UK Defence Investment Plan: £298bn spending commitment signals major opportunities for British manufacturers

The UK Government has published its Defence Investment Plan (DIP), committing £298bn in defence spending over the next four years (FY2026/27 to FY2029/30). The DIP implements the vision of the 2025 Strategic Defence Review and represents the largest sustained increase in UK defence spending since the end of the Cold War, with the budget for FY2029/30 rising 27% in real terms compared to 2023/24. For UK-based defence manufacturers and their supply chains, the DIP is significant not only for the scale of investment but for the Government's explicit policy of on-shoring production, backing British companies, and reforming procurement to favour domestic industry.

Background

The DIP is the Government's response to an increasingly dangerous security environment, including growing Russian aggression, the conflict in the Middle East, and pressure from the United States for European NATO members to shoulder more of the burden of their own defence. 

Defence spending as a proportion of GDP will rise to 2.7% by 2027/28, up from 2.3% when the current Government took office, with a commitment to reach 3% in the next Parliament and 3.5% by 2035. 

Funding priorities

The DIP directs investment across a broad spectrum of capabilities. The nuclear deterrent receives substantial priority, with over £20bn more allocated than in the previous four-year period to fund new deterrent submarines, warheads, a nuclear fuels programme, and infrastructure upgrades across the defence nuclear estate. Autonomous systems feature prominently, with over £5bn committed to the Hybrid Navy (uncrewed surface and sub-surface vessels), £300m for Collaborative Combat Aircraft, and Army drones and AI-enabled targeting under Project ASGARD. Land forces will receive over £20bn to increase lethality through autonomous systems, long-range missiles, AI, and armoured vehicles.

Munitions and weapons will receive £11.1bn for stockpile replenishment, including Deep Precision Strike missiles developed with Germany, low-cost cruise missiles, and construction of at least six new energetics factories. The aerospace sector benefits from £8.6bn for the Global Combat Air Programme with Japan and Italy and over £1.1bn to upgrade and sustain the Typhoon force into the 2040s. Integrated Air and Missile Defence receives £790m for homeland defence systems, radars, sensors, and counter-drone capabilities.

Digital and enabling capabilities also feature significantly: £1.8bn is allocated for a new Digital Targeting Web connecting sensors and weapons systems across domains, £2.5bn for the cyber and electromagnetic domain, and £3.2bn for space capabilities. Innovation receives £1.6bn for UK Defence Innovation, including a new £200m AI investment fund. Skills and industry benefit from a £182m skills package over five years, including five new Defence Technical Excellence Colleges, and £250m for five regional Defence Growth Deals. Shipbuilding continues with investment in 13 Type 26 frigates (with Norway), five Type 31 frigates, Fleet Solid Support ships, and new amphibious vessels.

Government is also explicitly pursuing a much closer partnership with industry and private capital. The Strategic Defence Review refers to a “new partnership with industry” and using defence as an “engine for growth”, alongside reforms intended to attract private-sector innovation and investment. 

If Government looks to private capital to fund some of its defence plans, then that is most likely to be involved through: 

• Defence technology and innovation funds (AI, drones, cyber, autonomous systems). 
• Manufacturing capacity expansion among defence contractors.
• Dual-use infrastructure (space, communications, energy resilience, secure digital networks). 
• Public-private partnerships supporting defence supply chains and industrial facilities. 
• Institutional Investment into defence and security businesses that supply the Ministry of Defence. 

Implications for UK defence manufacturers

The DIP reflects a deliberate policy of rebuilding domestic manufacturing capacity and reducing reliance on overseas supply chains. A major lesson from the war in Ukraine is that a country’s Armed Forces are only as strong as the industry behind them—industrial capacity, stockpile depth, and surge capability are now treated as strategically important as the weapons systems themselves.

“Buy British by default.” Procurement decisions will increasingly favour manufacturers with a substantive UK presence and integrated domestic supply chains, making these attributes a source of competitive advantage. The forthcoming definition of a “British company” will determine eligibility for preferential treatment in priority sub-sectors. The proposed offsets regime may also create subcontracting opportunities where overseas suppliers are required to deliver domestic economic benefits.

Rebuilding domestic manufacturing capacity. The Government’s drive to on-shore production in munitions, heavy weapons components, and advanced platforms creates significant opportunity for manufacturers with relevant capabilities. However, participation will require investment in production scaling, quality certifications, and demonstrated surge capacity. Supply chain positioning and the ability to commit to long-term programmes will be critical to accessing these opportunities.

SME access and regional growth. New institutional mechanisms and streamlined Commercial Pathways are designed to improve SME access to MOD contracts, potentially bypassing traditional prime contractor gatekeeping. Regional manufacturers may benefit from localised Defence Growth Deals and emerging private capital funding channels for innovative and dual-use technologies. Proactive engagement with the evolving procurement landscape will be essential to capitalise on these developments.

Practical steps for manufacturers. In light of the above, UK-based defence manufacturers may wish to consider:

• Reviewing the six published Commercial Pathways and assessing which apply to their capabilities, as these are designed to accelerate time-to-contract. 
• Engaging with the relevant Defence Growth Deal if located in one of the five designated regions.
• Monitoring the forthcoming Defence Finance and Investment Strategy (DFIS) and Defence Investment Roadmap, which will set out how the Government intends to attract private capital and give investors earlier visibility of procurement opportunities. 
• Preparing for the new offsets regime consultation and the publication of the Government's definition of a "British company," both of which will shape eligibility for preferential treatment.
• Engaging with the Defence Investment Summit, which the Government intends to convene to showcase emerging opportunities. 

The Government has stated that MOD will provide an annual delivery update against this Plan, with the first due by July 2027. This will provide a useful benchmark for tracking whether the ambitious commitments translate into contracts.

For further information, please email the authors or your usual CMS contact.

Article co-authored by Andrew White