Starmer's defense plan lifts UK spending to 2.7%, missing NATO target

Keir Starmer's parting defense plan commits £15bn in new military spending but leaves the UK 0.8% of GDP short of its NATO pledge, deferring hard choices to his successor.

The UK will raise defense spending to 2.7% of gross domestic product by 2029 under a plan Prime Minister Keir Starmer published Tuesday, falling well short of the 3.5% of GDP NATO members committed to in June. The £15bn top-up over four years — funded by cutting road and energy projects — brings annual military spending to about £80bn, but the government identified only £10.3bn of the required savings, leaving £4.7bn for the autumn budget.

"The plan does not provide enough funding to meet the alliance commitments Britain signed up to at The Hague," said John Healey, who resigned as defense secretary on June 11 in protest of an earlier version of the blueprint. "We are less safe as a result."

The UK's Nato-qualifying defense spending was estimated at £70bn in 2025, or 2.4% of GDP. Under the Defense Investment Plan, that rises to 2.7% by 2027-28 and remains at that level through 2030, according to the document. The government has committed to 3.5% of GDP for core defense by 2035 under the new NATO standard, which also calls for 5% of GDP on total security — a target the DIP says the UK will reach 4.2% toward. The gap between current plans and the 2035 target implies roughly £25bn in additional annual spending, according to the Institute for Fiscal Studies.

The plan lands as Russian spy ships and submarines patrol the underwater cables that carry Britain's financial and emergency communications, and as state-sponsored sabotage and arson rise across Europe. Starmer ruled out borrowing to fund the increase, instead cutting 1% from other departments' long-term investment budgets — a trade-off that pits defense against health, which received £242bn in 2024-25, and welfare, which consumed £387bn. The next prime minister, widely expected to be Greater Manchester Mayor Andy Burnham, must find the missing £4.7bn in his first budget while honoring the transport and energy projects Starmer's plan just raided.

Drone Warfare and Nuclear Deterrence

The DIP's centerpiece is a decisive shift toward unmanned warfare. More than £5bn will fund a "drone transformation" of the armed forces, while £8bn goes to the Global Combat Air Program — a next-generation stealth fighter built with Japan and Italy. The Royal Navy will become a "hybrid navy," using autonomous vessels alongside traditional warships, with six new warships planned. The nuclear deterrent receives £64bn for new submarines and F-35A fighter jets capable of carrying nuclear bombs.

The Ministry of Defense aims to deliver nearly £11bn in efficiency savings by 2030 through civil service cuts, reduced consultancy spending, and expanded technology use. Defense officials said the spending increase is not conditional on those savings being achieved. Several programs were scrapped, including Storm Shadow missiles, a new satellite system, and Wildcat utility helicopters, which will be phased out in favor of an autonomous replacement.

Political Fallout and Market Implications

The plan drew criticism from across the spectrum. Shadow Defense Secretary James Cartlidge called it "too little, too late," while Liberal Democrat leader Ed Davey said the government had "dangerously short-changed our armed forces." Retired General Richard Barrons, one of the authors of the Strategic Defense Review that preceded the DIP, told the BBC the plan "does count as progress" but would not "crack the issue" of defending the UK "sufficiently well and quickly." NATO Secretary General Mark Rutte welcomed the DIP as a "good step" toward the 3.5% target.

The last time a British government published a defense plan this far below its NATO commitment was in 2014, when the UK spent 2.1% of GDP on defense — just above the then-2% target — before the Russia-Ukraine conflict triggered a reassessment. The current gap between the 2.7% plan and the 3.5% target is the widest since the Cold War drawdown of the 1990s, when UK defense spending fell from 4% of GDP to 2.4%.

For investors, the plan signals constrained growth for UK defense contractors. BAE Systems, Babcock International, and Rolls-Royce — which derive a significant portion of revenue from MoD contracts — face a spending trajectory that falls short of the £28bn defense chiefs had requested. The gilt market may also take note: the decision to fund defense by cutting investment rather than borrowing avoids an immediate bond selloff, but the deferred £4.7bn gap creates uncertainty about the next government's fiscal strategy.

This article is for informational purposes only and does not constitute investment advice.