This defence champion could rearm Britain – if Reeves would let it

Few companies can claim to be as integral to Britain’s defences as BAE Systems.

From artillery shells and drones to warplanes and the nuclear deterrent, the FTSE 100 company touches almost all parts of our military.

Across the country today, its 50,000 staff are busy making Typhoon fighter jets, Type 26 frigates and Dreadnought-class submarines, alongside other top-secret programmes.

It means the manufacturing giant is usually a major beneficiary of higher defence spending, with Charles Woodburn, BAE’s boss, saying his company is “ready” to ramp things up should the call come.

In the wake of the Ukraine war, BAE has increased production of 155mm artillery shells as well as drones as demand across Europe has boomed.

But according to Woodburn, there remains huge scope to do more – if Britain loosens its purse-strings.

Even as ministers and military chiefs call for rapid rearmament to deter the threat from Russia, BAE and its rivals still face huge uncertainty about what the Government actually wants from them.

“Obviously, there’s a lot of speculation as to what may or may not happen,” Woodburn acknowledged on Wednesday.

“What we’re waiting on, which I think you all know, is the defence investment plan and clarity around that.”

The defence investment plan (DIP) is the crucial blueprint that will lay out what the Government is looking to buy over the next 10 years.

Where the strategic defence review (SDR), published last summer, roughly sketches where the Ministry of Defence (MoD) thinks things are going, the DIP is supposed to colour in the details.

Yet despite promises it would be published last year, the document has still not emerged amid reports of a £28bn funding shortfall at the MoD and disagreements between ministers on how to deal with it.

As a result, BAE’s British factories are largely devoted to rearming other nations. Take the Eurofighter Typhoon, for example. While allies including Germany, Spain and Italy have recently ordered more of the aircraft, Britain hasn’t purchased any since 2009.

All the manufacturing equipment remains in place at BAE’s factory in Warton, in Lancashire, with the company capable of making up to 60 jets a year – although more recently its output for other countries has been closer to 12 to 14 per year.

In the immediate future, Warton will be busy making Typhoons for Turkey, which just placed an order.

Rachel Reeves, the Chancellor, is staunchly resisting calls from the MoD for more money, even as allies inside Labour urge her to rewrite her so-called fiscal rules on debt.

She has a good reason not to: bond market traders have warned that any “ruse” to simply borrow more will be viewed sceptically by markets and lead to more expensive borrowing rates.

Reeves could raise taxes, but she and allies in the Treasury are said to not be in favour of this option.

The alternative is the Chancellor could force defence chiefs to cut their coats to their cloth, potentially resulting in the painful scrapping of key capabilities. Reeves is said to be sceptical about wasteful spending by the MoD – a department with a woeful track record in recent years.

The Army’s £6bn programme to buy Ajax armoured vehicles is delayed, over budget and was recently suspended after 33 soldiers fell ill after riding in them, for example.

Or take BAE’s work to build Astute-class submarines in Barrow-in-Furness, Cumbria. That programme has also suffered repeated, multi-year delays and cost increases of more than 50pc compared to original budgets.

A fire at the shipyard last year made things worse, with military chiefs recently admitting that the seventh and final boat, HMS Achilles, will be late.

Elsewhere, BAE recently blamed delays to construction of its explosives factory at Glascoed, Wales, on a decision to double its planned capacity.

On longer time horizons, prevaricating over the DIP also threatens delays to bigger, much costlier programmes.

BAE is currently working on Tempest, the next-generation fighter project officially known as the Global Combat Air Programme (GCAP), which Britain is partnering on with Japan and Italy.

It aims to have a production-ready fighter by 2035 – a hugely ambitious timeline by defence standards. But Tokyo and Rome are said to be annoyed by London’s refusal to sign contracts for the next phase until domestic talks over the DIP are resolved.

There is no reliable estimate for the programme’s final cost but the MoD said in 2023 that it expected the UK’s bill to come to about £12bn over a decade.

Woodburn admits that companies like BAE “are not perfect”, but says the best way to prevent delays is to have as much clarity about the future as possible.

Production of some weapons can be ramped up relatively quickly. For instance, in the wake of the Ukraine war, BAE has opened a new 155mm shell production line in Washington, north-east England. Together with the new explosives factory in Glascoed, the upgrades will increase output 16-fold compared to 2023.

But many projects are far more complex. Take, for example, a contract to build eight advanced, submarine-hunting Type 26 warships for the Royal Navy. Even at peak run-rates, they are expected to take five and a half years to build at BAE’s yard in Glasgow.

“What we describe as short-cycle, things like munitions and drones with a rapid pace of development, you can scale quickly, in military terms,” says Woodburn. “So you’re talking about maybe doubling capacity in a year and a half or a two-year period.”

He adds: “Some of the bigger equipment like frigates or submarines, which by their nature require infrastructure, takes longer … three, four, maybe five years for some things.

“But the important point is obviously getting the order in and having clarity around what that means. We can then lean in and invest in those capacity increases, which we’re very happy to do.”

The economic prize, he argues, could also be significant. Labour ministers have made much of the potential for defence investment to regenerate the regions, where much of Britain’s production capacity still resides.

A study by Oxford Economics for BAE found that the company contributed more than £13bn to the economy in 2024 alone and indirectly supported more than 100,000 supply chain jobs on top of its own workforce.

“If you come up to Barrow, or some of our big sites, see the apprentice centres, you see the flow down into the local community,” Woodburn says.

“These programmes tend to be massively oversubscribed, and for the very good reason that they have great jobs, they’re highly skilled jobs, they’re working on programmes that are nationally significant and people can be very proud of the work that they’re doing on them.”

All that’s required to get the company firing on all cylinders, he says, is more certainty about the future.

The Government this week insisted it was “delivering the largest sustained increase in defence spending since the Cold War”, with the Treasury insisting Ms Reeves’s commitment to national security was “unwavering”.

Yet according to Woodburn, until ministers settle the defence investment plan, Britain is still missing “the last piece of the puzzle”.

[Source: Daily Telegraph]