The increase in UK defence spending risks being swallowed up by the rising costs of Armed Forces personnel, the nuclear deterrent and demands on the equipment budget, experts have warned.
Keir Starmer’s announcement of £6bn more in real terms for defence from 2027 – reaching 2.5 per cent of GDP – is expected to be spent on filling gaps in weaponry and servicemen and women, with the extra hike to 3 per cent during the next Parliament likely to fund new investment projects.
The Prime Minister’s surprise announcement this week that he was accelerating the rise in defence spending to 2.5 per cent by 2027 has been welcomed by Donald Trump’s administration as Starmer flew to Washington for talks with the US president on Thursday.
But further questions were raised over how far the new money would stretch after the Prime Minister failed to deny that the Government’s controversial deal with Mauritius over the Chagos Islands, rumoured to cost £9bn, would be funded out of the uplift in the MoD budget.
Existing pressures on the defence budget, including a shortfall in equipment funds, rising personnel costs and the continuing cost of the UK’s nuclear deterrent are likely to make inroads into the new spending, Matthew Savill, director of military sciences at Rusi said.
Staffing costs are forecast to rise despite a shrinking of the overall side of the workforce, due to last year’s public-sector pay deal, the hike in employers’ national insurance contributions, which will come into force in April and the rise in the national minimum wage.
The latest National Audit Office report into the MoD’s Equipment Plan forecast a shortfall of £7bn for spending on military kit over the next two years.
The MoD insisted these estimates were made in 2023, under Rishi Sunak’s administration, and did not reflect the current Government’s increase in defence spending by almost £3bn in 2025/26.
Savill said the current defence budget was under “considerable stress” and that the NAO report, the latest available, had judged the MoD’s equipment plan as unaffordable.
He added: “If the plan isn’t gripped then a large section of the increase could be consumed by overspending or dealt with through substantial cuts (and thus capabilities or activities) or significant delays to procurement programmes to move expenditure into later years.
“The scale of this existing pressure was seen with the early retirement of a range of capabilities in November 2024 ‘only’ netting an estimated saving of £500 million.”
Spending on the UK’s nuclear capabilities – including submarines and Trident missiles, the cost of procurement and maintenance of nuclear powered attack submarines and the disposal of decommissioned subs “will continue to consume a large, and probably growing proportion of the defence budget”.
He added: “With the Astute-class attack submarines still being constructed (painfully slowly) alongside the construction of the new Dreadnought deterrent submarines, and studies on a new warhead, the Nuclear Enterprise has been allocated nearly £110bn over the next 10 years in the equipment plan alone: 38 per cent of the plan overall, so just under 20 per cent of all existing defence spending.
“And this is data more than two years old, with growth in the nuclear programme the area the Permanent Secretary David Williams previously identified as most concerning. If the current contingency in the nuclear programme proves insufficient, it could eat into spending elsewhere on conventional capabilities.”
Savill said that “personnel costs are also expected to rise even as the forces shrink, given the public sector pay announcement last year potentially added more than £1bn in costs, and service personnel already account for around 20 per cent of the defence budget. Civilian personnel cost around 3.5 per cent of the defence budget so are not fertile ground for huge savings by comparison”.
Rusi also said that “Higher NI contributions will need to be financed from the MoD budget, as will the rise in the minimum wage”.
At Prime Minister’s Questions on Wednesday, Conservative leader Kemi Badenoch asked Starmer to rule out the cost of the Chagos deal coming out of the defence budget.
The PM replied: “The additional spend I announced yesterday is for our capability on defence and security in Europe, as I made absolutely clear yesterday.
“The Chagos deal is extremely important for our security, for US security. The US are rightly looking at it. When it’s finalised I’ll put it before the House with the costings.”
The Strategic Defence Review, which is due this spring, is expected to take into account the latest developments triggered by Trump’s change of foreign policy by demanding Europe spends more on its own security.
A Ministry of Defence spokesperson said of the RUSI analysis on the equipment plan: “These figures are from the previous government and don’t reflect this government’s increase in defence spending by almost £3bn in 25/26 – clearly illustrating our commitment to national security and ensuring we have a military force fit for the future.
“The Strategic Defence Review will explain how we’ll use the new funding to invest in modern capabilities, keeping us secure at home and strong abroad.”
They added: “The Prime Minister has announced the biggest sustained increase in defence spending since the end of the Cold War. Spending on defence will increase to 2.5 per cent of GDP from April 2027, with an ambition to reach 3 per cent in the next parliament.
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