UK Strategic Defence Review 2025: Implications for Defence Contractors

The UK’s 2025 Strategic Defence Review (SDR)^[1] marks a significant shift in national defence policy, emphasising enhanced military readiness and domestic industrial growth. This comprehensive plan is poised to reshape the landscape for defence contractors across the country. This follows the enactment of the UK’s new Procurement Act 2023, which took effect on 24 February 2025, also impacting defence contractors. More information on this can be found in our alert: What Defence Contractors Need To Know About the New UK Procurement Act.

Key Initiatives and Investments

The SDR outlines a series of ambitious projects, including^[2]:

• Construction of up to 12 SSN-AUKUS class nuclear-powered submarines.
• Establishment of six new munitions and energetics factories operating at full capacity.
• Procurement of 7,000 domestically produced long-range missiles.
• A £15 billion investment in the Astraea nuclear warhead programme.
• Development of a “New Hybrid Navy” incorporating autonomous vessels and modernised aircraft carriers.
• Creation of a CyberEM Command and a £1 billion homeland air and missile defence system.
• Introduction of a £1 billion Digital Targeting Web for integrated battlefield decision-making.
• Allocation of £400 million to a Defence Innovation Fund aimed at supporting UK businesses.
• Formation of a Defence Exports Office to enhance international sales.
• Implementation of a Defence Readiness Bill to facilitate rapid mobilisation of reserves and industry^[3].  

Economic and Industrial Impact

The SDR is not only a military strategy but also an economic stimulus plan. The government aims to increase defence spending from 2.3% to 2.5% of GDP by 2027, with an aspiration to reach 3% in the following years.^[4] However, it is likely that at a summit in the Netherlands later this month, NATO will require the UK and all other NATO allies to agree to increase defence spending to 5% of national income within a decade. General Mark Rutte, the secretary general of NATO, has proposed that 3.5% would be dedicated to core defence spending, whilst the remaining 1.5% will be directed towards related investment such as infrastructure, cybersecurity and intelligence agencies.^[5] This surge in investment is expected to create approximately 30,000 jobs, particularly in northern England, and bolster the domestic defence industry.^[6] 

Defence contractors such as BAE Systems, Rolls-Royce, and QinetiQ are anticipated to benefit significantly from these initiatives but others will assuredly be attracted into this growing market. The focus on domestic production and innovation provides opportunities for small and medium-sized enterprises (SMEs) to enter the defence supply chain, especially with the government’s commitment to fostering SME participation through a refreshed action plan. 

Additionally, the UK signed a Security and Defence Partnership with the EU on 19 May 2025^[7], allowing it to participate in common procurements and this may, subject to further negotiation with the EU, facilitate the UK’s access to some of the benefits provided under the Security Action for Europe (SAFE) instrument.^[8] SAFE is set to provide up to €150 billion in the form of long-maturity loans for investment in defence industrial production, through common procurement.

Challenges and Considerations

While the SDR presents numerous opportunities, it also brings challenges. The financial roadmap to achieve the proposed spending increases remains unclear, raising concerns about potential cuts to other programs or the need for higher taxes or borrowing. 

Conclusion

The UK’s 2025 Strategic Defence Review signifies a robust commitment to strengthening national defence and invigorating the domestic defence industry. For defence contractors, this presents a landscape rich with opportunities for growth, innovation, and increased collaboration with the government. However, navigating the associated financial and geopolitical challenges will be crucial to fully realise the benefits of this strategic overhaul.

Crowell would like to thank Elise Borg for her contribution to this alert.