Can The UK Regain Its Military Power? A Defense & Security Podcast Special
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We have reports of Russian troops and tanks crossing the border from several locations, from Crimea, occupied Crimea, to the rest of Ukraine. Circumstances require firm and immediate actions from us.

I decided to conduct a special military operation. This is as dangerous as it gets. This is the most dangerous moment in Europe since the end of the Second World War. The only thing that Vladimir Putin understands is power. You show any kind of a weakness and he will basically go after you.

One of the presidents of a big country stood up and said, "Well, sir, if we don't pay and we're attacked by Russia, will you protect us?" I said, "No, I would not protect you. In fact, I would encourage them to do whatever the hell they want. You gotta pay. You gotta pay your bills."

You have nice ocean and don't feel now, but you will feel it in the future. You don't have the cards right now. With us, you start having cards. I'm not playing cards. Right now, you don't have your playing cards. I'm wearing a serious, Mr President. You're playing cards. At moments like this in our past, Britain has stood up to be counted. It has come together and it has demonstrated strength. And that is what the security of this country needs now. And it is what this government will deliver.

Russia's war in Ukraine was a defining moment for Europe. So was President Trump backing away from the US's international role? Welcome to this special podcast on Britain's defence industry. I'm Caroline Hepker.

We know the threats are growing and the world is rearming all NATO countries' increased spending on defence last year and more is coming. The UK government has promised the largest sustained increase since the Cold War in defence spending. As part of the Strategic Defence Review, the government wants to get the military to a position of warfighting readiness. Here's the Prime Minister, Keir Starmer.

When we are being directly threatened by states with advanced military forces, the most effective way to deter them is to be ready. And frankly, to show them that we're ready to deliver peace through strength.

But the Prime Minister's target of spending 3% of Britain's GDP on defence in the next Parliament remains fluid. NATO members are discussing an even bigger goal. And the UK's preliminary deal to work with the EU and get UK defence companies access to the EU's €150 billion security fund is still subject to negotiation.

The defence base is suddenly moving fast. On this podcast, we'll discuss how serious Britain is about rearmament,

where the industry is ready to scale up with three of Britain's largest defence contractors. And I'll also be joined by Bloomberg's Ellen Milligan, who covers UK foreign policy and defence, and whom I've collaborated with on this story. And alongside Bloomberg's chief UK economist, Dan Hanson, with his analysis about how feasible a surge in defence spending really is.

But before that, what are the main challenges for industry today compared to the conflicts of the past? Inspired by the leadership of Mr Churchill, our war factories worked day and night in a desperate effort to re-equip our forces before the impending invasion was lodged.

We all know the story of those days. Wartime spending in Britain peaked in 1945 at more than half of all economic output. By 1953, it was still 11% of GDP. But over the decades, that spending has plunged with brief peaks around the Falklands War, Iraq and Afghanistan.

Now there are efforts to revive Britain's military industrial base and to produce more home-grown weapons. So we're going to go into the forge area. It's all done at 1100 degrees C, so all you see is red-hot material.

They make all sorts of shells here at the BAE Systems factory in Washington in the northeast of England, including these 155mm shells which are just about almost a metre long, look like a bit of a tin can or a kind of a water bottle, but then gets filled with explosives and a propellant.

BAE Systems is Britain's largest defence contractor. Steve Cardew has helped develop the business. We are expanding our 155 capacity by 16 fold. So that's a combination of some additional machining lines here at Washington in the North East and then the brand new explosive filling and packing facility at Glasgow.

And the real focus for us really is how do we expand our UK munitions capacity and also how do we generate resilience in our industrial base and also our supply chain. How prepared are you? How ready are you? You know, the preparation that we're doing around our upscaling of our production capability, the underpinning of our supply chain with explosives and propellants, that is all geared around what we anticipate the global environment is going to need.

As Steve Cardew explains, this BAE Systems factory is working three shifts, levels last seen post-Iraq and Afghanistan. They're making artillery shells for the British Army and Ukraine. There is a growing realisation, according to BAE, that munitions are the weapon needed in war.

But BAE Systems wants firmer spending commitments from customers. In other words, the UK's Ministry of Defence. The MOD's own report two years ago found a £17bn equipment black hole.

Alan West has had a long career in the military and beyond. He was First Sea Lord in charge of the Navy and Royal Marines, Chief of Defence Intelligence and a government minister. Admiral Lord West describes the poor state of the British military.

Our cupboard is bare in terms of extra weapons, extra ammunition, extra missiles, things like that. We've cut down on training. We've not really had enough money to really focus hard on recruiting and on people. When you add all these things together, the hollowing out has been catastrophic, actually. How hard then, from that pretty long list and disastrous state of affairs, as you say, a bare cupboard, how hard do you think it's going to be to rebuild everything?

It's going to be extremely difficult, and I think some politicians and people in Whitehall are deluding themselves about how quickly it can be done.

Prime Minister Keir Starmer has pledged defence spending will reach 2.5% of GDP by 2027, up from 2.3% currently, and then get to 3% over the next decade. But Lord West says those plans are too tentative. The way to do this is rather like when in 1946-7, Bevin said to Attlee, we have got to have an atomic bomb. There's no question about it. And

The Prime Minister and the Defence Secretary and the Foreign Secretary in Cabinet said, right, we're going to do that. And they found the money and the country was pretty broke. They found the money and spent the money to get an atomic bomb. And that meant cutting things that were very close to their heart, like the new welfare state and health services and things.

I'm afraid this government, if it is taking defence seriously, has to say, right, we are going to spend this money and they need to start doing it now. The urgency is reflected by Leonardo UK, part of the Italian global defence giant, which focuses on combat air projects like the Eurofighter Typhoon with hubs in Newcastle, Yeovil and Edinburgh.

Clive Higgins is UK Chair and CEO. He told me he recently hosted Prime Minister Starmer for a visit. We've needed increased defence spending for some time, I would say. The threat vector has increased, so that's driven that need to change. So now increasing to 2.5%, potentially 3% in the next Parliament, absolutely critical. We've seen a

a lot of transformation coming through defence in the UK in particular. So you're seeing the structures of defence in government transforming now. They want more pace, they want more agility. The flow of funding has to be improved. And also recognising that post-COVID, where we recognised that supply chain resilience was a key attribute, we need that in defence as well. So I think the ambitions you've seen from the UK government with announcements on

significant increases of defence spending are really positive, but that needs to translate in terms of reality on the ground. The government has now released its strategic defence review, with the Prime Minister outlining plans to overhaul the British military, including expanding the nuclear deterrent, but still with scant details about how it will be paid for. Ben Bridge is chair of Airbus Defence and Aerospace UK.

A lot of the rhetoric, if you like, is reflecting not only the importance of defence and the need to invest in defence and spend more on defence, but to do that in the UK. So I think this is the year where we and the UK defence industry will hope to see those words turning into action. So you think it's a pivotal year then? Are you doing anything to ramp up in the UK now? Or are you awaiting all of those reviews and the contracts to arrive? The question, I guess, will be,

what further opportunities or requirements will come from the government and we'll be ready to ramp up, as you say, and ready to increase and invest ourselves if that were to happen. So Airbus in the UK is poised but paused. But Marion Messmer, senior researcher at Chatham House, explains that other NATO countries are not standing still. For a long time, the UK was one of the leaders when it came to defence spending in NATO. But I'm

actually ever since the full-scale Russian invasion in 2022, other NATO member states, especially those along NATO's eastern border with Russia, have increased defense spending much more rapidly than the UK. So the UK, with spending around 2.5% of GDP and intentions to spend 2.7% perhaps over the next several years, is actually lagging far behind countries like Poland, which are already spending in excess of 4% of GDP

and are also intending to spend more. And so as Europe and NATO ramp up, there is also the difficult question of what Britain should be preparing for when it comes to global threats.

Marion Mesmer is clear what may be expected from Britain. We know that Russia wants to continue to essentially increase its own self-image as a great power. So I think the threat from Russia is really real. And what we know about Russian strategic thinking is that if they were to attack NATO, a likely line of attack would be in the Baltic states where the UK has a presence.

So the UK essentially needs to be ready to help defend the Baltic states. Back at BAE Systems, they are firing up the forges. Gavin Crimmings from the Munitions Division tells me they're working on creating sovereign defence supplies for the likes of explosives. There are times where we do scale.

The government has plans for six new munitions factories to come soon.

The ambition is now to move to a position of war-fighting readiness. But with the growing threat of war, there are questions about whether the UK is moving fast enough and how the country will pay for it.

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So a visit to the BAE Systems factory there in Washington Tyne and we're well with me on that visit was Bloomberg's Ellen Milligan, who covers UK foreign policy and defence at Bloomberg. And she's with me in the studio now.

Ellen, good to have you with me. Incidentally, the village where that factory is located also is home to the ancestral home of the first US president, George Washington, which I thought felt quite significant at the time. And it's really at the heart of kind of industrial Britain, near the old shipbuilding yards, near the Nissan factory in Sunderland that still churns out a huge number of vehicles.

What did you make of that visit, going to see the factory, going to see those shells? It did bring it home to us, the seriousness of this moment. Yeah, it was amazing to see the production line because I don't think either of us had seen that in person before. You write so much about the shortage of these 155 shells that BAE is making and actually to go and see that.

the production line and the people working on that and how they're ramping up production and they're moving to a 24/7 shift pattern as well for the first time since Iraq.

And this plays into the UK's new defence strategy, which is all about creating a stronger industrial base to ramp up production of weapons and of shells if needed, because the UK stockpiles have almost completely run dry due to underinvestment and support that Britain has given to Ukraine throughout the war as well. So,

The UK now wants to create an always-on munitions production, which actually BAE were quicker to that than the UK government were, so that there is a constant line of production. So 24-7 these shells are being made and that will enable them to expand.

massively increase their stockpiles, both for the British Army and to give to Ukraine. So re-arming for Britain is now the destination. Ellen, the question is, how does Britain get there? Well, they've unveiled this actually very ambitious strategy to get there.

It encompasses rebuilding Britain's stockpiles, both of munitions and of weapons, which have run dry due to underinvestment over many decades, but also due to the support that we've been giving Ukraine. They want to create an

always on munitions production, for example, that can be ramped up quickly if needed. If Britain is confronted with war, for example, they want to expand their submarine fleet. They want to expand their nuclear deterrent. They want to provide a small uplift to the army even in the next decade. So really ambitious plan.

but has been met by some criticism over how they will fund it. There is a debate over whether their target to reach 3% of GDP on defence spending by 2034, whether that's an ambition or a firm commitment. Over the weekend, it transpired that it was a commitment and then just a day later it transpired it was back to being an ambition and Keir Starmer was very clear about that.

Meanwhile, we've got NATO set to up its target to 3.5% by potentially as soon as 2032. So there's this gap here that remains between the UK's rhetoric and actually how it's going to fund this and the firm commitments behind that. This is also the first...

of the major defence moments that the industry is thinking about for the whole of this year. You mentioned the NATO defence ministers meeting, but there are another number of steps that we're going to see in the UK this year.

Yeah, we've got this big NATO summit coming up where this new target will be agreed and the UK will undoubtedly have to sign up to that. You know, it was very clear this week that it wanted to take a lead in a more lethal NATO. I don't know how you can take a lead in NATO if you're not signed up to the new commitments. And then we've got a number of other reviews coming out on Britain's security strategy and the national security threats and

And those will come out later in the year. We've got an audit on Britain's relationship with China, which alongside Russia was mentioned quite a lot in the review this week in the Strategic Defense Review because of their nuclear power and the ramp up of their military that we've been seeing over the last couple of decades.

So there are a number of moments coming up and I think the UK government is conscious that this isn't the end point. This is actually the beginning point. They want it to be a national conversation, a national effort, an endeavour to get the UK back on a war footing.

OK, well, let's broaden out the conversation then, shall we? Bloomberg's chief UK economist, Dan Hanson, is with us and he's been analysing these defence spending plans. Dan, good to speak to you. You've looked at the costs and it's one thing to have an ambitious plan. It's another to deliver on it. How does Britain pay for this? It's a really challenging backdrop. All of these demands on defence are coming at a time when there is...

very, very little fiscal space in the UK. If you go back even just to March, where the Office for Budget Responsibility put out its latest forecast, it said there that lifting defence spending just to 3% of GDP, which is, as Ellen said, the ambition of the government, it's not a commitment,

from 2.5% of GDP, just lifting it by effectively half percent of GDP would cost £17 billion by 2030 or in 2030. So that's an enormous amount of money. I mean, just to put some context around that, that's about 2p on the basic rate of income tax, if you're thinking about paying for that in terms of tax increases.

So it's an enormous amount of money just to move to that 3% of GDP. And of course, as Ellen has said out there, there are calls from NATO to think about 3.5% of GDP. We'll find out more about that

later this month. And also, of course, there's still this 5% of GDP target that Donald Trump has been speaking about, of course, the three and a half percent sort of fits into that. And I think a looser definition of defence spending that that NATO are talking about, but there are these huge demands. And as I say, it's all coming at a time when the public finances are extremely stretched.

And so in terms of the government's twin pledges, the government in the UK also wants that defence spending to grow the British economy. I wonder whether the government can do both at the same time. Yeah, it's a really good question. And I think there's a real debate about whether defence spending is this sort of

if you like, this panacea for the UK's growth challenge. You know, we've had very anemic growth in the UK for a long time. And the previous government and this government are really looking for ways to turbocharge the economy. I think from where I'm sitting, it's almost certain that this will give a short term boost to the economy. So boosting defence spending will lift the economy in the near term. And that's obviously a positive thing.

The real question is, will it produce lasting benefits? So will it lift the level of GDP permanently? And I think there are, there's a lot more uncertainty. I think it's fair to say. And a lot depends on

how the money is spent. So if you focus spending very much on domestically driven investment, on research and development, the academic evidence tells you that that gives you a much better chance of boosting the economy in the longer term, as opposed to say, spending the money on day-to-day spending. And the government is clearly focused on that side of the ledger. But I think, you know, for us, at least the jury's out on whether this is the sort of

the answer, the sort of one answer to Britain's growth challenge. Ellen, the UK also has a particular issue because it's one of the few NATO members in Europe that has a nuclear deterrent and the government is keen to renew and to expand in some senses the nuclear deterrent, but it takes up about half of the MOD's budget.

How, again, is Britain going to deliver on that kind of additional spending? I think this was actually the most significant strategic shift this week in the review because it called on the UK to expand its nuclear deterrence in NATO. And Trump was not mentioned in this review, but clearly he was overshadowing it because there are doubts as the US pulls its security assurances from Europe that if...

A circumstance arises where Europe would want the US nuclear deterrence to protect them, whether Trump would allow that to happen. The UK and France are the only European nations inside NATO that have a nuclear deterrent. But France hasn't yet committed to allowing their sovereign nuclear deterrent to cover the whole of Europe.

They are now having those discussions. They're having those discussions with other European allies. So that's significant. But the UK is the only European nation that has committed to using its deterrence over the whole of Europe, over the continent within NATO. So now the UK wants to look at expanding its capability. Right now, it just has submarines that can launch nukes.

But they're looking at buying jets that can launch nukes, for example. And there's other things like I think Russia has some capability that allows them to fire nukes of trains. I don't think the UK is quite looking at that. But there's ways to diversify the deterrent. That is really significant. One, because it shows that the UK is fearful of the reliance of the US. And two, it's really expensive. As you say, Trident takes up a huge chunk of

of the UK's defence budget. And it was really interesting to hear actually Dan there talk about the 17 billion required to get to that 3% because that's the exact amount that was identified as a black hole in the UK's own equipment plan a couple of years ago. That's slightly separate to the nuclear deterrent, but it shows where those financial gaps are. The UK for the first time has unveiled exactly what the investment plans in Trident are. They said that they will commit 4%.

£15 billion to its warhead programme, I mean, that's a huge amount of money. So when you're talking about the gap between the rhetoric and the actual funding, these are the kinds of amounts we're talking about huge amounts there. So Dan, how does the government make these sums add up? The government has experienced this as pretty challenging time, I would say on the fiscal front in terms of you had the budget in October, where the

You saw guilt yields rise quite sharply after that. We had a bit of a fright at the start of January. And I think investors globally are really watching governments for how they tackle fiscal policy and how they think about fiscal sustainability issues.

So my sort of starting point for this is that it's very unlikely that the UK is going to get away with borrowing all of this extra money that it needs to fund these defence commitments. So that leaves two options.

One is reduce spending on other things. Now, we'll hear next week about how the government is going to dice up the spending pie in the spending review between all the various government departments. Obviously, defence will be a key part of that and one of the what they call protected departments.

as will health and presumably education as well. But what that always stands to highlight is the challenge for other government departments and the cuts that they, or real terms cuts, I should say, that they face. So the extra money to fund defence by cutting spending elsewhere is very, very limited. That really leaves one option, and that's higher taxes. And of course, that presents numerous challenges, not least that the Chancellor has said that

that she doesn't want to raise taxes again. But there are a multitude of risks that are sort of

materialising. Defence is one, but there are others that suggest that come October when the next budget is due, or in the autumn, I should say, that the government is going to have to think about potentially raising taxes again. As I say, it's not just about defence, but defence is one of the big fiscal risks out there. And, you know, to maintain the confidence of markets, the government is going to have to pay for this. And as I say, I think it's going to be through higher taxation.

Domestically, that is reflected in think tanks like the Institute for Fiscal Studies saying something quite similar. Chunky tactises was how they put it. Dan, thank you so much for being with me and for your analysis. Bloomberg's Chief UK Economist, Dan Hanson, thank you so much.

Ellen, I want to end with some thoughts from you, though. Britain needs to keep up, wants to ramp up, wants to rearm. How quickly is this really going to happen? And I'd love you to layer into that some of your thoughts from your interactions with the defence industry and with government that you do on such a regular basis. How much of a shift in attitude is this? I'm not sure voters have that feeling yet.

It's really interesting when you look at the polling, the British public are actually really quite in favour of increased defence spending, increased focus on what's described as like the insurance for the UK, for the UK homeland. And yet when you ask them, were you...

Do you want there to be tax rises to pay for this? Do you want cuts in public services to be able to fund an increase in defence spending? It's a resounding no. And that's the tricky political environment that Keir Starmer and Rachel Rees are facing. This new defence strategy is a 10-year plan. So a lot of the new procurement, the new factories that have been promised, even the increase to the army size, we will not see till the late 2030s.

And yet the review was very clear about the extreme threat the UK faces now. I mean, I was told that, you know, there has never been a time when the UK homeland has been more vulnerable. And that's because, you know, in the Second World War, there were, you know, more conventional threats. And yet now it's more about threats to our critical national infrastructure.

infrastructure, cyber threats, threats to our deep sea cables, which control almost all of our data. We've seen blackouts in other parts of Europe. We've seen attacks on the NHS. Those are the kinds of threats that the UK is facing as well as the conventional warfare and the nuclear threat as well.

There's this question there as to whether this is just happening too late. And that is the result of decades of underinvestment, decades of a peacetime mentality. Now, what the reviewers are very clear on is they want to create an industry and a national endeavour

that allows the UK to ramp up quickly to fast forward some of this stuff if needed. Right now, the UK does not have the capability to do that, even if it wanted to. It doesn't have the industrial base. It doesn't have the military capability. It doesn't even have the numbers in conventional weapons in England.

personnel. So they want to create that frame so that if there is a threat that happens, say, earlier than that 10 years, that we are able to ramp up quickly if needed. So that's the idea behind this. But yeah, there is this kind of real worry that's

because of how long over consecutive governments we've outsourced our capabilities, we've relied on our allies probably too much, we've cut our army size, we've cut our stockpiles, that there's so much catching up to do that even despite this ambitious new strategy, we're not going to see that implemented for at least 10 years.

So the UK has ambitions to revamp defence laid out in the 144 pages of the Strategic Defence Review. But Britain's spending commitments aren't firm. To make Britain war ready will require money, painful choices in the budget and more effective procurement from the Ministry of Defence.

And all of this as the temperature rises with demands for more spending from NATO to face the unknown threats of the future. Well, that concludes this special podcast on UK defence. Thank you so much to all of my contributors. If you like the programme, don't forget to subscribe and give it five stars so that other people can find it on Apple Podcasts, Spotify or wherever you listen.

Thank you.

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