Defence enters a new era of priority and long-term investment

The national security challenge faced by the UK is a generational one: 2025 was the year when the tone changed on defence and it became a priority for both government and society.

Spending in the sector

We currently spend 2.3% of UK GDP (£66bn) on defence. Across the spring Spending Review and September’s Defence Industry Strategy (DIS), the government set out the path to 3.5% and made a NATO commitment to achieve this. There was also a pledge made to invest a further 1.5% of GDP expenditure in resilience and security by 2035. In today’s terms, this increase is equivalent to £36bn (or £500 per capita) per year.

However, affordability remains the key. A question mark still lingers over where the investment comes from. The still-awaited Defence Investment Plan (DIP) will stimulate flow of new contracts fuelled by the government’s promise to increase defence spending. Time too, is short: procurement lead times for delivery to commence on new schemes in 2026/27 are becoming squeezed – risking a “hungry gap” ahead with true industry activity deferred to FY27/28. Departmental reform seeks to address procurement process – an enduring MOD objective. Much hope is vested in the new portfolio capability-led National Armament Director Group to encourage delivery of the Strategic Defence Review (SDR) ambition in the coming decade.

Autumn Budget

Though light on capability investment detail, the recent Budget reinforced the government’s position to defence expressed in June’s SDR. A notable point was the £6bn commitment to the submarine programme to support the UK’s Continuous at Sea Deterrent (CASD).

In the accompanying policy paper, the government confirmed that it had already provided £5bn in additional funding for defence since taking power in July 2024, albeit much of this has been pump priming AUKUS and restoring inventory gifted to Ukraine. The increase to 2.6% of GDP earmarked for defence in 2027 is to enable the armed forces to continue “to keep the country safe and support NATO allies.”

This in the context of Defence Reform: the challenge of increased spending whilst making savings, will oblige requirements owners to cut their cloth. Targets of £900m by 2028 are expected to drive efficiencies and apply procurement controls, followed by the MOD’s share of £3bn savings by 2029 and £4bn by 2030. Along with the NHS, the MOD will be able to retain and reinvest savings, a powerful opportunity to get right both price and productivity.

Pace of defence programmes

Pace has proven more difficult. We know defence works in programmes: many are very long-term, and decision-making is complex. The Autumn Budget highlighted endorsement of the Fingleton report into the UK Nuclear Regulatory landscape, both civil and defence, which has the potential to address technical risk across the MOD’s nuclear (i.e. most expensive) programmes. 47 recommendations include the establishment of a single, unified decision-making body, with significant shifts in approach to ALARP (As Low as Reasonably Practical), outcomes, culture, skills development, technology, AI and digital tools, systemic reviews and consenting.

The DIS headline, that “to move to warfighting readiness to deter threats and strengthen security in the Euro-Atlantic, we will reform procurement, innovate at wartime pace, and grow our industrial base”, aims to position the UK as a global leader in the defence sector, while building an economy that is creating growth and jobs. This will be underpinned by industrial and innovation strengths that regions already hold. Intent is high but at the end of Q4 2025 we are still waiting for the DIP and pipeline to allow investment planning for skills and technology. As we move into a new year, there must be more information provided by the government to turn these plans into reality.