Insights
In September the government published the Defence Industrial Strategy 2025. This is the last of eight sector plans in the national Industrial Strategy, alongside Advanced Manufacturing, Clean Energy Industries, Creative Industries, Digital and Technologies, Financial Services, Life Sciences, and Professional and Business Services. Collectively they include a mix of regulatory reform, government funding and investment, business and skills support, and trade promotion. Each plan includes an explicit place-based approach with an emphasis on building or supporting city region clusters.
This blog focuses on opportunities in the recent defence strategy, but the general local approach can be carried over to the other plans. Figuring out a response should start with an understanding of the sectoral mix of the local business base, looking at how opportunities in the different sector plans map onto the local economy, and thinking about what levers are available to support local businesses or individuals to take advantage of them.
The defence strategy sets out how government intends to support growth in this sector to deliver both economic and security outcomes, and includes new Defence Growth Deals worth £250m each for two areas of England with a commitment to develop one deal each for Scotland, Wales, and Northern Ireland. Opportunities for local growth in the defence plan extend beyond the areas with Growth Deals though; this blog considers options for all local areas with some defence sector activity.
Opportunity one: procurement
The MOD spends £28.8bn annually with UK-based businesses. Billions more spending comes from abroad, such as the recently announced £10bn agreement for BAE Systems’ Glasgow shipyards to produce Type 26 frigates for the Norwegian Navy. Plans to develop a new offsets regime may mean that even where MOD spending goes overseas there will be reciprocal opportunities for UK-based defence sector businesses as part of the deal.
The defence strategy includes a commitment to ensuring social value procurement is embedded in public sector defence procurement, meaning potential requirements for suppliers to include local growth outcomes like apprenticeships, skills training or local jobs as part of their contract. The government also intends to support wider involvement in this supply chain through increasing the MOD’s spending with SMEs by £2.5 billion by May 2028. A new Defence Supply Chain Capability Programme will focus on ensuring security of supply across broader supply chains covering a range of critical areas including batteries, construction, and semiconductors and rare-earth elements.
This means opportunities for areas where there are existing major defence sectors but also points to wider opportunities for other local areas with firms in defence supply chains.
Opportunity two: finance support for businesses
The defence strategy also aims to support smaller defence sector businesses to achieve scale through improved access to finance. Primarily this will be covered in a Defence Finance and Investment Strategy due by early 2026. However, the strategy also notes that investment will be made available through the National Wealth Fund on dual-use technologies, the British Business Bank’s £4bn scale up fund for the Industrial Strategy’s sectors, and UK Export Finance’s Direct Lending capacity, with £3bn of that ringfenced for defence. Additionally, a new Defence Office for Small Business Growth will focus on helping SMEs access Government funding, including UKEF support, R&D tax credits, along with private investment.
Again, each plan will have opportunities for SMEs in closely aligned sectors in many local areas, not just those hosting the largest firms and there are opportunities here for local areas to support take-up of these national initiatives.
Opportunity three: skills
The strategy also targets skills in the defence sector, both through supporting skills acquisition and transferability. Regional STEM initiatives will aim to train future defence sector workers in skills ranging from welding to coding, Defence Technical Excellence Colleges will provide centres for further education while the Defence Universities Alliance will build stronger connections with higher education and the sector. Establishing a Defence Skills Passport will be used as a way to make it easier for workers to transfer into and between defence sector jobs mid-career.
As places develop their local skills strategies, all eight sector plans will give additional options and pathways for both young and adult learners.
Local approaches – convening power
Even where local government lacks policy levers, it has convening power. While much of the strategy for finance support or defence procurement will be set nationally, local government can improve visibility of opportunities and connections between firms, which can be significant barriers to businesses taking advantage of the opportunities.
In procurement, local authorities could develop approaches to foster better connections between local smaller firms and larger defence suppliers such as ‘meet the buyer’ events. There is some evidence that this can be effective in other policy areas – our innovation toolkit on researcher co-location found that attending the same conferences has a significant impact on the likelihood of future collaboration between researchers, especially if they were working in a similar field. Similarly, finance access can depend on having the right connections, and networking events to try to support this for local businesses in the defence sector may be helpful.
Local authorities can bring together employers in the defence sector or supply chain sectors with local training providers and schools to develop closer relationships, clarify opportunities and sectoral needs for skills providers, and encourage employers to offer training placements. Local authorities can encourage businesses and skills and education providers to participate in the regional STEM initiatives outlined in the plan. Our evidence toolkit on pre-apprenticeships (schemes which provide foundation skills required to help with a full apprenticeship) reports results from studies suggesting these can increase enrolment in full apprenticeships. Building better connections between employers and skills providers could inform relevant sector-specific pre-apprenticeships which better meet the needs of industry and strengthen the skills pipeline.
Local approaches – business support and training
Advice and training can also help firms take advantage of the opportunities outlined above.
Defence procurement is complex. Smaller firms in particular can be unaware of opportunities and lack capacity to respond. Our rapid evidence review on public procurement found one study that shows increasing the publicity of a public procurement opportunity increases the number of bidders participating in the auctions by 9.3 percent. Signposting to sector groups who can offer support, or helping local businesses to horizon scan effectively may be cost-effective options to increase participation. The same rapid evidence review found evidence that training for businesses on making procurement bids can be effective in leading to them submitting more competitive proposals. This may be another route to support local businesses looking to win more public procurement contracts.
Similarly, for access to finance, one of the barriers to SMEs can be a lack of knowledge of the range of options and support available. Local authorities can signpost to the different government schemes and sources of support, as well as provide basic advice on how to take next steps to apply.
Remember to see the bigger picture and monitor results
Local responses to the sectoral plans in the industrial strategy should not be developed in isolation to other sectoral approaches or an overall local growth plan. Our policy challenge page on local growth plans gives tips on structuring thinking for those local strategies, and our page on supporting local business investment pulls together our resources on that topic. Understanding the sectoral mix of the local economy is key to focus efforts where there is more opportunity.
It is also vital to remember to monitor results of any approaches that are taken. This local intelligence can make the difference in knowing when to adjust strategies, as well as giving an idea of how relevant local sectors may be developing.
