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Rachel Reeves on Wednesday confirmed an extra £2.2bn in UK military funding next year as she set out plans to make Britain a “defence industrial superpower”, including a new growth board to boost the sector.
Defence formed a core theme of the Spring Statement, as the chancellor said “a changing world” presented challenges for the UK but also opportunities for jobs and regeneration across the country.
Reeves announced an extra £2.2bn for the Ministry of Defence in 2025-26, which she framed as a “downpayment” on Sir Keir Starmer’s pledge to lift the overall defence budget from 2.3 per cent of GDP now to 2.5 per cent from April 2027.
The increase will be paid for by cuts to the overseas aid budget and comes as US President Donald Trump has undermined the security guarantee Washington has extended to Europe since the second world war.
Reeves said that, from next month, 10 per cent of the MoD’s kit budget would be ringfenced for investment in emerging technologies, including drones and systems enabled by artificial intelligence.
This is designed to bolster advanced manufacturing production in places such as Glasgow, Derby and Newport by creating demand for skilled engineers and openings for homegrown start-ups.
The areas are already important sites for some of the UK’s largest defence players including BAE Systems, Rolls-Royce and Airbus.
The ringfenced £400mn budget, which will increase over time, would be given “a clear mandate to bring innovative technology to the front line at speed”, Reeves added.
Kevin Craven, chief executive of industry trade body ADS, said the funding package was the “first step of a long-term approach to industry engagement, demand signals and delivering on our potential to national security”.
UK defence secretary John Healey and Reeves would meanwhile co-chair a new defence growth board to put the sector “at the heart of” the government’s upcoming industrial strategy, she said.
The board will oversee work already started by Healey to fix the MoD’s “broken” procurement system, streamlining its operation and improving accessibility for smaller businesses competing for government contracts.
In future, the MoD would take a new “segmented” approach towards procurement along with associated targets to improve delivery timescales, Reeves said.
She highlighted the government’s announcement this month that it was providing £2bn of increased capacity for UK export finance to enable loans for overseas buyers of British defence goods and services, in order to take advantage of rising military spending across Europe and beyond.
Defence industrial hotspots including Belfast, Teesside, Plymouth and Rosyth would benefit from fresh jobs and “new confidence”, Reeves said.
She also pinpointed Plymouth naval base as a target for regeneration and highlighted a previously announced £200mn investment in Barrow-in-Furness, where the next generation of submarines that will inherit the country’s Trident nuclear missiles are under construction.
While industry has welcomed fresh investment in defence, the pace of cuts to the international aid budget has sparked anger among campaigners. The Spring Statement revealed that the funding would start to fall from next year, reducing by £200mn in 2025-26.
Romilly Greenhill, chief executive of Bond, the UK network for development NGOs, said: “By choosing to rush through these cuts, the UK is turning its back on the poorest and most marginalised people globally . . . potentially putting more than 600,000 lives at risk.”
