Employment implications

To estimate increases in employment, we set out three scenarios. Firstly, our base case sees spending as a share of GDP rise to 2.5% by 2027. Annual defence spending would rise to between £60 billion and £70 billion. Secondly, the SDR sets out an aspirational target of 3% of GDP – potentially pushing the budget well above £70 billion in the longer term. Finally, we assume that the UK increases spending to meet the newly agreed NATO target of 3.5% on conventional military spending by the end of the decade.

There is a significant correlation between MOD expenditure and direct and indirect employment. Direct employment sees a correlation of 0.88, and indirect employment sees a weaker correlation of 0.32; the relationship rises to 0.89 and 0.48 when accounting for inflation. This shows how an increase in spending will drive growth in employment.

MOD spending on UK industry was estimated to directly support 134,000 jobs according to the latest statistics for the period 2022/23. These are jobs with prime contractors and first-tier suppliers, directly paid by defence contracts. According to the ONS, this translates to one directly employed defence-related job per 110 jobs in the UK. The number of jobs in the sector was already growing in 2022/23, increasing by 4,000 roles as spending on defence rose in response to global conflicts.

While factories and shipyards directly building defence equipment are the most obvious avenues of employment from this increase in spending, behind these jobs exists the need for a vast supply chain of subcontractors, logistics, components, and raw material suppliers. These jobs are defined as second-tier suppliers and beyond, accounting for the indirect employment generated by defence spending.

Notably, these jobs are spread across a wide variety of sectors, and a significant proportion will be services and support industries that utilise office and lab space. This is captured by the technical, financial, and other business services sector, and accounted for around 87,900 of the 244,000 jobs supported directly or indirectly by defence spending. These will include professional services, R&D providers, and IT services. In addition to this, spending from the MOD supports employment in logistics-adjacent industries, for jobs including warehouse operatives, transportation professionals, employees at wholesale firms supplying raw materials, and logistics support staff, such as forklift drivers. These sectors will all generate their own logistics footprints. Of the 244,000 total industry jobs, both directly and indirectly supported by MOD expenditure, 79,300 are manufacturing-related, accounting for 32.5% of total MOD-supported employment. While it is difficult to accurately estimate the full impact of spending on logistics employment, based on MOD estimates, we believe that some 29,800 jobs are directly or indirectly supported by MOD expenditure.

The SDR’s spending is expected to drive significant increases in manufacturing jobs as well as support existing ones. One key headline in the run-up to the SDR’s release was the announcement of at least six new munitions factories, which would generate 1,000 new skilled manufacturing jobs. These jobs would be spread across the UK, with a similar commitment to produce long-range missiles expected to support a further 800 jobs. Beyond this, spending on major programs like Future Combat Air System/Tempest will support aerospace job creation, with BAE previously estimating the Tempest program could support 20,000 jobs annually in the late 2020s as production ramps up. Similarly, lofty ambitions to build 12 new conventionally armed, nuclear-powered submarines at a rate of one every 18 months are expected to support 1,200 jobs in UK dockyards over the next decade.

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