Strengthening the UK’s Defence: Key Highlights for the Defence Sector from the Spring Budget

Defence was very much a key theme in yesterday's Spring Statement. The UK Chancellor, Rachel Reeves, announced a significant boost to the defence budget, along with a number of measures aimed at developing the defence tech industry, modernising defence procurement processes, and turning the UK into a “defence industrial superpower”.  

The key takeaways are:

Increased Defence Spending

In line with the government's commitment to increase NATO qualifying defence expenditure to 2.5% of GDP from April 2027, the budget allocates an additional £2.2 billion to defence spending for the next year. This significant increase aligns with the broader efforts to grow the UK’s defence sector, and underscores the government priority of maintaining technological superiority to adapt to global geopolitical challenges. 

The Chancellor also announced £2bn of increased capacity for UK Export Finance to provide loans for overseas buyers of UK defence goods and services, which will give "further opportunities for our world leading defence companies and those who work in them".

Focus on AI and support for Defence Tech companies

A significant portion of the new funding will be directed towards AI-enabled technology, with 10% of the MOD's equipment procurement budget to be spent on novel technologies such as dual use technologies, uncrewed and autonomous systems and AI from next year. This investment aims to enhance the UK's defence infrastructure by integrating cutting-edge technologies, and builds on the recommendations made by the Defence Committee Report on AI, which you can read about in our previous blog post here. 

The statement also announces the creation of a body called UK Defence Innovation (UKDI), planned to be operational from July this year, which will "significantly simplify and consolidate the current MOD structures for innovation in line with the government’s agile state agenda." Its role will be to enable "faster innovative procurement" and "actively foster a strong UK defence technology sector". It will have a ringfenced budget of £400 million for this year, set to increase in the future.

Procurement Reform

A key focus for the defence sector over recent years has been modernisation and streamlining of procurement processes, and the Spring Statement builds on this by setting out "a new segmented approach to procurement". The segments will have timescale targets in order to reduce average procurement times and increase efficiency, enabling MOD to "tailor acquisition processes to the type of capability, supplier and risk involved." 

The segments will be: 

• Major platforms (such as tanks, frigates and aircraft) with a timescale target of two years to contract;
• Pace-setting modular upgrades (such as comms, sensors and weapons upgrades) with a timescale target of one year to contract; and
• Rapid commercial exploitation (such as uncrewed systems/drones and digital software) with a target of three-month cycles.

It will be interesting to see the practical changes and processes that will be applied in order to meet these new targets, as well as how the UK’s recently reformed procurement legislation will be harnessed to achieve the objectives set. In the meantime, this news will be very much welcomed by the sector, and we anticipate that the themes raised in the Statement will be further developed in the Strategic Defence Review and Industrial Strategy expected later this year.

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