Hard Wired

The prime minister’s recent speech in Munich, and recent reports of a possible increase in UK defence spending, have generated new expectations about the defence investment plan (DIP), designed to provide the detailed funding needed to deliver last year’s strategic defence review. It was supposed to be published by December 2025, but ongoing delays provide an opportunity to think further about some of the key decisions that will need to be taken.  

There is a troubled history of efforts dating back to the 1930s to implement defence reviews. Disputes between the Ministry of Defence (MoD) and the Treasury; hubris about the military strength of the UK; and overoptimistic assessments of both the costs of improving capabilities and long-term economic growth are just some of the problems we have seen. Given the accelerating threats to UK national security, addressing these problems swiftly must be attempted. 

As in other spending departments, senior MoD officials (both military and civilian) have cultivated a culture of optimism that has frequently resulted in procurements with inadequate funding and unrealistic delivery dates. The latest Treasury spending guidance explicitly recognises this, calling for the application of “appropriate adjustments for optimism bias” including, amongst other things, “increasing estimated costs and timeframes, and decreasing estimated benefits”. 

These statements provide both a challenge and an opportunity for MoD planners. For example, avoiding making claims that investment in military AI software can freeze or even cut personnel numbers would be helpful. Another example is to engage with Treasury and/or National Audit Office staff to develop a common understanding of the scale of these “increasing estimated costs”. 

Trying to agree the scope of these increases may be one of the reasons for the delay in publishing the DIP.  There is also more explicit Treasury guidance on the value of defence spending.  It now says that “defence creates social value by maintaining peace and security” and that “this contribution cannot easily be measured in monetary terms and so defence proposals are typically assessed using social cost-effectiveness analysis”. 

Hopefully the Treasury and MoD have already agreed the types of cost-effectiveness analysis to be used in assessing programmes in the DIP.  

Another problem sometimes created by MoD planners concerns their efforts to have the same military capabilities as the US, even if at a smaller scale. This has, at times, led to the costs of acquiring advanced US technology outweighing the marginal benefits, as well as creating gaps in the UK’s defence tech and industrial capabilities.  

Acceptance of what the UK’s middle-power status means for the sophistication of British military technology is an issue for ministers and senior military officers to consider.  They need to take account of recent geopolitical changes in both Washington and Beijing. Learning and then implementing lessons from some of our European neighbours on how they are trying to enhance the security of military supply chains in response could also be helpful. Of course, this is a politically sensitive area; but we cannot afford to ignore what is happening. In his speech, the PM explicitly called for greater defence integration with our European allies, generating negative headlines in the Daily Mail and Morning Star alike. Challenging such narratives – which bolster Russian strategic efforts to weaken our national security – is a task to be welcomed, not shunned. 

While various senior MoD leaders and advisers should consider what they can do to improve how defence funds are used, it also needs senior Treasury officials and ministers to look again at the processes and procedures that they use to control MoD spending. Both resource account budgeting (RAB) and the split between resource and capital departmental expenditure limits (RDEL vs CDEL; in lay terms, staff costs vs capital costs) raise some questions. What incentive do defence planners have to build up large numbers of cheap drones if Treasury-imposed RAB regulations define these as stockpiles and penalise MoD for holding them?  

There is also a longstanding Treasury dictat that spending on people (resource spending) must be funded from taxation. This means that the announced increase in MoD spending is almost entirely allocated to equipment procurement(capital spending). At the moment, the UK has about 147,00 regular and 30,000 reservist service personnel; only “when funding allows” will these numbers be allowed to increase. France currently has about 200,000 regulars and intends to increase its reservist personnel to 100,000 by 2035. The German government wants to increase its regular personnel to 260,000. Poland intends to increase its regulars from 215,000 to 300,000 by 2039. Why do UK ministers seem to disagree with our key European allies about the need for an increase in military personnel numbers? 

Government policy is committed to “investing in and on shoring the necessary industrial capabilities we need for our sovereign national security”. There is an understandable desire to push the economic benefits of more MoD procurement towards UK companies, but we should also recognise the benefits of this policy shift for our national security. Whether all of this weakens the long-standing Treasury/MoD preference for exposing the UK defence market to foreign ‘competition’ (and many European and US defence companies attract substantial subsidies from their governments) remains to be seen. 

There are also two gaps in policy statements which may have been created by Treasury hesitancy. The first is the unwillingness to implement a unilateral repurposing of the £24bn of Russian state assets currently frozen in British banks. Ideally this would be done in collaboration with our European allies – but if this is not possible, why should British taxpayers be content with only using the interest from these funds? The second is the odd lack of reference so far to the government’s commitment in June 2025 to spend 3.5 per cent of GDP on defence by 2035. The difference between 3 per cent and 3.5 per cent may seem minimal, but if British GDP is around £2,700bn, it does constitute a £13.5bn gap. Fortunately, it seems as if this coyness may be fading.  

Our Ukrainian and European allies, Unite and other unions, many party members, and much of the British public, hope that the forthcoming defence investment plan will demonstrate that both the legendary disputes between different military services within MoD and the complex debates between senior MoD and Treasury leaders have been at least partially resolved. As we all know “Every kingdom divided against itself is brought to desolation” – Matthew, Chap 12, v25. 

Image credit: Harrand Quarrington via wikimedia commons