UK Chancellor Announces Major Defense Spending Surge and Industry Overhaul
On 26 March 2025, UK Chancellor Rachel Reeves delivered the Spring Statement to the House of Commons, outlining a substantial increase in defense expenditure and a series of measures aimed at accelerating the growth of the UK defense industry.
Reeves reaffirmed the government’s commitment to elevating defense spending to 2.5% of GDP by April 2027—the most significant sustained expansion since the Cold War—with a long-term ambition to reach 3% in the next parliamentary term. She underscored the urgency of responding to an increasingly volatile global security landscape, confirming an immediate allocation of an additional GBP 2.2 billion to the Ministry of Defense (MoD) for the upcoming financial year. This serves as an initial instalment toward achieving the 2.5% target, supplementing the planned GBP 6.4 billion increase by 2027.
As part of the strategy to modernize the UK’s defense capabilities, Reeves detailed a policy shift that mandates 10% of the MoD’s equipment budget to be allocated towards emerging technologies such as unmanned systems and AI-enabled platforms. This initiative is intended to drive industrial growth in key hubs like Glasgow, Derby, and Newport while bolstering the UK’s defense technology sector and workforce.
Additionally, the Chancellor announced the establishment of a GBP 400 million protected fund within the MoD dedicated to defense innovation, with provisions for its expansion. This fund will be tasked with accelerating the integration of cutting-edge technology into frontline operations.
Perhaps most notably, Reeves pledged to reform the UK’s defense procurement system, making acquisition processes more agile and accessible to small businesses. This move has been welcomed by the Federation of Small Businesses as a means to enhance domestic industry participation in defense contracts.
Reeves further revealed an increase of GBP 2 billion in UK Export Finance capacity to support foreign buyers of British defense equipment, reinforcing the government’s intent to enhance domestic production and exports. In tandem with these efforts, she announced the creation of a new Defense Growth Board, co-chaired with the Defense Secretary, to oversee industry development and ensure that defense spending aligns with the UK’s broader industrial strategy.
Additional defence investments include a GBP 200 million injection into Barrow-in-Furness to strengthen the UK’s nuclear deterrent infrastructure, the revitalisation of Portsmouth Naval Base, and improvements to armed forces personnel housing.
The measures outlined by the Chancellor signal a decisive shift towards an expanded, modernized, and innovation-driven defense sector, with a strong emphasis on domestic capability development and strategic procurement reform.
