UK defence sector update20th November 2020
This week Boris Johnson announced an unprecedented boost to defence funding, with £16.5bn being promised to develop pioneering new technologies for the armed forces, over the next four years. But what does this mean for incumbents and what are the opportunities for investors?
While some form of revised UK Government strategy on defence has been in the pipeline for a while, since the deferral of the comprehensive spending review (CSR) in October it could have been thought that no firm commitments would be made. But, the announcement of a multi-year commitment to increase defence spending is a strong statement of intent, especially while government finances and the wider economic situation is uncertain.
For the defence sector, this is good news but context is necessary:
- The new funds are focussed on developing new technologies and will feed into the National Cyber Force, the UK Space Command and a national artificial intelligence agency.
- The dreaded “black hole” in defence funding will probably stay at a significant level: The ministry of defence still has a shortfall of £13bn in its equipment budget. These new funds and new ideas still leave a question mark over existing programmes. Tradeoffs and significant “efficiencies” could be expected.
The hope is that this funding leads to new opportunities for people and businesses in the area. A focus on development and new technology will favour innovative smaller and mid-market suppliers – or at least force the large incumbents to push hard to change the ways they work, such as increasing speed of delivery, flexibility and finding ways to do more for less. Defence is a tricky market to enter but perhaps the time could be right for those with something interesting and different to offer.
We wait with bated breath to the next layer of detail in early 2021 and how all this links to CSR and wider government spend.
If you would like to get to discuss any of these issues with one of our team, please get in touch.