£2 billion boost for defence sector to unlock orders from allies

Further support for the defence industry is being set out by the Chancellor with billions of pounds unlocked for UK defence companies that export overseas.

• UK defence exporters to benefit from £2 billion increase to UK Export Finance lending capacity, boosting growth and securing jobs in a priority sector.
• Pipeline of UK orders for UK exporters unblocked, bolstering the supply chain and increasing our competitiveness in defence industry.
• Demonstrates the UK’s commitment to bolstering the defence industry, vital to UK national security – the first duty of any government – and growth; both central to the Plan for Change.

Further support for the defence industry is being set out by the Chancellor today which will see billions of pounds unlocked for UK defence companies that export overseas, driving economic growth and creating jobs across the UK.

On a visit to Scotland Rachel Reeves will announce a £2 billion increase to UK Export Finance’s Direct Lending capacity for defence, which will unlock further opportunities for UK defence exports such as missiles, aircraft and armoured vehicles overseas.

The uplift, which will increase UKEF’s lending capacity from £8 billion to £10 billion, will increase the competitiveness of this country’s defence industry, allowing UK exporters to grow their business through sales to our allies around the world, and bolstering supply chains.

UKEF’s Direct Lending facility provides loans to other governments to buy goods and services from the UK.  In 2023/24, UKEF issued £8.8 billion worth of loans, guarantees and insurance to help grow UK exports, supporting 650 exporters of all sizes and 41,000 jobs across the UK.

This builds on UKEF’s strong record of support for the defence sector, which has recently included an £8.8bn guarantee for exports of air defence systems to Poland, support for the export of Typhoon aircraft to Qatar and support for the sale of ex-Royal Navy minehunting vessels to the Ukrainian Navy.

Today’s news follows the recent £1.6 billion commitment announced by the Prime Minister to supply thousands of advanced air defence missiles to Ukraine, boosting the UK economy and support 700 existing jobs at Thales in Belfast.                                                                                                                                                                                                                    This uplift will drive tangible increases in financial support for UK defence exporters by increasing the funding available for overseas buyers of UK defence goods and services, and is a central pillar of the government’s upcoming Defence Industrial Strategy.

As set out in the Plan for Change, national security is the first duty of the government. In recent years, the world has been reshaped by global instability, including Russian aggression in Ukraine, increasing threats from malign actors, rapid technological change, and the accelerating impacts of climate change.

Today’s announcement is part of how the UK is stepping up to meet this generational challenge.

Chancellor of the Exchequer Rachel Reeves said:

“The world is changing, and we must bring about a new era of security and renewal that protects working people and keeps our country safe. This increase to UKEF’s lending capability is our Industrial Strategy in action, bolstering our defence industry and supply chains, creating jobs and driving growth across the UK.

“This is alongside an increase in our defence spending to 2.5% of GDP. We are strengthening our national defence, kickstarting economic growth and delivering the stability we need to keep us safe.

Business Secretary Jonathan Reynolds said:

“A strong defence sector is vital for a Britain that’s both secure at home and strong abroad, and ensures a world where business can benefit from the economic security it brings.

“That’s why our Plan for Change has put defence at the heart of our Industrial Strategy, helping us drive growth while bolstering our national security for the long term.

“This new UKEF lending capability strengthens our support for the sector even further, and will help our defence firms export the best of British expertise abroad while boosting jobs and growth at home.”

Defence Secretary, John Healey, said:

“A strong UK defence industrial base is essential for our national security, enabling us to rearm and innovate at a wartime pace.

“British businesses will directly benefit from this increase in lending capacity alongside our historic decision to raise defence spending to 2.5% of GDP – the largest uplift since the end of the Cold War.

“This will make our country more secure and ensure the defence sector is an engine for growth in every region and nation of the UK.”

Scottish Secretary Ian Murray said:

“We are entering a new era for our national defence and Scotland’s world class defence industry is playing a big role in meeting that global security challenge. Scottish defence businesses – with their skills, expertise and innovation – have a huge opportunity to benefit from this £2 billion in new lending.

“That will mean a boost in skilled jobs and economic growth in Scotland and show the best of our world class industry abroad.”

Whilst in Scotland the Chancellor will visit a defence company, following the government’s commitment to increase spending on defence to 2.5% of GDP from April 2027, in recognition that the UK faces a period of profound change, with conflicts overseas undermining security and prosperity at home. This is alongside an ambition to spend 3% of GDP on defence in the next parliament, as economic and fiscal conditions allow, in order to keep the British people safe and secure for generations to come.

Scotland is a hub for the UK defence industry, home to companies such as Babcock and BAE Systems, and critical operations in Scotland have benefitted historically from UKEF support through guarantees for their international exports to global markets. UKEF have previously supported Babcock with a £192m loan guarantee to finance the sale of two mine counter measure vessels to the Government of Ukraine.

Scotland’s defence sector received £2.14 billion in UK Government spending in 2023/24, equating to about £390 per person, supporting approximately 25,600 jobs.

John Howie, Chief Corporate Affairs Officer at Babcock said:

“Our defence industry plays a vital role in the security and defence of the UK and is a major contributor to the Scottish economy. Here at Rosyth, Babcock is extremely proud to be delivering five new T31 frigates for the Royal Navy within ten years of contract signing, a trailblazing programme that has already resulted in the export of this sovereign capability to Poland and Indonesia.”

Chris Allam, Managing Director for MBDA UK, said:

“UK Export Finance lending has and will continue to be a vital tool for Government and the defence industry. Increasing its capacity will enable MBDA, as the UK’s sovereign complex weapons provider, to secure more opportunities to deliver strategic capabilities to the UK’s key allies. It strengthens relationships with partners and makes the UK competitive in a global marketplace.”