Prime Minister Keir Starmer has proposed that his likely successor as chancellor, Andy Burnham, borrow an additional £4.7 billion to close a funding gap in the government’s Defence Investment Plan (Dip) over the next four years. The plan, announced earlier this week, includes a £15 billion increase in spending on weapons systems such as nuclear missiles and drones but has left a shortfall in financing.

Starmer addressed the issue during prime minister’s questions, noting that government borrowing headroom stands at £22 billion, which he said should be used to cover the roughly £1 billion annual deficit in defence funding. Government sources maintain that drawing on this borrowing capacity would not significantly impact the overall fiscal position, citing an earlier assessment by the Office for Budget Responsibility (OBR) that identified £22 billion of available borrowing before breaching fiscal limits.

However, some economists have expressed reservations, pointing out that recent events—particularly the Iran war—have already constrained the government’s borrowing flexibility. Ruth Curtice, chief executive of the Resolution Foundation, estimated that the Dip would reduce the borrowing headroom by about £2 billion, further tightening fiscal space already eroded by the conflict.

The defence budget is set to rise from 2.6% of GDP in 2027 to 2.7% by 2030, reaching nearly £80 billion. Starmer indicated the UK would be on course to meet 3% of GDP defence spending in the next parliamentary term, although this remains below NATO’s 3.5% target for 2035. While the Dip’s four-year £298 billion funding commitment was unveiled with cautious endorsement from military leaders and officials, questions remain about how the outstanding £4.7 billion will be financed.

Burnham’s team has indicated that the plan is now settled and will not be reopened for renegotiation, despite concerns about financing details. It emerged that Burnham was not informed of the funding gap during briefings from prime ministerial officials.

Government departments are reportedly facing cuts to capital budgets to help bridge the gap, including approximately £2 billion in reductions to the energy department. Officials are exploring trims within the government’s home insulation initiative, which involves a planned £15 billion investment over three years. The energy department has yet to finalize decisions on where to make specific cuts. Transport and energy portfolios are also among those seeing capital spending reductions.

The cancellation or delay of transport infrastructure projects has drawn criticism from some parliamentarians. Labour minister and Middle East minister Hamish Falconer, whose constituency includes Lincoln, expressed disappointment over uncertainty surrounding the A46 Newark bypass-widening scheme, describing it as a strategically important, cost-effective project for the region. Conservative MP Robert Jenrick also voiced frustration over the impact of budget adjustments on transport improvements.

Separately, the Royal British Legion cautioned against deferring funding for the repair of military housing, a measure reportedly taken to free up resources for defence technologies like drones. A government report published last year highlighted that 90% of defence homes require modernization, with 30% in need of major refurbishment or replacement. The armed forces charity emphasized that operational readiness depends not only on equipment but also on the well-being of service members and their families, urging the government to honor its previous £9 billion commitment to defence housing upgrades.