Mark Leeson is operations director at consultancy McBains
Will the government’s recent defence-spending boost provide ammunition to help spark construction’s recovery?
To say recent construction industry forecasts have been downbeat would be an understatement, what with consultancy Arcadis’ market-view report predicting a painfully slow revival and market analysts S&P Global’s index warning of steep declines in housing and civil engineering.
So, with fears that investment is in retreat, could the prime minister’s recent pledge to increase defence spending to 2.5 per cent of GDP – bolstered by an additional £2bn in the chancellor’s spring statement – help trigger growth?
“The opportunity is there for UK construction companies to export their considerable expertise to NATO countries”
To put it into context, the increase – with an ambition to reach 3 per cent of GDP during the next parliament – represents the biggest investment in defence spending since the Cold War.
We are in an era of intensifying geopolitical competition and conflict that is not going to end any time soon. Indeed, defence funding could increase further: as former chancellor Jeremy Hunt has said, if president Trump pulls the plug on US backing for NATO, then we could be talking about committing 6-10 per cent of GDP.
Construction needs to recognise which way the wind is blowing. Defence is a growth sector. More than two-thirds (68 per cent) of defence spending goes outside London and the South East, so the whole UK could benefit too.
UK-wide boost
Big hitters in the construction industry with defence expertise – the likes of BAE Systems, Kier Group and others – are set to reap the rewards, but about 12,000 other firms in UK defence-related manufacturing industries could also pick up contracts, according to lobby group Make UK.
More opportunities will arise, especially as – through the forthcoming Defence Industrial Strategy – the investment will drive innovation in developing technologies such as AI, quantum and space capability. The Ministry of Defence may also need to build and maintain a wide range of infrastructure, including new facilities for storing equipment and housing personnel.
Secondly, Trump’s sledgehammer tactic in calling for European countries to pay more towards defence could have a knock-on benefit for UK expertise. In 2014, prior to Trump’s first presidency, only three of 32 NATO member states (the US, UK and Greece) were spending more than 2 per cent of GDP on defence. While this rose to 23 after his first term, it means capability and experience – including the construction of defence-industry facilities – remains in short supply. The opportunity is there for UK construction companies to export their considerable expertise to NATO countries.
Barriers still exist, however, such as skill shortages. According to manufacturing trade body Make UK, apprenticeship starts in defence-related industries have dropped 40 per cent since the apprenticeship levy scheme came into effect in 2017. As we know, construction is facing a similar problem, with the latest figures showing that apprenticeship starts in the industry fell by 1.4 per cent in 2023/24. This followed a 5 per cent drop the year before.
Both the defence and construction industries will be watching to see what impact the government’s skills training programme will have. My hope is that innovation will be a driver in overcoming skill shortages, with the additional investment flowing into R&D meaning we find better ways of upskilling the workforce.
Despite concerns over skill gaps, the prospects for construction as a result of the spending boost are promising. Its recovery will take more than just an increase in defence spending, but at a time of long-term uncertainty in many work sectors, those companies that can compete in defence-related areas can look forward with confidence.