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Prime Minister Keir Starmer’s commitment to increasing the UK’s defence spending to 2.5% of GDP by 2027 (2.6% including National Security spending), with an ambition to achieve 3% in the next parliamentary term, marks a significant shift in UK national priorities. The decision, funded by a reduction in the overseas aid budget, is designed to enhance military capabilities, reinforce the UK’s standing in Washington and within NATO, and align with broader geopolitical realities. The increase, worth approximately £6 billion per year from 2027, is a response to escalating security challenges, particularly the ongoing conflict in Ukraine and shifting global alliances.
Spending 2.5% of its GDP on defence will move the UK from being the 9th biggest NATO defence spender (in terms of percentage of GDP), to 6th on the current list. Poland currently leads, (4.12%) with the US third (3.38%) and Germany and France just above average (2.12% and 2.06% respectively).
In real terms in 2024, the UK was the 3rd biggest NATO defence contributor, spending £64 billion. Only the US (£768 billion) and Germany (£68 billion after a huge uplift announcement) spent more. France spent £51billion, Poland £22 billion.
The Strategic Defence Review (SDR), due to report in the coming weeks, will be the primary driver of spending decisions, but several priorities are emerging. The additional funds are expected to target key areas in need of modernisation — from ammunition stocks to artificial intelligence and autonomous vehicles and digital warfare capabilities. If the Government is serious about contributing to a Ukrainian peacekeeping force of 30,000 troops, this funding would be needed to facilitate that effort.
The government is also considering leveraging the defence budget to stimulate domestic manufacturing. A new Defence Industrial Strategy expected before the end of June will set priorities, focusing on aerospace, shipbuilding, and advanced digital technologies. This aligns with the broader industrial strategy goal of boosting economic growth while enhancing national security.
One of the biggest obstacles is the UK’s troubled defence procurement system. The MoD’s ability to absorb additional funds will be under intense scrutiny. Defence Secretary John Healey faces the challenge of balancing the demands of the armed forces, the Treasury, and the taxpayer.
To increase the efficiency of the MoD, Healey issued a defence reform programme within the first month of government, promising the ‘‘biggest shake up of UK defence for over 50 years’’. In a speech at the Institute for Government in February, Healey announced that a new ‘‘quad’’ will be established by the end of March. Consisting of four senior defence leaders that report to the Defence Secretary, the quad is intended to enhance accountability and streamline the internal workings of the MoD.
Another significant development is the launch of the new MoD procurement portal, which aims to streamline defence contracts and improve transparency. If successful, this system could enhance efficiency, reduce wastage, and ensure that the uplift in spending translates into tangible military capabilities. The Defence Innovation unit announced on 3rd March also underlines the Government’s commitment to doing things differently.
Other European countries are also ramping up their military budgets in response to Trump’s wavering commitment to European security.
New funding commitments differ greatly between EU Member States, depending on their fiscal headroom. Germany, for instance, is proposing to remove its debt brake to allow for a major increase in military expenditure through additional borrowing.
At EU level, the European Commission has proposed a number of initiatives to coordinate Member States’ defence policies and allow them to spend more on defence. The Commission’s RE-ARM plan aims to mobilise around £670 billion for European defence and security spending over the next four years. It includes a relaxation of EU fiscal rules and a new €150 billion financial instrument to provide loans to Member States for defence investments.
The UK’s significant increase of defence spending should confirm the central role that the UK can play in European security. This should facilitate discussion on the defence and security pillar of the ongoing EU-UK “reset”, which is likely to take the form of a new bilateral agreement. The EU and the UK will hold a summit in May. The UK has also signalled its willingness to strengthen its bilateral defence relationships with Member States, notably Germany and France.
The ability to access and shape international defence markets will be crucial for the UK’s long-term strategic goals. The UK’s role in European defence supply chains will need to be reinforced if it hopes to remain competitive. Access to the European defence markets is, however, complicated by the deep UK involvement with the US defence sector.
One of the key issues is access to the internal EU defence market. While the UK remains a major defence exporter, Brexit has curtailed its ability to participate in EU procurement initiatives. Securing a favourable position in these markets is as important as increased spending itself. This will be a key element of the discussions on the future EU-UK relationship on defence and security.
The UK’s commitment to increasing defence spending is a significant policy shift, but the real test will be in execution. Procurement reform, supply chain development, and international positioning will all determine how effectively this investment translates into enhanced military capability.
The EU is preparing for an unprecedented wave of defence investment. The UK must ensure it keeps up to support its domestic growth agenda and ensure a strong position in a rapidly changing world order.
Starmer’s announcement sends a clear signal: the UK is reasserting its role in global security. But with fiscal constraints, procurement challenges, and diplomatic tensions in play, there are hurdles to success. The coming months will be crucial in shaping the next phase of the UK's defence strategy.
Flint’s defence team supports companies to achieve successful outcomes by providing strategic advice on how to manage opportunities and risks in the rapidly changing political and policy landscape.
Our defence experts — consisting of former military personnel, senior defence and security advisors to the UK government and EU institutions, and former defence industry insiders— offer strategic counsel, insights and intelligence, geopolitical advisory, and rigorous analysis of the wider policy and regulatory landscape. We also work extensively on industrial policy and help defence manufacturers to secure government backing for innovation and investment.
Flint assists defence firms of different sizes across various jurisdictions. We also support investors to understand how defence policy and developments impact their portfolios, including through conducting company and market due diligence.