Foreword
Britain finds itself in an uncertain geopolitical environment, and as such the country must be prepared and capable of deterring its adversaries. In a similar vein, the United Kingdom (UK) has struggled with more than a decade of limited economic growth and a disjointed industrial strategy.
As Britain rearms, the economy will grow. But critical to the rearmament process is the design of the future Defence Industrial Strategy (DIS), which must overcome current barriers facing the sector and begin to reshape the structure of an industry which has, for many years, been geared to a peacetime environment.
It is clear that for Britain to be safe and prosperous, the ties between His Majesty’s (HM) Government and the defence sector should be reinvigorated. This is an issue which HM Government has been pushing hard for over the last few months and will continue to do so with a new DIS later this year.
This report, co-authored by Paul Mason, a journalist specialising in economics and defence, and William Freer, an expert in national security, explores how an approach based on securonomics could enhance both Britain’s security and prosperity. By providing an overview of the important economic and deterrent contributions the UK’s defence sector can make, and providing suggestions as to how HM Government can implement the objectives outlined in the DIS Statement of Intent, it represents a welcome contribution to the formulation of the upcoming DIS.
This Report continues the critical work of the Council on Geostrategy’s Strategic Advantage Cell, established to explore how Britain can induce ‘strategic advantage’ and strengthen the country’s global standing. Its findings and recommendations provide detailed and well-argued points which will be useful to policy makers and key members of the defence sector alike.
The Lord Mountevans JP
688th Lord Mayor of London (2015-2016)
Executive summary
Context:
Recent developments signal that rearmament and an active Defence Industrial Strategy (DIS) should become a matter of priority for the United Kingdom (UK):Britain has committed to spend 2.5% of Gross Domestic Product (GDP) on defence by 2027, rising to 3% in the next Parliament;
The Trump administration has signalled its desire for European North Atlantic Treaty Organisation (NATO) allies, including the UK, to lead on security in Europe;
The geopolitical environment has worsened and will continue to deteriorate: to ensure Britain is able to deter its adversaries, His Majesty’s (HM) Government should (with clear priorities) build up its industrial, technological and scientific capacity;
Global defence spending is increasing fast; by hundreds of billions of pounds over the last few years. Many allies lack expertise and/or capacity; this presents a huge opportunity for UK defence exports.
HM Government has placed a high priority on delivering economic growth. It intends to pursue a ‘securonomics’ approach: a contemporary British application of modern ‘supply-side’ economics, using state direction to ‘crowd in’ private investment to designated key sectors.
The return of peer threats and the conduct of operations in Ukraine have highlighted how the ability to stay abreast of rapid technological change will be crucial to deterrence and conflict, demanding a closer and more adaptable relationship between HM Government and the defence sector.
Questions this Report addresses:
This paper seeks to address four key questions in relation to the design and delivery of a new DIS, based on what the DIS-Statement of Intent (DIS-SOI) outlined, namely:Is the new policy outlined in the DIS-SOI feasible and coherent?
What are the barriers to executing it?
What are the toughest choices to be made?
What are the short-term actions which, if taken now, could generate long-term strategic advantage?
Key findings:
The UK defence sector has a strong base to grow from, but there are structural obstacles to seizing the opportunity. Capital is mobile and Britain’s major allies and partners are also pursuing explicit strategies to attract defence investment. In addition, Britain’s defence consumption is relatively small compared to the global opportunities defence firms face.
The Ministry of Defence’s (MOD) procurement behaviour (slow, complex, risk averse, unpredictable) is seen by firms to enhance risks, counteracting HM Government’s desire to de-risk private investment. Though the UK is an attractive defence investment destination (due to stable governance and innovative business culture) its human and physical capital requires investment to compete, e.g., transport, housing, energy and education.
Senior representatives of the defence sector view the top risks to the sector’s ability to deliver growth as: 1. Unclear long-term signalling, for example on capability priorities and funding levels; 2. Skills shortages; 3. Feast and famine contract cycles; 4. High energy costs; and 5. MOD requirements shifting over the course of a competition.
HM Government is right to promote securonomics as the way to build resilience and prosperity, but should do so with vigour and clarity: with new institutional levers at the level of research, finance and state direction.
The toughest choices to be made are those preoccupying the Strategic Defence Review (SDR): in which domains, theatres and technologies, and with which allies to focus the UK’s resources? Concomitantly, which capabilities, theatres, and allies is Britain prepared to deprioritise?
Recommendations:
The recommendations of the report are framed around the objectives established in the six priorities of the DIS-SOI:
Design of the 2025 Defence Industrial Strategy (DIS2025): It should be a ten-year strategy written as a mission statement for the National Armaments Director (NAD) with an overarching principle of growing the UK’s defence industrial base and designing new capabilities to be scalable.
Prioritise UK-based businesses: DIS2025 should clarify definitions and outline concrete mechanisms through which UK-based businesses will be prioritised, and how HM Government will champion British components for use in allied supply chains. A clear target should be set for the percentage of the MOD’s equipment/services budget to be directly spent with Small and Medium Enterprises (SMEs) by 2030; and for the percentage of SME subcontracting Primes should aim for from their own spend by 2030. The new SME Hub should be empowered to help achieve these goals, modelled on the levers and incentives used by the United States’ (US) Department of Defence’s (DOD) Office of Small Business.
Forge partnerships: HM Government should proactively support the presence of UK defence firms in the markets of key partners, and where possible seek to leverage the know-how of allied industry to onshore production in Britain. In addition, HM Government can learn lessons from the upsides and downsides of the complex weapons Portfolio Management Agreement 2 (PMA2) and develop new long-term portfolio arrangements in other capability segments such as in space capability and shipbuilding.
Generate certainty and stability: Always-on/continuous low-rate production should be built into procurement contracts to maintain supply chains and skills. In addition, a long-term financial settlement with HM Treasury; clear and comprehensive equipment pipelines; and public technology roadmaps should be published.
Seize the future: Research and Development (R&D) funding should be centralised into a single Innovation Finance Vehicle to streamline MOD funding and knowledge of the innovation landscape: the size and length of awards should be increased. The Department for Education (DfE) and MOD should explore the creation of a University Tech Alliance to deepen Further Education (FE) involvement and alignment. HM Government should create a Defence Technology Institute, jointly funded by government/industry.
Improve skills: HM Government should inject funding into the Further Education sector to double the number of students studying engineering at T-Level and the DfE should formalise the Science, Technology, Engineering and Mathematics (STEM) club initiatives in schools.
Access to capital: Through the British Business Bank, HM Government should create a Long-Term Investment for Defence Fund, modelled on the Long-Term Investment for Technology and Science (LIFTS) scheme, and it should create a specific Defence Policy Bank.
Governance: The responsibilities and relationships of new institutions should be clearly defined. The Defence Industrial Joint Council (DIJC) should meet quarterly, with a problem-centric agenda where participants can not only exchange information and raise problems, but also suggest policy and create task forces to unblock problems.
About the authors
William Freer is Research Fellow in National Security at the Council on Geostrategy. He is also an Associate Fellow of the Royal Navy Strategic Studies Centre.
Paul Mason is an author, journalist and political researcher. He is also the Aneurin Bevan Associate Fellow in Defence and Resilience at the Council on Geostrategy.
Disclaimer
This publication should not be considered in any way to constitute advice. It is for knowledge and educational purposes only. The views expressed in this publication are those of the author and do not necessarily reflect the views of the Council on Geostrategy or the views of its Advisory Council.
Image credit:A worker cutting metal, Furkan Güneş, Canva Pro License
No. 2025/08 | ISBN: 978-1-914441-99-8