One source said the heads of the army, Royal Navy, Royal Air Force and other top brass were due to meet this week to discuss the funding pressures.
A second source said the squeeze is because the current budget is insufficient simply to deliver the programme of record - let alone ambitions set out in a major review of defence that was published last June to rebuild and rearm in response to escalating threats.
A third source said that the Ministry of Defence - like all government departments - has to operate within the agreed budget set out by the Treasury.
Defence officials had been holding out for the possibility of more money being made available faster as part of a major, 10-year plan to invest in new equipment and capabilities.
However, the government has still not signed off on the Defence Investment Plan (DIP) - even though it should have been published last autumn.
It means that there is no let-up in the financial squeeze, leading to further demands on military officers and civil servants to look for new ways to cut costs.
The revelations about the in-year cash crisis emerged as Lord George Robertson, the lead author of the prime minister's Strategic Defence Review and a former Labour defence secretary, prepares to issue a devastating critique of the government's record on defence.
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In a speech this evening, he will accuse the prime minister and his chancellor of "corrosive complacency" that has left the armed forces "underprepared" for the threats they face.
Lord Robertson, also a former head of the NATO alliance, will take particular aim at Rachel Reeves, her apparent lack of interest in defence and the incompatibility of vast welfare spending with supercharging the defence budget.
He will accuse "non-military experts in the Treasury" of "vandalism", adding: "We cannot defend Britain with an ever-expanding welfare budget."
Asked about the claim that military chiefs have been urged to find £3.5bn in efficiencies and other savings in-year, a Ministry of Defence spokesperson said: "The defence budget is rising to record levels as this government delivers the biggest boost to defence spending since the Cold War, totalling £270bn this parliament alone.
"Demands on defence are rising, with growing Russian aggression, the crisis in the Middle East and increasing operational requirements.
"We are finalising our Defence Investment Plan that we will publish as soon as possible, putting the best kit and technology into the hands of our forces, rebuilding British industry to make defence an engine for growth and doubling down on our own commitment to NATO."
A request to make efficiency savings is different to a budget cut. Military chiefs have repeatedly been requested over the years to find ways to do things cheaper or more efficiently.
They will typically draw up lists of options - including extremely unpalatable ones that could not be accepted - in a back and forth with defence and Treasury officials to try to make the in-year finances work.
In a defence review in 2015, however, much of the investment plans to buy more military kit were predicated on billions of pounds in unspecified efficiency savings that were never achieved, leaving the armed forces more hollow.
Nancy Pexton, 70, allegedly stabbed and slashed her sibling, Jennifer Abbott, at her flat in Camden in north London on 10 June last year.
Ms Abbott, a film director, was found dead by a neighbour on the floor of her living room with gaffer tape over her mouth three days later.
Ms Abbott's son Brad Carlson told jurors at the Old Bailey on Tuesday about the "bubbling" resentment between his mother and aunt.
Over video-link, he told the court he had received several messages from Pexton expressing her "anger and resentment and furiousness" towards Ms Abbott.
Mr Carlson added: "She was angry - I think there was at times a feeling of disrespect.
"I think a feeling that she was unappreciated and that my mother had not shown gratitude for some of the things Nancy had done and been there for her," he said.
Mr Carlson, who bought his mother the Rolex, said he "wanted people to get along" and encouraged them to make "peace".
He said: "I asked my mother to be more gentle and sometimes more careful in her words. Sometimes people need to be treated more gently."
He added that he felt "empathy" and "love" for Pexton.
Pexton was arrested on 18 June after her sister's watch was discovered in her bag.
She has denied murdering her sister and claimed Ms Abbott gave her the Rolex to "keep for her", jurors heard.
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The court heard Pexton called Ms Abbott nine times on the day she died, with the final call lasting just over 15 minutes.
Prosecutor Bill Boyce KC told the court it was "no coincidence" Ms Abbott was not seen or heard from after she took her corgi dog, Prince, for a walk that morning.
He alleged Pexton was the last person to see Ms Abbott alive having fatally attacked her in her home and leaving just before 2pm.
The court also heard that Ms Abbott had told her nephew Feras Abukhait she thought Pexton was "capable of anything", and she feared for her safety.
Ms Abbott allegedly told Mr Abukhait that Pexton had attempted to murder two of her boyfriends and hired two people to beat up someone called David.
Ms Abbott also asked her nephew if she should apply for a restraining order and wrote a note about it on a scrap of paper, jurors heard.
The trial continues.
Emergency services were called to the Cleve Road property that the two men shared early on 9 April, where they found the body of 21-year-old Jamie Collins in the garden.
The University of the West of England robotics student was pronounced dead at the scene, with initial investigations indicating he died from multiple stab wounds.
Police believe the student died several hours earlier, on Wednesday 8 April.
His housemate and fellow student, Zack Coughlan, 23, was arrested on suspicion of his murder on 12 April, remanded in custody and appeared today at Bristol Magistrates' court.
Detective Chief Inspector Lucy Edgeworth, of Avon and Somerset Police's major crime investigation team, explained that Jamie was being named, with his family's knowledge, even though formal identification had not been completed, as his name will form part of the court proceedings.
DCI Edgeworth said the Crown Prosecution Service had authorised a murder charge against Coughlan.
"People who knew Jamie will be understandably shocked and hugely saddened to learn of what has happened," she said.
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She added that: "Our thoughts are with Jamie's family at this hugely difficult time and... We would politely ask people to continue to respect their privacy."
Local police have been carrying out high-visibility patrols in the area over recent days, with further enquiries planned.
Jamie was described as an "active member of student societies".
A spokesperson for the University of the West of England said the university was "deeply shocked" by the news of his death in "such distressing circumstances".
They added that: "Our thoughts are with Jamie's family at this extremely sad time".
Huntley, 52, died in hospital after being struck multiple times over the head with a metal bar, an inquest has heard.
He was left with "significant head injuries" after being attacked inside the prison workshop in HMP Frankland, County Durham, in late February.
The killer was reportedly found by prison guards in a pool of blood.
He died days later on 7 March at Royal Victoria Infirmary in Newcastle.
His cause of death was determined as "blunt head injury".
The former school caretaker was serving a life sentence after being convicted of killing 10-year-olds Holly Wells and Jessica Chapman in Soham, Cambridgeshire, in August 2002.
The inquest, held in Crook, County Durham, on Tuesday, lasted less than five minutes.
Coroner's officer Bradley King said: "I understand the circumstances to be that Mr Huntley was struck over the head multiple times by another prisoner with an object described as a metal bar.
"The assault left Mr Huntley with significant head injuries."
Huntley's body was formally identified on the day he died.
Anthony Russell, 43, who has been charged with murdering Huntley, is due to have a pre-trial hearing at Newcastle Crown Court on 24 April.
Huntley, a former school caretaker, killed best friends Holly and Jessica after they left a family barbecue to buy sweets in Soham, Cambridgeshire, in August 2002. He dumped their bodies in a ditch 10 miles away.
They were not found for 13 days, despite a search involving hundreds of police.
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At the time, Huntley lived with Maxine Carr, who was a teaching assistant at Holly and Jessica's primary school.
He denied murdering the girls but was convicted after a trial at the Old Bailey in 2003. He was jailed for life with a recommended minimum term of 40 years.
Carr gave Huntley a false alibi and was jailed for 21 months for perverting the course of justice.
She is now living under a new identity.
He began the day on Monday at a news conference in central London, and I meet him mid-afternoon as he's being loaded onto a small plane to Aberdeen to travel to a members' rally that evening.
Today, he'll fly to the Shetland Islands before travelling to Glasgow and then London. It will be like this for the entire run up to the May elections as Farage looks to turn his party from one governing a handful of councils in England to a serious party of government.
A leader always on the go
The Reform leader has already done about 40 campaign visits in recent weeks, and will do the same again in the run up to polling day on 7 May.
If the schedule sounds exhausting, Farage seems energised and upbeat as he settles into his seat and orders a gin and tonic.
He tells me campaigning is his favourite bit of the job as he chats with his team about the schedule for the week and the campaign.
Soon lunch comes - a charcuterie and cheese board and scotch eggs, washed down with a big glass of red wine.
This is a moment of relaxation for a leader always on the go, and I think about what a contrast Farage cuts to that of the prime minister, who I've watched from afar on flights, spending his time in meetings, going through his red box, looking at briefing notes or checking over a speech.
Farage does none of that as I sit opposite him on the plane, and he reminds me that he never writes a speech for these rallies.
Later he tells me he works off the "rule of three" - three different points he wants to make weaved into a speech. In the case of Scotland, his pitch is the failure of successive Scottish governments to deliver and what Reform could do for Scotland - be that expanding oil and gas production or cutting income tax.
I cannot quite believe I am even writing this, but Reform hopes to become the official opposition to the SNP in Holyrood in May and sees this election for the Scottish parliament as the first step to seriously competing for power in Scotland in five years' time.
It's astonishing they are in this position: at the last Holyrood elections, Reform didn't even register - winning no seats at all.
The latest YouGov poll for Sky News predicts Farage will take 20 seats in Scotland and eclipse the Conservatives to become the official opposition.
Reform aiming for 'seismic' wins
As in other parts of the country, Reform is benefitting from the collapsing support for Labour and the Conservatives. In Scotland, Labour had hoped to win Holyrood from the SNP after nearly two decades, but that prospect has collapsed in tandem with the drop in support for the Starmer government.
Scottish Labour leader Anas Sarwar called for Keir Starmer's resignation earlier this year as he sought to salvage his campaign and create distance from the Westminster government.
Sarwar told me last month that he believed he could still win this election, but polling puts them third.
It is a similar story in Wales, where Labour has held power ever since the Senedd was created in 1999. Now they are battling Reform for second position as Plaid Cymru takes the lead.
Farage tells me he thinks that Reform can win the Welsh Parliament, which would be seismic: "Here in Scotland, to become the opposition would be amazing, absolutely amazing, and if we can embed ourselves there, we can move on in the years to come.
"In Wales, well, we're neck and neck right now with Plaid Cymru. The Labour Party, particularly in The Valleys - the real birthplace of the Labour Party - is almost disappearing off the map. So, to be frank, coming first in Wales is the ambition. Whether we can remains to be seen."
Some big issues to overcome
Farage tells me that he thinks the big story of these elections will be the collapse of Labour - across the Welsh Valleys, the red wall in the Midlands, the North East, the North West and in Scotland.
But Farage has his challenges too. While the insurgent party is benefiting from voters' disillusionment with the Conservatives and Labour, the sheen is coming off Reform a little of late.
Recent polls show Reform's support has fallen a few percentage points from highs of 29% to 30% in the spring and summer of 2025, while a poll earlier this month by Conservative peer Lord Ashcroft suggested Reform has lost its outright lead across the UK for the first time in more than a year, putting the party on 21% alongside the Tories and Greens, with Labour on 17%.
It is perhaps some of the pains of moving from a party of protest to becoming a party in power.
There are still big questions around delivery. Recent polling shows that only a quarter of Britons think Reform UK are ready to form the next government, while 58% disagree. This position has slightly worsened from September 2025, when 53% disagreed.
There are some big issues for the leader to overcome. First is his positioning on the Iran war and Donald Trump.
Pollster Luke Tryl says that the "biggest barrier to people voting for Reform is Trump", while the YouGov March tracker poll found that 14% of Britons had a favourable opinion of Donald Trump and 81% had an unfavourable opinion.
When I ask Farage if he has a Trump problem, he tells me "no". But he also spends some of our conversation distancing himself from his old friend while trying to avoid disavowing him: "It's America first, not Trump."
'We're not North Korea'
There is also the question of distancing at a more local level when it comes to delivering on the handful of English councils Reform controls (it has nine with outright control and three under minority control).
Farage gets irritated when he's questioned about promises made by some Reform candidates on council tax that were not kept.
He tells me he cannot be responsible for what potential candidates promised on leaflets, and points out that Reform councils have overall delivered the lowest average council tax increases of any major party.
The nine upper-tier councils controlled by a Reform majority increased Band D council tax for 2026/27 by an average of 3.94% - lower than the overall average increase for councils controlled by other parties, which was 4.86%.
However, it is equally true that Reform politicians made promises they did not keep.
North Northamptonshire candidates signed a letter pledging a freeze. Council tax there has gone up by 4.99%.
A Kent County Council leaflet promised to "cut your taxes", but it was raised by 3.99%.
Leaflets being distributed by a Reform candidate in the Staffordshire region said Reform would "freeze council tax and biz rates". Council tax went up by 3.99% there, too.
Farage answers this by saying: "We're not North Korea. I can't control individuals and thousands of people."
He repeats his point that he didn't promise cuts, but it raises questions about delivery and keeping promises - the exact points Farage and his team criticise other politicians about.
On the cusp of success
Should Reform win more councils and perhaps even a national parliament in May, those questions and that scrutiny is only going to increase.
Three months ago, Farage said he was halfway ready to form a government. On Monday he told me he was now 75% of the way there with a leader appointed in Scotland and Wales, and four major spokesperson figures.
He is now on the cusp of real success in a set of elections that look set to be an important staging post on Reform's journey towards trying to win the general election in 2029.
If it goes Farage's way, he'll have proven he can win at the ballot box - but delivering in office is going to be a much harder task, and test.
This interview is the first in a series that Beth Rigby will be conducting with party leaders ahead of the May elections.




