The UK is unprepared for a major war and defence funding is falling short: Can private capital step in?
The UK is not ready for a full-scale war, according to its most senior military chief, a warning that has reignited debate over how Britain funds its defence in an era of mounting global threats.
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Appearing before MPs, Sir Richard Knighton said the armed forces are being forced into “difficult trade-offs” as pressure on defence budgets grows. His comments come amid reports of a potential £28 billion shortfall in long-term spending plans, raising fresh questions about whether current funding is enough to meet modern warfare demands.
Threats are increasing across multiple fronts, from Russia’s ongoing war in Ukraine to tensions in the Indo-Pacific. At the same time, the Ministry of Defence is being asked to modernise forces, adopt new technologies, and maintain readiness, all while operating within tight financial constraints.
The government has pledged to lift defence spending to 2.6 percent of GDP by next April. But defence experts warn that public funding alone may no longer be sufficient to keep pace with rapidly evolving, technology-driven threats. Increasingly, attention is turning to private capital as a potential way to close the military readiness gap.
Read more: The UK cannot fund its way to war readiness alone, private capital may be the only answer
Yet defence remains a difficult sell for investors. Complex regulation, strict intellectual property controls, and opaque procurement processes have historically discouraged banks, venture capital firms, and private equity from entering the sector.
As a result, less than two percent of European venture capital funding went into defence technology in 2024, despite soaring demand driven by geopolitical instability.
Investment has begun to rise, roughly doubling last year, but significant gaps remain. Growth-stage defence innovators often struggle to secure funding, while large-scale infrastructure projects essential to national security fail to attract private finance.
Writing exclusively for LBC Opinion, Peter Lovell, Global Head of Defence at PA Consulting and a former member of the UK’s Defence and Economic Growth Taskforce, argues that targeted reform could help unlock private investment.
One priority, he says, is changing how defence buys equipment and services. Investors want predictability: clear demand signals, reliable purchasing volumes, and defined routes to market.
Without that, even promising companies struggle to raise capital. Revisiting competition rules, single-source pricing, and intellectual property frameworks could significantly improve investor confidence.
Another challenge is financial plumbing. Many areas critical to defence, including housing, logistics, energy, and digital infrastructure, are already familiar territory for investors.
Even more specialised requirements, such as satellite systems, training platforms, or equipment leasing, resemble business models the private sector understands.
What is missing are financial products that allow the MoD to structure credible, investable deals while still meeting Treasury and value-for-money rules.
A further opportunity lies in exports. By making exportability a central factor in awarding contracts, defence procurement could better support the Strategic Defence Review’s NATO-first approach, ensuring British equipment is designed from the outset with allied markets in mind.
Warnings about the UK’s lack of warfare readiness are intended as a wake-up call. While the MoD is pushing for reform, analysts say Britain risks falling behind allies that are moving faster to modernise and rearm.
Closing the readiness gap, they argue, will require more than incremental change. It will mean welcoming new partners, new funding models, and a deliberate break from business as usual in how defence is financed.
Private capital will not solve every problem. But without it, critics warn, the gap between the UK’s defence ambitions and its actual capabilities may continue to grow.