The UK has committed to its largest sustained increase in defence spending since the end of the Cold War, hoping to not only improve national security but bolster a struggling economy.
In her Spring Statement, chancellor Rachel Reeves confirmed a £2.2bn boost to the Ministry of Defence’s budget for 2025–26 and a longer-term plan to raise NATO-qualifying defence spending to 2.5% of GDP by 2027. In doing so, the government seems to be tying national security more tightly to its ambitions for economic growth.
“This additional investment is not just about increasing our national security but increasing our economic security too,” Reeves said.
“As defence spending rises, I want the whole country to feel its benefits. So I will set out the immediate steps that we are taking to boost Britain’s defence industry and to make the UK a defence industrial superpower.”
The announcement comes during a period of geopolitical instability. Russia’s invasion of Ukraine has put Europe on alert, while the spread of new threats from cyber warfare to autonomous weapons has outpaced traditional defence planning.
Other European nations are boosting defence spending. Sweden announced it will increase spending to 3.5% of GDP by 2030, from 2.4% today in its own biggest rearmament since the Cold War. This came after Germany approved a spending bill to ease strict borrowing rules and permit higher defence spending.
Against this backdrop, the UK government has recommitted to its £3bn annual military aid to Ukraine and added £2.26bn in loans to support its defence procurement, funded by profits from immobilised Russian sovereign assets held in the EU.
Yet the bigger story is domestic. Ministers are promising not just stronger armed forces, but a reinvigorated industrial base that creates benefits far beyond the defence sector itself.
Among the first targets for investment are an expanded programme of joint exercises with NATO allies, improvements to the UK’s defence housing estate and investment in advanced technology such as Directed Energy Weapons.
But it goes beyond this. Defence is one of eight priority sectors under the UK’s Industrial Strategy and the government wants it to serve as a growth engine, capable of innovating at pace and at scale.
The new Defence Growth Board, which is co-chaired by the chancellor and defence secretary John Healey, will be launched in April 2025 to embed this into spending and policy decisions.
This shift reflects a wider belief inside government that defence spending can generate meaningful returns in jobs, skills and innovation.
Central to this vision is the new UK Defence Innovation (UKDI) body. Set to launch by July with a £400m ringfenced budget, UKDI is meant to overhaul the Ministry of Defence’s slow and fragmented approach to innovation. Officials acknowledge that start-ups and smaller tech firms have long struggled to access procurement channels or attract investment, discouraged by opaque processes and long timelines.
UKDI is intended to implement a faster, more flexible approach that helps new technologies progress from idea to deployment with fewer barriers.
It is also a key part of the government’s effort to increase spending on novel technologies. From next year, the MoD will commit at least 10% of its equipment procurement budget to areas like dual-use systems, AI-enabled platforms and autonomous vehicles.
Procurement itself is being overhauled, with the MoD adopting a segmented system that adjusts the procurement process to the scale and speed of the project.
Major platforms such as ships or aircraft will target a two-year window from concept to contract, down from the current average of six years. Modular upgrades – such as comms, sensors and weapons upgrades – will aim for a one-year turnaround.
Meanwhile, “rapid commercial exploitation”, such as uncrewed systems/drones and digital software, will have a target of three-month cycles.
Part of the government’s message is also about the regional benefits. Defence spending is not concentrated in London and supports a large and widely distributed industrial base.
Today, one in every 60 UK workers is employed in the defence sector – some 434,000 jobs across the country – and 68% of MoD spending goes to businesses outside London and the south-east.
This includes shipyards in Scotland, missile plants in Stevenage and a network of suppliers and subcontractors from Northern Ireland to the north-west. Defence, the government argues, offers stable, skilled jobs in regions that have often been overlooked in wider industrial policy.
The new defence strategy presents a bold vision: a military that is modern, agile and better equipped, powered by a faster, more innovative industrial base. It seeks to move away from slow procurement cycles and siloed innovation to make defence spending a visible lever of economic growth.
But much depends on whether the government can follow through on procurement reforms and maintain investment beyond this Parliament. The eventual target of 3% of GDP on defence remains aspirational, tied to “economic and fiscal conditions”.
Even then, more might need to be done to hit the primary target of ensuring national security. Tom Bailey, head of research at HANetf, welcomed the increased defence spending but said it needs to be viewed in historical context.
“At the end of the Cold War, the UK was spending over 4% of GDP on defence. While returning to that level of spending isn’t immediately feasible due to fiscal pressures, the world is now significantly more dangerous,” he said.
“Recent events have shown that Europe can no longer rely as heavily on US support, making it essential for European nations to take greater responsibility for their own security.”