Strategic Defence Review and Economic Development: A new opportunity for local economies

Introduction

There is little to celebrate in returning to a UK economy that is required to deliver greater levels of defence expenditure against a Strategic Defence Review (SDR), which is littered with references to increasing the ‘lethality’ of the UK’s capability. The Government has, however, accepted all 62 recommendations of the independent report, and in doing so, has opened the way for a new strand of economic opportunity for almost any area of the UK that is keen to engage.

The UK, of course, does have some defence manufacturing capability. Arguably, this is the sector of manufacturing that has remained the strongest over the last 40 years, supported by a reasonably steady (though diminished) drumbeat of orders from the Ministry of Defence (MOD). Virtually no new manufacturing sites have been established during this time; however, numerous locations have closed.

Nevertheless, the UK retains domestic capabilities in air, land and sea based combat systems as well as ordnance manufacturing. Additionally, the UK has significant cyber elements within its defence sector.

If the SDR is implemented in full, as promised, these capabilities will be significantly expanded. The Defence Review outlines the need for new structures to manage defence procurement and the armed forces, as well as the requirement for increased quantities of equipment and new arrangements with businesses to drive innovation.

In addition, the plans laid out are not a languid ambition for the years (and parliaments) to come, they set out an urgency promising almost immediate change.

The Strategic Defence Review

The SDR was published on 2^nd June 2025. It sets out five new ambitions from which the various recommendations are derived. These ambitions are:

• ‘NATO First’ – stepping up on European security by leading in NATO, with strengthened nuclear, new tech, and updated conventional capabilities.
• Move to warfighting readiness – establishing a more lethal ‘integrated force’ equipped for the future, and strengthened homeland defence.
• Engine for growth – driving jobs and prosperity through a new partnership with industry, radical procurement reforms, and backing UK businesses.
• UK innovation driven by lessons from Ukraine – harnessing drones, data, and digital warfare to make our Armed Forces stronger and safer.
• Whole-of-society approach – widening participation in national resilience and renewing the Nation’s contract with those who serve.

Importantly, from an economic development perspective, the review sets out a new principle of prioritising UK-based businesses. This is a departure from the recent past when the UK had, for example, a willingness to purchase ‘non-complex naval ships’ from overseas, military aircraft from the US and munitions from the US and France.

It does, however, ensure that investments by overseas-owned defence companies with significant investments in the UK, such as Leonardo, Lockheed Martin, and Thales, can expect to secure orders. Indeed, the German defence business Rheinmetall has already announced a new weapon manufacturing plant in Telford within the last month.

The SDR also highlights a broader recognition that single-source, just-in-time supply from overseas locations poses a challenge for the UK economy as a whole, given the fragile geopolitical environment. The SDR expresses an ambition for UK businesses (particularly digital enterprises) to operate with a dual-purpose straddling civil and defence requirements. It further acknowledges that it is not only innovative companies that can contribute to new defence technologies, but that a shift in the mindset of investors will also be necessary, as it is likely to be their equity that will facilitate any such change.

Consequently, the SDR signifies a continuation of the post-COVID shift in perspective that views onshoring as a vital element of national resilience. The increased security threat and the change in US priorities have led to an expansion of this perspective, necessitating a transformation in procurement strategies and direct investment in UK defence capabilities.

This, through unfortunate circumstances, represents an opportunity for locations across the UK and a need to consider how to secure economic advantage from this shift in approach.

New structures and requirements

At the heart of the SDR is the need for reform of the systems that determine and implement procurement, as well as the organisational structure that commands forces. It is unclear whether this will require new locations or strengthen existing operations.

The MOD headquarters are in London, but significant procurement activity is undertaken at Abbeywood in Bristol, with further significant offices in Manchester. MOD personnel activity is managed from Glasgow, and Strategic Command is based at Northwood (North West London).

The new structure will include several new organisations (or perhaps agencies or divisions of the MOD). Some of these new organisations include:

• National Armaments Directorate with responsibility for overall procurement, with a direct line of sight to industrial strategy.
• A new Military Strategic HQ.
• Defence Research and Evaluation Organisation.
• UK Defence Innovation Organisation – identifying dual-use possibilities from within UK businesses and with a minimum annual budget of £400m per annum.
• Defence Uncrewed Systems Centre.
• Defence Investors Advisory Group.
• CyberEM Command.
• Extension of the Defence Nuclear Organisation. Currently has bases in Bristol, Reading and Scotland.

In addition, the SDR outlines the need to improve Defence Medical Services, Service Personnel Housing, and overall Defence Personnel HR support. All of this will require additional staffing and perhaps locations.

For those locations with currently underutilised MOD facilities, there appears to be a possibility of securing additional investment and employment, and this may include reversing some decisions for closure.

For those locations without MOD administrative centres, the new architecture helps inform where economic decision-making is likely to occur. This is relevant to the new investment in equipment of all types, which will be required and can lead to the development of new economic supply chains.

Private sector involvement

The SDR outlines several items expected to appear in the forthcoming UK Modern Industrial Strategy. It emphasises localised supply and assumes that UK-based suppliers will be preferred in procurement decisions.

There is a heavy emphasis on innovation and new developments in defence, with a need for the UK to keep pace with new international developments. The government is hoping that the renewed emphasis on defence will lead to the UK developing novel technologies, and that businesses will recognise the dual-use applications that their technology developments may bring. The SDR states, ‘Our new partnership with industry and a decade of consistently rising defence spending will encourage more private finance to grow our world-leading scale-up and dual-use tech companies’.

To support this activity, the National Armaments Director will control:

• A Defence Research and Evaluation organisation (potentially retaining the Defence Science and Technology Laboratories or DSTL brand) focused on enabling external early-stage research and providing a gateway to academia. Whilst this is an expanded role, DSTL has its headquarters in Porton Down, Wiltshire (other locations are in Portsdown West, Fareham, Alverstoke in Gosport, Newcastle-upon-Tyne and Fort Halstead in Sevenoaks).
• The new UK Defence Innovation (UKDI) organisation, focused on harnessing commercial innovation, including dual-use technologies. UKDI will have a ringfenced annual budget of at least £400m.

The links to the private sector and the need to encourage new start-up or technology businesses to consider working within defence include the formation of a Defence Investors Advisory Group. Against the backdrop of some Fund Managers maintaining their position on not backing defence companies, the SDR states, ‘Defence should build relationships with the investors behind the innovators. External expertise should be systematically accessed through a new Defence Investors’ Advisory Group whose membership includes venture capital and private equity investors, while private finance should be crowded-in under new funding models’.

On this basis, it is clear that the future envisioned by the authors is one of a broader, more agile UK supplier base, notably to support the potential new theatres of warfare where drones, rapid data analysis, and digital technologies are as important as sophisticated and highly expensive equipment. The Ukraine war has identified the importance of relatively inexpensive but imaginatively deployed drones and drone swarms (often autonomously controlled rather than by direct remote control) alongside more conventional technology. This will challenge the business models of the largest UK defence companies such as BAE Systems, Babcock, and Qinetiq, which are focused on developing large-scale programmes of capital equipment or electronic systems.

It is clear that, suddenly, any location may support companies to develop the defence systems of the future. In the case of dual-use technology, it is hoped that this shift can occur soon.

New equipment manufacturing

The most obvious opportunities for further high-value employment from the SDR relate to securing manufacturing activity in expanded or new facilities. It is essential to recognise that while only a relatively small number of new ‘tier-one’ facilities will be required, any defence equipment is only as secure as its weakest component. Reliance on single overseas suppliers creates a supply risk; however, a dependence on suppliers from a different nation state may also undermine the product’s integrity. The result is that the shift in focus proposed by the SDR can generate a very significant amount of additional activity across supply chains.

The headlines from new equipment manufacturing requirements are:

• The UK will build a new generation of nuclear warheads. Given the nature of nuclear military sites, it is likely that this will be focused on the Atomic Weapons Establishment (AWE) Aldermaston and Burghfield sites in Berkshire. The UK also has a Royal Naval Armament Depot (RNAD) at Coulport in Scotland, where missile warheads are currently stored and managed.
• The Dreadnought class submarine fleet, which had previously been approved, is expected to be extended (to 12 boats) whilst the AUKUS programme with the US and Australia is still considered likely to proceed. This is likely to be particularly important for Rolls Royce in Derby (propulsion) and BAE Systems in Barrow (construction).
• There is further investment required in naval ships, including (for the first time) the construction of autonomous naval vessels for defence activity in the Atlantic. UK shipyards currently involved in naval work are Babcock (Rosyth), Cammell Laird (Birkenhead) and BAE Systems (Clyde). Opportunities may still remain for work in Belfast and Appledore (Devon).
• The Global Combat Air Programme remains a priority as a replacement for the Typhoon. This will be a consortium-based programme, involving BAE Systems, with construction taking place in Lancashire. The programme known as ‘Tempest’ will involve (in addition to BAE Systems), Rolls Royce, Leonardo (Italian business with major UK helicopter facility in Yeovil but others in Basildon, Bristol, Edinburgh, Farnham, Lincoln, Luton, Newcastle, Southampton) and MBDA (European consortium missile manufacturer with major UK facilities in Stevenage, Bristol, and Bolton). The Global Combat Air Programme may involve other international partners as the programme is finalised (previously included discussions with Sweden and Japan).
• Land domain enhancements focused on the army with Challenger 3 (Telford), Ajax (Merthyr Tydfil), and Boxer (Telford and Stockport) enhancements underway with the potential for extensions. Additional capability will likely be required in precision firepower, surveillance technology, autonomy, digital connectivity, and data.
• Other non-location-specific investments in:
  • At least six new munitions factories.
  • Investment in space technology.
  • New drone capabilities.
  • Investment in cyber and electromagnetic capability.
  • Intelligence enhancement.

Conclusions

From an economic development perspective, it is tempting to consider the requirements for new manufacturing capacity arising from the SDR and perceive that as the total size of the prize. Certainly, a significant shift in expenditure and the new technology required will directly lead to the establishment of new manufacturing facilities and expansions at those identified previously. Regions with a defence industry pedigree must articulate their proposition to the new National Armaments Directorate.

However, beyond this, prime defence contractors face the crucial task of repatriating their supply base while ensuring both security and resilience. This will create significant opportunities for Tier 2 (and lower) suppliers, particularly benefiting sub-regions that maintain a skilled manufacturing base and have experienced limited opportunities in recent years. At the local level, these opportunities can be highlighted, and links can be created to the procurement activities undertaken by the primes.

The opportunities extend beyond established manufacturing. A significant aspect of the SDR is dedicated to harnessing UK businesses that drive innovation in autonomous vehicles, software, data analytics, digital technology, and cybersecurity to engage in a dual market development strategy for civil and defence. Economic development professionals can play a key role in translating government requirements into opportunities recognised by local businesses. Technology companies are invited to participate, with funding potentially available for those that demonstrate the most promising ideas.

The SDR also provides a clear route map to some of the additional support organisations that will be required or enhanced. For some, this will represent a direct opportunity but for all other economic development organisations it provides a structure for engagement as defence opportunities are identified.

Any of those locations with an evident role due to their unique assets, which will be safeguarded and expanded by the review, can now begin to develop a skills strategy. The clear message from the government is that this will require employment and, for the most part, higher-value employment. This is one of the planks of a Modern Industrial Strategy that can drive certainty for skills providers and provide a clear path of aspiration in some locations which have had an uncertain future.

More broadly, economic development professionals can have some certainty that the Modern Industrial Strategy will focus on resilient supply chains and favour local procurement. This should also drive a change through business engagement programmes and support.

The SDR encourages a whole-of-society approach as one of its primary ambitions. It is disappointing that it has come to this in terms of national security, but by setting out the future direction in this manner, the SDR has opened up a long-forgotten path from which economic growth can be seized by those who are proactive.

Nigel Wilcock is Executive Director of the Institute of Economic Development and Director of Mickledore, an economic advisory firm specialising in strategy, investment, business cases, and evaluation, which has developed sector strategies across the UK.