Securing the Edge: Why Zero-Basing Maximises the UK’s Growing Defence Investment
How disciplined cost reviews and agile scenario planning, protect critical capabilities in an era of uncertain budgetary settlements and ongoing affordability challenges.
Despite the UK Aerospace & Defence industry now generating over ￡88.4?billion in turnover, the Ministry of Defence (MoD) faces affordability pressures: its ￡288.6?billion Equipment Plan (2023–2033) risks overspending by ￡16.9?billion. Although inflation-driven trade-offs are not new, persistent cost pressures mean that, in real terms, the budget often decreases – challenging a supply chain locked into long-term contracts. Even with GDP growth, inflation has eroded much of the MoD’s potential budget uplift, forcing difficult trade-offs between sustaining legacy systems, investing in domestic supply chains, and funding new product development. In fact, while the 2023/24 defence budget rose by 2.1% to ￡53.9?billion, inflation effectively meant a 3.8% real-terms reduction in spending power – overshadowing the nominal increase.
This domestic landscape is exacerbated by wider geopolitical instability and the increasing pace of innovation. As global threats escalate and next-generation technologies emerge, with the conflict in Ukraine underscoring the disruptive impact of first-person-view (FPV) drones and hypersonic ballistic missiles, protecting core programmes while boosting innovation is critical. It is argued therefore that a scenario-driven mindset, coupled with principles of zero-based budgeting, can unlock funds and sustain readiness across a multi-tier supply chain.
Defining the New Normal Global tensions have grown alongside advancing defence technologies, including AI-enabled decision support, digital C2 platforms like the ￡3.2b Morpheus Programme, and advanced munitions such as loitering drones, all of which demand faster procurement cycles and robust R&D pipelines. For example, the MoD intends to invest ￡6.6b in AI and automation via the Defence AI Strategy by the end of this year.
Ukraine’s experience has shown that while conventional doctrine remains essential, it has been challenged and, at times, proved insufficient when confronting FPV drone swarms and hypersonic capabilities, reinforcing the need to ‘fight fire with fire’ through urgent capability development. Recent MoD wargaming, focused on large-scale conflict scenarios, highlights how prime contractors and SMEs alike must remain agile. With the top 21 suppliers accounting for half of the MoD’s spend, smaller niche providers still play a vital role. Continued improvements in multi-phase acquisition processes ensure that, regardless of shifting budget settlements, the UK can pivot quickly to confront emerging threats.
Zero-Basing as a Strategic Tool Zero-based budgeting (ZBB) rigorously reviews every cost item, discarding legacy spend that delivers limited frontline value. Our experience shows ZBB can reveal hidden funds for advanced R&D – including rapid prototyping of next-gen systems or expansions in maintenance capacity.
In a sector where 5% of direct MoD expenditure (circa ￡1.4?billion) goes to SMEs, ZBB offers a potent way to reallocate resources toward high-impact areas of innovation and strategic advantage. It also helps reduce inefficiency, free up cash for vital reinvestment, and sharpen procurement processes – ultimately strengthening the pipeline for UK defence. Although ZBB is not new, applying it across both the MoD and suppliers can create fresh impetus to challenge entrenched cost bases and improve resilience – particularly as programmes must pivot quickly to meet evolving threats such as counter-hypersonic or cyber capabilities. By methodically validating cost structures, stakeholders can prioritise capabilities that genuinely bolster operational effectiveness.
领英推荐
Critically, by embedding scenario-based assumptions into each stage of the ZBB process, leaders can ensure that cost decisions remain flexible and scalable across different conflict intensities – further enhancing the force’s resilience.
Scenario Planning and Resilience Scenario-driven evaluations assess different funding scenarios, helping leaders stress-test supply chains and production capacity regardless of whether budgets rise moderately or remain stagnant. In an interconnected market of primes, tiered suppliers, and SMEs, planning for sudden surges or prolonged conflicts fortifies resilience. When these scenario insights feed directly into the ZBB framework, the MoD and industry can dynamically allocate or reallocate budgets to critical capabilities – ensuring they maintain affordability while preserving a longer-term strategic posture. Such proactive measures strengthen cross-tier relationships, ensuring the British defence enterprise is prepared to respond swiftly to ever-changing threats.
KPMG’s track record in defence spans procurement streamlining, overhead alignment, and R&D cost-optimisation, always preserving mission-critical weapon systems. We have advised primes and SMEs on bridging complex ecosystems, from advanced aerospace programmes to digital security solutions. By uniting rigorous ZBB with tailored scenario planning, we help clients strike the optimum balance between affordability and warfighting readiness. This includes clarifying spend across each supply chain tier, identifying overlooked efficiencies, and channelling savings into the capabilities that matter most on the battlefield. Ultimately, recalibrating resources in this way ensures the UK’s strategic edge remains firmly intact, even in a constrained fiscal environment.
?References
?
Procurement Director | Commercial Director | Non-Executive Director ECB Level 3 Advanced Cricket Coach | ECB Level 4 (2024 Cohort) | Gloucestershire CAG/EPP/Zonal Coach | MCCF Bristol Girls Hub Coach.
3 周Whilst I don’t disagree with the intention behind the statement to provide a framework for managing affordability challenges,the actual impact will depend on how well these approaches are integrated into existing practices. If not managed carefully, the introduction of more processes could exacerbate the issues rather than resolve them.