Implications of the Strategic Defence Review for the upcoming Defence Industrial Strategy

On June 2, the UK Ministry of Defence (MoD) released its long-awaited Strategic Defence Review¹ (SDR). Announced soon after the arrival of the Labour Government last summer, the SDR is part of the new government’s Parliament-long effort to refresh and transform the MoD to meet the UK’s geopolitical, security—and economic—needs, as the country enters the second quarter of the 21st century.

While this is not the first time the MoD has undertaken such a defence review—previous ones include the 2021 Defence Command Paper², the 2015 Strategic Defence and Security Review (SDSR)³, and the counterterrorism-focused SDSR of 2010⁴—this latest iteration acknowledges that there has been a step change in the threats the country is facing and that there now needs to be a corresponding step change in defence measures to meet those threats.

While the SDR sets the level of ambition and lays out the government’s policy, translating policy into action will come down to specific strategies, structures, and organisational changes. Many of the SDR recommendations will be delivered through the ongoing Defence Reform programme, which the SDR strongly endorses, acknowledging that one cannot succeed without the other. Following the SDR, the MoD intends to release the Defence Investment Plan, which will supersede the Defence Equipment Plan and articulate a robust set of actions to deliver on the SDR’s vision within departmental financial constraints. And later in the year, a Defence Industrial Strategy (DIS) will be published, with a goal of strengthening the economy and national security by boosting the UK defence sector’s innovation, self-reliance, and global competitiveness.

Central to these plans is the SDR’s recommendation for a ‘new partnership with industry,’ outlined in Chapter 4.2 of the publication. What exactly might this entail, specifically for the efforts towards reindustrializing the UK’s defence sector? The implications fall into three broad categories.

Innovation

It is perhaps apropos that the SDR was released the same week that Ukraine’s Security Service launched an innovative and bold operation to disable several dozen Russian Air Force strategic bombers. The operation demonstrated the utility of high-tech, low-cost, and commercial off-the-shelf autonomous technologies against Cold War-era strategic assets—just the kind of innovation that the SDR seeks to harness and champion for the UK’s own armed forces.⁵

The SDR makes a commitment to increase defence spending to 2.5% of GDP by 2027, and to 3.0% by the next Parliament⁶. Many of its 62 recommendations seek to orient the UK’s military capability towards innovation—in autonomy, AI, cyber, hypersonics, directed energy weapons, and more. The SDR argues for fielding these capabilities in increasingly flexible and hybrid applications, in what it calls an ‘Integrated Force’.

Militaries have historically been rapid innovators and adopters of new technologies—from the internet and GPS navigation to duct tape—but nowadays the private sector tends to play a heavier role in research and development (R&D), powered by commercial incentives, abundant human capital, and deep pockets.

The SDR seeks to empower the UK’s defence sector to more readily take advantage of novel innovations in the private sector, through a segmented approach to procurement (historically a cumbersome and bureaucratic process) and the creation of UK Defence Innovation, a £400 million fund to buy innovative commercial and dual-use products and services from companies in the UK and allied countries.

Industrial capacity

The UK’s defence budget is, and will continue to be, dominated by large capital programs. The SDR references several, such as the GCAP (Global Combat Air Programme) and SSN-AUKUS (the Royal Navy’s replacement nuclear-powered attack submarines), that will introduce unique capacity challenges, each requiring creative solutions on the part of the architects of the Defence Industrial Strategy.

Consider the GCAP. A multinational endeavour that enlists the participation of the Italian and Japanese governments, it will require a careful balance of industrial participation. Threading that needle may prove challenging; each country has individual industrial strengths, most of which are complementary, but areas of duplication may exist. Though they offer clear advantages, multinational endeavors can take longer to get up and running. Realising the GCAP within established cost constraints, for example, may require the MoD to extend the planned life of the Typhoon fighter jet and buy more F35s to bridge the gap.

With SSN-AUKUS—also a multinational endeavour, with the U.S. and Australian governments—the question of industrial participation takes on different dimensions. The UK’s nuclear submarine industry is currently at capacity, having committed to completing the Astute programme and then rolling into the Dreadnought programme in the next decade. Quite simply, additional capacity to meet the SDR’s target for 12 SSNs will require either a significant expansion of BAE Systems Submarines’ facilities in Cumbria, or an alternative delivery model that the Defence Industrial Strategy will need to come up with.

Production capacity

In light of the lessons learned from Ukraine, as well as a recent estimate that the British Army in a high-intensity conflict has sufficient ammunition to last ‘only a week’⁷, the SDR devotes considerable effort to providing recommendations for increasing the output of the UK’s defence industrial base, stressing that the ‘UK armed forces must be able to endure in long campaigns.’

Central to that objective is the recommendation to invest £6 billion during this Parliament in six new munitions factories, including £1.5 billion for an ‘always on’ capability that will allow the UK to produce 7,000 new long-range weapons. This increase represents a fundamental shift for UK defence procurement, which has long maintained a peacetime footing, producing only as many munitions as are exhausted in training exercises and routine peacetime activities.

The SDR recognizes that depth in armaments production capacity is vital for long-term operations. Notwithstanding 155mm artillery rounds (which, in Ukraine, are being consumed at a rate of up to 40,000 per week), munitions that the UK armed forces expects to field in the near-term—such as the SPEAR 3 ‘mini’ cruise missile for the UK’s F-35Bs, the Future Cruise/Anti-Ship Weapon (FC/ASW) long-range cruise missile, and the Aster 1NT anti-ballistic missile for the Royal Navy—are complex and expensive and have long leads time from order to fulfilment.

Conclusion

The SDR touches on several critical enablers necessary to fulfil its ambition: integrating exports of UK defence goods and services at the outset, expanding the defence sector’s 440,000-strong workforce, accessing private sources of capital, and creating regional hubs anchored by capabilities critical to the UK defence supply chain.

When released later this summer, the Defence Industrial Strategy will need to offer at least a broad outline of its vision—and its expectations for private-sector participation—for each of those enabling factors. The success of this SDR is not simply about the diversity and quality of kit that the British Armed Forces hopes to field—but, critically, the capacity, depth, and ‘innovation at pace’ potential of the UK’s industrial base to create a vibrant and resilient ecosystem.

How these priorities get refined and made actionable in the UK’s Defence Industrial Strategy will be crucial. The DIS will need to be compelling enough to provide a business case for investment in UK defence, spurring confidence among private-sector players that many of the frictions typically associated with government collaboration—capital access (especially working capital at lower-tier suppliers), infrastructure, supplier administration, workforce availability—will be addressed.

While this may sound like a tall order, it is worth pointing to one recent success: the 2017 National Shipbuilding Strategy (refreshed in 2022⁸), which kick-started competition in the UK naval shipbuilding industry, creating a second manufacturing line that is now exporting British-designed Type 31 frigates to a number of countries.

Overall, the latest Strategic Defence Review seeks to send out not only a geopolitical and foreign policy signal, but also a domestic message, one that the defence sector has been yearning to hear. Namely, that UK defence policy is now in it for the long haul, and that it is calling upon the UK’s defence sector—large companies as well as the broader ecosystem, including traditional and non-traditional Small to Medium Enterprises (SMEs), innovators, and banks—to invest with confidence in the critical enablers that will prepare the UK’s defence posture, production facilities, supply chains, and talent for the future.