In the Spring Statement, Chancellor Rachel Reeves unveiled a significant increase in defence spending, allocating an additional £2.2Bn for the 2025-2026 fiscal year. This move aims to bolster the UK’s national security and stimulate economic growth, presenting substantial opportunities for defence suppliers across the country.
The newly announced funds will focus on several critical areas:
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Emerging Technologies: A portion of the investment is earmarked for the development and procurement of advanced technologies, including drones and artificial intelligence systems. This initiative underscores the government’s commitment to maintaining a cutting-edge defence capability.
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Defence Innovation Fund: An allocation of £400M will be directed towards the Defence Innovation Fund, designed to accelerate the integration of innovative solutions into the armed forces.
Implications for Defence Suppliers
For companies operating within the defence sector, these developments signal a robust pipeline of upcoming projects and contracts:
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Increased Contract Opportunities: The emphasis on emerging technologies and innovation is likely to result in a surge of procurement initiatives, offering new avenues for suppliers specializing in these areas.
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Focus on Small and Medium Enterprises (SMEs): The government has expressed a commitment to enhancing SME participation in defence projects. Initiatives such as the establishment of a support hub aim to provide SMEs with better access to the defence supply chain, fostering a more inclusive and diverse industrial base.
Government’s Vision for Defence and Economic Growth
Chancellor Reeves articulated the broader objectives behind the increased defence spending: “Increasing our investment in defence is not only bolstering our national security, it is an opportunity to put more money into working people’s pockets and boost economic growth.”
This statement reflects the government’s strategy to leverage defence investments as a catalyst for broader economic development, particularly through the creation of skilled jobs and the stimulation of advanced manufacturing sectors.
Looking Ahead
Defence suppliers are encouraged to align their capabilities with the government’s priorities, particularly in the realms of emerging technologies and innovation. Engagement with initiatives supporting SME involvement will be crucial in capitalising on the forthcoming opportunities within the UK’s evolving defence landscape.
Commentary
In response to the Chancellor’s Spring Statement, Chris Ball, UK & Ireland President, AtkinsRéalis said: “The Spring Statement confirmed the fiscal realities and tough choices facing the UK, but it also reinforces the need to forge ahead with plans that would unlock economic growth across the country.
“It’s encouraging to see the Chancellor repeat her commitment to increase capital spending on infrastructure. The UK urgently needs to upgrade its ageing infrastructure and deliver systems, networks and built environments fit for the future. This place-based growth will benefit communities and boost opportunities across the country, and it can be achieved by mobilising public and private investment alongside reforms to the planning system.
“The additional £2Bn funding for affordable homes will help to deliver on the Government’s housing targets, but it could also drive immediate growth by increasing the share of funds for scalable SME housing providers who can grow capacity and invest in innovative manufacturing methods to speed up delivery of high quality, low carbon, affordable homes across the country.
“Recent announcements on vital infrastructure projects such as Lower Thames Crossing and airport expansion at Heathrow and Gatwick all send a positive message to industry: as we await the publication of a long term project pipeline within the 10 Year Infrastructure Strategy, we also stand ready to contribute to the models, plans and discussions needed to realise the potential for growth and deliver value for money.”
Babcock reaction to extra £2.2Bn in defence spending for 25/26: “The Government’s announcement of an extra £2.2Bn in defence spending provides the UK with the ability to invest in British businesses and drive domestic economic growth. The new UK Defence Innovation will be an important element in the delivery of these future sovereign capabilities.
“Babcock creates and sustains thousands of high value jobs and apprenticeships, spreading prosperity within communities across the country, delivering strategic advantage to our customers through the design, integration and support of technology across military domains.
“We look forward to continuing this work with the Government to ensure our armed forces have the equipment and services they need to protect our nation, both now and in the future.”
Andy Scott, UK managing director, defence, at Turner & Townsend, commented: “The Chancellor’s statement was a welcome recognition of the defence sector’s importance not only to our national security, but to economic growth. The Chancellor has doubled down on Labour’s message that it has heard the industry’s call for greater investment – restating the objective to match defence spending to 2.5 percent of GDP by 2027. It has also seen the opportunity to do so in a way that has far-reaching benefits for the whole country.
“Often the focus around defence investment has been on how much we spend, rather than how we spend it. The commitment to streamlining procurement, increasing agility and seeking to bring a wider range of industry partners – including SMEs – into the supply chain is especially encouraging. The balance in the Chancellor’s speech between technology and equipment alongside infrastructure in key locations like Barrow-in-Furness and Portsmouth is also promising.
“While we had very strong backing yesterday, the industry’s eyes remain trained on the upcoming Strategic Defence Review to identify exactly how investment will be prioritised and unlocked in practice – we must be ready to respond once these plans are announced.”
Matthew Hodgson, CEO and Co-founder at encrypted messaging platform Element, commented: “The Spring Statement falls short in one critical area: defence spending, particularly in data privacy and secure communications.
“When cyber threats are increasing in both frequency and sophistication, the government must recognise national security means not just physical defence but also digital resilience. Encouragingly, the government has announced plans to increase defence spending to 2.5% of GDP by 2027. However, this commitment lacks a clear timeline and does not adequately address cybersecurity.
“The UK’s security posture has changed, as Keir Starmer recently noted, international insecurity has become a very real concern in recent weeks and months. This has clear domestic and global implications. The announced £2.2bn boost to defence spending is a step in the right direction, but it must be carefully allocated to modernise secure communications and strengthen the UK’s overall defence capabilities.
“A stronger focus on cyber defence and secure data management is not just a necessity, it is an urgent priority. If the UK is to remain a leader in global security and intelligence, the government must recognise that cybersecurity and secure communications is defence.”
Tanya Suarez, Lead of Janus accelerator in partnership with DASA and CEO of IoT Tribe, said: “With current levels of geopolitical instability, it is imperative that we bolster the UK’s defence capabilities to safeguard national and economic security. The Chancellor’s announcement today of a £400m commitment to the defence technology ecosystem, and 10% of the MoD’s budget which will be allocated to novel technologies like drones and AI, will be a catalyst for faster innovation. Collaboration between government and private sector stakeholders, including category-leading start-ups, will accelerate the go-to-market of cutting-edge defence technologies. It will help reindustrialise our economy, establish robust sovereign capabilities and drive productivity in non-defence sectors. Government support and investment through organisations like DASA will go a long way to ensuring that the most promising technologies rapidly transition from lab to front line, reaching the hands of those that need them.”
Andriy Dovbenko, Founder and Principal, UK-Ukraine TechExchange: “What Britain needed from the Spring Statement were concrete steps towards boosting its defence capabilities. Therefore, the confirmation that defence spending will rise to 2.5% by 2027, plus the dedication of £400m in funding for DefenceTech initiatives, is extremely encouraging to see. It’s true that more needs to be done – the figure is still inadequate compared with the resources of other global powers like russia – but the focus must now be on achieving more with less in the immediate future. The effective allocation of our limited defence resources will be crucial, ensuring that this additional funding does not disappear into our primes but fulfils its intended purpose. “
Andrew Carwardine, Senior Defence Partner, RCK Partners, said: “To keep up with the changing pace of defence in the current global conditions, the UK has to be able to innovate more quickly. In today’s Spring Statement, the Chancellor’s pledge to increase defence spending by an additional £2.2bn, and the goal to position the UK as a ‘defence industrial superpower’, is a welcome signal that innovation will be at the heart of national security.
“In particular, the £2bn investment into UK export finance will support UK businesses in meeting international demand for cutting-edge defence technology, ensuring we not only buy but also make more here in Britain. With a clear focus on novel technologies such as AI and drones, as well driving advanced manufacturing production in places like Glasgow, Derby and Newport, we welcome the fact that the government is reinforcing the critical role of R&D in strengthening the UK’s defence capabilities.
“However, for businesses developing cutting-edge defence technology, accessing the right funding and incentives is essential. Reforming the defence procurement system to be more agile is a welcome move, but ensuring that R&D tax relief effectively supports innovation in this sector will be just as crucial. As defence spending rises and collaboration between government and industry intensifies, it is essential that the government prioritises a competitive, accessible R&D tax landscape that enables both established players and SMEs to bring innovative technologies to the frontline at speed.”
Peter Lovell, global head of defence and security at professional services firm PA Consulting, said: “The Chancellor rightly recognises that national security isn’t solely the domain of the Ministry of Defence. It requires a societal effort, especially across our industrial base, and I was pleased to see the announcement of a cross-department Defence Growth Board to make it happen.
“The pledge to bring forward £2.2bn of investment on defence spending and ring-fence innovation investment is crucial, as is the focus on places like Barrow and Portsmouth. Not to be overlooked are emergent hubs like Preston that will not only enhance our broader security, but also position defence as a driver of UK economic growth. This investment sends the right signals to our allies and adversaries that the UK is ready to help lead on European and global security.
“The Ministry of Defence and industry need to work hand in glove to maximise the UK’s defence potential – and if we’re honest with ourselves, often industry needs to take the initiative and make the move first.”
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Post written by: Vicky Maggiani
Vicky has worked in media for over 25 years and has a wealth of experience in editing and creating copy for a variety of sectors.
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