The False Promise of Defence as Prosperity

The government has committed to enormous increases in military spending, from 2.3% of GDP currently (£66.3 billion) to 2.5% by 2027/2028 (£80.5 billion) and 3.5% (£121.2 billion based on the 2029/30 GDP forecast) by 2035. The government has justified these choices by pointing to geopolitical tensions and ‘historic underinvestment’ in defence. The latter of these arguments is questionable – before the four planned increases, the UK’s military spending was among the highest in the world and even exceeded its 1980 spending in real terms.

To sell a huge financial outlay on foreign and defence policy alongside self-imposed restrictions on investment elsewhere, Starmer’s government claims that the defence sector will become an ‘engine for growth’, a route to ‘prosperity’ and a source of security for working people. These arguments are now lynchpins of the government’s narrative as it fails to deal with stagnation and real incomes are squeezed. They have featured prominently in recent government planning, with the Strategic Defence Review (SDR), National Security Strategy, and Industrial Strategy centred on the alleged economic benefits of defence spending, especially of investments in emerging technologies. 

Like any form of public spending, military contracts stimulate economic activity. However, defence investments also have specific limitations as a growth strategy. Often missing in economic debate is comparison of the efficacy of different forms of government stimulus. Without a comparative approach, discussions of the economic benefits of defence spending are presented in a vacuum. The lack of comparison conceals the limited growth impacts of defence investment, the risks of concentrating public resources in a low-growth sector and its inadequacy as a jobs strategy, leaving only the argument that defence investments can be a ‘moonshot’ – a gamble on long-term innovations that would better be addressed directly. 

Defence is Not a Viable Growth Strategy

Defence expenditure is among the least effective forms of government spending for economic growth. When choices are made to invest in defence instead of civil infrastructure, public services or domestic consumption, it can be an impediment to growth overall. 

In 2024, a European Commission review of the economic literature in advanced economies found that ‘it is impossible to determine if [increased defence spending] is favourable or negative to growth’. Three years earlier, a RAND Corporation review found that defence spending in the US produced between $0.60 and $1.20 in GDP per dollar while civilian infrastructure produced at least $1.50. RAND concluded that expansive defence spending can have negative consequences for the economy as it is an opportunity cost on investments that would produce greater stimulus. The limited direct stimulus of defence spending is compounded by the cost of directing a disproportionate share of the industrial capacity and skilled workforce of a country towards a relatively low-growth sector. Several other studies corroborate these findings, demonstrating the weak relationship between military expenditure and growth. 

The government’s strategy is partly inspired by analysis of US military programmes throughout the twentieth century that drew on fiscal and industrial resources of an order of magnitude greater than those available in the UK. Moreover, such analysis ignores the fact that defence spending was the primary form of public investment that was deemed politically acceptable in the US during the Cold War. There is no comparison in this analysis of whether public research and development for civilian purposes would yield the same long-term economic benefits as military research programmes, even amid admission of the short-term economic harms that result from a rapid increase in military spending. 

Modelling of the economic benefits of defence contracts compared to investments in health, education or environmental protection show that defence consistently produces less domestic output. The logic behind the limited economic impact of defence spending is intuitive – the products of investment in infrastructure and net zero provide deeper long-term benefits to the economy. Rail systems build lasting connections between regions and energy infrastructure can bring down bills; whereas the economic outputs from defence spending are limited to employment and the spending power of the workers involved in producing military equipment or providing services.

Defence Spending Does Not Bring Security to Working People

While increasing dependence on defence as a growth strategy, Starmer has also asserted that the government’s security policies will create ‘jobs, wages and growth for working people’. Despite these bold claims, defence expenditure is just as limited a strategy for jobs as it is for growth.

Overall, the military budget supports 440,000 jobs, including military and civilian workers, as well as those directly and indirectly employed in the private sector to work on MOD contracts. The £28.8 billion the MOD spent on UK industry in 2023/24 supported about 9.4 jobs per £1 million. By contrast, Transport for London procurement directly and indirectly supports 13.7 jobs per £1 million. Future defence contracts appear likely to have an even weaker impact on jobs; one recent announcement for a £1.5 billion investment to build six munitions and energetics factories would directly support around 1000 jobs – a staggering £1.5 million per job, less than one job per £1 million of government money. The defence industry has been decreasing its human footprint for decades, with jobs in the industry falling by more than half since 1980 according to the limited data available. There is no reason to expect this trend to reverse, especially as the digitalisation of militaries has led to further shifts from manufacturing to IT.

Just as defence contracts are low-growth compared to investment in other sectors, they are strikingly poor at creating jobs. Through £23 billion in public, private, and foreign investment, the net zero sector supports the full time equivalent of 667,000 jobs. Meanwhile, modelling indicates that defence expenditure provides far fewer jobs than investment in education, healthcare or green energy.

Given the weakness of defence spending as a jobs-strategy, the government’s rhetoric is likely to prove risky when investments in defence contracts do not reach the vast majority of working-class people. In fact, this strategy is more likely to lead to upward redistribution – between 2012/13 and 2021/22, the MOD’s top five contractors paid £15 billion to their shareholders based on global revenues. These shareholders are primarily international investment firms. This dynamic is likely to be exacerbated by private sector proposals tove profit restrictions on defence contracts.

While the government claims that defence spending will benefit regions across the UK, helping ‘revitalise’ ex-industrial towns, spending on defence contracts is concentrated in the South of England. This limits the potential of defence spending to matter in people’s everyday lives, beyond specific local economies. Conversely, net-zero contributions dwarf defence spending and support several times the number of jobs in every region (except the South West).

Amid Climate Crisis, the Defence Budget can Harm Macroeconomic Stability

While providing little for the economic security of working people, expanding defence spending will also deepen macroeconomic instability in a world transformed by climate change. Defence investments are extremely carbon intensive due to emissions from the production and use of military equipment, from aircraft to AI-enabled data processing. According to one estimate, meeting NATO’s latest military spending target will increase Europe’s overall emissions by 12%. Amid escalating climate-related shocks to supply and demand, these additional emissions worsen economic instability. 

The political and economic choices made to facilitate military budget expansion also risk stable adaptation to climate crisis. At the 2025 Spending Review, defence received by far the largest increase in capital investment of any department; by contrast, Energy Security and Net Zero was allocated a marginal increase while Environment, Food and Rural Affairs had its capital budget cut. This is a significant risk given the need for climate investment to safeguard the economy and provide genuine national security.

Moonshots: Gambling the Public Finances

The government strategy for national prosperity through defence contracts leans heavily on the promise that innovation in emerging and novel technologies will produce industrial leadership. Part of the argument is that many of the emerging technologies relevant for modern military operations are dual-use, especially quantum computing and AI, so military spending will lead to advancement in civilian sectors. But is it likely that the UK will become a leader in the emerging tech space through defence spending?

There are currently no UK companies which can begin to rival the scale and capabilities of US and Chinese IT and AI companies, especially in the defence sector. Indeed, foreign-headquartered companies, especially those based in the US, provide much of the MOD’s IT capabilities and receive a far greater share of expenditure than their domestic counterparts. The SDR committed to prioritising UK-based ‘deep tech’ suppliers to enhance its national sovereignty in defence, but the feasibility of this commitment remains to be seen.

The myriad challenges inhibiting MOD procurement were also discussed in the SDR, but it is unclear how reforms will be implemented, nor how successful they will be. Absent transformation, the MOD will be unable to procure and deploy even moderate digital capabilities, to say nothing of stimulating deep tech development across the country. The UK defence sector includes SMEs in emerging tech – the primary drivers of innovation – but the MOD has thus far been unable to deploy their capabilities at scale, nor grow these firms in a manner comparable to other countries. 

Given the unlikelihood of success and the compromises it is making in other areas, the government is gambling the health of the British economy on becoming a tech leader through defence. If the government seeks to develop ‘deep tech’ with civilian applications, the most direct strategy would be to further invest in the public sector development of civilian technology, rather than hoping that military investments yield a moonshot outcome.

Conclusion

In the UK and broader European context, defence spending is not an effective route to jobs, growth or the economic security of working people. As a result, any arguments for increased defence spending should not dwell on the purported economic benefits. 

The government has tried to sell the promise of economic prosperity through defence spending to avoid the perennial ‘guns vs butter’ debate. Especially given recent cuts to welfare, international development, and green industrial programmes, among other areas, the refusal to engage seriously with the real trade-offs to increasing defence spending is a central contradiction in the government’s strategy. The political risks of this are likely to become clearer ahead of the next election, while the effects on economic prosperity could last for decades.

© RUSI, 2025

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