As businesses brace for supply chain disruptions amid a global trade war, new technology investment was top of the wish list for the UK’s C-suite leaders ahead of Rachel Reeves’ Spring Statement today.
Research has shown that 70% of business leaders want to see increased investment in technologies such as AI, smart warehousing, and data analytics to modernise supply chains and maintain competitiveness amid escalating global trade tensions.
Meanwhile, 62% of UK C-suite leaders are calling for greater investment in workforce development in the Spring Budget, particularly in long-term skills training and apprenticeship schemes. This reflects the issue of the ageing workforce in manufacturing and difficulty in attracting young talent.
Delivering the Spring Statement, the Chancellor commented: “Our task is to secure Britain’s future in a world that is changing before our eyes. At the same time, the global economy has become more uncertain, bringing insecurity at home, as trading patterns become more unstable and borrowing costs rise for many major economies.
“In the autumn, I set out our new fiscal rules that would guide this government. These fiscal rules are non-negotiable. They are the embodiment of this government’s unwavering commitment to bring stability to our economy and to ensure security for working people.”
With geopolitical uncertainty dominating current headlines, it was unsurprising to see defence take centre stage ion the Spring Statement with Reeves adding: “Because we are living in an uncertain world, we will increase defence spending to 2.5% of GDP, reducing overseas aid to 0.3% of gross national income in order to fund our more capital intensive defence commitments.
“Earlier this month, the Organisation for Economic Co-operation and Development (OECD) downgraded this year’s growth forecast for every G7 economy, including the UK and the Office for Budget Responsibility (OBR) has revised our growth forecast for 2025 from 2% in the autumn to 1% today. I am not satisfied with these numbers and that is why we are serious about taking the action needed to grow our economy.
“A changing world presents challenges, but it also presents new opportunities for new jobs and new contracts in our world-class defence industrial centres, from Belfast to Deeside, and from Plymouth to Rosyth.
“In February, the Prime Minister set out our government’s commitment to increase spending on defence to 2.5% of GDP from April 2027, the biggest sustained increase in defence spending since the end of the Cold War, with an ambition to spend 3% of GDP on defence in the next parliament. That was the right decision in a more insecure world.
“But we have to move quickly in this changing world, and that starts with investment. So today, I can confirm that I will provide an additional £2.2bn for the Ministry of Defence in the next financial year, a further down payment on our plans to deliver 2.5% of GDP by 2027.
“This additional investment is not just about increasing our national security, but increasing our economic security too. As defence spending rises, I want the whole country to feel its benefits, so I will set out the immediate steps that we are taking to boost Britain’s defence industry and to make the UK a defence industrial superpower.
“We will spend a minimum of 10% of the Ministry of Defence’s equipment budget on new novel technologies, including drones and AI-enabled technology. This will drive forward advanced manufacturing production in places like Glasgow, Derby and Newport, creating demand for highly skilled engineers and scientists and delivering new business opportunities for UK tech firms and start-ups.
“We will establish a protected budget of £400m within the Ministry of Defence, a budget that will rise over time for UK defence innovation with a clear mandate to bring innovative technology to the front line at speed.
“And we will reform our broken defence procurement system, making it quicker, more agile and streamlined, and giving small businesses across the UK better access to Ministry of Defence contracts, something welcomed by the Federation of Small Businesses.”
Here’s what the industry had to say – more reaction here as we get it:
In the context of a challenging and, rapidly changing, economic and political environment the Chancellor is facing a difficult fiscal balancing act and, the unenviable situation of having to rob Peter to pay Paul.
Industry will welcome and support the Chancellor’s focus on maintaining economic stability and, increases in infrastructure and defence investment but, it is clear the Chancellor will continue to face difficult spending choices amid the likelihood that investment in defence and security will have to rise further given the scale of threats we face. UK manufacturers stand ready to support the government to scale up our defence manufacturing, a critical national priority.
Looking ahead, all eyes will now be on government bringing forward a comprehensive and fully funded modern, long term industrial strategy which has advanced manufacturing at its heart. This must be aligned across government with a defence industrial strategy as well as energy, trade and skills strategies to demonstrate to business and foreign investors that there is joined up thinking on how to grow UK manufacturing, the engine of the economy and the sector which will deliver our security and net zero future.
The government has good reasons to increase defence spending in the Spring Statement, but this shouldn’t come at the expense of investment in high growth sectors like clean energy and green technology. These are areas where the UK has world-class capabilities, and it would be a serious mistake to shelve them as investment priorities. Businesses are already finding it hard to plan for the future in the current unstable environment, and what they need is consistent and clear policy commitments on the distribution of funds.
Recent reports highlighting a lack of co-ordination between Whitehall departments in delivering Labour’s Industrial Strategy are concerning – especially for industries relying on targeted government support. Greater collaboration both within Westminster, and between government and businesses, will be crucial in delivering an industrial strategy that truly understands what businesses need to scale and grow.
The Industrial Strategy also needs to provide clarity and stability; not just on which sectors the government wants to prioritise, but how much funding they will receive, and who is eligible. For example, does a project developing a more efficient petrol combustion engine come under the category of green technology? Having a clear direction on the allocation of investments is the first critical step to nurturing and incentivising innovation.
As a leader in a company that works closely with disabled individuals, I feel compelled to address the pressing issue of disability support in today’s Spring Statement. Disabled people remain among the most marginalised in our society. While we support sensible reforms that can open pathways to employment and greater independence, particularly in helping to address labour shortages in key sectors, I believe it is wholly unacceptable to attempt to balance the Budget by undermining the essential support systems for those who need them most.
Following this announcement, as a sixth-generation member of a family business that has proudly served the UK for over 150 years, I am well placed to offer a grounded perspective on the current economic climate. In a business of our age, with multiple family members in leadership positions, views naturally vary. However, we share a collective concern about the economic measures that impact our business and the broader manufacturing sector.
The upcoming National Insurance increase represents a particularly challenging change for a business such as ours, with both a labour intensive manufacturing and lift service business. I believe this approach could prove deeply damaging to businesses, especially mid-sized family enterprises striving to maintain competitive positioning and invest in future growth. Smaller enterprises, in particular, will find themselves wrestling with these additional financial pressures at a critical time of economic uncertainty.
My commitment to the UK remains unwavering. For generations, my family has invested in British infrastructure and manufacturing, and we continue to do so with passion and dedication. Yet, I urgently call for a more predictable and supportive economic framework that genuinely enables business growth and innovation.
My primary concern lies in the apparent absence of a coherent pro-growth strategy. Businesses need clarity, consistency and policies that are genuinely forward-thinking, creating clear pathways for sustainable economic development. Within the business, we are especially keen to explore closer economic ties with Europe, including the potential reunification with the customs union, which we believe could deliver substantial strategic benefits.
The UK government now has a vital opportunity to rethink its approach to business support. We need pragmatic policies that acknowledge the complexity of British manufacturing, policies that offer tangible backing, foster investment, and help create a more dynamic and resilient economy.
Today’s Spring Statement failed to address the reality facing businesses at the moment – rising costs for energy, wages and NICs from next month while asking us to invest in innovation and growth.
FSP has put a priority on sustainable practices. We’re revolutionising the traditionally energy-intensive steel fabrication sector by embedding sustainability throughout our manufacturing processes – but we need a supportive policy environment.
We’d welcome future measures that recognise and encourage SMEs making these important transitions, ensuring British manufacturers can continue developing environmentally responsible solutions while maintaining competitiveness in global markets.”
FSP has invested in solar-powered nitrogen generation and energy-efficient laser cutting technology, allowing it to offer alternatives for infrastructure projects seeking to demonstrate sustainability in their supply chains.
The government’s newly announced defence innovation fund and commitment to the biggest defence spending increase since the end of the Cold War demonstrate where defence sits on the political agenda. However, now is the time for the UK to tap into the strength of its space sector to develop sovereign defence capabilities, if it is to truly become a defence industrial superpower. Any investment into space catalyses tech development, so investing more in defence (read space) speeds up innovation and the production process.
Space is the great enabler between industries and the first battlefield for effective defence strategies. If the UK invests more in sovereign launch capabilities, we would not depend on third parties for satellite-based activities such as intelligence, reconnaissance and communications. Ultimately, more investment in defence should automatically mean more investment in space. In turn, we will foster greater innovation, boost the economy, and keep the nation safe.
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Today’s Spring Statement lands at a time when many businesses, including ours, are navigating economic pressures. Whether that’s through rising costs, uncertain markets or just the general pressure of trying to do more with less.
As a business, VEKA has absorbed the National Insurance increase across both our businesses because we believe in protecting our people. But continuing to do this isn’t sustainable without growth. Without growth, it gets harder and harder to keep making those kinds of decisions. This is part of a bigger message we’d like the government to hear. Every new demand placed on the private sector reduces our ability to invest, grow and create jobs, and that has a knock-on effect to the economy as whole.
If the government is truly a government on the side of working people, and if it wants to make good on its promise to get more people into secure work, then it needs to recognise this pressure on their employers.
Any Statement measure should aim to restore confidence, not further erode it. And now the Office for Budget Responsibility cuts growth forecasts in half to 1%.
What can the private sector do?
Across our sector, we’re encouraging a more open conversation about the value of what we provide. I believe that businesses in the private sector need to price responsibly to stay healthy. We’ve always aimed to be fair, to give our customers plenty of notice of any increases and to be transparent. But we also have to be brave and we have to believe in profit as fuel for future investment. A ‘race to the bottom’ in pricing helps no one.
A need for realistic policy on housing
On the surface, planning reforms and announcements like the ambition of 1.5 million new homes sounded like a big growth opportunity for our sector. But, no one in our space really believed that target was realistic without tackling the severe skills shortages in construction. We’ve yet to see a serious plan to deliver on this front, and it undermines confidence in government-led growth strategies from the industry and its supply chain. The Spring Statement adjusts that ambition to 1.3 million homes, expecting planning reform and skills development to get us there.
Sector support with VAT Reform for home improvements
Our sector has long called for targeted VAT adjustments to incentivise home improvement. There’s a real opportunity to stimulate home improvements by adjusting VAT which would have the biggest direct knock-on effect on demand in our sector. But every year it’s ignored, and it continues to be a missed opportunity.
Stimulating activity here would bring a multiplier effect, job creation, manufacturing growth, and improving living standards.
Final thoughts
The government needs to understand that private sector businesses like ours are playing a major role in keeping the economy moving. We’re absorbing costs, protecting our people and pushing for growth. But we are not endless sponges able to absorb it all and we can’t do it alone.
Ultimately, if the private sector is to do the heavy lifting of recovery and resilience, it needs clarity, consistency and a partnership approach from government. Only this will create the promised ‘jobs in every corner of the economy’ and deliver security for working people.
The Chancellor’s recognition of the importance of investing in skills through a new training package for up to 60,000 new construction workers is welcome and essential to delivering on the government’s growth mission, which is underpinned by plans to build 1.5 million homes and to strengthen the UK’s national security.
EngineeringUK is calling on the government to go further in the Spending Review and Autumn Budget later this year and look to address the financial barriers to technical and vocational entry routes into engineering and technology for all young people. Government must recognise its role in training the next generation and look to move towards a new model of directly funding apprenticeships for 16- to 18-year-olds to help reverse the decline in uptake of apprenticeships for this age group.
Government must also look to invest in programmes and activities we know work in getting young people interested in careers in engineering and technology, and support the teachers that will help deliver them. We look to government to reverse recent cuts to Continuous Professional Development for STEM teachers and continue to support outreach programmes reaching into schools.
The investment in construction training announced today is a positive step in the right direction, but this action needs to be replicated through investment across the full STEM skills pipeline.
Upskilling, job creation and new manufacturing opportunities across the country is exactly what manufacturers need and if delivered could act as a genuine tool to level up the UK. We are well placed to mobilise our advanced manufacturing expertise to innovate and support our defence sector and wider industries to improve productivity, competitiveness and economic growth. Investment needs to be focused on innovation and developing future orientated skills.
UK manufacturers are held back by lack of digital skills, so new technology needs to bridge the labour and skills gap while improving the diffusion of learning so we can widen the pool of upskilled workers.
The focus on defence spending here in the UK and across Europe presents a real opportunity for manufacturers and it’s great to see a further £2bn of support for exporters earmarked through UK Export Finance. It was also welcome news to see defence spending ring-fenced for novel and innovative technologies – this will support advanced manufacturing and look to capitalise on our competitive advantage.
However, what is needed to underpin this growth is the long-awaited detail of the industrial strategy, setting out a comprehensive plan to support both advanced manufacturing and defence. Many would have been hoping that more details would have been published alongside today’s Spring Statement; but industry continues to wait for guidance.
In her statement, the Chancellor said the £2bn increase in capital spending – primarily on defence – would create demand for highly skilled engineers and scientists. For the government to see the most value from this investment, the workforce has to be in place to deliver it.
Chemical engineers, and the wider STEM workforce, are crucial to developing and implementing the new technologies the Chancellor outlined for defence. While there is a demand for highly skilled engineers and scientists, at the moment we simply don’t have enough of them.
The evolving defence landscape is an important reminder of why developing the STEM workforce, and chemical engineers in particular, needs to be given particular strategic focus by the government. We hope to see more of the government’s plans in this area taking shape in the forthcoming spending review and industrial strategy.
The real challenge isn’t just about adapting to things like the National Insurance hike, it’s the broader economic instability and uncertainty that has become the new normal. Fiscal policies and regulations are evolving rapidly – as well as being scrapped or rolled back – making it increasingly difficult for finance teams to plan with confidence.
Compounded by the use of outdated technology, siloed data and manual processes, CFOs and financial directors are often flying blind when it comes to budgeting and forecasting and then scrambling to adapt to last-minute changes.
While the Chancellor hasn’t introduced any direct tax rises, this isn’t to say there won’t be big policy announcements further down the line. Businesses need to be on the front foot when it comes to scenario planning and they must focus on building agility into their financial strategies now. That means investing in the right tools and technology to enable rapid response to shifting economic conditions.
We are pleased that the government will be investing in advanced manufacturing jobs.
The 44 University Technical Colleges that we support are preparing young people with the technical and employability skills to progress into apprenticeships and roles in growth driving sectors such as advanced manufacturing.
That includes in Derby, Doncaster and Portsmouth, where local UTCs are working with major employers such as Rolls-Royce, VolkerRail, and the Royal Navy to meet the UK’s economic and defence goals.
Baker Dearing is also working with employers and schools to create a new technical education pathway for secondary students in Barrow.
This pathway, based on our UTC Sleeve initiative and the high-quality employer led provision of University Technical Colleges, is vital to developing pipelines of talent which will allow young people to progress into high-paying, growth-driving employment.
Our UTCs in Portsmouth and Doncaster are also working on sister schools in Southampton and Doncaster. These two new UTCs will tackle local skills shortages and meet the huge demand by parents for more UTC places.
We would urge HM Treasury and the Department for Education to back the new UTCs in Southampton and Doncaster, as well as a UTC Sleeve for Barrow.
Growth for the manufacturing sector evidently wasn’t near the top of the agenda within today’s Spring Statement from the Treasury, but it could and should have been.
While less complex procurement paths will be a relief for Britain’s defence and manufacturing sectors, targeted support for British factories making and selling goods in this country should have been a priority.
The UK’s manufacturing sector delivers meaningful jobs, regional confidence and measurable social value – which all add up to a more resilient economy and a happier, more fulfilled (not to mention, better paid) workforce. We all need to focus our collective attention on the type of growth we need and what outcomes we want to see from it to realise this in a tangible way.
Industry should welcome the fall in inflation in February following the three cuts in interest rates by the Bank of England. Reducing the costs in industry can only support growth. Similarly the government’s announcement that defence contracts will be awarded to British firms will be a vital injection of support to British manufacturing.
The Chancellor reaffirmed the government’s commitment to Planning Reform which will have a significant impact on growth. As part of that planning reform we need to ensure that the expansion of existing plants or the construction of new factories can be done at pace. We need to ensure critical infrastructure is also in place and appropriate measures to support skills.
If we are to remain competitive we need a pathway to lower taxation for business, including industry and more incentives to encourage investment to really drive productivity.
The Driving the Electric Revolution Industrialisation Centres (DER-IC) project supports growth in UK companies working in the power electronics, machines and drives (PEMD) sectors, crucial contributors to the Government’s electrification agenda that is central to achieving Net Zero.
UK industry is a world leader in many aspects of PEMD technological development. Despite the expected cuts to Government departments spending, the Chancellor stated that spending on certain projects will not be cut to prevent ‘choking off growth’.
The DERIC project has been one of the government’s most successful projects to date, having generated £16 for every £1 invested in the programme, and we are committed to capitalising on this moving forwards with continued government support.
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