The UK Defence Industrial Strategy: what is in it for the defence industry?

The UK Defence Industrial Strategy (DIS) is the latest in the series of UK Government sector Industrial Strategies.  This important strategy will set the direction for the coming years in the UK Government’s approach to the defence industry. 

What is the Defence Industrial Strategy?

The DIS sets out the Government’s future strategy to build the UK’s defence industry and resilience, building on the Strategic Defence Review published earlier this year.  It aims to make the UK a defence industrial leader by 2035. 

What does it cover?

There are six major parts to the strategy:

1. Making defence an engine for growth
2. Backing UK-based businesses
3. Positioning the UK at the leading edge of defence innovation
4. Developing a resilient UK industrial base
5. Transforming procurement and acquisition systems
6. Forging new and enduring partnerships

The proposals cover a broad waterfront of activity, and are ambitious in their scale and scope, seeking to overhaul the way that Government defence contracting, supply chain and procurement operates in the UK.

What do I need to know?

This article focuses on the partnership working envisaged between Government and private sector suppliers, investors and exporters in the defence industry; and highlights opportunities for businesses operating in the sector.

Transforming procurement

The goal of transforming of procurement and acquisition underpins the Strategy, focused on a segmented approach to procurement (segmented into major platforms, pace setting modular upgrades and rapid commercial exploitation with corresponding timelines to tailor processes to the type of capability, supplier and risk involved).  A National Armaments Director will  The Government will publish a clear Defence Investment Plan, an Acquisition Pipeline and modernise procurement decision making.  A new Defence Office for Small Business Growth will help the Ministry of Defence implement new procurement strategies for SMEs, aimed at increasing SME participation.  Businesses should engage with the reform programme as it evolves, seek opportunities to input their views, and engage with the new National Armaments Director, Rupert Pearce, who is tasked with delivering the transformation of defence procurement.

Identify localised support

The DIS sets out proposals for Local Growth Plans and Defence Growth Deals which focus on targeting support for industry at the local level, as is already happening in the “Regional Defence and Security Clusters”.  Businesses should consider whether plans for investment can take advantage of locally targeted growth deals – local government bodies will be competing to secure investment in their area.

Use investment support from Government

“Crowding-in” private investment is seen as vital to unleash the potential of the defence industry.  A Defence Finance and Investment Strategy developed by early 2026 will look at how to increase investment.  Measures to be reviewed include existing financing options; alternative funding models; contracting to “incentivise investment into UK based defence companies; and reducing barriers companies face when applying for private market finance and what can be done to reduce those.  Businesses should look out for the Defence Finance and Investment Strategy and look to feed in views via the Defence Investors Advisory Group (to be established).

The National Wealth Fund will have its remit changed by legislation to allow it to invest in capital intensive projects, businesses or assets.  Businesses should approach the National Wealth Fund to understand their plans and whether they would be able to benefit from such investment.

The British Business Bank Industrial Strategy Growth Capital will provide a package which will be targeted at market gaps (although it is not defence bespoke) through making equity investments in scale up businesses.  Businesses should approach the British Business Bank to understand whether they would qualify for investments.

Identify export support

The Government will increase the lending capacity of UK Export Finance, the Government’s export credit agency, to help businesses access working capital to export and specialist export insurance policies. Businesses should consider whether bespoke export finance, facilitated by UKEF, would support in expansion of their export markets.

It will also establish a new Office of Defence Exports (including relevant parts of UK Defence and Security Exports currently in the Department for Business and Trade into the Ministry of Defence) to centralise commercial, legal and project manage professionals.  The ODE will support UK suppliers to showcase their products.  Businesses should consider whether targeted export support from the the ODE, once established, would help growth.

Get support for innovation

The creation of a new organisation, UK Defence Innovation (UKDI), on 1 July 2025, is intended to unify all innovation workstreams across the Ministry of Defence into one place.  The new organisation is promised “radical freedoms and independence to deliver” and, while there is little detail, it suggests that it will have independence from standard MOD procurement rules and other flexibilities.  The creation of UKDI is promising although detail is limited – businesses will want to monitor.

Supply chain and logistics businesses

Supply chain resilience will be prioritised – the Defence Supply Chain Capability Programme will review the defence supply chain, including building resilience of critical raw materials for UK Defence capabilities including steel, construction, energetic material, batteries, semi-conductors and rare earth elements.  The Ministry of Defence will use its procurement levers to promote resilience of defence supply chains.  Businesses will want to engage with Government to help build understanding of supply chain challenges.

Next steps

The Defence Industrial Strategy is ambitious in scale and promises a step change in approach by Government to the defence industrial base.  Developments will need careful monitoring so that defence sector businesses can be fully engaged in the breadth and depth of opportunity that the Strategy promises.  Our team of experts can support you with your next steps.