UK defence drive will have knock-on benefits for the economy, says expert

Andrew Brydon of Pinsent Masons was commenting after the government pledged to spend 5% of UK GDP on national security by 2035. That commitment, set out by prime minister Sir Keir Starmer on Tuesday, came just a day after the government set out how it intends to grow the UK’s defence industrial base via a new modern industrial strategy (160-page / 15.6MB PDF). Defence is one of eight sectors that are being given priority support under the strategy, which sets out the government’s vision for growing investment in the eight areas over the next decade.

The UK currently spends 2.3% of its GDP on defence. The government had outlined plans to increase defence spending to 2.6% of GDP by 2027 and a further ambition to hit 3% of GDP by 2034, if economic conditions allowed. However, the government has now said it will go further – Starmer said core defence spending will hit 3.5% of GDP by 2035 – and that that spending will be supplemented with a further 1.5% of GDP expenditure on “resilience and security”.

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The spending pledge is the latest in a line of defence announcements made by the government since it won the general election in 2024.

Shortly after coming to power last summer, the government commissioned a strategic defence review. The review, led by Lord Robertson, a former UK defence secretary and NATO secretary general, reported earlier this month and set out a vision for the UK to become a “leading tech-enabled defence power, with an integrated force that deters, fights, and wins through constant innovation at wartime pace”. The government endorsed all 62 recommendations of the review and, among other things, confirmed plans to invest in at least six new munitions factories across the UK, build up to 12 new submarines, develop a “sovereign warhead programme”, and facilitate manufacturing of drones and other cutting edge defence technologies.

The government’s subsequent spending review provided more details on the financial commitments entailed in delivering on those recommendations – with the 2027 defence spending uplift calculated to be represent an additional £11 billion in spending alone. At the time, among other things, the government said £4.5bn of public funds would be invested in munitions and that more than £6bn would be spent to upgrade nuclear submarine production.  

It is as yet unclear what the revised 5% spending commitment pledged on Tuesday will mean in practice, but the government’s industrial strategy does confirm “frontier industries critical to security and growth” will be prioritised. In practice, that means support for technologies that can be used in a civil as well as military context, like AI, cyber, semiconductors and quantum, as well as a range of defence-specific technologies, like weapons systems, military drones and autonomous systems, as well as a variety of air and maritime defence hardware.

Further commitments outlined in the industrial strategy also reflect recommendations from the strategic defence review, including plans for the Ministry of Defence to spend at least 10% of its equipment budget on acquiring novel technologies, such as drones and AI enabled technology. The MoD will also increase its spending with UK-based SMEs by 50% by May 2028 when compared to spend in 2023-24, the government said.

“Top to bottom” reform of defence sector procurement has also been promised, to reduce burdens for suppliers and enable work on defence contracts to begin much faster than currently. A series of measures to boost skills needed in the defence sector – including funding for defence-related courses – were also announced, as well as the establishment of a new Office for Defence Exports to lead on growing UK defence exports.

“The new UK funding commitment aligns well with similar policy developments under consideration across the EU, and from NATO,” said Brydon. “Increased investment from funds and private finance to support the growth of industries contributing to Europe’s defence will be essential for the region’s security over the coming years, with innovative technology, including cyber, playing a crucial part. NATO will be leading the way on this and will be collaborating with the private sector to provide the necessary support for new technologies.” 

“This increased investment directed at accelerating security capabilities could have a subsequent sizeable and sustained positive knock-on effect to the economy. For example, some of the technology currently being developed for more effective drones will likely find civil use cases alongside its military application. The private sector will see a boost in funding, particularly in cyber security and digital technologies, leading to new opportunities in many industries in the UK and across Europe more widely,” he said.

“As the UK and Europe double down on artificial intelligence, drones, and cyber capabilities, navigating export controls, dual-use regulations, and ethical considerations in emerging technologies will need to be factored into procurement cycles. Legal considerations will play a critical role in ensuring compliance, risk mitigation, and contract agility in a faster-paced environment,” said Brydon.  

The industrial strategy has been published just days after the government set out a 10-year infrastructure strategy, which included various commitments to invest in MoD land and in defence-related infrastructure.