The Chancellor, John Healey, should use Canada as a guide when setting defence spending policy in the Autumn Budget, according to audit, tax and business advisory firm Blick Rothenberg.

Melissa Thomas, a director at the firm, said increased defence spending should be treated as an investment in high-value jobs, innovation and export growth rather than a cost to the economy, and called for tax incentives for businesses developing dual-use technologies.

“Increased defence spending should not be viewed as a cost to the UK economy, but as an investment into high-value jobs, innovation and export growth,” she said. “Canada is treating defence spend as an industrial strategy, the UK should do the same by ensuring defence procurement stimulates domestic innovation and private sector investment.”

Thomas pointed to a series of Canadian announcements over the past year on defence spending and defence technology, including the Regional Defence Investment Initiative.

According to the Canadian government, the programme provides C$379.2m over three years to integrate businesses into defence supply chains and strengthen industrial capacity. It is delivered by Canada’s seven regional development agencies, each covering a separate part of the country.

“Over the last twelve months Canada has announced a number of initiatives around increasing its defence spend and associated ‘defence tech’, such as the Regional Defence Investment Initiative,” Thomas said.

“The UK should do the same by announcing tax incentives in the Autumn Budget to support dual-use technologies that have both commercial and defence applications, helping British businesses scale faster and access new international markets with similar areas of focus, like Canada. This could unlock the UK’s next generation of high-growth businesses.”

Dual-use technologies are those with both commercial and defence applications. Thomas said the Budget should include tax measures to encourage investment in businesses in strategic sectors.

“The Budget needs to include tax policies that encourage investors to back innovative businesses in strategic sectors such as cyber security, quantum computing, space technology and advanced engineering,” she said.

“If the UK government wants Britain to lead in defence technology, it should strengthen incentives for research & development, capital investment and commercialisation of intellectual property.”

She also argued that Canada’s growing investment in the sector created an opening for British companies. “As Canada deepens its investment in defence technology, the UK has a prime opportunity to become its natural collaboration partner for AI, cyber security, advanced manufacturing and aerospace innovation,” she said.

“Defence supply chains are becoming increasingly international. UK businesses that develop relationships with Canadian innovators today could be better positioned to access future procurement opportunities on both sides of the Atlantic.”

UK spending plans

The government’s Defence Investment Plan, published on 30 June, allocates £298bn to the Ministry of Defence over the four years to 2029/30, according to a House of Commons Library briefing. The briefing said the plan includes more than £5bn for drones and autonomous systems.

The government has committed to spending 3.5 per cent of GDP on defence by 2035, and Prime Minister Andy Burnham rejected a Conservative proposal to cut housing benefit to help pay for it last week.

Research by EY published in April found that raising defence spending to between 3.5 per cent and 5 per cent of GDP by 2035 could add £30bn a year to UK economic output.

The Ministry of Defence has also created a Defence Office for Small Business Growth, which aims to increase procurement from small defence firms by £2.5bn a year by May 2028.

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