Budget to boost defence & AI with billions in spending

The UK Government is expected to announce billions of pounds in additional defence spending in the Budget, alongside a route towards meeting NATO's 2035 spending pledge.

The reported measures suggest a stronger focus on defence production, military technology and artificial intelligence, as ministers seek to increase investment in areas linked to security, industrial policy and economic growth.

Drone makers and defence technology groups are among the businesses likely to benefit from the extra funding, according to commentators. The additional spending is expected to be financed through long-term borrowing rather than cuts elsewhere.

Tom Clarke, Partner in the Private Equity Group at White & Case, said the prospect of a multi-year defence commitment would be significant for a sector attracting growing investor interest.

"Ahead of today's Budget, reports that the Government may announce billions in additional defence investment, alongside a clear pathway towards meeting the 2035 NATO spending pledge, are a welcome signal for one of the fastest-growing and most strategically important sectors. As military expenditure across the world continues to soar, this kind of commitment would help the UK build on its competitive advantages and support its world-class defence companies and defence technology start-ups."

Clarke pointed to White & Case research showing that 97% of UK defence companies and defence technology start-ups viewed Britain as Europe's leading destination for defence technology investment. The research also found that these companies planned to invest £19.75bn over the next 12 months, with 56% intending to invest in defence technology.

The Budget debate has also centred on AI policy, with industry figures highlighting funding for AI safety, data infrastructure, workforce skills and local growth.

Richard Thompson, Chief Executive Officer at ANS, said the measures could strengthen confidence in AI adoption if backed by secure systems, governance and oversight.

"Today's announcements will help AI fulfil the significant role it can play in strengthening the UK's economic resilience, enhancing our ability to respond to cyber threats and improving public services. We'll grow the UK's AI confidence by building it on the right foundations, including secure infrastructure, high-quality data, robust governance and clear accountability. By establishing testing and continuous oversight from the outset, we're enabling private and public sector organisations to securely make the most of AI systems as they become more autonomous."

He also backed the restoration of the Union Learning Fund and wider investment in digital training and entry-level roles.

"The Government's restoration of the Union Learning Fund will ensure that UK workers are on the front foot of AI's capabilities. AI fluency needs to become a core workforce capability, not a specialism for technologists. The Government's investment in AI skills and entry-level digital jobs is a major opportunity not only to tackle the skills gap, but to drive social mobility by opening technology careers to people who may not otherwise have considered them."

Some executives said the AI spending would need close scrutiny. Nik Kairinos, Chief Executive Officer & Co-founder of RAIDS AI, welcomed funding for AI safety and security but warned that governance had lagged behind adoption.

"There have been several high-profile reports of AI breaches over the summer, and this heightened attention is prompting many governments to finally take a closer look at the risks posed by AI. It's encouraging that the UK has committed half a billion pounds to AI safety and security."

He added that investment in domestic data centres alone would not address those risks.

"Investment in data centres to boost the UK's sovereign AI capabilities is important for technological independence, but developing domestic infrastructure does not automatically guarantee AI safety."

Ritam Gandhi, Director at Studio Graphene, linked the Budget's AI measures to support for founders and scaling businesses.

"The Budget recognises two things the UK needs to get right: embracing the opportunities AI creates and backing the entrepreneurs who will turn those opportunities into businesses. Measures to support founders and scale-ups are welcome, particularly when building a business takes time, capital and a willingness to take risks. Alongside this, the UK needs to keep investing in AI capability and creating the conditions for businesses to develop and adopt AI in ways that deliver lasting value. Ultimately, the opportunity is to build an environment where ambitious businesses can grow, innovate and compete on the global stage."

The package is also being watched in Greater Manchester, where business leaders said fiscal devolution and local growth funding could shape investment decisions in digital infrastructure and skills. Thompson said stronger local control over funding could reinforce the city region's position in technology and AI.

"The Government's commitment to Good Growth Funds and greater fiscal devolution is a positive step for Greater Manchester's rapid growth. Giving metro and combined authority mayors, like Bev Craig, greater control over funding and more flexibility to invest in local priorities can help create the conditions for innovation and support the growth of high-value businesses. Strengthening Greater Manchester's digital infrastructure and skills base is a key part of ensuring the city region continues to establish itself as a leading destination for technology and AI businesses."