2025 – the year ahead for the UK’s Defence industry

The year 2025 for UK Defence, infrastructure and national security, may end up being defined by the word “operationalise.”

The industry is experiencing continued transformation, propelled by advancements in digital technologies, strategic investments, and a renewed focus on workforce development. Alongside this is supply chain visibility, which in turn, is being driven by the largely unforeseen pace of geopolitical change and the increasingly volatile world.

The government commissioned a strategic defence review (“SDR”) in July 2024 and have said the review will “consider the threats Britain faces, the capabilities needed to meet them, the state of UK armed forces and the resources available.” The Defence Secretary, John Healey, went on to described this SDR as the “first of its kind in the UK”, on account of the fact that it will be the first externally-led review, with all previous reviews having been conducted by government.

The UK government will publish its Industrial Strategy for Defence in late spring 2025, aimed at strengthening the country’s national security, properly equipping its forces and ensuring defence companies help drive economic growth, with small and medium enterprises (“SMEs”) having a key part to play in the growth of the country’s Defence industry.

SMEs are hugely important within the UK’s defence and security supply chain, providing essential research, technology, and services. As we consider the part SMEs continue to play in the growth of the sector, the Ministry of Defence (“MoD”) has announced a goal of increasing the amount of defence spending with SMEs and improving their access to opportunities in 2025.

Much talk surrounds the increased use of SMEs across the UK defence supply chain, and the importance of a strong ecosystem within the sector for very good reason, as there are many advantages to employing the skills, knowledge and culture that SMEs can bring to Defence procurement.

So, against the above backdrop, we want to take a look at some of the key themes in Defence, which SME are likely to see over the next 12 months.

Defence spending:

In its election manifesto, the government committed to increase defence spending to 2.5% of GDP. It is expected that the path to that increase in spend will be set out when the SDR is published, which is intended to take place in spring of 2025.

That being said, the government has also been clear that “stark choices” will likely need to be made with regard to capability priorities. This is a result of financial constraints and the challenge faced in balancing the current and future budget with future capability requirements and likely increased demand as a result of the increased, and ever-evolving, threats to the UK’s interests and national security.

What is clear, however, from the move away from traditional combat towards far more complex forms of engagement and hybrid warfare, is that any increase in defence spending will continue to be directed towards advanced technologies, AI capability, cybersecurity measures and Integrated Air Missile Defence (“IAMD”).

Employment and skills:

There has long been a skills shortage – lack of sufficient people with the required knowledge – in Defence, one which is particularly acute when it comes to cybersecurity professionals.

This shortage is not limited to Defence – there is a global shortage of cyber security talent and, of course, wider STEM talent more generally – meaning that, with the increased focus on cyber security capability in order to respond to evolving threats, organisations are likely to struggle to fill what will become an increasing number of critical roles.

The knock-on effect of the above is the creation of a hard recruitment and retention market. Recruitment of the right people at the right levels is becoming increasingly difficult, costly and time-consuming. This is coupled with challenges faced when it comes to employee retention, as valuable employees who know their worth being more likely to join a competitor – taking their knowledge, experience and, potentially, proprietary information with them.

Partly in response to the hard market and increased need for expert digital and technological skills and partly in response to increased societal expectations of equality, diversity and inclusion, the industry will need to continue to focus on workforce diversification in order to attract more talent from underrepresented groups.

While steps have been taken in recent years to diversity Defence, the sector in the UK continues to be male-dominated, with significant underrepresentation from those from ethnic minorities.

There is an acknowledgement that this needs to change, both in Defence and in wider industry and the sector will need to continue to work towards attracting talent from a range of backgrounds in order to truly capitalise on talent to meet the demands of the future. As such, we are likely to see a continued to change to traditional ways of working in Defence in a bid to attract talent into the sector.

Globalisation and supply chains:

Rising geopolitical tension requires the UK to adapt rapidly to an ever-evolving threat environment, with an acknowledgment of the importance of working in partnership with allies to create a more resilient defence supply chain, with increased production capacity.

In short, the UK needs more, quicker, and that trend is likely to continue in 2025 and beyond. Threats and disruptions to supply chains have been increasingly prominent in recent years and, of course, the issue of supply chain fragility is not limited to Defence.

Consecutive global events such as Covid-19 and state-led aggression in Ukraine affected almost every industry in the UK. In Defence in particular, sanctions and trade restrictions continue to impact supply chains, particularly when it comes to critical technologies and the availability of key materials.

The UK has already begun engaging with new, often non-traditional trade partners in order to try and overcome supply chain issues. Defence supply chains will continue to become increasingly globalised, with key components continuing to be sourced internationally and from new partners, whilst at the same time the industry looks identify domestic alternatives in order to stabilise supply chains by removing the potential for disruption and addressing areas of vulnerability.