially overcommitted because of its significant pay rises for the armed forces, because of the rising cost of the nuclear program, and because there are a number of other programs which are unfunded,” Chalmers said.

A strategic defense review is now underway to identify shortcomings in the U.K.’s military capabilities, with Starmer saying in July that the overhaul should ensure the armed forces can counter rising geopolitical threats and that defence spending is “responsibly increased.”

In a statement. a government spokesperson added that the review was intended to “ensure the U.K.’s resilience for the long term.”

It comes as the U.K. seeks to re-establish itself as a reliable partner with European neighbors and broader Western allies in the face of the ongoing Russia-Ukraine war and heightened tensions with China, North Korea and Iran. That role could become more or less critical depending on the outcome of the U.S. president election next month and its implications for European security and the NATO alliance.

The strategic defense review is set to report by July 2025, when it will outline how British defense expenditure might rise from its current level estimated at nearly 2.3% of GDP. The House of Lords report warned that the timeline was too slow, however, and that defense spending decisions should not be delayed.

Luke Pollard, member of parliament and under secretary of state for the armed forces, told CNBC that the review would need to take an “all-domain approach,” accounting for the multipronged threats across air, land, sea, space, cyber, as well as spectrum — which refers to electromagnetic warfare.

He acknowledged that such an approach would require the defense sector to prove that it can be more cost-effective.

“On our journey to 2.5%, what we must make sure is that we’re providing better value because the Treasury is not going to give us more money unless we increase our efficiency,” he said.