Britain faces significant financial challenges in meeting its defence spending commitments, with a shortfall of billions of pounds looming ahead of the next government. According to senior military and economic experts, fulfilling the NATO target of allocating 3.5 percent of gross domestic product (GDP) to defence by 2035 will require substantial additional funding beyond current plans.

The Ministry of Defence’s (MoD) Strategic Defence Review (SDR) and the recently announced Defence Investment Plan (DIP) commit to increased spending but fall short of fully meeting these targets. The DIP outlines an additional £15 billion over the next four years on top of previously earmarked allocations, yet approximately £4.7 billion of this sum has not been secured. This shortfall must be addressed in the upcoming autumn Budget, including an immediate £1.8 billion needed to cover defence running costs for 2026.

Experts, including those from the Institute for Fiscal Studies (IFS), estimate that to reach the 3.5 percent NATO threshold by 2035, annual defence spending will need to increase by around £25 billion in today’s terms from current projections. This escalation translates roughly into a 3 pence rise on income tax or equivalent cuts across other government budgets. The scale of this funding gap suggests whoever forms the government after the 2029 general election will need to make difficult decisions involving deeper spending reductions or tax increases.

Air Chief Marshal Sir Richard Knighton, the Chief of the Defence Staff, reiterated the necessity of meeting the NATO spending commitment during a recent visit to a drone factory in Cambridgeshire. He stressed that delivering the SDR’s goals and fulfilling international defence obligations hinges on maintaining defence expenditure at 3.5 percent of GDP, a target endorsed by leaders at last year’s NATO summit in The Hague.

Meanwhile, Defence Secretary Dan Jarvis pledged to advocate for sustained funding in the lead-up to the forthcoming spending review. He expressed confidence that the government will secure necessary resources to maintain and enhance military capabilities.

However, the MoD is also planning a £400 million asset disposal initiative over the next four years, involving the sale of properties and land to help address budgetary constraints. Some critics, including former Defence Secretary Sir Ben Wallace, have questioned the reliability of such measures, warning that asset valuations may be overly optimistic and that these are not immediate cash solutions.

Political figures from across the spectrum have weighed in. The Conservative opposition has criticized Labour’s defence plans as insufficient and poorly funded, highlighting the reliance on unspecified asset sales and unconfirmed efficiency savings. Liberal Democrat leader Sir Ed Davey expressed concerns about the adequacy of funding for missile defence systems, urging the government to consider defence bonds—financial instruments previously used in wartime—to bolster military resources. In response, former Labour leader Sir Keir Starmer defended the Defence Investment Plan as balanced and sustainable, cautioning that increased borrowing through bonds would add to the country’s debt servicing costs.

There remains uncertainty about how the identified £10.7 billion in Whitehall spending cuts, intended to contribute to defence funding, will be implemented. Departments such as transport and energy are expected to bear significant reductions. While the government has assured continued major investments in infrastructure projects like Northern Powerhouse Rail and local road resurfacing, details on which schemes might be delayed or downgraded are yet to be announced.

As the UK approaches a period of political transition with Andy Burnham poised to become prime minister, questions persist about how his administration will address the defence funding gap and broader fiscal challenges. Burnham’s team has not commented on potential tax rises or spending cuts, though speculation persists regarding the introduction of capital gains or wealth taxes to close budget deficits.

Overall, experts agree that reaching NATO’s defence spending target while balancing the broader fiscal landscape will require difficult policy choices, confirming that the next decade will be critical for the future of the UK’s military capabilities.