The UK’s Strategic Defence Review 2025: Risks, Readiness & Regulatory considerations

In the context of increasing global instability the UK’s Strategic Defence Review (SDR), published this week, highlights the UK government’s focus on war-fighting readiness, strengthening NATO and accelerating military innovation. 

In this briefing, we consider the key points announced in the review, focusing on the complex legal, financial, antitrust and procurement issues likely to be of most interest to our clients and those across the industry. For further context on recent developments in European defence policy, see our earlier blog on REARM Europe.

What does the SDR say?  

The SDR is a comprehensive assessment of the nation's defence strategy, aimed at ensuring security at home and strengthening the UK’s global military posture. Commissioned by the Labour government in July 2024, the review was launched in response to growing geopolitical instability.  Led by former NATO Secretary General Lord Robertson, the SDR was externally conducted for the first time in UK history.  Over the past year, it has examined defence priorities, military capabilities, and spending commitments, culminating in its publication this week. 

The SDR outlines a significant shift in national defence strategy, emphasising "warfighting readiness" in response to escalating global threats.  Prime Minister Keir Starmer has explained that this approach aims to deter aggressors by boosting military personnel investment, expanding reserve forces to ensure full operational capacity and increasing stockpiles of munitions, reinforcing national security.

A core tenet of the Prime Minister’s defence vision is fast-tracked innovation, seeking to make the UK the fastest innovator in NATO.  This includes investing in AI-driven defence technology, streamlining procurement processes and eliminating bureaucratic inefficiencies, enhancing public-private partnerships and fostering technological breakthroughs. 

The key points from the SDR include commitments towards: 

1. streamlined and faster procurement processes between the government and industry, with the government committing to eliminate bureaucracy in a move away from “Cold War-era procurement cycles”. The SDR notes that currently, “for projects valued above £20m, it takes 6.5 years on average for a contract to be awarded”; the government aims to measure future projects in “weeks and months” instead (discussed further below); 
2. increased core defence spending, with the government having committed to spending 2.5% of GDP on defence from 2027 with an ambition to reach 3% by the mid-2030s (though, at the time of writing, there is NATO and wider international pressure to move this to 3.5%);
3. strengthening NATO, including by the UK planning to make its largest military contribution since its inception and focusing on enhanced interoperability and strategic coordination with allied forces; 
4. nuclear deterrence & submarine fleet expansion, with plans to build up to 12 new nuclear-powered attack submarines under the AUKUS partnership (UK, US, Australia) and invest £15 billion in nuclear warhead development;
5. cyber & drone warfare, with a new "digital warfighting group" to be created to counter cyber threats and drone warfare, reflecting modern battlefield realities; 
6. munitions & infrastructure investment, with the UK announcing that it will build six new munitions factories, generating over 1,000 jobs, and invest £1.5 billion in expanding domestic arms production; and 
7. targeted geopolitical focus, with the SDR highlighting Russia as an immediate threat, with China, Iran, and North Korea identified as strategic challenges.

Reaction to the SDR 

Concerns have been raised regarding the funding, feasibility, and military readiness required to achieve the goals in the SDR. 

Despite ambitious plans, critics argue that the SDR lacks sufficient spending commitments.  While the government aims to raise defence spending to 2.5% of GDP by 2027, there is no firm commitment to reach 3%, leading to accusations of empty rhetoric. There has been significant commentary (principally from the US) that spending 3% of GDP on defence is insufficient and that, for NATO to be properly funded, a minimum of 5% must be committed by all members.  Commentators note that Prime Minister Starmer may be under pressure, primarily from the US, to sign up to a higher spending target at the next NATO summit in the Hague later this month. 

Defence industry experts also highlight capability gaps, warning that the UK military capacity is insufficient for sustained conflict. For example, Lieutenant General Sir Rob Magowan, Deputy Chief of the Defence Staff (Military Capability), noted in a Defence Committee meeting that the UK could not sustain a prolonged war against a major power like Russia, stating: "[w]e could not fight an enduring war for more than a couple of months…because we do not have the ammunition or the reserves or equipment to do it.”  Others argue that industrial constraints such as skills shortages and supply chain vulnerabilities could hinder the rapid defence expansion envisaged under the SDR.

Legal and procurement considerations raised by the SDR 

While certain programmes have been announced, it is too early to predict precisely how the SDR will translate into new contracts and projects. However, it is likely that any players in the industry involved in scaling up defence in line with the SDR’s aims will need to consider many complex legal and practical issues. For example: 

(i) M&A activity and antitrust considerations

The Ukraine conflict has shown that, as ever, ‘necessity is the mother of invention’.  As new technologies are developed, there is likely to be both an uptick in larger defence contractors buying up that technology, as well as a continued trend towards multi-party joint ventures with each party bringing different technology, expertise and customer opportunities to the table.    

The SDR advocates that “if we fight together, we should build together”, and M&A activity is also likely to reflect the UK’s acknowledgement of the need for collaboration (in particular with the US and European NATO Allies) to strengthen relationships and Euro-Atlantic stability.  The SDR references AUKUS and the Global Combat Air Programme (a UK, Italy and Japan initiative) as “exemplars of capability collaboration and a powerful signal of the UK’s ambition to bring partners from different geographic regions closer together in support of collective security.”  In much the same way as the European Union’s recent White Paper on the Future of European Defence, the policy considerations behind the SDR could therefore signal a greater willingness to accept industry consolidation where necessary to drive enhancement of capabilities, with a consequent impact on merger control policy.

This trend towards partnerships is likely to involve both larger and smaller players as well as interest from private capital investors.  The regulatory complexity of transactions in the defence arena will be multiplied, reflecting the multi-party nature of transactions, the likely changes in regulatory frameworks and the changing geo-political environment.  Multiparty input products may eventually lead to enhanced likelihood of disputes and a careful approach to risk and liability allocation will be a key consideration in these transactions.

(ii) Capacity and training constraints

Commentators have noted that a critical factor in the UK’s defence readiness – and in turn its ability to achieve the goals in the SDR – is its industrial capability.  There are concerns that the UK suffers from technical skills shortages, and production capability constraints, affecting defence manufacturing and potentially delaying rapid capability expansion. It remains to be seen how the government and industry work together to overcome these challenges (for example, perhaps via the creation of new apprenticeship and training schemes, or other workforce development initiatives). 

(iii) Procurement reform and industrial partnerships – streamlining of the legal regime, and heightened scrutiny of contracts awarded

As noted above, the SDR promises radical procurement reform, including by introducing faster acquisition cycles, a new “industrial partnership” model with UK suppliers and innovation timelines measured in weeks/months, not years.  There will be legal implications resulting from these changes and the shift to rapid procurement may test the boundaries of existing legal frameworks.  While Prime Minister Starmer referred to the need to streamline defence procurement processes to reduce bureaucratic delays, it is unclear how this will be achieved in practice.  Both the government and defence contractors currently need to consider (and comply with) the UK and international legal frameworks for both sole source and competitive defence procurement, which in the UK is primarily the Procurement Act 2023 and the Single Source Contracts Regulations 2014 (as amended) (SSCRs).  

The Procurement Act 2023 (which came into force earlier this year) introduced some changes to the previous procurement regime in place in the UK (with some defence-specific carve-outs and accelerated procedures), but did not amount to a radical, ground-up, revision of the whole regime.  Many of the same criticisms that had been levelled at the previous regime, around bureaucracy, speed, and barriers to entry for new industry participants, remain in the new regime.  Concerns remain that it is ill-equipped to deliver this “radical” agenda and remedy seemingly endemic inefficiencies (and challenges with delivering key equipment and wider capabilities within agreed costs and timescales) which may require not only further legislative change but significant investment in building defence procurement capability and capacity in government and a shift of approach across the industry.   

Similarly, while there were changes made in 2024 to the SSCRs, many players in the industry still consider procurement of defence contracts under the regulations to be overly complex, resulting in barriers to entry, in particular for SMEs and smaller innovative companies.  Review of the SSCRs is imminent but it remains to be seen what changes will be made and whether they will be sufficient to achieve the government’s aims, or whether the regulatory regime will stifle the SDR’s aims regarding innovation and diversification of supply chains. 

It is also likely that the commitment to increase defence spending (at the expense of other priorities) and related defence procurement activity will lead to heightened scrutiny of contracts awarded.  Contractors should prepare for increased scrutiny under ‘value for money’, transparency, and national security exemptions. 

However, if the UK Government is serious about shifting to more rapid procurement cycles, it may need to amend the current legislation if it is to achieve a significant reduction in the time scales typically seen today.

(iv) International collaboration, and NATO-first policy

The UK plans to adopt a “NATO-first” defence posture, becoming the leading edge of innovation in the Alliance.  This includes enhanced interoperability, joint capability development and forward deployment.

Under this approach, defence suppliers will need to navigate international as well as domestic rules and legislation, including in relation to NATO procurement rules, host-nation agreements, cross-border data sharing and cybersecurity standards.  Increased defence spending and arms production may also require consideration of export control laws and international arms trade regulations. 

Existing export control laws regulate the transfer of military and dual-use goods, software, and technology to ensure national security and compliance with international agreements, and include the Export Control Act 2002, Sanctions and Anti-Money Laundering Act 2018, and UK Strategic Export Control List which outlines controlled items requiring export authorisation.  The UK’s domestic legislation sits alongside international agreements such as the Wassenaar Arrangement (which governs conventional arms and dual-use technologies), the Nuclear Suppliers Group, which restricts nuclear-related exports, and the Australia Group which focuses on preventing the spread of chemical and biological weapons. 

The SDR includes recommendations to create a new Defence Exports Office to boost international defence collaboration and trade, and to review export licensing policies to “consider how to improve prioritisation and provide clarity to industry and international partners”.  It is as yet unclear what changes will be made domestically and internationally to export rules. The SDR does refer to certain existing export agreements, such as the AUKUS nations’ ITAR exemption and reciprocal export control arrangements by the UK and Australia, noting that these exemptions have had a beneficial impact in enabling allies to collaborate.  It remains to be seen whether further similar exemptions will be put in place. 

(v) Challenges associated with large scale projects  

The development of facilities such as submarine production sites and the expansion of nuclear infrastructure will involve complex construction contracts, environmental regulations, and public-private partnerships.  As with any complex contracts, terms will need to be carefully negotiated and scrutinised to minimise the risk of future disputes and to adequately reflect the goals and risks of the respective parties. 

Supply chain resilience will need to be carefully managed, with any potential disruptions needing to be planned against and mitigated.  In particular, because many of the UK’s allies share similar aims in relation to defence, it is likely that competition may emerge for some resources where there are global shortages - creating opportunities for cooperation but also coordination difficulties internationally.  Supply chain considerations will need to be reflected in any new defence contracts (and sub-contracts), with risk allocation carefully addressed. 

Some commentary has noted that previous UK defence projects have been affected by budget overruns and cost control problems.  While the government has pledged to increase defence spending to 2.5% of GDP by 2027, the £75 billion cumulative defence uplift assumes flat spending, which may not be realistic given inflationary pressures and wider complexities with the effective delivery of defence programmes on time and on budget where constantly evolving technology in practice necessitates a nimble approach that many argue that the UK Government is not able to deliver.  Any new defence contracts will have to carefully consider pricing and other protections to ensure that defence products can be delivered without being derailed by costs issues.  Some defence analysts argue that the UK would need to spend closer to 4% of GDP—Cold War levels—to address current capability gaps comprehensively and to effectively deliver the new products required.

(vi) Cyber, digital, and emerging technology-related challenges 

The SDR highlights a pivot to digital warfighting, including increased use of AI, autonomy, and drone warfare.  The SDR also refers to cyber resilience and data-driven operations, as well as the creation of a new “digital warfighting group” within the MoD. 

Players in the industry will need to consider their cybersecurity obligations under the EU’s NIS2 Directive and UK equivalents, issues regarding ethical AI governance and algorithmic accountability, as well as issues relating to data security and, intellectual property rights.  Data protection and sovereignty in defence cloud and analytics platforms will also need to be considered.   

(vii) National Resilience and Civil-Military Integration

The SDR emphasises a renewed whole-of-society approach to defence, including expanded reserve forces, civilian participation in resilience planning, and a renewed “contract with those who serve”.  This may lead to new statutory duties for local authorities and private sector partners.  It is also likely to give rise to employment law considerations for reservists and defence volunteers. 

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In summary, while the SDR and defence spending commitments represent a pivotal moment for UK security policy, there remain significant legal and financial challenges requiring careful navigation by players in the industry working together throughout the supply chain to deliver the UK’s ambitions.  It will be important to ensure that new defence contracts are carefully implemented and drafted to minimise risks relating to deliverability, performance, costs, delays, supply chain issues and compliance with a range of national and international laws.