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When Sir Keir Starmer promised this week to “rebuild industry across this country” with public investment to “provide good, secure jobs and skills for the next generation”, he might have been talking of the drive for clean energy around which Labour built its economic manifesto.
The prime minister was not. His government is making a rapid transition from green to battleship grey by now placing defence at the heart of its approach to technology and manufacturing. As President Donald Trump forces Europe to protect itself with less US support, UK priorities have changed.
This was implied when Starmer announced a rise in defence spending to 2.5 per cent of GDP by 2027 and an ambition to reach 3 per cent in the next parliament. It became starkly evident last weekend when Rachel Reeves, the chancellor, said that the remit of the National Wealth Fund would be changed to let it invest in defence as well as its original green priorities.
Defence spending is a political and security imperative, and has similar attractions to clean energy as an industrial focus, particularly for an administration backed by trade unions. There are many manufacturing jobs in building nuclear submarines and fighter aircraft and making munitions, largely outside London and the south-east.
Defence also has the advantage of being straightforwardly linked to growth, rather than a transition. While investment in wind farms and nuclear energy creates jobs, limiting North Sea oil and gas exploration or trying to curb output of combustion engine vehicles risks the opposite.
There are 430,000 jobs in the aerospace, defence, security and space industries, where productivity is 42 per cent higher than the UK average. It could soon be on a growth trajectory of a kind not seen for decades. If defence spending reached 3 per cent of GDP, it would be “transformative”, says Malcolm Chalmers, deputy director-general of the Royal United Services Institute.
Leaving aside the ethics of weapons production, which deters some investors, there is plenty to like about defence as an industrial strategy. “I’m more optimistic than I’ve been for a decade,” says one industry veteran. But even before the money has arrived, hard questions loom for procurement and the sector.
First, how far should the UK tilt away from the US, not only in policy but in the degree to which industries are entwined? A prime example is BAE Systems, the UK’s biggest contractor, which builds nuclear submarines and parts of the Lockheed Martin F-35 fighter jet. BAE’s US subsidiary produced 44 per cent of its revenues last year, much more than its UK operations.
The US decision to suspend temporarily military support to Ukraine raises worries about whether it could in future disable the F-35 and other systems operated by Nato allies. The UK has joined Italy and Japan in developing (through BAE) a next-generation stealth fighter, but it would be difficult and prohibitively expensive to end its reliance on US military technology.
Second, is the Ministry of Defence capable of procuring weapons efficiently? The UK has suffered repeated budget overruns and there has historically been a fractious relationship between the MoD and its contractors. The government recently cited “over-exquisite design” and departmental hoarding of intellectual property as impediments to innovation as technology advances.
This raises a third question: should the UK keep focusing so heavily on highly bespoke, costly weapons systems or should it learn from experience in Ukraine and spend more on drones and new technology? It may need to shift resources to start-ups such as Anduril, the US drone maker with which it placed a £30mn order (through its UK arm) this month.
These questions have no clear answers. There will be awkward trade-offs between favouring incumbents or start-ups, picking partnerships with the US or within Europe, and insisting on complete sovereignty or saving money by buying from overseas. They will only get tougher.
The government has the comfort of an array of defence contractors, including BAE, Rolls-Royce, Babcock International and Thales UK. But it must rebuild its forces and replenish munitions while trying to expand. The UK’s share of global arms exports has fallen in the past decade, lagging behind the US, France, Germany and Italy.
There is much to reform and many choices in a volatile world. It is enough to make the energy transition look like a simple affair.
