For an industry that measures contracts in decades, and a ministry with a reputation for bureaucracy, overspending and delays, the prospect of a rapid increase in defence spending presents a challenge as well as an opportunity.
Sir Keir Starmer’s commitment to spend 2.5% of GDP on defence by 2027 was a pragmatic response to the changing security reality. With Donald Trump back in the White House and retreating from European and NATO commitments, the UK is going to have to take more responsibility for its own security.
The chancellor took an expedient view too, spying an opportunity to tie the industry more closely to her growth agenda. Defence was already included in the industrial strategy being worked up in Whitehall, but if more taxpayer funds are directed to defence contracts it makes sense for as much as possible to be secured by British companies.
Last year the MoD spent £28bn, around half of its budget, on equipment, including almost £3bn on the nuclear deterrent and £5bn on maintenance contracts.
The new spending envelope will increase by almost £14bn in cash terms, £8bn of which will come from GDP growth, meaning only £6bn will be “new” money.
Much of that will be swallowed by the cost of new nuclear submarines, rebuilding stockpiles, commitments to Ukraine and pensions, a public service perennial.
Most of what’s left will inevitably go to British defence “majors”, including BAE Systems, Rolls-Royce and Babcock, along with overseas multinationals with significant UK operations including Leonardo (Italian) and Thales (French).
These companies say they are ready to step up, but identify a…
