Defence manufacturers are going bust while others have been left in “paralysis” and “bleeding cash” as they wait for a long-delayed UK military spending plan for the next decade, MPs have heard.

Industry groups said a more than six-month delay to the defence investment plan (DIP) had also left the UK behind Germany and the US in attracting cash from global investors.

“The ecosystem is not in a great place, it’s what I would call paralysis,” said Samira Braund, the defence director of the ADS Group trade body, speaking to the defence select committee on Tuesday. “I don’t think that [the government] have put effective mitigation plans in place at all.”

The DIP, originally expected last autumn, has been repeatedly postponed amid warnings that the military faces a £28bn funding gap over the next four years.

It has left large companies calling for clarity. The boss of BAE Systems, Europe’s biggest defence contractor, last month urged ministers to publish the plan, while some smaller firms have been forced out of business amid the uncertainty.

One of them was MTE Heat Treatment, a Yorkshire-based manufacturer with just over 30 employees that helped make turbine blades for jet engines. It fell into administration in February.

Andrew Kinniburgh, the head of the trade body Make UK’s defence arm, said: “The inevitable consequence of that little 30-person company going bust is that the company that is procuring those blades will almost inevitably say: ‘Actually, it’s a bit easier just to do it in the States, because that we can get the machining done there.’”

He added that smaller companies were “desperately trying to hang on to their people and keep their factories alive. The trouble for them is they’re just bleeding cash. There’s cash out the door every day to feed the baby birds, and they’re just on pause.”

The DIP will show how the government plans to fund its strategic defence review, the blueprint for transforming the military amid growing threats from Russia, rising commitments to Nato and against the backdrop of the US-Israel war on Iran.

Ministers accepted all the review’s recommendations when it was published last June. But the head of the military, Air Chief Marshal Sir Richard Knighton, told MPs in January that defence cuts would be needed without more funding.

Keir Starmer has said Britain “needs to go faster” on military spending amid plans to reach 3% of GDP going towards defence.

Kinniburgh said the delays risked deterring investment in the UK at a time when the US and Europe were also raising military spending.

“We are absolutely in a global race to get money from these big defence companies. They have many options,” he said.

He added that big defence firms “can go and invest in Germany or in Poland or in the US”, and “with the UK delaying … on the defence investment plan, we are basically telling those companies, perhaps you should invest somewhere else.”

Last week the Ministry of Defence’s top civil servant, Jeremy Pocklington, told MPs that officials were “working hard to deliver it … we will publish it as soon as we can”.

A government spokesperson said it was “working flat out” to finalise the DIP and would publish it as soon as possible.