Prime minister announces increase in defence spending

Announced yesterday (February 25, 2025) by PM Keir Starmer, UK defence spending will rise to 2.5 per cent of GDP from April 2027 and 2.6 per cent in the same period after factoring in the cost of intelligence services. Starmer said this represents a year-on-year increase of £13.4bn.

Starmer also set an ambition to spend three per cent of GDP on defence in the next parliament, dependant on economic and fiscal conditions.

“We can use this investment to rebuild Britain’s industrial base,” he said. “We will make sure this investment maximises British jobs, British growth, British skills and British innovation.” 

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The rise in for the defence budget comes at a cost to Overseas Development Assistance (ODA), which will be cut from 0.5 per cent to 0.3 per cent of Gross National Income (GNI). The government said it remains committed to reverting spending on overseas aid to 0.7 per cent of GNI when the fiscal conditions allow.

“I want to be clear – that this is not an announcement I am happy to make,” said Starmer. “I am proud of Britain’s pioneering record on overseas development, and we will continue to play a key humanitarian role in war-torn countries like Sudan, Ukraine and Gaza.”

Commenting on yesterday’s announcement, international defence, aerospace and security company Babcock said: “The prime minister’s statement on increased defence spending gives the UK the opportunity to invest in sovereign British companies and drive domestic economic growth.

“Working in partnership with the government, Babcock creates and sustains thousands of high value jobs and apprenticeships, spreading prosperity within communities across the country.

“We look forward to continuing this work with the government to ensure our armed forces have the equipment and services they need to protect our nation, both now and in the future.”

“The announced defence spending increase is going to provide more capital and drive innovation in an already fast-evolving sector, so we expect to see an increase in M&A activity as large players look to strengthen their capabilities with strategic acquisitions,” added Tom Rowe-Jones, director at Lava Advisory Partners. “Smaller and scaling companies with a niche product offering or highly-skilled talent base are likely to be in even greater demand than we’re seeing already.”