Shifting geopolitics, growing cyber insecurity and increasing global instability have prompted a generational uplift in defence spending from 2.3% to 2.5% of GDP from April 2027, with an ambition to reach 3% in the next parliament.
As a result, defence has been prioritised as one of eight high-potential growth sectors in the government’s Modern Industrial Strategy, with the industry poised for accelerated growth and job creation.
Innovation will be front and centre, with Chancellor Rachel Reeves allocating £400 million to the UK Defence Innovation (UKDI) – a new organisation bringing together several existing organisations such as the Defence and Security Accelerator (DASA) – in the Spring Statement.
Operational from 1 July, its mission will be to support innovation in the sector, including through significant new grant funding opportunities.
Key takeaway for manufacturing companies
With major new grant funding opportunities expected to flow from the UKDI in areas such as dual-use technology and cyber security, innovative manufacturing businesses in the defence sector should remain alert to competition launches.
Businesses may be eligible to claim other innovation incentives too. R&D tax relief is perhaps the most well-known, but other incentives such as Patent Box, offer valuable rewards for eligible companies. For those scaling up and fitting out manufacturing facilities to expand production, capital allowances can also be explored as an important mechanism for reducing taxable profits.
ForrestBrown has experience of supporting innovative defence and manufacturing businesses and can work with MTA members to assess eligibility for innovation incentives in this new era of defence spending.