The appointment of John Healey as chancellor has sent shockwaves through the defence sector, with shares in major players like Babcock International and BAE Systems experiencing a significant boost.
By Tuesday afternoon, Downing Street had declined to confirm the number the sector actually wants, and ruled out the funding mechanism some had hoped for. Shares in Babcock International, which builds warships and maintains Britain's naval bases, rallied more than 7 per cent on the London Stock Exchange before closing up 4.1 per cent at £10.80½, one of the biggest risers on the FTSE 100.
BAE Systems, which builds fighter jets and submarines, rose 1.8 per cent, while Qinetiq, spun out of the Ministry of Defence's research agency, gained 3.1 per cent on the mid-cap FTSE 250. The share prices are a welcome development for the defence sector, but for most business owners, the real question lies in the prospect of greater private sector procurement and the potential for increased funding.
The Ministry of Defence is aiming to lift direct and indirect spending with smaller suppliers to £7.5 billion by May 2028, a 50 per cent increase. A dedicated unit has been set up to help small defence firms navigate procurement, and manufacturers have pressed ministers to go further by tying foreign contract wins to binding reinvestment in Britain.
However, a spokesman for the prime minister said that Healey's appointment was a 'signal of intent' on defence spending, but declined to commit to increasing it to 3 per cent of GDP by 2030. Spending is due to rise to 2.7 per cent by the end of the decade, leaving suppliers weighing capacity investment with uncertainty.
Stephen Phipson, chief executive of Make UK, welcomed Healey's appointment, citing his reputation for being pragmatic, focused on delivery, and committed to making government work effectively. However, the welcome comes with a bill attached, as manufacturers absorb a near-£1 billion annual increase in business rates and some of the highest industrial electricity prices in Europe.
Healey's appointment has sparked a mix of reactions, with Lord Dannatt, a former head of the British Army, describing it as 'a masterstroke'. The real question, however, remains the answer to the defence sector's funding needs, which will be revealed at the Budget rather than in this week's share prices.
Until then, the sensible read is that procurement reform is accelerating while the funding envelope stays exactly where it was. The defence sector will be watching closely as the government navigates the challenges of building a viable British defence industrial base.
