Chancellor Rachel Reeves is providing a further £2 billion to support UK firms exporting arms and military equipment, as defence becomes a key focus for stimulating economic growth.

The Chancellor, who visited Babcock in Fife today, says the extra lending will unlock opportunities across the supply chain.

UK Export Finance’s lending capacity will be raised from £8bn to £10bn for an industry which supports 650 exporters and 41,000 employees.

UKEF recently included an £8.8bn guarantee for exports of air defence systems to Poland, support for the export of Typhoon aircraft to Qatar and support for the sale of ex-Royal Navy minehunting vessels to the Ukrainian Navy.

Today’s news follows the recent £1.6bn commitment announced by the Prime Minister to supply thousands of advanced air defence missiles to Ukraine, boosting the UK economy and support 700 existing jobs.

This uplift in funding available for overseas buyers of UK defence goods and services is a central pillar of the government’s upcoming Defence Industrial Strategy.   

The government argues that the world has been reshaped by global instability, including Russian aggression in Ukraine, increasing threats from “malign actors”, rapid technological change, and the accelerating impacts of climate change.  

Ms Reeves said: “The world is changing, and we must bring about a new era of security and renewal that protects working people and keeps our country safe. This increase to UKEF’s lending capability is our Industrial Strategy in action, bolstering our defence industry and supply chains, creating jobs and driving growth across the UK.

“This is alongside an increase in our defence spending to 2.5% of GDP. We are strengthening our national defence, kickstarting economic growth and delivering the stability we need to keep us safe. 

Business Secretary Jonathan Reynolds added: “Our Plan for Change has put defence at the heart of our Industrial Strategy, helping us drive growth while bolstering our national security for the long term.” 

Scottish Secretary Ian Murray said: “We are entering a new era for our national defence and Scotland’s world class defence industry is playing a big role in meeting that global security challenge. 

‘Scottish defence businesses – with their skills, expertise and innovation – have a huge opportunity to benefit from this £2 billion in new lending.

“That will mean a boost in skilled jobs and economic growth in Scotland and show the best of our world class industry abroad.”

Scotland is a hub for the UK defence industry, home to companies such as Babcock and BAE Systems, and critical operations in Scotland have benefitted historically from UKEF support through guarantees for their international exports to global markets.

UKEF haS previously supported Babcock with a £192m loan guarantee to finance the sale of two mine counter measure vessels to the Government of Ukraine.   

Scotland’s defence sector received £2.14 billion in UK Government spending in 2023/24, equating to about £390 per person, supporting approximately 25,600 jobs.