The Cost of Sovereignty? The Future of Britain’s Defense Industrial Base
“Broken” and “hollowed out” was then-Labour Shadow Defence Secretary John Healey’s characterization of British defense in the spring of 2024. Particularly, British defense procurement was viewed as “repeatedly wasting taxpayers’ money,” and as a result of an absent strategic approach, the national resilience of Britain’s defense industry was in a sorry state of affairs. With Labour now in power and a Strategic Defence Review in progress, a strategic approach is coming in the form of a new Defence Industrial Strategy. This strategy broke cover for the first time in December 2024 with a statement of intent on identified issues and priorities, with the aim of a fully published strategy by late spring 2025. How the new government defines its approach to sovereign capability versus cost-effectiveness, and how the state itself interacts with private industry, will set the framework for how the United Kingdom defense industrial base will operate for the next decade. With the Labour government emphasizing growth and resilience, now is the time for the defense industry to return to the fold. There do remain constraints in place to reform. But by treating it again as a strategic asset, through a return to strategic partnering, Britain can husband its shrinking industrial base to both safeguard against future geopolitical choices and aid in the national push for economic growth.
The Background
Both worldviews and cost have shaped previous governments’ stances toward the defense industrial base. Since 1997, the British approach to defense industry has mostly reflected the political ideology of the party in power. Labour has tended to prefer partnering with industry and shaping the British industrial base — combining private sector practices with strategic partnering. By contrast, successive coalition and Conservative governments have opted for a greater reliance on the free market and competition by default, focusing on “value-for-money” through competitive “off-the-shelf” methods to achieve this. These general tendencies would eventually shift closer to the Labour position in the wake of Brexit, COVID-19, and Russia’s full-scale invasion of Ukraine, when it was recognized that a “sustainable industrial base” was essential for “access to the most sensitive and operationally critical areas of capability.” Indicative of this shift, the first full defense industrial strategy paper since 2005, which recognized the defense industry as a “strategic capability,” was released in 2021.
As an aside, it is worth highlighting that much of this is driven by wider factors. The approaches in a defense industrial strategy remain interconnected with defense planning and wider grand strategy. Britain, so far, continues to focus on a semi-global posture and a full-spectrum military capability. It does this despite having a much smaller defense budget — 2.3 percent of gross domestic product — than it had in the 1990s. Trying to square this circle — mostly through drives for efficiencies — has shaped the past two decades of British defense policy. Today, whether the 2025 review will set out a concrete “path to spending 2.5 percent of gross domestic product on defense,” and over what timescale that will occur, will arguably have the largest impact on the future defense industrial base.
Between Sovereignty and Cost
For the new Labour government, increased “national resilience” has become a key objective. The independent ability of a nation to choose when and how to use force should be part of its defense sector’s contribution to this, and a healthy national defense industry is a key factor within this. It has not been an easy contribution to make, however.
Since the mid-1980s, there has been a struggle in the British defense establishment to balance sovereign capabilities within budgetary constraints. On one hand, the military needs the capabilities to fight and win in a range of scenarios. On the other, the resulting cost of acquiring such material can often place “strategic” assets (the defense industry) in tension with fielding the “operational” and “tactical” capabilities (the armed services) of the state.
Defense procurement can generally be divided into four categories. The cheapest is to import complete weapons systems off-the-shelf from other nations’ industries (e.g., P-8 Poseidon). Next is international collaboration, which pools the research, resources, and production of multiple nations into a single weapons system (e.g., Eurofighter Typhoon). Third is licensed production or coproduction, which avoids domestic research and development but manufactures the design under license with domestic industries (e.g., Agusta Westland Apache AH-Mk.1). The final approach is to go it alone and conduct research, development, and production largely within one’s own borders (e.g., the Royal Navy’s nuclear-powered submarines).
These approaches come with their own positives and negatives. In general, competitive off-the-shelf procurement is the cheapest and arguably most cost-effective method for militaries to buy necessary capabilities. With the current equipment budget experiencing a £17 billion black hole over the next ten years, that’s a tempting prospect. However, being unable to manufacture the capability yourself can limit your strategic room to maneuver, both in adapting the equipment to new scenarios and in using them on the world stage. Germany’s issues with procuring Gepard anti-aircraft ammunition for Ukraine — which is manufactured in Switzerland, which banned its re-export — is a recent example of this.
Even license-built, or collaborative, equipment programs can have major sovereignty issues. The aforementioned Apache helicopters, despite being built in the United Kingdom, had source codes that were purposely inaccessible to the British armed forces to analyze or for British industry to add new capabilities. Any additions required the aircraft to be returned to the United States and negotiated for modifications. Similarly, the F-35 program, despite Britain being a Tier 1 partner, has its “black box” content restricted along with other parts of the aircraft under the F-35 Special Access Program. Whilst the United States is Britain’s closest ally, the polarized nature of American politics does not guarantee this state will endure for the 50 or more years of the F-35’s operational lifespan.
Britain cannot build all its capabilities by itself, however. It is simply unfeasible for Britain to put money behind being a “leader in all fields of technological development.” Instead, a mixture of sovereign-build, collaborative, and competitive-off-the-shelf projects is required. Past documents have tried to outline which capabilities should fall into which categories. But aside from some capabilities — notably nuclear deterrence, submarines, cryptology, and cyber security — these can change depending on the government of the day. It is for others to determine what should fall into which category. But any assessment made should be defined by what Britain already does well, what will be important in the medium- to long-term economically and militarily, and what the geopolitical landscape will be within the next 10 to 20 years. Once set, it is vital that the Ministry of Defence sticks to the framework and is open and transparent as to how it came to its conclusions in order to allow industry to plan accordingly for future investments.
Strategically Partnering
However, to possess such capabilities, Britain needs to husband what is left of its defense industrial base through the re-adoption of procurement processes like “strategic partnering.” In 1996, British defense accounted for some 400,000 jobs in the United Kingdom. Following post–Cold War reductions and austerity of the 2010s, the ADS Group estimated that defense accounted for only 164,000 jobs in 2023. Consequently, the British defense sector is dominated by a relatively small number of major companies. Thirty-seven percent of the Ministry of Defence’s procurement expenditure is with ten suppliers: BAE Systems, Babcock, QinetiQ, Airbus, Rolls-Royce, Leonardo, Boeing, Leidos, Thales, and General Dynamics.
The industrial capabilities to be husbanded need to be targeted and carefully managed. There is simply not enough money to push through the issue like larger powers can. Successive strategies have tried to provide frameworks for this, but the advertising strapline for the Global Combat Air Program conveniently summarizes what the United Kingdom should be aiming to achieve: freedom of action, freedom of modification, and freedom of export. Specifically, a sovereign ability to design, develop, integrate, upkeep, upgrade, test, and evaluate in most fields is a must if the United Kingdom wishes to continue to pursue its defense- and prosperity-oriented national security objectives. Thankfully, this has been recognized within the Ministry of Defence.
To regenerate and maintain these capabilities will require the government to break out of the feast-and-famine cycle of defense procurement and to readopt past processes. With post–Cold War equipment expected to remain in service for decades rather than being replaced at a regular drumbeat, both government and industry will have to focus on through-life maintenance and upgrades to keep industry going (i.e., develop, upkeep, and upgrade). This process, known as spiral development in most circles, was identified as far back as 2006 and is slowly being readopted by the Ministry of Defence today as it moves away from the linear Concept, Assessment, Demonstration, Manufacture, In-Service, and Disposal/Termination cycle.
Consequently, a more integrated approach between the Ministry of Defence and industry is required, with procurement timetables aligned with both military and industrial needs. Shifting back to strategic partnership over competition, by default, will help achieve this. Whilst following the free market ideology of competition arguably breeds cost-effectiveness, it has actually “eroded the U.K. industrial defense base, jeopardizing [Britain’s] independent ability to sustain its fighting forces.” With orders being few and far between and entry costs for would-be suppliers being high, any firm that lost a competition ended up leaving the sector on a voluntary basis. This issue has been compounded by the difficulties that defense and non-defense small and medium-sized enterprises face in accessing the acquisition process to begin with. Whilst attempts have been made to mitigate against these blockages — such as the Defence BattleLab and the Defence Science and Technology Laboratory Searchlight initiative — these efforts continue to struggle to bring their often innovative ideas to the fore. It is likely that further centralization of authority and skills — away from the Levene model of 2011 — will be required to better mitigate against this.
Principally, a strategic-partnership-based defense industrial strategy, shifting from a customer-seller relationship to longer cooperative partnerships, can help alleviate the “famine” whilst still maintaining some cost-effectiveness for the Ministry of Defence. Both the Complex Weapons team — a 2006 industrial partnership with Mantra Bae Dynamics UK – and the Integrated Operational Support contract with Marshall Aerospace have proven to be successful examples of this. The former saw the Ministry of Defence safeguard a pipeline of the design and manufacture of certain weapons to maintain the capability onshore through spiral development and clear indicators. One such weapon, Storm Shadow, has demonstrated its worth capability and in sovereignty of action in Ukraine. If the United Kingdom is to prioritize greater sovereignty in its toolkit, continuing to have the capability to manufacture — not just assemble — such weapons will be vital. Achieving this, without breaking the bank, is going to require integrating industry into capability requirements at a much earlier stage. Encouragingly, this need, if not the “how,” has been identified in the recent Statement of Intent.
The Golden Thread
Whilst strategic partnering to achieve greater degrees of sovereignty should be the goal, several impediments to progress exist. Currently, there is a framework in place for the Strategic Defence Review to follow. However, it has yet to be tested fully, and political pressures have placed restraints on the ability to reform further. As outlined by the 2022 Defence Capability Framework, the 2023 Defence Command Paper Refresh and the 2021 Integrated Operating Concept explain “why,” the Defence Capability Framework “what,” and the Industry Segment Strategies “how,” with the Defence and Security Industrial Strategy wrapping them all together.
This framework, whilst welcome, is joined by significant political caveats. Since the announcement of the Strategic Defence Review, both British media and allied countries have tried to gain clarity on what programs may be at risk. Consequently, current Labour ministers have declared the importance of the Anglo-German RCH155 program, Britain’s aircraft carriers, and the Global Combat Air Program. Combined with AUKUS and the nuclear enterprise, which were safeguarded through the review’s terms of reference, there remain few major programs that could be removed wholesale without causing considerable political — and geopolitical — pain.
Nonetheless, decisions need to be made. New money seems unlikely, and delay or deferral will only hurt the Ministry of Defence more. Delaying projects or raiding the equipment program of future financial years to top up the current one only creates a “bow wave” that is destabilizing for both the Ministry of Defence and industry. Higher inflation pushes up costs in real terms, and the added uncertainty increases costs further. As one American study on general weapons procurement noted, for every dollar deferred on an acquisition program, the cost in later years increased to two dollars. The submarine force’s recent setbacks, with no attack submarines being available for 100 days due to maintenance backlogs, can be traced to decisions delayed on replacement of, maintenance of, and investment in critical infrastructure. Purposeful delays only cause operational and financial pain in the long run.
In an ideal world, the government would be free to formulate a coherent and long-lasting strategy from the ground up. But in reality, restrictions exist politically, structurally, and financially that must be factored in. It is for others to debate what to save and what to lose, but the nettle will have to be grasped if a stable foundation is to be built for the future. Deferral is no longer viable.
Conclusion
Many would be forgiven for suffering from whiplash tracking Britain’s approach to its defense industrial base. From 1997 to 2024, the state’s approach to the British defense industry has generally gone from strategic partnering to free-market competition and back again. Indeed, reflecting the lack of consistency, in the same period there have been over 18 strategy papers related to defense industrial strategy and procurement.
Going forward, stability and coherency are essential, both for British defense and the industrial base in general. Nevertheless, the new Labour government must seize the opportunity to set the tone for the next decade. Continuing to rebalance toward sovereignty of action over cost effectiveness is essential, especially in a world where allies and competitors alike appear less predictable. To achieve this, in lieu of tight budgets and a winnowed industrial base, the readoption of strategic partnering as a process — emphasizing government-industrial cooperation, prosperity generation, and national resilience — would be a major step in the right direction. This will mean picking winners and losers — both capability-wise and industrially — but the budget simply does not exist to do it all. The incoming, up-gunned national armaments director, in collaboration with a sufficiently empowered Defence Equipment and Support (the organization that negotiates contracts on behalf of the U.K. armed forces), would be suitable to oversee such an endeavor from a more centralized position. Critically, this must be done in lock-step with the upcoming multi-year spending review.
It has been 28 years since a previous newly elected Labour government declared that a “strong U.K. defence industry” was a “strategic part” of Britain’s industrial base and defense effort. It would be in its successor’s interests to take a page out of history and reconnect military capability, industrial resilience, and prosperity under a “One Defence” umbrella.
William Reynolds, PhD is a lecturer in defense studies education in the Defence Studies Department, King’s College London. He currently teaches at the British Joint Services Command Staff College, Shrivenham. This piece arose from his submission to the Strategic Defence Review 2025 call for evidence and his work done with the Centre for Grand Strategy, King’s College London. He would like to thank Centre for Grand Strategy Deputy Director Andrew Ehrhardt and Visiting Professor Peter Watkins for their advice and comments.
Image: British Ministry of Defence
