Ministry of Defence forecast to exceed budget by £2bn in summer estimate

Projections from this summer showed the Ministry of Defence (MoD) was set to spend £2.6 billion more this year than agreed with the Treasury.

The department was seeking cost-saving measures such as scaling back training to avoid exceeding its budget, The Telegraph reported.

A leaked internal spending estimate, seen by the newspaper, suggested the MoD was on course to spend £1.6 billion more than planned on day-to-day costs and £1 billion more on capital investments in the 2025/26 financial year.

Those figures from over the summer have changed due to factors including economic conditions and do not reflect the department’s current improved financial position, it is understood.

Inflation-linked cost rises for military equipment and pay hikes for the armed forces have compounded pressures on the defence budget.

Army, Navy and Air Force chiefs have been asked to identify areas where spending can be slashed, according to The Telegraph.

Prime Minister Sir Keir Starmer earlier this year committed to spend 2.5% of gross domestic product (GDP) on defence from April 2027, with a goal of increasing that to 3% over the next parliament.

Rachel Reeves in June boosted the commitment to 2.6% of GDP – a measure of the UK’s economic output – by 2027.

Defence was one of the areas of the public finances which benefited most at the Chancellor’s spending review, when she set out departmental spending limits over the next few years.

But the leaked forecast from the summer suggested the MoD was set to exceed that limit.

A Ministry of Defence spokesperson said: “This Government has boosted defence spending by £5 billion this year alone. We have also stepped up with the largest sustained increase in defence spending since the end of the Cold War, which is increasing to 2.6% of GDP from 2027 with an ambition of hitting 3% by the end of next parliament.

“As the public would rightly expect, this Government is committed to securing value for money for taxpayers. As part of routine budget management, and to ensure we can respond to the changing nature of threats we face, defence budgets are continually assessed and reprioritised.”

A Government source said: “We are getting to grips with a decade-long programme that was overcommitted, under-funded and unsuited to the new era of threats that we face.

“The Tories cut defence spending by £2 billion in their first year in government, we’ve boosted it by £5 billion in our first year.

“We’re fixing their mess and rebuilding our forces to make Britain safer.”

Tory shadow defence secretary James Cartlidge said on X: “The @Telegraph has exposed the reality of Labour’s smoke & mirrors on defence spending – making billions available to surrender Diego Garcia, but forcing our own armed forces into huge cuts.”