UK defence sector in crisis as £28bn funding gap threatens key projects
The UK’s defence sector is facing severe financial strain, with reports of a £28 billion shortfall in government spending plans. Delays in major contracts and a lack of domestic orders have left firms struggling, while political disagreements over funding add to the uncertainty.
One key project, a £1 billion helicopter deal to replace the ageing Puma fleet, has been postponed—even though only one bidder remains in the running.
The Ministry of Defence (MoD) was expected to finalise the Puma replacement contract soon, but the process has stalled. Industry insiders warn that without urgent investment, more firms may shift focus to non-defence work. A senior defence source described the current climate for UK defence businesses as the worst in two decades.
Labour’s pledge to increase defence spending to 2.5% of GDP has also hit delays. Originally anticipated by late 2025, some now expect the announcement in March instead. Meanwhile, the extra funding promised by the government will not arrive until 2027, leaving a gap in near-term budgets. Speculation is growing over which major programmes could face cuts. Among those under scrutiny are the Tempest fighter jet and the Ajax armoured vehicle. Tory defence spokesman James Cartlidge blamed Labour’s focus on welfare spending for squeezing defence funds. However, no specific projects have yet been confirmed for cancellation. Defence firms report their lowest confidence levels in 20 years. With orders drying up and investment decisions postponed, many are exploring alternative revenue streams outside military contracts.
The £28 billion funding gap and delayed contracts are forcing defence companies to reconsider their future in the UK. Without immediate action, key projects risk further setbacks, and firms may continue shifting away from military work. The government’s long-term spending plans offer little relief before 2027.
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