The industrial base
Where the money lands — and who receives it.
Most of it stays in Britain
For every £100 of identified MOD expenditure with industry and commerce, £85 is attributed to activity in the UK and £15 overseas.
- UK — 85%£31.9bn of direct spending with UK industry
- Overseas — 15%
Source: MOD Regional Expenditure with Industry 2024/25.
What this measures. This measures where economic activity takes place, not UK ownership, UK intellectual property, or the final economic value retained in Britain. It is also a share of MOD spending with industry — not of the whole defence budget.
85% is a high domestic share, and higher than most people assume. It is not obviously too low. The harder question is not how much stays in Britain, but whether the right things stay — sovereign capacity matters most where a war could sever a foreign supply line, and least where an ally simply builds it better and cheaper.
Ten companies, and everybody else
The growth argument for defence spending is that it creates jobs and industry across the country. The spending data shows where it actually goes.
- BAE Systems — 16.3%One company
- The next nine largest — 23%Rolls-Royce, Leonardo, Babcock, QinetiQ, Thales, Airbus, Serco, Leidos, Boeing
- Everyone else — 61%Direct spending with SMEs accounts for 4% of MOD spending with UK industry
Over 39% of procurement expenditure went to ten suppliers. MOD publishes the ten largest suppliers in rank order but a percentage only for the largest and smallest of them. The eight in between are ranked, not quantified. The middle band here is the top-ten total minus BAE’s published share.
16.3%
To BAE Systems alone
The largest single supplier
4%
Direct spending with SMEs
£1.2bn in 2024/25. Separately, 559 new contracts worth £876m.
£21.4bn
Across 2,398 new contracts
2024/25
The comparison that matters. Ten companies take over 39% of procurement spending. Direct spending with small and medium-sized enterprises is 4%. One firm — BAE Systems — receives four times the share that goes directly to SMEs.
What the 4% does and does not count. This is DIRECT expenditure only. It does not capture SME work reached through prime contractors’ supply chains, which the MOD does not measure. The true SME share of defence work is higher than 4% — by how much is not published, which is itself a gap.
Why concentration is a genuine trade-off, not simply a failure
Only a handful of firms on earth can build a nuclear submarine or a combat aircraft. Concentration in those programmes is unavoidable and not a scandal. The risk is what it does to everything else: competition, prices, the government’s negotiating position, and whether a smaller firm with a better idea can ever get in.
Buy British, or buy from allies?
This is one of the few defence arguments where both sides are straightforwardly right some of the time.
Buy British
- ✓ Jobs, tax revenue and skills stay in the UK
- ✓ Sovereign capacity that cannot be switched off by another government
- ✓ Supply security if war disrupts international trade
- ✗ Often higher unit price
- ✗ Less competitive pressure on the supplier
- ✗ Can be slower to reach the front line
- ✗ Risks entrenching the concentration shown above
Buy from allies
- ✓ Off-the-shelf equipment available sooner
- ✓ Usually cheaper at the point of purchase
- ✓ Interoperability with the forces you will fight alongside
- ✓ Access to technology the UK does not have
- ✗ Dependency on another state’s export controls
- ✗ Overseas supply chains that a conflict could cut
- ✗ Money leaves the UK economy
- ✗ Long-term erosion of domestic capability
The sensible position is not 100% British procurement, and not open competition regardless of consequence. It is sovereign capability where dependency would be an unacceptable strategic risk — munitions, nuclear, shipbuilding, missiles, propulsion, cyber — and international competition where it would not.
Can Britain build at rate?
How fast could British industry replace what a war consumed?
Ukraine has shown that high-intensity war consumes munitions, drones and vehicles far faster than peacetime production replaces them. A country can have a large budget, a modern design and no ability to build at rate. That is a different problem from underfunding, and more money alone does not fix it.
Skills
Nuclear engineers, welders, systems and software engineers, shipbuilders and cyber specialists are scarce — and AUKUS, Dreadnought, warhead modernisation and shipbuilding are all bidding for the same people at once.
Order predictability
Factories, apprenticeships and supplier networks cannot be built around unpredictable annual orders. Multi-year visibility is a precondition for capacity, not a bonus.
Continuous production
The alternative to standing capacity is dormant factory, then crisis, then scramble. Maintaining a minimum production rate costs money in peacetime and buys time in war.
Not yet measurable here. Production rates, stockpile depth and surge capacity are the numbers that would actually answer this question, and they are not published in a form that can be charted. This site will not estimate them. What can be said is that the constraint is recognised by the government and by NATO, and that several defence programmes rated Red give supply-chain and engineering shortages as the reason.
Related: the nuclear enterprise, which competes for the same engineers and the same budget. Or back to the defence overview.