UK defence sector opportunities arise from spring statement

The measures form part of wider plans to make the UK a “defence industrial superpower”, which UK chancellor Rachel Reeves set out in her spring statement (50-page / 6.5MB PDF) on Wednesday. Defence sector experts Andrew Brydon and Greer Epton of Pinsent Masons said Reeves’ plans, which are built on increased defence spending and procurement reform, will deliver new opportunities for businesses.

Reeves confirmed that she will increase the Ministry of Defence (MOD) budget by £2.2 billion in the next financial year – ahead of a wider increase in defence spending to 2.5% of UK GDP from April 2027. The defence budget increase bucks Reeves’ wider plans to cut public spending, including on welfare and on how the UK state operates, as she seeks to balance day-to-day public expenditure by 2029-30, in line with her fiscal commitments.

Plans to commit at least 10% of the MOD’s equipment budget on “novel technologies including drones and AI-enabled technology” were confirmed by Reeves, who said the move should boost “advanced manufacturing production in places like Glasgow, in Derby and in Newport”, creating demand for high-skilled jobs and new business opportunities.

The new defence procurement system that is envisaged will be “quicker, more agile and more streamlined” and provide SMEs with “better access” to MOD contracts, Reeves said in her speech. The reforms will include the introduction of a “segmented approach” to defence procurement by the MOD, the Treasury confirmed. The segments will each have their own “timescale targets”, it said.

“Segments would be: major platforms (e.g., tanks, frigates, aircraft) with a timescale target to go from an average of six to two years to contract; pace-setting modular upgrades (e.g., comms, sensors, weapons upgrades) with a timescale target to go from an average of three to one year to contract; and rapid commercial exploitation (e.g., uncrewed systems/drones and digital software) with a timescale target of three-month cycles,” the Treasury said.

A £400 million budget for UK defence innovation will also be established, protected, and rise over time, she added, while also giving UK Export Finance an additional £2 billion to loan to “overseas buyers of UK defence goods and services”, to further encourage UK defence manufacturing and jobs creation amidst increased defence spending across Europe.

Brydon said: “The news that the government has committed to increase defence spending in the coming years will be welcome. In common with other countries, the UK is adapting priorities in the face of geopolitical changes. Greater alignment with our European partners is essential. Focusing on defence innovation and reforming procurement should allow greater access to market for SMEs, drive forwards a quicker regime from innovation to contract award and promote a stronger defence technology sector.”

Epton added: “We are seeing many more enquiries from clients, not just in the UK but globally, about how to access the defence sector. This spring statement should confirm to those considering defence opportunities that now is a pivotal time to get involved.”

Procurement law expert Dr Totis Kotsonis of Pinsent Masons added that, crucially, the chancellor’s plans on defence procurement do not require legislative reform. He highlighted that the Procurement Act 2023, which came into force on 24 February 2025, is sufficiently flexible to facilitate nimbler, more efficient and more accessible public procurements of the type which the chancellor set out in her statement.

Increased defence spending will also contribute to a broader rise in capital expenditure by the government. Reeves had announced in her budget last autumn that the government would spend an additional £100bn over the next five years on capital projects. On Wednesday, the chancellor confirmed that that commitment would be supplemented by a further £13bn, to be spent on “infrastructure, housing, and defence innovation” among other “growth-enhancing investments”. The government intends to set out its full capital spending plans at the spending review on11 June.

Public policy expert Scott Wright of Pinsent Masons said the financing commitments may provide a degree of certainty for businesses in related supply chains, as well the growth message that underpinned the Chancellor’s statement. However, planning and infrastructure specialist Robbie Owen, also of Pinsent Masons, said that further action will be necessary by the government if it is to realise the growth that the Office for Budget Responsibility (OBR) is forecasting will arise from its planning reforms. The OBR has said (180-page / 1.57MB PDF) that 0.2% will be added to UK GDP by 2029/30 – from increased construction sector productivity and increased housing services – as a result of the reforms.

“The government needs to go much further in its Planning and Infrastructure Bill if it is to deliver 1.5 million homes and 150 major infrastructure approvals in this parliament and realise the OBR’s growth forecasts,” Owen said.

“Crucially, the proposed planning reforms will not materially cut the amount of time taken to obtain consent for major infrastructure projects. This is largely because the ‘pre-application’ process would not be significantly simplified and there are no proposals to stop judicial review of government policies and approvals, which can easily delay projects by one-to-two years if not longer,” he added.