Andy Burnham should scrap the Defence Investment Plan and start again, says Luke Cooper
While champagne corks pop among shareholders in Britain’s privatised defence sector, Labour’s plan means austerity for the armed forces.
The Defence Investment Plan (DIP) is projected to be £298 billion over four years (running to 2030). Prior to its launch in the summer, the government was split between the defence establishment, then represented by John Healey, and a Treasury pushing back on the MoD’s rapacious demands. In his resignation letter Healey accused the government of enforcing a fiscal settlement that would reduce the readiness of British forces, increase risks to personnel on operation and “make the country less safe”.
Lost in this Westminster discussion is any sense of what we are spending money on and why. Only a few voices point to the fundamental wastefulness and inefficiency of British defence spending. In March 2026, Chatham House’s Timothy Ash challenged the logic of using a percentage of GDP as a proxy for assessing a country’s defence preparedness, and even questioned keeping the Trident nuclear programme due to its dependency on the USA. Louise Lucas of the FT pointed out that Britain’s drone procurement programme has more money allocated to it than its American equivalent but it seems unlikely the UK will outperform the USA in actual outputs.
The DIP actually imposes austerity on the armed forces, whilst showering British defence firms with huge revenues. This sacrifices soldiers” pay and conditions, while doing nothing to reform our wasteful military industrial complex.
Understanding this requires learning Whitehall jargon. RDEL refers to the “Resource Departmental Expenditure Limit”, which means day-to-day spending including staff salaries and other running costs. CDEL is the “Capital Departmental Expenditure Limit”, which includes all spending on equipment, assets, tanks, submarines, bases and any other infrastructure. The DIP figures reveal a huge disparity between the two. Whereas RDEL is proposed to increase by just under 7% over four years, a figure likely to be below the rate of inflation, the CDEL increase is massive: increasing by nearly 30%, well in excess of the likely level of inflation over this time.
This accords with a recent Institute for Fiscal Studies assessment that showed the share of MoD spending going on CDEL increased from 25% to 35% in 2023–24, and is set to rise to 43% by 2028–29. To put this in context, NATO’s “other target” (in addition to 3.5% of GDP) is for 20% of defence spending to go into new equipment. NATO now faces the prospect of one of its members creating a profound disparity between investment in people and the capital/equipment spend. The DIP proposes only to stabilise the size of the regular army, deferring any new growth target to the 2030s. The DIP also proposes some £10.7bn in “efficiency savings’, of which £3.3bn will come through “workforce and resourcing” cuts. So the release of the DIP was a good day to be a shareholder in defence firms, as stocks surged in response to the promise of big revenues, but not so great for soldiers and civil servants.
Burnham has made big promises. He aims to turn the page on 40 years of neoliberal economic policy. He rightly highlights how the state surrendered power to often dysfunctional markets via deregulation and privatisation. Advanced by the ecosystem surrounding Burnham’s rise to power, Manchesterism offers a bold vision of how to build a productive state, tackling the privatisation premium that has raised costs of service delivery, restoring public control of utilities, and questioning the extractive role of private finance in public infrastructure.
In defence procurement, decades of neoliberalism allowed vested interests to run riot and produced the worst of both worlds: a system with all the pathologies of state planning – bureaucracy, inefficiency, and lack of competition – bolted onto a profiteering private sector. This policy failure has created a captive market in which the government can exercise almost no consumer choice. The MoD’s own data reveals the scale of the problem. In 2024-25, at least 45% of contracts were awarded uncompetitively (another 20% were listed as “other”, with the MoD declining to classify them as either competitive or uncompetitive). Just ten companies accounted for 39% of MoD procurement spending in 2024-25. BAE Systems alone received £6.7 billion – an astonishing 16% of all UK defence spending that year, and the highest share going to a single contractor since the MoD began publishing these figures in 2007–08. For Babcock and QinetiQ, MoD contracts make up more than 60% of their annual revenue. The nature of contracting in defence means these figures will actually understate the scale of the oligopoly because the lead or “prime” contractors will sub-contract to firms that are nominally their competitors. The high cost effects of lack of competition and deep inter-firm cooperation recalls Adam Smith’s words, in The Wealth of Nations, as a “conspiracy against the public”.
The DIP talks big on industrial jobs and balanced growth for the UK. But it makes a fundamental mistake that has been criticised by Manchesterism’s intellectual proponents: it focuses only on the demand and regulation side, while avoiding the issue of supply-side ownership models. This does nothing to fix the broken status quo: a military-industrial complex good at extracting rents from the public purse. Burnham’s own statements on defence production uncritically echoed previous governments by emphasising British jobs. This is what the MoD calls “industrial participation policy”, which has been given greater priority in tendering from the Johnson to Starmer governments, though it was never unimportant. While an active industrial policy is welcome, we should note that when these requirements are applied to uncompetitive markets, this emphasis on industrial localisation of supply chains will inevitably increase the costs and expose the taxpayer to rents. And because military investments are a form of unproductive consumption, to reap a wider economic benefit from industrial investments at this scale would require emphasis on military-to-civilian conversion – something that the MoD does not require. Defence markets also tend towards monopsony conditions, where there are only one or a few buyers, leading to oligopoly and cosy relationships between firms and the state. But if firms are also producing for civilian markets (e.g. Rolls-Royce), this can be helpful to reduce monopsony logics.
What does the UK actually need?
The DIP runs to some 81 pages, and it is not all bad. There are some modest hints at reform. The new UK Defence Innovation unit is implicitly modelled on Ukraine’s Brave1 platform, focusing on making effective use of dual-use technologies – but it will only receive £400m a year. Seventeen organisations will also be streamlined into four areas in the hope of boosting coordination across the armed forces. There is mention of the first defence investment made by the UK’s public investment vehicle, the National Wealth Fund. There is also a goal of tendering more to SMEs.
In perhaps its most revealing formulation, the DIP discusses the need to learn the lessons from Ukraine that show how “modern military success is not about individual platforms (like tanks or jets)” – without acknowledging that such platforms will receive the lion’s share of the funding.
Despite the consensus among Ukrainian defence experts that mobilising at scale – i.e. amassing large numbers of troops, missiles, artillery and unmanned systems – is still the most important factor in modern warfare, especially against the principal threat that Europe faces from Russia, these investments are not prioritised by the DIP. Vast capital equipment spend favours what Mary Kaldor calls ‘baroque’ weaponry, nominally sophisticated platforms that offer lucrative high margins for the private sector, over the commercially adapted, low-cost technologies that have performed so well for Ukraine.
The UK’s privatised military-industrial complex is built on a model of innovation that imagines what might be needed in 10, 20 or 30 years, then proposes projects requiring huge investments over these timeframes, locking in revenues for producers, often regardless of performance. It runs completely counter to the principles of innovation established by Ukraine, where the logic is based on speed: innovators ask how quickly a given piece of kit can be produced, how speedily it can be tested, how rapidly it can be scaled up to mass production, etc.
Even on their own terms, UK defence firms have been performing badly. Capital-intensive projects have suffered embarrassing, costly overruns and accusations of defective design. The UK has built two aircraft carriers which cannot operate simultaneously, with insufficient aircraft to equip them. The only fighter jets that can land on these ships are F-35s, entrenching dependency on an expensive weapons system which ties the UK into American digital infrastructures. In the most infamous case of recent military procurement, the UK Government spent £6.3 billion on Ajax armoured vehicles, which made crews physically ill from vibration and noise, were declared operational eight years late in 2025, and has since had that status withdrawn for more testing and modifications. The contractor, General Dynamics UK, has faced no meaningful financial consequence. Astonishingly, the DIP throws good money after bad: committing a further £1.1 billion to Ajax and listing it among the Army’s “core warfighting capabilities”, despite the fact that it is considered highly vulnerable to drones on the modern battlefield.
Fixating on the percentage of GDP spent on defence is part of the problem. There is no good reason this should have become a proxy for military preparedness. It is a relatively recent invention, first introduced at NATO’s 2006 Riga Summit. The UK comfortably met the old 2% target and has deferred the goal of 3.5% by 2035 to the next parliament. Yet, despite a record of high spending, the UK’s military fares poorly in comparison to more frugal nations. France has similar or superior capability to the UK in most areas. Its armed forces are roughly a third larger; it fields more armoured vehicles, more combat aircraft and a larger navy and doesn’t have the same dependencies on the USA.
The biggest capital spend of the DIP is for the UK’s nuclear forces – at some £63.6 billion, it is more than a fifth of the whole defence budget. The DIP admits that the total figure is an underestimate and excludes most workforce costs. While often described as fully sovereign, the Trident nuclear deterrent is dependent on the USA, from whom the UK leases the missiles, under the 1958 Mutual Defence Agreement and 1963 Polaris Sales Agreement. If these nuclear weapons were ever fired at anyone, the UK government will have committed a crime against humanity, rendering them useless for any conflict that observes the laws of war. This raises a question around how such huge costs can be justified when RDEL, including personnel, is set to face real-terms funding cuts.
The case for Manchesterism in defence production
Manchesterism’s quiet radicalism lies in its willingness to make a supply-side state intervention that restructures markets around the public interest. This is well suited to defence where new ownership models should be explored in order to protect the taxpayer from the rapidly escalating procurement costs of the privatised sector.
A sovereign Public Defence and Investment Corporation (PDIC), with a mandate to take strategic equity investments in the defence sector to protect the public interest, could offer a starting point. In some discussions around the DIP, the MoD has reportedly proposed that war bonds could be issued. However, as currently floated this is no different from any other type of government borrowing. But if such bonds were issued by a PDIC to support investments in a restructured UK defence sector, they could be secured against their returns. With lending protected against future revenues, the debt would be paid off over time.
This could be combined with a reform of the UK’s existing “golden shares”, which protect against foreign ownership, in Rolls-Royce and BAE Systems. An Act of Parliament could convert these shares into a restructured model with the PDIC holding a minority equity stake, separating out a not-for-profit business that tenders to the MoD on a lower margin basis versus wider commercial operations. Smaller firms are more reliant on MoD tenders, making it hard for the MoD not to award them business without threatening the development of ongoing programmes. This results in a lack of commercial discipline. If such companies were purchased outright at relatively low cost by a PDIC, this would ensure that the taxpayer benefited. These companies could also break their dependency on MoD contracts by converting to civilian technology.
If the DIP is the best that the current model of UK defence production can offer, then its own numbers make the clearest possible case for looking at a different approach altogether.
Luke Cooper blogs at the Mafia Politics and Global Disorder substack and is Associate Professorial Research Fellow in International Relations, based in the conflict team at LSE IDEAS & Director, LSE Ukraine Programme
This is an abridged article from the author’s blog.