New report reveals profound economic impacts of defence spending on UK prosperity

For the first time, defence experts at the Royal United Services Institute (RUSI) have released a report on the profound impacts of defence spending on UK prosperity, analysing previously unconsidered aspects of its contribution to the economy, through innovation, infrastructure, employment and social mobility.

While in the past ‘defence economies’ have been studied as a distinct subset of the wider economy, this is thought to be the first time that defence has been analysed as an integral part of the wider economy.

Global security company Leonardo was amongst the first defence organisations to collaborate with RUSI for the report, hosting its launch today to assembled MPs at Westminster. Report authors Professor Trevor Taylor, Director of the Defence, Industries & Society Programme and Professorial Fellow in Defence Management at RUSI and Dr Linus Terhorst, Research Analyst at the Defence, Industries & Society Programme, RUSI unveiled a striking picture of the reach and scale of the economic impacts of defence. Highlights included:

• Salaries in the defence sector are higher than the UK average. This encourages growth in the local and national economy, since higher salaries mean higher disposable incomes and more significant multiplier effects, in terms of supporting a wide array of local and national businesses.
• The defence industry drives greater social mobility, since it brings inclusive and well remunerated long-term employment opportunities to a broader and more even geographical spread of regions, bringing opportunities that wouldn’t exist otherwise.
• Defence firms employ a high number of people with STEM (science, technology, engineering, maths) skills, contributing to the national science and engineering skills base which keeps the country at the forefront of global innovation.
• There is evidence to suggest that there is a strong correlation between defence research and innovation and more widespread technological advances within wider society, since there is a technological spillover of innovation into the civil market.
• The defence industry supports a strong UK manufacturing infrastructure.
• Defence maintains a strong and agile supply chain that is able to respond to urgent requirements.
• Willingness to invest in new technology with a more distant return than is typical in the commercial civil market.

The report uncovered specific data to support the assertions made. For example, it included reference to a 2024 study of the economic impact of Leonardo in the UK by Oxford Economics, which showed average wages at Leonardo Yeovil of £51,000, as compared with the overall local average of £32,000, and that every Leonardo job and Leonardo supported job in its supply chain generated about 1/3 of a job through employees’ spending. Similar salaries and multiplier effect ratios were researched for the Edinburgh electronics business and other smaller Leonardo UK sites. More than 10% of Leonardo employees in Luton and Edinburgh are graduate trainees, apprentices or placement students, reflecting the company’s investment in early careers, thereby increasing social mobility in the areas surrounding the company’s eight sites spread across the UK.

In relation to supporting a robust supply chain, two thirds of Leonardo’s 2,100 UK suppliers were small and medium-sized enterprises (SMEs), and more than a quarter (28%) of all Leonardo supply chain spending was spent directly with these SMEs.

Clive Higgins, Chair and CEO of Leonardo in the UK said: “The latest Office for National Statistics figures show NEET rates in the UK remain high at 12.2%, with 872,000 16 to 24-year-olds now out of work, education or training. Growth for the UK means connecting these young people with real opportunities. We operate in a highly competitive environment, so by the very nature of the industry, defence firms have high productivity, pay well and generate knowledge and skills to keep up with the incredibly rapid pace of innovation. Added to that is a willingness to commit to new experimental technology with a more distant return than you would see in a typical commercial market. Those calculated risks are key differentiators in distinguishing UK technology, skills and research, keeping us at the forefront of global technology. The government’s recent consultation paper on National Industrial Strategy identified the defence sector as a key sector for growth, and this new report provides the evidence that we are a growth generator.”