UK sets 5% security spend by 2035, funds defence SMEs

If you teach politics or economics, this is a good week to ask: what does “defence spending” actually cover, and who benefits? On 27 January 2026 in London, Defence Readiness and Industry Minister Luke Pollard used the ADS Annual Dinner to sketch the government’s direction. We’ve translated the big claims and turned them into a clear guide you can use in class or with your team. (gov.uk)

The headline pledge is a shift to spending 5% of GDP on “national security” by 2035. That figure is split between 3.5% for core defence and 1.5% for resilience at home, such as cyber, borders and civil preparedness. This follows government signalling through 2025 that the UK expects to reach around 4.1% on national security in 2027 (with core defence at about 2.6%), before rising further across the next decade. (feeds.bbci.co.uk)

Here’s how to read that split. When politicians say “defence”, they mean the Armed Forces and the kit they use. “National security” is wider: infrastructure hardening, cyber protection, border security and other resilience measures. It matters because these definitions decide what counts towards the target and where money actually lands in communities. The government’s own explanation of the 3.5%/1.5% split confirms that broader scope. (gov.uk)

Budgets are choices, so cost matters. The Institute for Fiscal Studies estimates that lifting core defence from 2.6% to 3.5% of GDP would mean roughly £30bn more each year in today’s terms. That pressure will shape tax and spending debates students will hear about over the next decade. Teach your group to ask: is a promise funded, scheduled, and deliverable? (ifs.org.uk)

Alongside money, the government argues delivery must improve. A new National Armaments Director, Rupert Pearce, was appointed in October 2025 to overhaul procurement, cut duplication and lead exports-part of the Strategic Defence Review’s reform track. He will also steer a single investment budget by consolidating multiple lines, with the aim of faster, cleaner decisions. (gov.uk)

Policy scaffolding sits under these announcements. The Defence Industrial Strategy (September 2025) sets priorities: back UK‑based firms and jobs, speed up procurement, strengthen supply chains, push UK tech at the leading edge, and deepen partnerships at home and with allies. If you’re studying industrial policy, this is a live example of government using defence to drive growth and capability at the same time. (gov.uk)

Small businesses get a new front door. On 27 January 2026, the Ministry of Defence launched the Defence Office for Small Business Growth, starting with 30 “pathfinder” SMEs and a brief to simplify bids, slash red tape and reverse the decline in SME spend. In the dinner speech, Pollard also cited a target of £7.5bn for SMEs by 2028, a 50% uplift on direct MOD allocations. Takeaway for founders: there’s now a named team to call. (gov.uk)

Innovation funding is being ringfenced. UK Defence Innovation (UKDI) has a protected budget of at least £400m a year and the MOD says at least 10% of its equipment budget will go to novel technologies such as autonomy and AI. Recent announcements include rapid cash for drone and counter‑drone projects to move ideas from lab to field faster. (gov.uk)

There’s also fresh seed money. The government has launched a £20m fund for early‑stage military tech firms, alongside an explicit push for faster, iterative development rather than long, bespoke programmes. If you’re teaching entrepreneurship, this is a live case study in how public buyers try to pull start‑ups into complex supply chains. (ft.com)

What this means in plain English: more procurement will try to use shorter cycles, off‑the‑shelf components and upgrades in stages after first delivery. You’ll hear officials call this “spiral development”. For students, it’s a useful contrast with the older model that signed huge, slow contracts with generous cost‑plus terms. The direction of travel is toward tighter timelines and clearer incentives for hitting milestones. (ft.com)

How big is the sector right now? Trade body ADS says aerospace, defence, security and space generated about £100bn in turnover and £42bn in value added in 2024, with roughly 443,000 direct jobs across the four sectors. Different definitions produce different totals-the speech cited higher defence‑only jobs-so always check what’s being counted in headline numbers. (adsgroup.org.uk)

One unresolved piece is the Defence Investment Plan, described as the first line‑by‑line review in 18 years. Ministers say it’s the department’s top priority; industry wants the timetable nailed down because multi‑year orders decide factory schedules, hiring and export campaigns. Expect scrutiny here over what is funded now versus what is promised later. (gov.uk)

If you’re using this story in class, try framing a debate around three trade‑offs. First, readiness versus affordability: how quickly should the UK raise core defence to 3.5%? Second, speed versus accountability: how do we buy faster without repeating past overruns? Third, sovereignty versus exports: how do we design for allies and still protect UK skills? Students don’t need to agree-but they should get comfortable testing claims against dates, budgets and independent analysis. (ifs.org.uk)