If you have taken a look at your sector base and decided that defence is for somewhere else that has aerospace, naval or ordnance capabilities, it might be worth a second glance.
Napoleon said that an army marches on its stomach, and, more recently, the historian AJP Taylor observed that the major European powers won their wars with railway timetables. So not roses exactly, but there is more to defence procurement than technical kit.
What’s on the shopping list?
The technical kit gets the media and photo opportunities, but any military needs a sophisticated logistics operation, clothing, everyday equipment and rations for troops, maintenance teams, engineering support, communications equipment, medical provision, and effective training. In addition, some manufacturing requires critical raw materials.
When the military is seen in these terms, almost every local economy is likely to have businesses who may play a role in building up capability.
Defence can become a driver of growth
It is an ill wind that is driving this change, but the most fundamental strategic shift in the UK’s Defence Industrial Strategy is reframing defence spending as a driver of the UK's economic growth. The government is explicitly treating defence expenditure as an investment in jobs, skills, and regional growth nationwide.
This isn't just rhetoric; it's backed by significant economic contributions. The strategy highlights that the defence sector already supports over 460,000 jobs in the UK, involves £28.8 billion spent with UK-based businesses, and, crucially, nearly 70% of its direct jobs are located outside the South-East of England. This strategy goes beyond national statistics, launching targeted 'Defence Growth Deals' in places like Barrow, Plymouth and South Yorkshire to build up regional specialisms in marine autonomy and advanced materials.
Defence investment is no longer just about military hardware; it’s about building a resilient, high-skilled economy that benefits every region of the UK.
Can SMEs get through the minefield of procurement?
The government acknowledges that its procurement system is broken, describing it as a "Cold War-era" process burdened by "waste, delay and complexity." Driven by the stark lessons of Ukraine, where battlefield adaptation is measured in weeks, not years, the strategy's core principle is that procurement speed itself is a strategic advantage. To fix this, it is undertaking the "deepest defence reforms for 50 years," with a laser focus on speed.
For those prepared and in low-risk procurement items, this may be good news. What SME wants to be tied up for months in a tender process in which they only have a modest chance of winning, and where the statutory questions on the tender response document are almost always longer than the brief.
There is hope, although the early signs aren’t that good. The Defence Investment Plan was supposed to be published in Autumn 2025, but it hasn’t arrived yet. Nobody wants to see waste and undue haste, but a scenario where civil servants spend more time thinking about what they need than industry will have time to provide it is never a good start. And, gloomily, it seems that the world isn't waiting for our sub-committees to agonise on the minutiae.
Startups, fast growth SMEs and VCs can be the new recruits
For decades, the defence market has been an impenetrable fortress for startups. The new strategy attempts to dynamite the old walls by actively courting innovators, startups, and private investors from the civil sector who have previously been shut out. This mission is only made viable by the radical procurement speed boost, which creates an environment where smaller, agile firms can finally compete.
The ambition is to stimulate growth and to grow the next UK-based defence tech unicorn. With this in mind, several key initiatives are designed to attract these new players:
- The creation of the UK Defence Innovation (UKDI) unit, with a ringfenced annual budget of at least £400 million and radical freedoms, including independence from standard MOD procurement rules and an explicit mandate to "fail fast"—a concept utterly alien to traditional Whitehall culture.
- The establishment of the Defence Office for Small Business Growth to help SMEs navigate and access the supply chain.
- A concerted push to reframe the perception of defence as an "unethical investment" to attract venture capital and private equity.
By opening the door to a wider ecosystem of innovators and investors, the strategy aims to inject new technology, fresh thinking, and significant private capital into a sector ripe for disruption.
And the State is a direct investor
In a surprisingly hands-on approach, the Ministry of Defence (MOD) is now willing to intervene directly to secure critical national supply chains. This isn't just about placing orders; it's about taking ownership.
A stark example of this new interventionism occurred in September 2024, when the MOD acquired the Octric Semiconductors foundry in County Durham. The move was deemed crucial for national security because the factory is the only secure facility in the UK with the skills and capability to manufacture gallium arsenide semiconductors, which are essential components for military platforms including fighter jet capabilities. Beyond acquisitions, the strategy also commits to investing in building at least six new energetics and munitions factories in the UK.
This signals a new era of state interventionism, one half of a muscular new industrial policy arising from lessons on supply chain vulnerability learned from recent global conflicts.
Suppliers must deliver against a 'British benefit' clause
The other half of this new, muscular industrial policy is a more assertive and transactional approach to global defence trade. The strategy outlines a plan to introduce a new offset policy.
It's a simple, hard-nosed rule: if you want to sell to the UK, you have to invest in the UK. No more purely off-the-shelf purchases, where the economic benefit leaves the country along with the payment. Whenever the UK invests in overseas suppliers, it will require a guaranteed return for the British economy in the form of new UK jobs, technology transfer to domestic firms, or investment in the UK supply chain. This approach is heavily inspired by countries such as Australia, where a similar policy is credited with fostering a domestic defence industry.
This policy ensures that UK taxpayer money delivers a double return on investment: first, by providing our Armed Forces with the capabilities they need, and second, by directly strengthening our domestic economy and industrial base.
Conclusion for regional economies
There are opportunities for regional investment even where defence is not an obvious contributor to the economy. Greater expenditure on consumable products, logistics and support services will all be needed to support an enlarged defence sector. This can benefit the everyday economy if support is provided to help them navigate the procurement hoops and tie up with new supply chains.
Inward investment from supply chain businesses is also hardwired into the UK approach. New investors will be on manoeuvres to understand the investor landscape, and effective propositions can help attract investment.
The government itself is making direct investments. Whether in new manufacturing or logistics capabilities, or in support services for armed personnel, these investments are new aspects of investment for regional economies.
Nobody wanted it to be this way, but global uncertainty can translate into stronger local economies if work is prepared now.
Mickledore is an economic advisory business focused on strategy, sector investment, business planning and evaluation. If you are interested in examining the opportunity sectors in your own area, contact nwilcock@regionaldevelopment.co.uk