From strategy to spending: How the UK’s £298bn Defence Investment Plan affects industry and investors

The UK Government has published its long-awaited Defence Investment Plan (DIP), translating the ambitions of the 2025 Strategic Defence Review into a costed, four-year programme backed by £298 billion of investment. Defence spending will be higher than at any time for a generation, reaching 2.7% of GDP by the end of the decade and 3.5% of GDP by 2035, to meet the UK’s commitment to its NATO allies. The DIP sets out what this investment will be spent on and what it means for industry, investors and the supply chain. Below we summarise the key outputs and draw out some key implications for the defence sector.

Key outputs

• £298bn of defence investment over four years (2026 - 2030).
• £15bn increase in MOD spending power above the 2025 Spending Review settlement.
• £74bn allocated to the MOD in 2027–28, which is £20bn more than in the final year of the previous Government.
• A transformation to the armed forces, through building a Hybrid Navy, an Army deploying AI and a next generation Royal Air Force.
• Nearly 60,000 additional UK jobs expected by 2029/30.
• A new offsets regime to be introduced, subject to consultation.
• Potential reforms to DEFCONs, DEFSTANs and Single Source Contract Regulations (SSCRs).

1. Spending envelope and NATO commitment

The DIP’s headline figure is £298 billion over four years. The MOD’s budget in 2027-28 alone will be £74 billion, representing a £20 billion real-terms increase on the final year of the previous Government. The budget is set to grow in real-terms for the remainder of this Parliament, reaching a level 27% higher by 2029/30 than in 2023/24.

The Government reaffirms its NATO commitment to reach 2.7% of GDP by the end of the decade (up from 2.3% when it took office) and 3% in the next Parliament. Together with NATO allies, the UK has committed to a collective 3.5% target by 2035, with a review of trajectories and spending in 2029.

The DIP is positioned as the delivery mechanism for the 2025 Strategic Defence Review (SDR) and the Defence Industrial Strategy published in September 2025. The Government describes it as addressing an inherited programme that was “underfunded and overcommitted”, with 47 of 49 major projects delayed or over budget.

2. Backing British: industry, procurement reform and the new offsets regime

A key theme of the DIP is “Backing British”. The Government commits to a “buy British by default” approach in priority sub-sectors and will publish a clear definition of a “British company”, weighting procurement decisions towards firms with a genuine, substantive UK presence and long-term commitment to British communities and supply chains.

Since July 2024, over 1,400 major defence contracts have been signed, with 94% of total value going to UK-based firms. The DIP expects to support nearly 60,000 additional UK direct and indirect jobs by 2029/30 compared with 2023/24.

The new offsets regime

The DIP confirms that a new offsets regime will be introduced, subject to consultation. We explored this further in our previous article UK Defence Offset Agreements: Government signals a step change. The stated aim is “to ensure if we buy from abroad, there must be British jobs and benefits created”. Contractors engaged in cross-border defence supply should therefore monitor the consultation closely.

SMEs and skills

Additionally, the DIP commits to increase defence spending with SMEs by 50% by 2028 (an additional £2.5bn), supported by the Defence Office for Small Business Growth launched in January 2026.

3. Private capital and new investment structures

The Government’s stated ambition is to make the UK “the most attractive place in the world to invest in defence, security and resilience.” A suite of new mechanisms and bodies has been announced:

• A Defence Finance and Investment Strategy to be published, setting out how private capital will be used to deliver growth in the defence sector and grow UK-based defence and dual-use businesses.
• Greater use of public financial institutions to deliver private investment into defence, such as The National Wealth Fund’s recent investment in the defence sector, and work with the British Business Bank to improve access to capital for innovative defence and dual-use SMEs.
• A Defence Investors’ Advisory Group established post-SDR.
• A Multilateral Defence Mechanism with Finland, the Netherlands and other NATO allies - an independent international financial institution to aggregate demand and lend for joint procurement, stockpiling and supply chain finance.
• A Defence Investment Summit to be convened, a Defence Investment Roadmap to be developed and a new Defence Investment Unit within the National Armaments Director (NAD) Group.

These mechanisms are expected to open the door to institutional investors and infrastructure funds looking to help deliver defence projects, particularly through blended finance and multilateral procurement approaches.

4. Priorities for investment

Investments over the next four years include:

• Defence Nuclear Enterprise: over £20bn more than the previous four years, including to fund the Dreadnought submarine programme at Barrow, continuous at-sea deterrence and new warheads.
• Autonomy and uncrewed systems: over £5bn, including £1.5bn on a Hybrid Navy with autonomous vessels and uncrewed sub-surface vessels and £1.6bn on drones/Project ASGARD.
• Land: over £20bn on autonomous systems and long range missiles to deliver the longer-term commitment of a transformed Strategic Reserve Corps for NATO.
• Weapons and munitions: £11.1bn to replenish munitions, with at least six new factories by 2030.
• Air: £8.6bn for the Global Combat Air Programme; £1.1bn for sustaining Typhoon through to the 2040s, including through the Long Term Evolution programme.
• Space: £3.2bn to deter threats to and protect interests in space. 
• Cyber and electromagnetic: £2.5bn including to sustain and develop the Defence Cyber & Electromagnetic Force.
• Innovation: UK Defence Innovation ringfenced at £400m per year (£1.6bn by 2030), with a target of 10% of Equipment Programme budget spent on novel technologies.

5. Procurement and acquisition reform

The DIP confirms a number of structural reforms to procurement:

• Regulatory “sprints” targeting priority growth sub-sectors including changes to applicable DEFCONs and DEFSTANs.
• Reform of SSCRs, with further change under consideration and new measures to enhance productivity, reduce delay and strengthen delivery performance.
• Segmented Acquisition Model launched April 2026, which tailors procurement to capability type rather than applying a standard approach to all projects.
• Six Commercial Pathways published since the SDR, with over 300 new procurements self-selecting at least one pathway.
• Creation of the NAD Group as a single integrated delivery entity, with reforms expected to save at least £10bn over a decade.

For suppliers and contractors, these changes may present significant procurement and contractual implications. The shift to commercial pathways and segmented acquisition should reduce procurement timescales, and the detail of DEFCON and DEFSTAN reforms will need careful review to understand their commercial and risk implications.

6. Reform and efficiency

The spending plan is underpinned by a total efficiency commitment of £10.7 billion across acquisition and supply chain savings (£3.7bn), workforce and resourcing (£3.3bn), infrastructure (£2bn) and other reform. The MOD will ringfence £500m per year for modernisation and savings, such as civil service exit costs, process streamlining, contract breakage costs and modernising systems. The intention is to reduce civil service workforce costs by at least 10% by 2030 and automate at least 20% of HR, finance and commercial functions by July 2028.

Next steps

We will be closely monitoring implementation of the DIP, so please get in touch if you would like to be kept up-to-date on these developments.