Investment in defence and security – The lay of the land

The rapidly-evolving geopolitical landscape has led to a notable shift in focus on defence and security investment. These developments, the most recent being a UK-EU defence and security partnership, follow a general pivot by the UK and the EU towards the re-arming of Europe.¹

Reasons for increased focus on defence and security

Historically, defence arrangements within Europe primarily relied on NATO’s collective security framework, where the United States played a key role in ensuring European security. Whilst collaborative EU defence mechanisms were in place, there was less emphasis on independent European military capabilities. Recent changes to the geopolitical environment and the evolution of warfare have prompted the UK and Europe to reassess their defence and security priorities.

Recent years have seen an increase in global tensions, including Russia’s invasion of Ukraine and escalation in the Israel-Palestine conflict. The Trump Administration’s criticism of NATO and threats to withdraw US security and defence support have also heightened security concerns and sparked a re-evaluation of defence strategies across Europe.²  As such, there is an increased focus on sovereign defence capability.

A rise in the number of cyber-attacks, the rapid evolution of artificial intelligence and other technological advancements have also transformed the nature of conflict, prompting investment in the modernisation of defence systems. The increased use of cheaper drones in the Russia-Ukraine conflict, for example, necessitates advancement in anti-drone defence technology as tech developers seek more cost-efficient systems.³ Costly and complex systems will need to be supplemented by cheaper and quicker solutions to tackle these evolving challenges, and start-ups will be integral to implementing that shift in strategy.   

Public opinion on defence investment also appears to be shifting as a result. UK Defence Secretary, John Healey MP, has noted that taking more responsibility for Europe’s defence is an “ethical investment”. ⁴ The FCA has also provided assurances that sustainable finance rules do not prevent investments into, or the financing of, defence companies.⁵

Changes to the UK defence procurement and investment

In April, influential venture capital investors met with John Healey MP to discuss future routes to defence and deep technology investment, with a view to securing long-term certainty of rising defence investment. ⁶ The commitment to support growth and investment was backed up by the Strategic Defence Review 2025 (“SDR 2025”), titled “Making Britain Safer: Secure at Home, Strong Abroad” (published on 2 June 2025).⁷ The SDR 2025 sets a clear mandate to transform the UK into a leading tech-enabled defence power, with some examples of key commitments including:

• Sustained increase in defence spending, aiming to spend 2.6% of GDP on defence by 2027 and 3% in the next Parliament.⁸ The Government has also announced that, by 2035, it will aim to spend 3.5% on core defence and 1.5% on resilience and security, in line with NATO requirements.⁹
• A segmented procurement model designed to accelerate acquisition timelines.
• A new £400 million ringfenced “Defence Innovation Fund”.
• Earmarking 10% of the MOD equipment budget on new technologies.
• The establishment of Defence Research and Evaluation (DRE) to drive early-stage research and academic collaboration.
• Supporting UK defence exports and cross-border M&A, to be overseen by a new Defence Exports Office.  
• Commissioning of a Defence Infrastructure Recapitalisation Plan (February 2026) to guide investment in bases, training facilities and housing and a Defence Investment Plan (Autumn 2025 to drive consolidation and vertical integration across the defence supply chain.
• Development of regional innovation clusters to drive M&A in local supply chains.

The UK has backed up the SDR 2025 through a £5 billion investment in autonomous and laser technologies.¹⁰ In September 2025, in the Defence Industrial Strategy, the Government also committed to address skill and workforce shortages in the defence sector; £182 million will be invested to develop skills, including by establishing new Defence Technical Excellence Colleges. In addition, the Government has committed to developing a dedicated Finance and Investment Strategy, supported by a new Defence Investors’ Advisory Group.¹¹

The commitment of public funds into defence, alongside facilitation of more streamlined private investment, will complement existing initiatives such as The Defence and Security Accelerator, which has delivered a boost of almost £1billion to the UK economy. ¹²

UK-EU security and defence partnership

The UK-EU Security and Defence Partnership, signed on 19 May 2025, establishes a framework for security cooperation between the UK and Europe going forward. The partnership will cover various areas including maritime security, space security, hybrid threats, resilience of critical infrastructure, irregular migration, global health, and illicit finance.¹³

The partnership marks a notable step towards increased cooperation and joint investment in defence across the continent, aiming to strengthen communication and cooperation with the view to tackling shared security challenges and providing mutual support of defence capabilities.

The UK Government says that the agreement “paves the way” for UK-based firms to access the €150bn Security Action for Europe (SAFE) EU loan fund for defence projects.¹⁴

The future of defence investment

For investors, acquirers, and defence companies, the SDR 2025 presents a unique opportunity to align with Government priorities, access new funding streams, and participate in the transformation of the UK’s defence and security landscape. With the Defence Investment Plan set to be published this year, the scene appears to be set for significant investment of public and private funds into the defence and security sector in the coming years. Advancements in deep technologies (such as artificial intelligence, cyber security and unmanned systems) are likely to prompt increased investment in research and development. This, coupled with enhanced collaboration on defence, is likely to see a surge in venture capital investment in defence tech throughout the UK and Europe.¹⁵

Burges Salmon has extensive experience in the defence sector, providing legal advice to both governments and private organisations. Our expertise spans across maritime, air, land, and communications & cyber domains. We offer specialist legal advice on UK Government defence contracts, defence procurement law, defence infrastructure, mergers and acquisitions, investments and regulatory matters.

If you would like any further information, or advice related to any of the information in this article, please contact Alex Lloyd, Chris Doherty or your usual Burges Salmon contact.