Michael Moore's Outlook on the start of the debate about private capital and defence

Sometimes in life the numbers, like the existential issues that surround them, just come at you thick and fast. And there’s been a blizzard of them in one particular direction in recent weeks.

In the UK we’ve heard a lot of talk of 2.3%, becoming 2.5% in 2027, and 3% in the next Parliament. Of course, numbers without the right context are not much use (said every Investment Committee member ever). But these might not be so mysterious, since we’re talking defence spending, the hottest of topics, and the proportion of GDP it represents. 

The US has been sitting at over 3.5% for a very long time, hence the (how to put it) ‘frustration’ they have expressed about the UK and our European partners over recent decades.

The peace dividend after the Berlin Wall tumbled down became the peace overdraft, and nobody in Europe seemed to care. Until now. Complacency is very 2024, and would be a very bad look this season, especially after the disorientating start to 2025. 

The United States and Europe (more broadly than the European Union) falling out is one thing. Beginning to think of geopolitical divorce is quite another. Can it really be true? 

Well, second guessing how ‘fed up’ the Americans (of all political persuasions) have become, as they have witnessed continuous under-investment in defence by their NATO partners, has not exactly worked out as a strategy. 

So it’s perhaps not surprising that nobody is seeking to double down on it now. Especially when the long running differences have been turbo-charged by a wholly different US world view - dramatically exposed in the exchanges with President Zelensky in the Oval Office a few weeks ago, and then reinforced by Vice President Vance who declared ‘’I just hate bailing Europe out again”. I think we know where we stand.

Leaders like Sir Keir Starmer in the UK and President Macron in France have been hyper-active in binning the out-moded approach of the past quarter century. 

But neither has done it more spectacularly than the incoming German Chancellor (from, let’s remember, a right of centre, conservative perspective). He made clear that “My absolute priority will be to strengthen Europe as quickly as possible so that, step by step, we can really achieve independence from the USA.” The world has indeed changed.

The rhetoric and revised strategic outlook set the scene and the tone for what follows. In the UK, there is now a commitment to an extra £2.2bn for defence spending in the new financial year, and a pledge to get to the 2.5% GDP spending target by 2027, which will add another £4.4bn. There are lots of gaps to fill in terms of personnel and military capability, even more when you factor in reduced confidence in the willingness of the US to be on the battlefield beside their allies in future European conflicts. The money will go quickly.

There’s a separate, and brutal, truth to these numbers as well. Even when you add in the $840bn which the EU members are being implored to add to their defence expenditure, the dial is not moving particularly quickly. It may not be a fair comparison, but there have been large European private equity funds raised in recent years which are looking to deploy more capital annually than the equivalent increase in the UK’s defence spend.

There is, of course, a growing focus on the role of private capital in the hastily revised defence strategies of the UK and elsewhere. Not, crudely, to access these funds raised for high growth investment opportunities. But there are plenty of other ways in which private capital can play a part, as the Chancellor’s Spring Statement set out.

In the detail she offered in the last week of March, Rachel Reeves announced that £400m is to be invested in a ‘defence innovation’ fund, the Ministry of Defence will prioritise 10% of its equipment spending on ‘novel technologies’, and the government will significantly expand credit support for the sale of UK-manufactured defence equipment overseas. 

Brief as it was, this reveals three complementary policy ideas – prioritising the development of innovative solutions, re-focusing mainstream procurement funding at the cutting edge, and offering commercial support to manufacturers to increase their market opportunities and therefore make their investment worthwhile. Judging by the amount of engagement there has been between our industry and the UK government in recent weeks, this is seriously meant.

Perhaps just as well. I remember 1989 and the utter amazement as people scampered around Berlin and went home with bits of ‘the Wall’. Utter amazement has returned, but not in a good way. There is much to do, and we will be part of it.

Michael Moore
Chief Executive, BVCA

This article was originally published on 11 April 2025 on the Private Equity News website here.