Defence shares rallied the moment John Healey was named chancellor. By Tuesday afternoon, Downing Street had declined to confirm the number the sector actually wants, and ruled out the funding mechanism some had hoped for.
Healey resigned as defence secretary last month after accusing Sir Keir Starmer’s government of falling “well short” on military spending. Andy Burnham’s decision to hand him the Treasury was a surprise, and markets read it as an instruction rather than a consolation prize.
Shares in Babcock International, which builds warships and maintains Britain’s naval bases, rallied more than 7 per cent on the London Stock Exchange before closing up 4.1 per cent at £10.80½, one of the biggest risers on the FTSE 100.
BAE Systems, which builds fighter jets and submarines, rose 1.8 per cent. Qinetiq, spun out of the Ministry of Defence’s research agency, gained 3.1 per cent on the mid-cap FTSE 250.
For most business owners, the share prices are the least interesting part. The appointment has raised the prospect of greater private sector procurement, and that is where the money reaches the wider economy: through the tiers of engineering, machining, software, logistics and testing firms that sit beneath the primes.
That supply chain has been the target of a concerted push. The MoD is aiming to lift direct and indirect spending with smaller suppliers to £7.5 billion by May 2028, a 50 per cent increase, and has stood up a dedicated unit to help small defence firms navigate procurement. Manufacturers have separately pressed ministers to go further by tying foreign contract wins to binding reinvestment in Britain.
None of that works without the budget behind it. A spokesman for the prime minister said on Tuesday that Healey’s appointment was a “signal of intent” on defence spending, but declined to commit to increasing it to 3 per cent of GDP by 2030. Spending is due to rise to 2.7 per cent by the end of the decade. The spokesman also said “war bonds are not something we’re looking at”.
That gap between signal and commitment is the practical issue for suppliers weighing capacity investment. Order books built on 2.7 per cent look different from order books built on 3 per cent, and hiring or tooling decisions taken this year will be judged against whichever number turns up.
Healey’s appointment was welcomed by Stephen Phipson, chief executive of Make UK, whose members include BAE and Rolls-Royce, and which is pressing the government to bring down industrial energy costs and business rates.
“Manufacturers will welcome the appointment of someone with a reputation for being pragmatic, focused on delivery, and committed to making government work effectively.”
That welcome carries a bill attached. Make UK’s members are absorbing a near-£1 billion annual increase in business rates alongside some of the highest industrial electricity prices in Europe. A chancellor who wants a bigger British defence industrial base has to make it viable to manufacture here first, which is a Treasury question rather than a Ministry of Defence one.
Healey is not new to the building. He served as a Treasury minister in Sir Tony Blair’s government, which may explain why the appointment was read as more than symbolic.
Lord Dannatt, a former head of the British Army, told Times Radio that the appointment was “a masterstroke”.
He said: “John Healey, as we all know, resigned not that long ago, having said that the previous prime minister was unable to produce the funding that defence needed, and the previous chancellor was unwilling, so now he is the one behind the desk in No 11 and has really got to answer his own question.”
For SMEs in and around the defence supply chain, the answer arrives at the Budget rather than in this week’s share prices. Until then, the sensible read is that procurement reform is accelerating while the funding envelope stays exactly where it was.
