Spring Statement: Defence gets another lift
The spring statement is the latest move designed to give the defence sector a spring in its step.
Another £2.2bn for defence was announced today by the UK Chancellor
Governments can do three things when it comes to creating opportunities for businesses.
They can provide money; change policy and send signals about what they want industry to do.
Across Europe, political leaders are largely in agreement. Defence is becoming more important, and governments must act and co-ordinate to bring about the change they want to see. This is being driven by stark and serious changes in the geopolitical landscape.
Levers of power
In the UK, the government has started pulling all three of these levers to varying degrees.
Today, the Chancellor made the Spring Statement to Parliament. Defence was given significant airtime in what is largely an economic update; this was a conscious and deliberate decision.
Rachel Reeves declared the government wanted to make the UK a defence industrial superpower and outlined additional capital investment for novel technology, AI and drone capabilities. She specifically called for a focus on SMEs who produce some of the most cutting-edge tech and set out £400m for defence innovation to get innovative tech to the frontline at speed.
The detail needs to be set out and analysed, but in headline terms today’s announcement is significant for those operating in the defence sector.
The first lever – money – is being pulled again. A further £2.2bn to the £2.9bn that had already been announced.
The second lever – policy – is also being pulled. She mentioned the establishment of a new Defence Growth Board to maximise benefits from public spending and put defence at the heart of modern industrial strategy.
The third lever – signalling – is perhaps the most stark today. We’re hearing a steady stream of messages about defence on a weekly basis, and it is significant that it was included in this speech too. The government is indicating to industry that it sees defence innovation as a national priority.
What should businesses make of this?
1. Providing their own business case makes sense, they should feel confident about making capex investments in additional R&D and manufacturing capabilities for UK supply. The macro headwind is strong, and so companies producing products for which there is a tactical requirement should feel reassured that their short to medium term prospects are positive.
2. They should undertake a comparative analysis of European countries to investigate where the most attractive opportunities are for their specific products and technologies, and start to address the competing risks and opportunities, particularly in light of the European Commission’s White Paper for European Defence and the ReArm Europe 2030 Plan which will have significant implications for non-EU suppliers.
3. New technologies are of particular importance. This doesn’t diminish the likely increased need for ‘standard’ tried and tested equipment but will mean increased opportunities for those already funded by DASA, NATO-DIANA and others. You can trust this is a structurally sound policy as decades of defence reviews and established orthodoxy is that the UK’s NATO value is in fighting ‘smart’ and not in deploying huge troop numbers.
The mechanics of what a revitalised procurement system looks like, how exactly this money will be divided up and what exactly this new DGB will do are still unclear. But what is clear is that if you’re in the defence sector, the UK represents a growth opportunity that you should plan to take advantage of.
