Defence Spending Must Become Defence Capacity

The publication of the Defence Investment Plan has answered one question and sharpened another. Ministers have set out where much of the next wave of defence money is meant to go. But the harder question is whether the system can show how that money will become effective military capacity.

Britain’s defence debate is still dominated by inputs. How quickly should spending rise? Should the target be 2.5%, 2.7%, 3% or 3.5% of GDP? How much more will be needed to meet the Russian threat, reassure NATO allies and adapt to a less certain American security guarantee?

These are serious questions. The next government will almost certainly need to find more money for defence. But a larger defence budget does not automatically produce more defence capability. Modern war has made that clear. Readiness depends not only on platforms and weapons systems, but on whether Britain can sustain, repair, replenish and adapt them through munitions stocks, drone production, shipyards, depots, air defence, training areas, resilient bases, service housing, logistics and industrial surge capacity.

The Defence Investment Plan should therefore be judged not only by whether it allocates enough money, but also by whether it helps Parliament, the Treasury, the services and the public see how money becomes capacity – and whether that capacity becomes military power.

Spending is Not Capacity

The distinction between spending and capacity is not semantic. A ship that cannot be repaired quickly enough is not full capacity. A weapons system without sufficient munitions, spares or trained personnel is not full capacity. A base with poor housing, weak maintenance and inadequate resilience is not merely an estate management problem. It is a contributor to poor overall readiness.

Britain has learned to debate defence through spending totals. Those totals matter, particularly in NATO. But they are inputs. The more important question is what those inputs buy. Does spending another pound reduce a maintenance backlog, increase munitions output, improve fleet availability, expand training capacity, harden bases, modernise service housing or deepen industrial resilience? Or does it flow into a system whose real constraints, and potential, remain hidden?

That is where asset visibility and balance-sheet discipline enter the argument. The need for additional spending is real. Better estate management, clearer asset information and stronger financial discipline cannot by themselves close the immediate defence funding gap. Bases cannot be converted into readiness overnight. Maintenance backlogs cannot be wished away. Badly designed asset sales would repeat old mistakes.

But the fact that more money is needed makes the management question more urgent, not less. If the Treasury is asked to fund a major defence uplift, it is entitled to ask how the Ministry of Defence will show that additional money is becoming usable capacity. That should not be a Treasury excuse for withholding necessary funding. It should be the discipline attached to it.

At present, the UK system still struggles to provide that discipline. The Ministry of Defence publishes annual accounts. The UK publishes Whole of Government Accounts. The National Audit Office scrutinises both. Internally, the armed services and major defence organisations operate through Top Level Budgets, with their own leadership, finance functions and planning responsibilities.

Yet Parliament cannot easily see, service by service, how assets, maintenance backlogs, infrastructure constraints, stockpiles, capital commitments and liabilities translate into readiness. The result is a familiar problem in public finance: money is authorised more visibly than capacity is created.

Accounting is Management Visibility

This is where accounting matters – but not in the narrow sense of tidier paperwork.

The Whole of Government Accounts should give the UK a valuable view of the public-sector balance sheet. In practice, they arrive too late, remain too disconnected from the Budget and are not yet a management tool capable of disciplining real-time decisions, including defence choices.

The Ministry of Defence’s own financial reporting shows why this matters. If auditors cannot obtain sufficient evidence over important capital projects, if asset records are incomplete, or if provisions for liabilities are materially misstated, this is not merely a technical weakness. It means Parliament cannot be fully confident that spending commitments, assets under construction and future obligations are becoming effective capacity.

Accounting does not create military power. But weak accounting can be evidence of weak management visibility. If assets under construction cannot be supported by adequate records, ministers cannot know with sufficient confidence whether capital spending is becoming usable infrastructure. If provisions for liabilities are understated, today’s budget may be flattered at the expense of tomorrow’s force. If maintenance backlogs are not connected to asset condition and readiness, depreciation becomes an operational risk rather than a financial abstraction.

The question is not whether accountants can tidy the paperwork. The question is whether ministers can see the machine they are asking taxpayers to fund.

The defence estate makes the point concrete. Bases, barracks, depots, airfields, dockyards, training areas and family accommodation are not administrative overhead. They are part of military capacity. Poor housing damages recruitment and retention. Weak maintenance reduces resilience. Constrained depots and shipyards limit availability. Deferred maintenance is not free. It is a hidden claim on future defence capacity.

The Annington service housing deal remains a warning that badly structured asset decisions can damage both the balance sheet and the force.

The next phase of defence reform should therefore connect financial information to operational capacity.

This is not a call to let accountants run defence policy. It is a call to help ministers, Parliament and the services distinguish spending that maintains, replaces or expands usable capacity.

A Bargain with the Services

A practical framework would have three elements.

First, every major defence spending uplift should come with a Defence Capacity Statement. This would show not only the amount spent, but the capacity created: munitions output, drone production, ship repair, air defence, deployable units, training capacity, stockpile resilience, housing quality, maintenance reduction and industrial surge. It should distinguish between spending that maintains, replaces and expands capacity.

Second, each major service and defence Top Level Budget holder should publish a Capacity Schedule. This would not fragment the Ministry of Defence or change command responsibility. The point is visibility and accountability within the existing framework: a clearer view of the assets each service relies on, their condition, the maintenance backlog, the liabilities being accumulated, the bottlenecks constraining readiness and the capital projects intended to remove them.

Third, the Ministry of Defence should create a Defence Capacity Map. This would be broader than an asset register. It would classify the assets, bottlenecks and liabilities that shape readiness: warfighting assets, industrial-capacity assets, personnel-capacity assets, innovation assets, maintenance backlogs, stockpiles, contractor dependencies and surplus or better-use assets.

This should not be a fire-sale list. Seeing value should not mean selling assets. In many cases, better visibility should make disposals less likely by showing where short-term savings would weaken long-term readiness.

If a Defence Capacity Map is seen as an HM Treasury exercise to extract receipts from land sales, it will fail. The Army, Royal Navy, RAF and Strategic Command will resist anything that looks like another centrally imposed disposal programme. They have seen how ‘estate rationalisation’ can become a polite phrase for losing sites while the operational benefit disappears into the Treasury.

The incentives must change. A Defence Capacity Map should be built as a bargain with the services, not a raid on them. If a service identifies underused land, obsolete facilities, relocation opportunities or surplus assets, a defined share of the value should be reinvested visibly in that service’s capacity: better housing, modernised bases, reduced maintenance backlogs, improved training areas, munitions storage, repair throughput, energy resilience or deployability.

The question should not be: what can the Treasury extract? It should be: what capacity can the service gain?

The National Audit Office should scrutinise whether this framework is working: are assets being maintained, are liabilities being recognised, are disposals strengthening or weakening the force and is new spending becoming readiness?

The Defence Investment Plan is an important step. But implementation will be the real test. Britain has a long history of ambitious defence reviews followed by underfunding, delay, weakened incentives and poor execution. The country now faces a more dangerous world, a more demanding NATO environment and a Russian threat that will not wait for perfect reform.

More money is certainly necessary. But taxpayers, Parliament and the services are entitled to ask what capacity that money will generate. The next government should not ask only how much more Britain must spend on defence. It should ask what capacity each pound creates, and whether that capacity becomes usable capability.

To answer that question, the armed forces must have incentives to make constraints visible rather than hide them for fear of Treasury extraction. The Treasury, in turn, should not treat better asset management as a substitute for urgent defence funding. It should treat it as the discipline attached to that funding.

Britain’s defence problem is not only that the budget may be too small. It is that the country still cannot see clearly enough how money becomes military power.

© Ian Ball, John Crompton and Dag Detter, 2026, published by RUSI with permission of the authors.

The views expressed in this Commentary are the authors', and do not represent those of RUSI or any other institution.

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