Series introduction

On 8 September 2025, the Government published the Defence Industrial Strategy (DIS) with the objective of strengthening the UK’s industrial capability to deliver upon the Strategic Defence Review. The strategy sets out its plan across six priority outcomes:

  • Making Defence an Engine for Growth – providing the underpinning stability that will allow economic investment and productivity to blossom
  • Backing UK Based Business – ensuring the UK grows a stronger, more resilient and more competitive defence industrial base here in the UK to meet the challenges of tomorrow
  • Positioning the UK at the Leading Edge of Defence Innovation – committing to rapidly secure world leading capabilities into the hands of our warfighter to bolster our national security
  • Developing a Resilient UK Industrial Base – requiring assured supply chains with plans and powers in place to surge our capacity as a Government-industry partnership
  • Transforming Procurement and Acquisition Systems – delivering deep reforms to the Cold War era procurement system to reduce waste, improve delivery and support growth
  • Forging New and Enduring Partnerships – reiterating the whole-of-society approach and developing the unshakable commitment for ‘NATO first’

This blog series will focus on each priority outcome in turn, discussing the key announcements and delving into what’s next regarding implementation.

Members can read ADS’ initial briefing on the DIS here, which provides an overview of the strategy.

Introduction – Making the UK an Engine for Growth

The DIS positions defence investment at the heart of the UK’s growth agenda, making a clear statement: investment in defence is not just to guarantee national security, a national obligation, but also to generate economic prosperity. The Government recognises that investment in the defence industry fuels productivity, skills, and regional opportunity, making the sector a vital contributor to a secure and thriving economy.

ADS has completed modelling on NATO’s 3% defence spending target alongside potential economic growth and Ministry of Defence (MOD) spending, forecasting an additional 50,000 jobs and £8 billion in value to the UK economy by 2035.

Furthermore, if spending reaches 3.5% of GDP, as current commitments indicate, this will generate a total of 85,000 direct jobs in the defence sector. To achieve this state of growth, the DIS makes several key announcements although ultimately falls short of surrounding plans for investment and commitments to business development.

Financing Defence 

The Government’s approach will ensure that companies understand why the UK is the right place for their factories, investment, and people. Private finance remains the missing link in the defence growth story. Confidence will only return to UK businesses once contracts begin to flow again. For now, the Government’s demand signals are pointing in the right direction, yet momentum depends on translating ambition into delivery through the Defence Investment Plan (DIP).

The DIS confirms that financing defence is a whole-of-society effort, bringing together Government, industry, and financial institutions. Several measures reaffirm the intent of the Government’s Spending Review, their collective weight sends a clear message that defence and prosperity are inseparable. Further details about these commitments can be read here; including the British Business Bank’s expanded £4 billion Industrial Strategy Growth Capital fund and the £3 billion uplift in UK Export Finance’s direct lending capacity.

Building on the work of the Defence Economic Growth Taskforce (DEGTF), heavily supported by ADS, the forthcoming Defence Finance Investment Strategy will be crucial in turning intent into investment. The finance strategy will map the full spectrum of defence businesses, identifying barriers to private capital and enabling new financial models. Central to this is the new Defence Investors Advisory Group (DIAG), which will bring together venture capital, private equity, and institutional investors to embed defence within the mainstream finance conversation.

ADS believes this strategy must also serve as the bridge between Government ambition and private capital, uniting the recommendations of DEGTF with our ongoing work to unlock finance and strengthen investor confidence. Contracts remain at the heart of this challenge.

The Defence Office for Small Business Growth  

The Government’s announcement of the Defence Office for Small Business Growth, scheduled to launch in late January 2026, directly responds to calls from ADS for increased support for SMEs, particularly those who are navigating the landscape of financing and procurement.  ADS has been working closely with MOD as this office has been established, to provide industrial insight and ensure that it is configured to meet industry needs.

The office will serve as a dedicated contact centre for SMEs, providing services from its core pillars aiming to shape, advise and grow businesses. Its mission is to help smaller firms navigate MOD requirements, connect with finance and supply-chain programmes, and access export and skills initiatives such as the Defence Export Academy. ADS suggested that the MOD could reward primes for engaging with smaller businesses and although nothing was explicitly announced in the DIS, we hope to see progress being made in this regard within this office.

Set to be staffed by a small, but expanding, team of nearly 30, the office will collaborate with partners across Government, industry and finance. Through this support, and a new dedicated SME commercial pathway, the MOD aims to unlock an additional £2.5 billion in SME spending by 2028. This target is a 50% increase compared to what was seen in the 2023-2024 financial year and ADS hopes to see further progressive spend targets being set for SMEs.

Defence Growth Deals

ADS are pleased to see the DIS place regional growth at the heart of its vision through the announcement of new Defence Growth Deals across the UK. These locally driven partnerships will not only align national defence priorities with regional strengths but also help attract private finance by developing innovation ecosystems. By connecting established industrial clusters with emerging technologies, these Deals can create self-sustaining centres of excellence that drive both competitiveness and inward investment.

In our submission, ADS highlighted the untapped potential of regional hubs; specifically Northern Ireland’s thriving SME and cyber sectors and Scotland’s world-class shipbuilding and satellite manufacturing expertise. ADS is now working closely with Government to support the delivery of these Growth Deals.

Conclusion

The DIS sets a clear direction of travel, but delivery will determine its success. For now, much of private finance remains on pause with investors waiting for the signal that only placed contracts can send. The ambition to make defence an engine of growth is well founded, yet capital and confidence will follow action, not aspiration.