Can defence deliver growth?

At London Business School’s Business of Defence Conference on 17 November 2025, a central question dominated one of the day’s flagship sessions: can the UK’s rising defence spending drive economic growth as well as national security?

In the discussion, 'Can Defence Deliver Growth?', Professor Paolo Surico, Fred Thomas MP and Lisa Quest, UK & Ireland Managing Partner at Oliver Wyman, joined Financial Times correspondent Charles Clover to assess whether the government’s plan to raise defence spending to five per cent of GDP by 2035 can achieve its broad mission: rebuilding deterrence while boosting productivity, energising startups and crowding in private capital.

Innovation, R&D and the “guns and butter” trade-off

Professor Surico argued the UK can avoid the traditional trade-off between social spending and defence, but only if new money flows into public R&D rather than legacy programmes. Citing the US post-war experience, he noted that government-funded basic research has historically seeded both technological leadership and private-sector investment.

While he welcomed the recent seven per cent real-terms rise in defence R&D, he warned that the UK still lacks the integrated innovation ecosystem required to turn this investment into productivity. Startups, venture capital and research institutions, “missing from the Chancellor’s taskforce,” he observed, must be brought into the centre of defence-innovation policy.

The financing gap: capital without scale

Lisa Quest agreed that innovation is central but highlighted the structural challenge of the UK’s “missing middle” in the capital stack. Britain possesses deep capital markets and strong research, yet firms struggle to find the mid-stage financing necessary to scale from prototypes to production.

Without fixing this gap, she argued, rising budgets risk “inflating prices” rather than increasing capability, especially as every NATO member increases expenditure at the same time. Growth, she said, will require a better supply of patient capital and clearer contractual signals from government.

Government signalling and procurement reform

Fred Thomas MP emphasised that shifting from “spending” to “investment” requires concrete action. “Capital follows contracts,” he said, calling for clearer pipelines, faster adoption of commercial technologies and procurement reform to unlock private investment.

He pointed to progress through the Mansion House reforms and the forthcoming Defence Industrial Strategy, but warned that inflation, capacity constraints and procurement delays mean more money alone will not deliver more capability.

Lessons from abroad and the role of foreign firms

The panel drew on international comparisons. Quest cited Germany’s SME financing programme and Australia’s blended finance structures. Thomas highlighted Australia’s AXA model, which tests the likelihood of adoption before soliciting bids.

Surico contrasted South Korea’s competitive industrial development with Malaysia’s single-champion model, arguing that defence should favour competition and global best practice.

Audience questions turned to foreign investment in the UK defence ecosystem. Thomas acknowledged tension between attracting global innovators and safeguarding sovereign capability, while Quest argued the ecosystem needs both strong domestic firms and competitive international players. Surico added that fiscal rules allow for larger capital budgets to support both.

A defence dividend - but not automatically

Across the session, panellists agreed that defence can support economic growth only if structural constraints are addressed: procurement reform, capital-market gaps, industrial capacity and innovation ecosystems.

The UK’s ambitious expansion of defence investment could yield a genuine defence-driven growth dividend, but as all three speakers stressed, it will require clarity, competition and urgent delivery.

The Business of Defence Conference

The Business of Defence Conference, held on 17 November 2025 in Nuffield Hall on the London Business School main campus, brought together leaders from across security, strategy and the defence-tech startup ecosystem. The event was organised by the Geopolitics and Business Club and the Military in Business Club. The Founding Partners for this event were Archangel and Project A, and it was supported by Montfort and Overton Advisory.

Speakers included Major Laurence Thomson, Chief of the General Staff’s Visiting Fellow at RUSI; General Sir Richard Barrons KCB CBE, Co-Chairman of Universal Defence and Security Solutions; Dr Sir Richard Drake, General Manager UK at Anduril; David Roberts, CEO and MD of Arx Robotics UK; Sam Hallett, UK Managing Director of Frankenburg Technologies; Jack Wang, Partner and UK MD at Project A Ventures; Ryan Benitez, Chief Commercial Officer at NATO DIANA; Edmund Phillips, Senior Investment Partner at NSSI; Lars Durschlag, Managing Director for Defence Tech at UniCredit; Professor Paolo Surico of LBS; Fred Thomas MP for Plymouth Moor View; Lisa Quest, Managing Partner UK & Ireland at Oliver Wyman; James Appathurai, Interim Managing Director of NATO DIANA; and Charles Clover, Defence and Security Correspondent at the Financial Times.

Opening the inaugural Business of Defence Conference on 17 November 2025, Professor Paolo Surico welcomed a diverse audience of students, universities, military officials, investors, diplomats and industry leaders. He thanked the student-led organising clubs, event partners and sponsors for bringing the conference to life.

Surico stressed that defence is now a driver of frontier innovation, from AI and cyber to advanced manufacturing and energy, and a growing source of economic renewal requiring the skills developed at LBS. The conference, he said, connects students and innovators to a sector they may not have seen themselves in, while positioning LBS as a leading forum for serious debate on global security and its economic impact.

He closed by thanking participants for the ideas and connections that will help shape the future.

Our thanks to Ram Puvinathan for inspiring and leading this event.