# UK defence spending is about to boom – can British firms step up?

Keir Starmer plans to build up UK military, but domestic companies could lose out if it is forced to turn to US weapons instead

Crowds of people cheered the HMS Prince of Wales aircraft carrier as it sailed out of Portsmouth harbour last week, on its way to join the cream of the Royal Navy for a round trip to Japan later this spring.

Only a few months ago  that the carrier and its sister ship, HMS Queen Elizabeth, could be mothballed or scrapped as the chancellor, Rachel Reeves, tightened her grip on public spending before .

But with a domestic defence industry that has a  – including  – can Starmer rely on UK players to step up to support Europe’s defence against an expansionist Russia?

## Investors eye gains

All branches of the armed forces can expect to avoid the spending cuts many feared would be implemented over the rest of the parliament. Britain’s manufacturing industry also breathed a sigh of relief – a long term commitment to defence spending is seen as an essential building block for sustained investment.

On Monday,  as investors anticipated significantly higher spending by government feeding through to company profits.

For now, HMS Prince of Wales and HMS Queen Elizabeth are saved, despite the enormous cost of equipping and running them. Mechanical failures, the latest of which has kept the Queen Elizabeth in dock when it was supposed to be the main strike carrier heading east, are already proving a headache.

There is no doubt, say experts, that the near £7bn construction cost of both ships will also be dwarfed over an expected 50-year lifespan by the maintenance costs, eating into a defence budget that has shrunk in real terms over the past three decades to £57bn this year compared with overall government spending of almost £1.3tn.

The pair were built by the defence contractor Babcock at its shipyard in Rosyth, Scotland, with BAE Systems and the French company Thales.





The British-made Boxer armoured fighting vehicle is a joint venture between Rheinmetall BAE Systems Land in Telford and the Franco-German KNDS in Stockport. Photograph: Mike Bowers/The Guardian

The Ajax “mini tank” is another foundation stone of the army’s investment along with the Challenger 2 tank. Ajax is being built by the US company General Dynamics at its factory in Merthyr Tydfil. The first units were finally delivered after an eight-year delay, £5bn in costs and concerns over the .

In the air, BAE is  on the new fighter jet Tempest, which the air force hopes will replace the Eurofighter Typhoon. Tempest’s manufacture, which will be decided by the current buyers, UK, Italy, Japan and Sweden, is many years away. In the meantime, MPs want the production of the Typhoon to be ramped up.

In maritime, the industry will gain from  – although Trump did  the acronym for the Australia-UK-US security alliance.





The UK defence secretary, John Healey, will need to prevent capital procurement budgets overrunning. Photograph: WPA/Getty Images

Nevin says more small and medium-sized firms appear well placed to benefit from Starmer’s defence push, including BAE, Rolls-Royce, Babcock, Italy’s Leonardo and France’s Thales. Last month the Ministry of Defence (MoD)  the first British-made Boxer armoured fighting vehicle at the International Armoured Vehicle Conference in Farnborough. Due to number more than 600, the Boxer is a joint venture between Rheinmetall BAE Systems Land in Telford and the Franco-German KNDS in Stockport.





The UK defence secretary, John Healey, will need to prevent capital procurement budgets overrunning. Photograph: WPA/Getty Images

Trevor Taylor, a defence expert at the Royal United Services Institute (Rusi) thinktank, says Britain’s defence industries need more funding to achieve the government’s aims.



The UK defence secretary, John Healey, will need to prevent capital procurement budgets overrunning. Photograph: WPA/Getty Images

Nevin says more small and medium-sized firms should benefit from the extra funds for defence, but banks are reluctant to lend. “SMEs are often cash-dependent and need support to invest and grow,” he says.

One of Healey’s roles will be to prevent capital procurement budgets from overrunning and the extra money being wasted. The MoD was approached for comment.

A succession of parliamentary reports have called for an overhaul, citing the cost overruns managed by the agency Defence Equipment and Support, the arm’s length body that has overseen the majority of defence equipment and service purchases for the UK’s armed forces since 2007.

Concerns over the cost of constructing HMS Prince of Wales and HMS Queen Elizabeth were highlighted in a defence committee report in 2023. A strike by tugboat crews even forced the Royal Navy to scramble to get HMS Prince of Wales out of Portsmouth early. Starmer will hope the industry can sail more calmly in the years ahead.
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