The United Kingdom’s defence budget for 2025 represents a pivotal moment for the nation’s military capabilities and the vast industry that supports them. Set against a backdrop of increasing global instability and a reinforced commitment to NATO, the UK defence budget 2025 signals a significant rise in spending and a recalibration of strategic priorities. For defence contractors, innovators and suppliers across the UK, this is more than a fiscal update; it is a clear indicator of emerging opportunities and shifting demands. As procurement professionals analyse the implications, the expanded budget points towards a surge in new contracts, spanning everything from next-generation technology to critical infrastructure projects. This article provides a comprehensive overview of the latest defence budget, exploring its real-world impact on the industry. We will dissect the spending increase, trace historical trends, and pinpoint where new funding is being allocated. Furthermore, we will analyse how these changes are shaping long-term industry strategy—from digital transformation and skills development to a renewed focus on sovereign supply chains—and outline the tangible opportunities and challenges that lie ahead for suppliers and SMEs.
Stay ahead of new frameworks, SME targets, and MOD investment priorities with DCI’s real-time defence intelligence. See how DCI can power your growth — book a consultation with the team today.
Current UK Defence Budget Overview
The UK’s commitment to defence spending is on a clear upward trajectory. In the 2024/25 financial year, the current UK defence budget stood at £60.2 billion. The latest financial plan projects an increase to approximately £62.2 billion for 2025/26, continuing a trend of steady growth. In practical terms, this uplift means that greater capital is available for new equipment, research and development, and personnel support than in the previous year. Compared to the NATO average, the UK’s defence spending remains among the highest in NATO, consistently outpacing many of the UK’s allies in both absolute terms and as a share of GDP.
This growth is part of a broader pattern. After a period of significant reductions in the early 2010s, which saw the defence budget fall by 22% in real terms between 2009 and 2017, spending has been climbing consistently. This reversal is driven by a combination of factors, most notably the heightened geopolitical tensions following Russia’s invasion of Ukraine and sustained calls from NATO allies for European members to contribute more to collective security. Defence expenditure historically peaked during the world war and cold war periods, when total defence spending reached some of its highest levels. The UK, having already met the NATO 2% of GDP minimum, spent around 2.3% in 2024. Looking forward, the Government has accelerated its commitment to raise defence spending to 2.5% of GDP by 2027—a target both major political parties had previously aimed for by the end of the decade. In terms of GDP on defence, the UK’s defence expenditure and total defence spending continues to exceed NATO targets, reinforcing its leadership role. Achieving this will require sustained, year-on-year budget increases, with current projections showing defence spending reaching £73.5 billion by 2028/29. The 2025 budget is a critical step in this strategic financial expansion, reinforcing the UK’s position as a leading defence power.
The NATO definition of defence spending is a broader measure than the UK’s departmental definition, as it includes additional categories such as military pensions and certain civilian costs, which are not always captured in departmental budgets.
Budget planning for defence is shaped by the spending review process, with spending reviews setting departmental spending and departmental budgets, and the spending plans set during these reviews determining future spending plans and adjustments in response to changing priorities.
Analysis of MOD spending draws on public expenditure statistical analyses and includes components such as military pensions to provide a comprehensive view of the defence budget.
Recent government commitments, including announcements by the prime minister, have emphasised the intention to increase defence spending in line with evolving security needs.
International comparisons show that the UK spends and the UK spent more on defence than many other countries during the same period, maintaining a strong position among global and NATO peers.
Make data your competitive advantage. DCI gives you the market insight, competitor intelligence, and pipeline visibility needed to make smarter, faster bid decisions.
UK Defence Spending Budget Increase: What’s New in 2025?
The UK defence spending budget increase for 2025 is not just a general funding boost; it is strategically channelled into several high-priority areas that reflect the Ministry of Defence’s (MoD) updated strategy. The Ministry of Defence plays a central role in setting defence budgets and spending plans, ensuring that resources are allocated to meet national security objectives. This targeted investment is set to create significant opportunities across the supply chain.
Key areas receiving increased funding include:
- Nuclear Submarine Programme (AUKUS Partnership): A landmark investment will see the UK’s submarine fleet expand with up to 12 new SSN-AUKUS nuclear-powered attack submarines built in the UK. This monumental undertaking is backed by a £15 billion investment into the sovereign warhead programme, securing the UK’s undersea capabilities for decades and supporting around 30,000 highly skilled jobs. This programme represents a major component of the MOD’s capital budget and capital expenditure, reflecting long-term investment in critical military assets.
- Increased Munitions Stockpiles and Production: Drawing lessons from the conflict in Ukraine, the 2025 budget allocates substantial funds to increase ammunition stockpiles and scale up domestic production capacity. This includes establishing six new munitions factories and procuring up to 7,000 UK-built long-range weapons, directly benefiting suppliers like MBDA and strengthening the sovereign supply chain.
- Cyber, Digital, and AI Capabilities: A significant portion of the new funding is directed towards high-tech defence. A new ‘CyberEM Command’ is being established, and at least £1 billion is earmarked for pioneering digital capabilities, including an integrated ‘Digital Targeting Web’. This signals a wave of new contracts in artificial intelligence, secure networks, and data analytics.
- Innovation and R&D Investment: To accelerate the adoption of emerging technologies, a new Defence Innovation Fund has been established with an initial budget of £400 million for 2025. This initiative aims to fast-track projects in drone technology, autonomous systems, advanced materials, and space capabilities, creating more grants and innovation loans for startups and SMEs. Investment spending, both current and capital expenditure are crucial for driving technological advancement and maintaining the UK’s competitive edge in defence innovation.
- Defence Estate and Personnel Welfare: In a notable move, over £1.5 billion in additional funding is designated to repair and modernise Armed Forces housing and facilities. This investment will translate directly into a pipeline of construction, refurbishment and facilities management contracts across the UK defence estate.
In summary, the Ministry of Defence has the largest capital budget among government departments, and capital spending is a key driver of future military capability.
💡 Explore how your business can benefit from increased MoD investment — book a free consultation.
How Much Does the UK Spend on Defence in 2025?
So how much is the UK’s defence budget in concrete terms? For the 2025/26 fiscal year, planned defence spending is approximately £62.2 billion. This figure represents around 2.4% of the UK’s national GDP, placing it comfortably above NATO’s 2% benchmark and making the MoD’s capital budget the largest of any UK government department.
The allocation of this substantial budget can be broken down into several key categories:
- Equipment Procurement and Support (49%): Almost half of the entire budget is dedicated to purchasing new military hardware—including ships, aircraft, vehicles, and weapons systems—and funding the through-life support and maintenance of existing assets. This is the largest single area of expenditure, reflecting the priority placed on modernisation. Equipment spending on defence equipment, military equipment, and single use military equipment are key categories within this allocation, with equipment support costs representing a significant component of ongoing expenditure.
- Personnel and Operations (c. 40-45%): This covers the costs associated with military and civilian personnel, including salaries, pensions, training, and recruitment. Personnel costs are the largest part of day-to-day spending. It also funds ongoing military operations, deployments, and exercises. The 2025 budget includes specific uplifts to improve service personnel accommodation and welfare.
- The Nuclear Deterrent (c. 18%): A significant and growing portion of the budget is allocated to the Defence Nuclear Enterprise. This funds the maintenance of the current Trident system and the construction of the new Dreadnought-class submarines, as well as the modernisation of the UK’s nuclear warheads.
- Research and Development: While integrated within other categories, R&D spending is on the rise. The new £400 million innovation fund is a clear example of the increased focus on developing and deploying cutting-edge technologies like AI, cyber, and autonomous systems. Development costs and intangible assets are recognised as part of the MOD’s asset portfolio, reflecting the value of research and innovation.
- Infrastructure and Estates: This smaller but vital slice of the budget covers the maintenance and upgrading of the defence estate, including bases, training areas and depots. Infrastructure costs are a significant component of the overall budget, supporting operational readiness and capability. The additional £1.5 billion for facilities in 2025 marks a substantial increase in this area.
The MOD’s fixed assets and MOD expenditure are tracked in the defence equipment plan and the single intelligence account, which provide oversight of both capital and day-to-day spending across defence and intelligence activities.
A significant portion of this spending—approximately £31.7 billion in the last financial year—flows directly to UK-based industries, supporting over 200,000 jobs. The 2025 budget increase is set to amplify this economic impact, creating further opportunities for contractors across the country. Defence spending also contributes to economic growth in the UK by driving regional development, supporting industry, and fostering innovation.
Turn Intelligence into Wins See how DCI helps suppliers like you uncover new defence opportunities, benchmark competitors, and build winning bid strategies — all in one place. Speak to the team today.
Impact on the UK Defence Industry Strategy
The 2025 budget is more than a financial injection; it is a catalyst for strategic shifts within the UK defence industry. The Ministry of Defence works closely with other government departments and non-departmental public bodies to deliver national security objectives, ensuring a coordinated approach across the public sector. The new funding and priorities are accelerating a transformation towards a more technologically advanced, agile, and sovereign industrial base. Coordination among government departments is crucial for an effective defence industry strategy. Companies that align with these evolving strategic directions will be best placed to thrive.
Focus on Innovation and Emerging Tech
There is a clear and decisive pivot towards innovation. The MoD is no longer just a buyer of traditional hardware; it is an active investor in emerging technologies. Procurement priorities now prominently feature artificial intelligence, autonomous systems, drone warfare, and space capabilities. For contractors, this means that future bids will increasingly require the integration of high-tech, digital solutions. The establishment of the £400 million Defence Innovation Fund and the fast-tracking mechanisms of the Defence and Security Accelerator (DASA) are designed to lower barriers for non-traditional suppliers, particularly tech startups and SMEs, infusing the sector with fresh ideas and agility. The defence equipment plan now incorporates development costs and intangible assets associated with new technologies, ensuring that research and innovation are reflected in both budget planning and the MOD’s asset valuation.
Skills Development and Workforce Investment
The large-scale, long-term nature of projects like the AUKUS submarine programme necessitates a parallel investment in human capital. The government’s strategy explicitly links defence spending to job creation, with a goal of adding tens of thousands of skilled roles across the UK. The MoD is partnering with industry to double apprenticeships and graduate schemes in critical areas like nuclear engineering and shipbuilding. This focus on skills development sends a clear message to the industry: investing in your workforce is integral to delivering on national security objectives. Suppliers who demonstrate a commitment to building talent pipelines will hold a competitive advantage in future procurement evaluations.
Support for Local Supply Chains
A central theme of the updated UK defence industrial strategy is the strengthening of sovereign capability and local supply chains. This is a deliberate move to reduce reliance on foreign suppliers and maximise the economic benefits of defence spending within the UK. This is evidenced by direct investment in UK manufacturing capacity, such as new munitions factories and expanded shipyards. For large prime contractors, this means a greater emphasis on partnering with and developing UK-based subcontractors. For SMEs, it creates unprecedented opportunities to enter the supply chain, supported by the MoD’s refreshed SME Action Plan, which aims to simplify procurement and increase SME participation towards a target of 25% of all spending.
Defence Contracts UK: New Opportunities in 2025
The significant increase in the defence budget translates directly into a wealth of new procurement opportunities. Businesses across the UK defence industry should prepare for a surge in tenders across several key domains as new programmes are launched and existing ones are accelerated.
Here are some of the primary categories where new defence contracts UK will emerge:
- Construction & Infrastructure: The £1.5 billion allocated to improving the defence estate will generate a steady stream of construction and facilities management contracts. Opportunities will range from large-scale projects, such as building new munitions factories and expanding shipyard facilities, to the refurbishment of military housing and base accommodations.
- Equipment Procurement: This remains the core of defence spending. Multi-billion-pound programmes for the SSN-AUKUS submarines, new long-range missile systems, and the Future Combat Air System (FCAS/Tempest) will drive opportunities not just for prime contractors but for thousands of tier-2 and tier-3 suppliers providing components, materials, and subsystems.
- IT, Cyber, and Digital Services: The military’s digital transformation is a major growth area. The creation of the new CyberEM Command and other digital initiatives will fuel demand for secure network infrastructure, cloud services, software development, data analytics, and AI-powered decision support tools. The MoD’s push to shorten procurement times for commercial off-the-shelf technology will create openings for agile IT firms.
- Research & Consultancy: With a heightened focus on strategy and innovation, there will be an increased need for specialist research and consultancy services. This includes contracts for wargaming, technology impact studies, project management support, and expertise in areas like AI ethics and space law. There are also new opportunities for contracts with security and intelligence agencies and intelligence agencies, reflecting the growing importance of security and intelligence spending and intelligence spending in defence procurement.
- Training and Logistics: The expansion of the armed forces and the introduction of new equipment will drive demand for training services, including simulation-based programmes and apprenticeships. Similarly, through-life support, maintenance, and logistics contracts will grow in scale to ensure the readiness and sustainment of the UK’s military assets.
The 2025 budget also includes funding for the security fund, energy security, and civil defence initiatives, creating new contract opportunities in these areas.
Get notified about relevant UK defence contracts — get a free three day trial of DCI.
Challenges and Risks for the Defence Sector
While the budget increase brings optimism, the defence sector must navigate several significant challenges and risks to translate funding into capability. A balanced perspective is crucial for maintaining credibility and ensuring long-term success.
- Inflation and Cost Overruns: High inflation poses a serious threat to the purchasing power of the new budget. Rising costs for specialist materials, energy and skilled labour could mean the MoD gets less for its money. The National Audit Office has already highlighted that inflation contributed to a £10.9 billion cost increase in the 2023 Equipment Plan, and this pressure is likely to continue. Increased spending can exacerbate these risks if not managed carefully.
- Budgetary and Political Uncertainty: Although there is cross-party support for increased defence spending, the long-term funding path is subject to economic conditions and future political decisions. Any fiscal tightening or shifts in government priorities could impact the stability of multi-year procurement programmes, creating uncertainty for industry.
- Procurement and Delivery Bottlenecks: The MoD and its suppliers will be under immense pressure to manage a large number of complex projects simultaneously. Historical challenges with programme delays and cost growth on major projects mean that effective project management and supply chain capacity will be critical. There is a tangible risk of overextension if the system cannot absorb the increased funding efficiently.
- Global Instability and Evolving Threats: The very conflicts that have driven the spending increase also create strategic uncertainty. An escalation of the war in Ukraine or new global flashpoints could force the MoD to reallocate funds towards immediate operational needs, potentially pausing long-term investment projects.
Navigating these challenges will require careful cost management, realistic scheduling, and agile planning from both the MoD and its industrial partners to ensure the 2025 budget delivers on its promises.
Strategic Opportunities for Defence Suppliers and SMEs
Amid this evolving landscape, the 2025 budget creates distinct strategic opportunities, particularly for agile and innovative suppliers, including SMEs. Suppliers that have consistently invested on capability development are better positioned to capitalise on these new opportunities, as sustained investment strengthens their ability to deliver advanced solutions. The MoD is actively working to make the defence market more accessible, and several pathways exist for companies to secure a foothold.
Framework Agreements and Procurement Pathways
One of the most effective routes to market for SMEs is through framework agreements and dynamic purchasing systems. These pre-approved supplier lists streamline the procurement process for specific goods and services. For example, the Framework Agreement for Technical Support (FATS) has historically seen over 60% of its suppliers being SMEs. Similarly, technology-focused frameworks like G-Cloud provide a direct route for IT and software companies to win defence contracts. SMEs should also actively monitor the Defence and Security Accelerator (DASA), which offers grant funding and seed contracts that often serve as a springboard to larger procurement opportunities.
Collaboration and Consortia Opportunities
The scale and complexity of modern defence projects make collaboration essential. Rather than competing alone, SMEs can find success by teaming up with prime contractors or forming consortia with other smaller businesses. Primes are increasingly seeking innovative SME partners to meet the MoD’s technological requirements and SME subcontracting targets. Industry networking events and platforms can facilitate these vital connections. Furthermore, forming an SME-led consortium allows a group of specialist firms to bid for larger contracts that would be out of reach for any single member, offering a comprehensive and agile alternative to a traditional prime bidder.
How DCI Can Help You Win in the Changing UK Defence Landscape
In the dynamic and opportunity-rich defence market of 2025, having timely and accurate intelligence is the key to success. Defence Contracts International (DCI) provides the critical tools and insights that empower suppliers to navigate this complex landscape and win more business.
DCI’s platform is purpose-built to give you a competitive edge. Our comprehensive tender alerts ensure you never miss a relevant opportunity, providing real-time notifications on every published military and security tender, tailored to your specific business interests. This speed and precision are vital when procurement timelines are tightening. Beyond just listing tenders, DCI offers deep market intelligence, including forward-looking forecasts and detailed spend data analysis. This allows you to anticipate future requirements, track framework renewals, and strategically position your business long before a tender is even released.
Furthermore, our platform provides invaluable competitor and contract award insights, enabling you to understand market dynamics, identify potential partners, and refine your bidding strategy. In a market where collaboration is increasingly crucial, DCI helps you identify the right companies to team up with to form winning consortia. For suppliers of all sizes—from global primes to niche SMEs—DCI levels the playing field, providing the intelligence needed to move from reactive bidding to proactive, strategic growth. As the UK defence industry enters a new era of expansion, DCI ensures you have the tools to ride the wave of opportunity.
Start winning more defence contracts — get your free DCI trial today.
