Blain’s Morning Porridge July 2nd, 2026 – We need a revolution in Defence
“Generals always prepare to fight the last war, especially if they won it.”
The UK’s long-delayed Defence Investment Plan was a final humiliation for Sir Keir Starmer as he struggled to gloss over the gaping defence funding gap. But it’s not how much is spent, but what it is spent on that matters. The frenetic pace of Mil-Tec evolution in the wake of the Ukraine War highlights how the next war will likely be fought. It’s time for a complete overhaul on the defence establishment’s approach to rearmament.
I sometimes wonder if the Houses of Parliament has a window cleaner? What do our politicians and civil service mandarins see when they gaze out at the geopolitical weather? They know the roof is leaking, but to fix it will be expensive and the kitty is empty. Why not throw another tarpaulin over it, and hope it doesn’t rain? Such a hope is not a great strategy here in Britain where weather lore says: “how do you know when it’s going to rain? Because it’s not raining yet?”
Yes. Rain is a metaphor for conflict.
Tuesday’s UK Defence Investment Plan (“DIP”) was an exercise in needless futility. It fooled no-one. Everyone knows the plan to increase military spending was a dollar-late and £13 billion-short of the £28 bln hole in the defence budget. It leaves UK defence planners unable to deliver anything close to the force package set out in the recent Strategic Defence Review. It’s exactly what we will remember Sir Keir Starmer’s premiership for; dropping the balls while attempting to juggle what government could deliver against what it can afford.
The big decisions in government are about spending. Amongst all the priorities – which are the priorities? When everything is a priority – none are. The secret of good government is understanding and delivering the ones that matter. Starmer didn’t, and he lacked the parliamentary command and control to decide on what was the priority to deliver.
Defence is a primary duty of the state – yet the DIP was a fudge that will send strong signals about UK resilience to Moscow and Beijing. It comprised largely of commitments already made to large scale long-term projects. The scale of underfunding triggered mass resignations from the Ministry of Defence last month. Generals and Admirals made themselves scarce in case they were asked to defend what is indefensible lip-stick on a skinny pig. It was pretend and extend to think the UK can defend itself on the cheap, and it puts off paying for real defence until it’s an SEP (a Someone Else’s Problem) – which it is likely to be after the next election.
The £5 bln bung at drones over the next 5 years won’t deter the UK’s enemies – but it will allow Whitehall bureaucrats to show they’ve been attentive to events elsewhere. Sinking billions into a new fighter jet designed to win wars Air Force Marshals planned for yesterday, which won’t be delivered for a decade or so, looks distinctly risky given the pace of battlespace evolution. Today the Army is short of men, munitions and effective equipment. The Royal Navy is down to a few ships. The Royal Air Force struggles to fly a couple of understrength squadrons – that the Red Arrows display team has been cut from 9 to 7 aging jets says it all.
Yet, despite the thinness of our forces, the UK is still one of highest spending nations on defence. It is 5th or 6th (India and UK are about equal at $90 bln per annum.) Where does all that money go? Is it spent well?
It’s time for a revolution in defence spending. It’s not all about spending more – but spending better. The problem for nations like the UK, where the bureaucracy is deeply embedded within the state, is the will to change. Sometimes it takes a shock to trigger change – and if nothing is done, that shock becomes increasingly inevitable.
To start, let’s try to understand why the UK defence is so compromised.
The dismal state of the UK armed forces is not entirely the fault of Labour after their 2 years in power. Neither is it entirely due to the preceding 14 years of Tory Brexit dither. For centuries the UK has undergone a chronic cycle of Defence underspending and rearmament. Most famously in the 1930’s when the government woke up late to the challenge posed by Nazi Germany. In the 1980-90’s the entire Western Alliance believed in “the End of History” fallacy and used it as an opportunity to transfer the peace dividend into other government departments.
Now the cycle has turned. Europe faces clear and present danger. I don’t accept Starmer’s arguments that bond markets won’t accept increased spending on defence. Most investors accept investment in Defence as a deterrent is a good thing if it avoids the economic consequences of conflict – defence spending as insurance. All that bond market investors care about is being repaid. Most folk accept Sun Szu’s warning “if you wish to avoid war, be prepared and ready to fight it.”
For the stock markets it’s a different issue – the dangers of investing into government spending. The market experience of defence investment has left many buyers sceptical of the sector. The rearmament investment rally from 2022-2025 highlights that defence it’s too dependent on the single monopoly buyer (the MOD) and long-term procurement plans which are run by penny-pinching bureaucracies – look at the way stocks like BAE (down 17%) and Rheinmetall (down 46%) have tumbled from their highs in recent months.
Others point to Russia’s massive casualties and doubt it will ever contemplate war again. I suggest they go read history. Russia gets hit and keeps coming back for more. Russian forces are proving themselves almost as adaptable and innovative on the frontlines as the Ukrainians. When the intelligence chiefs brief Nato that Russia will move on the Baltics in the next 5 years – that’s not speculation but based on real information.
The years of defence underinvestment is one of the reasons we literally get so little “bang for our buck” from the massive sums spent on military procurement. As spending and programmes were cut, the traditional Defence Primes adapted to maintain their margins. They cut back on innovation and focused on their survival on monetising expensive “prestige” defence projects. They embedded themselves within the procurement bureaucracies to garner long-term, dull, predictable returns from very expensive cost-plus funded weapons systems they would typically deliver years behind schedule. The total spent on defence may have flatlined, but to preserve profits it delivered less boom per shilling!
Defence ministries slept through the millennium and the tech revolution. They largely ignored how new technologies could have changed the battlespace. They failed to fund innovation believing the likelihood of global conflict had lessened. Defence was backwatered. (The computer systems on new UK aircraft carriers were running Windows 98!) There was little effort made to integrate what the tech world was doing with defence.
As geopolitical tensions and conflict risks have escalated over the past 15 years – going hot after Russia seized Crimea – it was only after the 2022 invasion of Ukraine that defence ministries woke-up to the reality of how under-defended the West is.
Sadly, there is nothing like conflict for triggering innovation. Following Ukraine’s successes in the swift invention, innovation and adoption of new technologies, there is a massive shift under-way in defence investment. The battlespace landscape is utterly changed, and Military Technology (“Mil-tec”) is evolving at lightning speed. The success of Anduril is one visible example of how it’s happening outside the traditional defence-primes.
Ukraine and Israel have by-passed the traditional defence bureaucracy model to innovate cheap and plentiful new Mil-tec technologies, building new dispersed manufacturing and market-based procurement platforms which can deliver what war fighters require when they need it to keep up with the pace of the modern battlespace. New start-ups have demonstrated how much the old Prime models failed to anticipate future combat.
That’s the investment opportunity in defence – in innovation and adaptability. Adoption will depend on competent governments recognising the need to clear the blockage the defence bureaucracies represent to enable the kind of changes Ukraine has made in supplying warfighters the weapons they want and need to win the war – it’s absolutely fascinating how Ukraine’s Brave1 digital market gives soldiers what they want and need by rewarding them with points to spend on weapons based on their successes.
Defence is being reborn as a highly inventive and innovative tech-driven sector of adaptive start-ups, inventors and innovators. They are responding to a battlespace that is evolving out of all recognition. The Primes know this – recently BAE made direct investments into start-up focused defence funds to directly access the speed of change.
I’ve told this story before, but to illustrate the importance of Mil-Tec; a recently retired European General on defence fund Spitfire Strategic Capital’s Advisory Board visited an exhibition of Ukraine’s new weapon platforms in Kiev. His reaction summed up how much defence has evolved: “For 1/10 of the budget I could deliver the army of tomorrow instead of spending it all to fund a fraction of the army of yesterday!”
Full disclosure – I am working with Spitfire Strategic Capital, a new defence fund investing in the new defence sector. (More than happy to tell you all about it – but at this stage for institutional investors and family offices only.)
Out of time and back to the day job!
Bill Blain
Author of the Morning Porridge
CEO Windshift Capital
Advisor – Spitfire Strategic Capital
Meanwhile, don’t forget about my new book:
The Battle For Hamble is a proper grown-up examination of how economies fail: a tale of Greedy Corporates, Bad Planning and Economic Illiteracy. It uses a wholly unnecessary Gravel Quarry in the middle of a prosperous village to illustrate the multiple failings and abdications of responsibility that have created Broken Britain. It’s about bureaucracy, money, exploitation and shareholders vs stakeholders. It’s about social injustice – asking why it’s ok to put 6000 jobs at risk so corporate bosses can reap bigger bonuses! Whether is the Hamble Quarry, HS2 or the abysmal state of UK armed forces due to bad procurement, read the book to understand how its broken process and bureaucratic indifference that is sinking Britain.
