Rachel Reeves unveils £2bn boost for UK defence sector amid 'new era of security'

Chancellor Rachel Reeves has pledged further support for the UK defence industry, saying the move can also help the government with its mission of “driving growth across the UK”.

British defence companies selling products overseas are to benefit from a £2 billion increase to UK Export Finance (UKEF) lending capacity – which the government believes will boost opportunities for firms selling equipment such as missiles, aircraft and armoured vehicles on the international market.

A Treasury spokesperson cited “global instability, including Russian aggression in Ukraine, increasing threats from malign actors, rapid technological change, and the accelerating impacts of climate change” for the rise.

Ahead of a visit to Scotland on Friday, Ms Reeves set out plans to increase the lending capacity of UKEF – a government department that provides financing to those buying goods from the UK -from £8 billion to £10 billion. In 2023-24, 650 exporters benefitted from its help, supporting 41,000 jobs across the UK.

A muzzle flash lights up pine trees as the British Army's new Archer Mobile Howitzer gun fires, as British Army soldiers take part in training near Rovaniemi in the Arctic Circle, Finland, in November 2024. | PA

The increase comes as the UK government - under pressure along with other Nato allies from US President Donald Trump - raises its defence spending to 2.5 per cent of GDP, a move that is being funded by cutting the international aid budget.

Ms Reeves said: “The world is changing, and we must bring about a new era of security and renewal that protects working people and keeps our country safe.

“This increase to UKEF’s lending capability is our industrial strategy in action, bolstering our defence industry and supply chains, creating jobs and driving growth across the UK.

“This is alongside an increase in our defence spending to 2.5 per cent of GDP. We are strengthening our national defence, kickstarting economic growth and delivering the stability we need to keep us safe.”

Business Secretary Jonathan Reynolds said a strong defence sector is “vital for a Britain that’s both secure at home and strong abroad”, but would also allow business to benefit.

Scottish Secretary Ian Murray said: “We are entering a new era for our national defence and Scotland’s world-class defence industry is playing a big role in meeting that global security challenge.

“Scottish defence businesses – with their skills, expertise and innovation – have a huge opportunity to benefit from this £2 billion in new lending.

“That will mean a boost in skilled jobs and economic growth in Scotland and show the best of our world class industry abroad.”

Chancellor Rachel Reeves will make the announcement in Scotland on Friday | PA

At First Minister’s Questions at Holyrood on Thursday, John Swinney insisted conventional forces could protect Scotland from any "Russian aggression" - despite claims from Labour that his opposition to Trident nuclear weapons will make the country "less safe".

Scottish Labour leader Anas Sarwar had challenged the First Minister to "re-examine his red lines" in relation to defence, stressing the importance of this to "ensure we are never at the mercy of dictators like Putin".

The Labour leader made the plea a week after former SNP Westminster leader Ian Blackford had challenged his party to move away from supporting unilateral disarmament for the UK.

But the SNP leader was clear, saying: "Mr Sarwar knows my position on the nuclear deterrent. I don't believe nuclear weapons should form part of the defence approach that we take forward."

The First Minister added: "What we need to have to ensure we can repel Russian aggression is to have effective conventional forces."

Mr Swinney stressed: "I think it is important we have the defence forces and requirements that are necessary for our times, and I would simply point out to Mr Sarwar there are nuclear weapons that are held by a number of countries now and it has not stopped the conflict that is taking place in Ukraine at the very moment."

His comments came as Mr Sarwar warned that the world was becoming "increasingly dangerous", insisting that SNP policies - which reject both nuclear weapons and nuclear power - are impacting on Scotland's energy security and its national security.

Mr Sarwar said: "At a time when there is a war on our continent and the world is increasingly dangerous, the SNP's position is we give up our nuclear deterrent now while countries like Russia hold on to theirs."

The Scottish Labour leader told Mr Swinney: "This is not the time for rigid ideologies but for serious, pragmatic leadership.

"Keeping our country safe should be the first priority of any government, but isn't it the case that whether it is on economic security, energy security or national security, the SNP's policy would make our country less safe and less secure."

He also argued action is needed to ensure the defence sector - which is worth more than £3 billion-a-year to the Scottish economy and supports 33,000 jobs - has the skilled workers it requires.

But as it stands Mr Sarwar said: "The reality is much of the skilled labour in Scotland's defence industry is coming from abroad on temporary contracts, because we're not equipping Scots with the skills they need."

At this "generation defining moment", the Labour leader stressed all leaders must "examine previous red lines", as he accused the SNP of being "at best uncomfortable and at times hostile" to the defence sector.

Mr Swinney, however, stressed the Scottish Government was working "closely with employers" to help ensure Scotland has "the skills that are necessary for the 21st century.

He told MSPs that Deputy First Minister Kate Forbes had met representatives from the sector, including shipbuilders BAE, to discuss the issue of skills .

The First Minister said: "These are discussions the Government is engaged with. It is part of our duty to ensure the country is secure and is safe."