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Challenges and actions for UK Defence leaders: Aligning strategy, capability, and funding

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Insight
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Authors: Dave Hurst, Joseph Gross, Laura Marsden Payne, Andrew Black

For the UK to ensure security at home and strength abroad through 2050 and beyond, leaders in Defence policy and procurement must prioritise aligning strategy, capability, and funding. Over the years, the defence sector has faced significant setbacks due to a misalignment across these three key pillars.

This article is the first in a three-part series that examines the challenges facing UK Defence procurement; it suggests actions for improvement for leaders in defence policy and procurement.

The misalignment challenge: Strategy, capability, and funding

We believe a well-aligned approach would take the form of a 25-year strategy horizon. The UK Defence Enterprise requires a long-term strategic plan, which assures secure funding for projects to nurture current and future capabilities. This should attract more SMEs into defence research and development, strengthening the industrial base and encouraging innovation.

Enacting a strategy without funding certainty will result in failure to deliver the requisite capabilities. The UK Government must demonstrate it is serious about its commitment to spend 2.5% of GDP on Defence. However, while this financial commitment is important, the amount of money spent cannot be the only measure of the government’s commitment to invest in Defence.

So, what are the main challenges in defence strategy, capability, and funding – and what actions can UK Defence leaders take to tackle this?
 

Challenge 1: Funding uncertainty inflates costs and limits sector growth

UK Defence has rightly re-oriented to building genuine lasting strategic partnerships with the defence industry, which has resulted in closer collaboration and improved productivity. However, without ring-fenced multi-year funding profiles for large procurement programmes, these partnerships will remain precarious.  

The Annual Budgetary Cycle (ABC) is a major barrier to a productive defence procurement environment as it imposes short-term funding horizons that undermine the stability of large, long-term programmes.

Yearly budget cycles necessitate annual renegotiation of highly complex contracts, which creates an administrative burden for both the Defence Enterprise and its suppliers, increasing costs and eating up resources that could be deployed elsewhere. On the supplier side, this has further knock-on effects: the lack of secure, long-term funding means suppliers are less inclined to make long-term investments in infrastructure, UK-based manufacturing, or job creation to nurture the partnership, limiting the growth of the supply base.

Challenge 2: Inconsistency comes with a cost

Changes in government and global events have triggered shifts in the UK’s National Security Strategy, periodically focussing on different defence capabilities – including counter-terrorism, strengthening our relationship with NATO, and supporting Ukrainian war efforts – disrupting major defence procurement programmes. That said, the UK’s overarching defence strategy, focussed on nuclear deterrence and global expeditionary warfare capabilities, has remained consistent since the Second World War.

However, these enduring priorities have often been undermined by short-term changes in approach aimed at strategic transformations or delivering cost savings. Cutting or delaying equipment procurements to save costs has often resulted in additional spending in other Defence Lines of Development to compensate for gaps created by those cuts or delays, leading to reduced value delivery and compromised defence capability. The government’s own inquiries and reports have demonstrated that these frequent redirections of funding have not successfully saved money.  

The road ahead: Procurement priorities for defence leaders

To better align strategy, capability, and funding in UK Defence, we recommend that defence and defence procurement leaders consider the following solutions:

  1. Protect multi-year procurements from annual budget revisions: As long as suppliers see a programme as lacking in long-term security, additional costs resulting from this uncertainty will continue to be built into spending. By promising long-term policy consistency and funding, UK Defence can build stronger partnerships with its suppliers. This will reduce costs that come from administrative burdens and boost supplier investment in infrastructure and capabilities, increasing value delivery.
  2. Reduce policy volatility: Consistent procurement policies will protect key defence capabilities and ensure initiatives stay in line with long-term strategic goals, avoiding the cycle of inefficiency caused by short-term shifts.
     

In the next article of this three-part series, we will take a deep-dive into the topic of innovation, offering further insights into how UK Defence can effectively leverage procurement for long-term cost savings, value delivery, and capability building.