Defence Spending to Bolster UK Economy and Revive Industrial Towns

Rachel Reeves has announced plans to prioritise UK companies and jobs in the government’s commitment to significantly increase defence spending. Speaking to the manufacturing trade body Make UK, the chancellor outlined how the defence budget would act as a catalyst for economic growth, particularly in the country’s “left behind” industrial towns.

The government has pledged to raise defence spending to 2.5 per cent of GDP by 2027, equating to an additional £6 billion annually. This increase comes amidst growing concerns over European security and uncertainties surrounding Donald Trump’s stance on NATO and European defence commitments. Reeves emphasised the importance of directing this spending towards British businesses to create employment opportunities and support domestic industries.

Addressing the audience at the Make UK conference in London, Reeves explained how increased defence expenditure could stimulate economic revival in regions often overlooked by past policies. She stated, “I am determined that as we allocate more resources to defence and security, we use that investment to help stimulate the economy and revitalise areas that feel left behind.” Reeves also confirmed discussions with UK defence firms to enhance their production capacities and capabilities.

While the chancellor refrained from speculating on security matters related to Trump’s administration, she reaffirmed the close partnership between the UK and the US in defence and military operations. She noted that Britain relies heavily on cooperation with the US for a significant portion of its military hardware, including nuclear weaponry, F-35 fighter jets, and Apache attack helicopters. Maintaining these ties would remain essential even as the UK seeks to boost domestic defence production.

The government is also reconfiguring the £27.8 billion National Wealth Fund, initially designed for green projects, to include allocations for defence investment. This strategy aims to maximise the economic benefits of defence spending while supporting innovation within the UK’s industrial sector. However, Reeves acknowledged that billions are still spent on contracts with foreign governments, including the US, despite the primary focus on supporting British businesses where possible.

Reeves also commented on the global trade risks associated with a potential G7 trade conflict. She warned that even if Trump were to exempt the UK from tariffs, the overall economic impact would still be felt. With slower global GDP growth, rising inflation, and subdued trade volumes, the UK economy could face challenges in this scenario. However, she reiterated her belief in the importance of free trade as a critical driver of economic prosperity for both exporters and importers.