The SDR’s out—now the scramble for funding begins

As has been widely reported in the UK media, the Strategic Defence Review (SDR) will be published tomorrow morning. It represents how the Government intends to spend on defence priorities over the coming decade. It is best viewed as a direction of travel rather than a step by step guide because much of the funding has already been pre-allocated, and what funding that’s left will need to be cleared and agreed with numerous government departments, including the very powerful HM Treasury. Our view is below.

Snapshot:

  • The government has committed to increasing defence spending to 3% of GDP by 2034.

  • Much of the headline £14 billion increase has already been allocated.

  • The SDR will place disproportionate emphasis on drone deployment across air and sea domains—reflecting their cost-efficiency and operational success in Ukraine.

  • The UK continues to deepen defence ties with both the US and the EU, following a UK–EU security agreement and planned acquisition of US-made stealth jets.

  • The policy window is now open: the Spending Review, Defence Industrial Strategy, Industrial Strategy refresh, Autumn Budget, and multiple parliamentary inquiries all offer leverage points to secure sector-specific incentives and investment commitments.

Our view:

Much of the SDR’s headline funding uplift—£14 billion over the next decade—has already been pre-allocated to what the Ministry of Defence classifies as ‘essential’. These include:

  • £6 billion for munitions replenishment and new factory construction;

  • £1.5 billion for military housing improvements;

  • £1 billion for the establishment of a new Cyber Command;

  • An estimated £1 billion for at least ten F-35A stealth jets (at ~£100 million each);

  • And £2.5 - 3 billion for the construction or upgrade of at least ten frigates (each typically costing £250 - 300 million), although these were previously announced under PM Johnson in 2020.

Together, these core commitments account for roughly £11.5 to 12 billion, leaving just £2 –2.2 billion in unallocated funding over the next ten years—equivalent to approximately £200 million per year.

The remaining funding will be highly contested and politically sensitive. Firms should focus on value propositions supplemented by strong political and policy advocacy. The Government will favour proposals that offer clear value for money, domestic industrial impact, and alignment with NATO or allied collaboration objectives. After the SDR’s publication, there will be a strong incentive for the political and policy ecosystem to assume that all the difficult defence spending choices are “already done.” This is inaccurate and will be used by the MoD and HM Treasury as a filtering mechanism and a buffer as they continue haggling over spending choices ahead of June’s Spending Review and the Autumn Budget. Firms offering cost effective solutions, preferably with a UK employment or manufacturing element, or collaboration with a NATO member-based partner, will stand the highest chances of success.

The SDR is not an endpoint but a starting signal. The SDR will be the first of many steps required to scale up MoD investment into the UK’s domestic defence industrial base. Senior figures in the Ministry will have drawn direct lessons from Ukraine’s early territorial losses, which stemmed in part from inadequate industrial preparedness. That insight now shapes the institutional mindset: readiness is no longer just operational, but industrial.

The government will be actively seeking domestic industrialisation success stories and international collaboration wins to justify higher defence spending and the tax increases likely to follow. Strategic messaging around sovereign capability, joint ventures, and UK supply chain resilience will be essential to securing continued support from the Treasury and the broader political system. They will also aid in the success of any procurement or tender bids.

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