Imagine planning a historic £15bn boost to military spending, only to discover you haven't figured out how to pay for all of it. That is the predicament facing the next prime minister, Andy Burnham, as a result of the Defence Investment Plan (DIP) unveiled by Sir Keir Starmer in July 2026. Critics have labelled the shortfall a 'black hole' – but what exactly is it, and why does it matter?
The DIP is a four-year commitment to increase spending on Britain's armed forces by £15bn compared to previous plans, funding new weapons systems such as nuclear missiles and drones. Sir Keir Starmer called it 'a historic shift', though military chiefs say the overall budget remains insufficient to meet modern threats. The Treasury has released a table showing that roughly £1.2bn of the annual £3.75bn rise still needs to be found – adding up to a cumulative £4.7bn gap over the four years. Public finance experts prefer to talk about the annual shortfall, as cumulative figures can be misleading.
“Explaining the UK's Defence Investment Plan and the funding gap facing the next prime minister.”
Where does the gap come from? The government identified savings from other departments, but they did not cover the full planned defence rise. Starmer told MPs on 1 July that the gap is 'about £1bn a year over four years' and suggested his successor should use fiscal headroom – money the government has set aside to stay within its own borrowing rules – to fund it. The Office for Budget Responsibility had calculated ministers had space to borrow an additional £22bn before hitting their limits. However, the Iran war has already eaten into that, and economists warn that funding the DIP could reduce headroom further. Ruth Curtice of the Resolution Foundation said the plan would cut headroom by around £2bn, meaning the new prime minister could start with more than a third already eroded.
For UK readers, this matters because it goes to the heart of how the country balances national security against other public spending. The extra money could come from borrowing, tax rises, or cuts to other departments – including £2bn reductions already being considered for the energy department. Armed forces chief Air Chief Marshal Sir Richard Knighton has added to the pressure, saying the services require an additional £25bn per year for each of the next nine years to meet NATO targets. Burnham's team has said he considers the plan settled, but he was not told about the £4.7bn gap when briefed in recent days.
Q: Is the defence 'black hole' really £5bn? That figure comes from adding up the annual shortfalls over four years, giving £4.7bn – close to £5bn. Experts say the clearer way to think of it is as a £1.2bn annual gap, which represents a small fraction of total government spending (0.17%) and tax revenues (0.1%).
Q: How will the next prime minister fill the gap? The money will have to be found in the autumn Budget – Andy Burnham's first as PM. Options include borrowing (using the fiscal headroom), raising taxes, or cutting spending elsewhere. Starmer has suggested using headroom, but economists say that space has already shrunk due to the Iran war.
Q: What happens to the Defence Investment Plan if the money isn't found? Burnham's team says the plan is settled and won't be renegotiated, so the expectation is that the gap will be filled. If not, the planned spending increases could be delayed or scaled back, which would likely draw criticism from military leaders and NATO allies.
What happens next? The Budget is due in the autumn, and all eyes will be on Burnham to see how he squares the circle. The Treasury is already looking at cuts to other capital budgets, including £2bn from the energy department. With the armed forces chief calling for even more, the debate over defence spending is far from over.