(Bloomberg) -- The UK will “war-game” how well its domestic supply chain and military can withstand future shocks, as the government prepares a clearer commitment on when it will increase defense spending.
Defense Secretary John Healey announced plans for a new Defense Industrial Strategy, promising to bring jobs to “every nation and region of the UK” as Britain lifts annual defense spending to 2.5% of gross domestic product. The strategy will explore how to sustain forces on the front line through scenarios including a protracted conflict and various supply-chain disruptions.
“Our forces need to be better equipped and behind them needs to be an industry that is better able to produce what they need and innovate at the pace of wartime pressures,” Healey told Bloomberg TV in London on Monday. “I’ve made decisions that are long overdue.”
Prime Minister Keir Starmer’s government isn’t expected to set out exactly when it will reach the 2.5% goal until June, according to people familiar with the discussions, almost a year after the Labour Party took power. While the UK has long been at the fore of European nations when it comes to defense spending, US allies have an added incentive to expand commitments as they prepare for former President Donald Trump’s return to the White House.
Bloomberg Intelligence estimates that the 15 largest European members of NATO may have to increase military investment by as much as $340 billion annually to $720 billion if they choose to align defense spending to the US level of 3.3% of GDP. While countries like Germany and Poland could manage such a steep increase due to their low debt levels, France, Italy and Spain would have to borrow heavily or make tough budgetary trade-offs, according to the research.
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Healey said the strategy — the first since 2021, before Russia’s full-scale invasion of Ukraine — would make the sector an engine for UK growth and strengthen supply chains in critical industries including steel and semiconductors, with full spending plans to be set out in the spring. The Ministry of Defence has suffered deep procurement issues in recent years, in particular the Army’s armored fighting vehicle program, which has been repeatedly delayed.
The effort also comes amid mounting geopolitical threats across the world and escalating tensions between China and Taiwan. The British minister suggested that he was wary of allowing China to play a role in the UK’s defense supply chain, even as Starmer seeks a diplomatic thaw with the world’s second-largest economy.
“Just because China develops technology, it may not stay in China and find its way into the hands of others, so we’ve got to be capable of keeping pace,” Healey told reporters, adding that China was now the “pacing force” in defense advancements.
Alongside the defense strategy, Healey announced millions of pounds of investment by major defense contractors including BAE Systems Plc, Rolls-Royce Holdings Plc and Babcock International Group Plc. Helsing GmbH, one of Europe’s most valuable startups, announced plans to mass-produce thousands of new AI-enabled drones, as part of its £350 million investment into the UK over the next five years. The sector supports 434,000 jobs, two-thirds of which are outside London and the southeast, according to the MoD.
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Healey refused to say whether Britain would be willing to deploy its troops to Ukraine as part of a settlement agreement, insisting that it’s Ukraine’s decision whether and when it begins peace negotiations. Still, he suggested the UK could play a role.
“We recognize that if and when the fighting stops, if and when there is some sort of settlement, there will be a period where Ukraine will require support in its security for that period too,” he said.
Healey’s defense program kicks off a week of major policy announcements that Starmer hopes will reset his administration after a turbulent few months since winning the election in July. A series of “measurable milestones” will be announced to show how Labour plans to deliver its five core missions around the economy, energy, crime, health care and education. He will also deliver a foreign policy speech in London later on Monday.
Starmer has had a rocky start since his party’s landslide election victory, losing his chief of staff after revelations about ministers accepting freebies and, more recently, facing a backlash from business and farmers over Labour’s tax-raising budget.
The government plans to publish the new Defense Industrial Strategy in the first half of 2025, with a remit to last until 2035. Investors, industry and unions have until the end of February to respond to an open consultation.
The strategy will work alongside a broader Strategic Defense Review initiated by Starmer in July. That effort will focus on improving the readiness of British military personnel and modernizing defense stocks to adapt to changing battlefield tactics and technology.
--With assistance from Tony Czuczka and Alan Goldstein.
(Updates with Bloomberg Intelligence analysis, Helsing investment starting in fifth paragraph.)
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