Making Defence an Engine for Growth: The UK Government’s Defence Industrial Strategy 2025 - Key Takeaways

The UK Government published its Defence Industrial Strategy 2025: Making Defence an Engine for Growth on Monday 8 September. The content of the strategy marks a significant policy shift, positioning defence not only as a matter of national security but as a catalyst for economic growth. For businesses, the strategy signals new opportunities and expectations.

This comprehensive strategy represents the most significant defence policy reform in decades, with immediate implications for how defence suppliers approach investment, procurement, and strategic planning.

Long-term Defence Investment

At the heart of the new strategy is the introduction of a 10-year Defence Investment Plan, the detail of which will be set out later this autumn. The intention is to provide clarity and certainty to the sector around procurement and innovation, reduce risk, attract investment and align innovation with the Ministry of Defence’s needs. 

The UK Government also intends to reform the acquisition pipeline by providing industry with a 5-year forecast of planned procurement to provide transparency, inform investment decisions and drive economic growth. 

Defence spending is also due to increase to 2.6% of GDP by 2027, with a trajectory towards 3% in the next Parliament – representing a sustained commitment to bolstering the UK’s defence and security capabilities.

Practical implications: Defence suppliers should begin scenario planning based on these investment commitments and prepare for increased competition as the market expands. The 5-year procurement forecast will enable more strategic capital allocation and R&D investment decisions.

Procurement Reform

Another key driver of the strategy is to modernise the procurement process with clearer market segmentation, digitally enabled acquisition and streamlined decision making building on the changes brought about by the Procurement Act 2023, which came into force on 24 February 2025. 

With this proposed reform, SMEs are likely to have greater opportunities with increased access to supply chains, while incumbent contractors will likely be subject to closer scrutiny and competition. 

Strategic considerations: Established contractors should review their competitive positioning and value propositions, while SMEs should assess their readiness to scale and meet enhanced security requirements. Digital transformation of procurement processes will require suppliers to upgrade their systems and capabilities.

Regional Economic Growth

The strategy earmarks £250 million of public funds to be used for the creation of five new “Defence Growth Deals” in the UK. Investment will initially be provided in Plymouth, South Yorkshire, Scotland, Wales and Northern Ireland, with a view to extending this to other areas in the future. 

These “Growth Deals” are intended to foster collaboration between government, industry and academia with the aim of stimulating innovation, strengthening supply chains, creating jobs, and attracting private investment to local economies. 

For businesses, the opportunity appears to be twofold: (i) an opportunity to obtain funding; and (ii) access to local economies where defence supply chains and capabilities are being developed.

Action items: Companies should evaluate potential partnerships in these regions and assess co-investment opportunities. Early engagement with local authorities and academic institutions will be crucial for accessing these funds and establishing strategic positions in emerging defence clusters.

Building Skills in the Workforce

To meet the industry’s workforce needs, the Government will invest £182 million in the creation of five “Defence Technical Excellence Colleges” to provide post-16 learners with specialist technical training. 

Engaging with this initiative will enable businesses to develop and shape the training programme to potentially benefit recruitment in their own businesses. 

Workforce planning: Defence suppliers should proactively engage with these colleges to influence curriculum development and establish recruitment pipelines. This represents a unique opportunity to address skills shortages while building relationships with the next generation of defence professionals.

Strategic Implications for Defence Suppliers

This strategy marks a decisive shift in UK defence policy. The UK’s defence and security is no longer viewed as a cost centre but as a vehicle for growth.

For contractors, SMEs and investors, this strategy presents opportunities and challenges. There is an emphasis on UK capabilities and the need for a more domestic supply chain which is likely to result in increased demand for UK-based production and investment in local economies. However, with that comes greater scrutiny of the supply chain. 

Immediate next steps: Businesses should act quickly to review their supply chains, engage in the proposed regional initiatives, and consider the investment opportunities arising from this strategy. Companies should also prepare for enhanced due diligence requirements and consider how to demonstrate their contribution to UK economic growth and security objectives.

If you would like to discuss the implications of this strategy, please reach out to your usual Bird & Bird contact.