UK Attractiveness Index: how Foreign Direct Investment is powering growth in the UK’s Defence and Security Sector and the ways in which SMEs can benefit

Last autumn, the government announced that the defence and security sector had attracted over £1.4 billion in Foreign Direct Investment (FDI) between June 2024 and September 2025. This fuelled the creation of more than 1,700 high-value jobs, in what Defence Secretary John Healey described as “a confirmed vote of confidence in Britain.”

For businesses, this growing investor confidence brings both opportunity and complexity – from navigating regulatory frameworks to securing the right commercial structures for rapid expansion. Understanding these legal implications is essential for organisations looking to position themselves to benefit from this growth in investment.

The areas attracting FDI

Focusing on aerospace, cyber and space technology, the UK’s attractiveness to overseas investors when it comes to defence and security stems from its unique blend of world‑class Research & Development capability, advanced manufacturing expertise, and highly skilled labour markets.

But foreign direct investment is doing more than boosting output – it’s reshaping the structure of the sector itself. 

SMEs are increasingly being integrated into the global supply chains. Seen as being able to “turbocharge” the sector, the government believes their agility and efficiency will accelerate innovation and enable some hand-picked UK regions to compete on a world stage, in what the government has described as a “defence dividend.” The government is really driving this forward, pledging to increase Ministry of Defence spending with SMEs by £2.5 billion by May 2028, taking the total spending with SMEs to £7.5 billion.

Government Initiatives

The recent creation of the Defence Office for Small Business Growth is a positive step toward enabling SMEs to engage with the defence supply chain and scale their capabilities to meet emerging defence needs. However, its real value will only be proven in practice. As the MOD acknowledged at the recent National Manufacturing Summit – which I attended – meaningful change is still required.

I discussed this in detail as a panellist at our recent Defence & Security Debate: currently, SMEs face significant barriers. Tendering often demands substantial resources just to secure a place on a framework, and contracting processes frequently push onerous conditions down from prime contractors to smaller suppliers. This results in SMEs absorbing risks that are disproportionate to the rewards on offer. For the defence sector to become genuinely accessible and attractive to SMEs, these practices must evolve.

Driving regional growth

In the Midlands, aerospace, cybersecurity, medicine, communications and automotive form the backbone of a thriving defence cluster. 

The region benefits from strong academic‑industry partnerships, cutting‑edge facilities, and a desire to use the defence sector as a way to build long-term sustainable growth. Employment in the region’s defence sector reached 17,000 in 2024, and the newly established Midlands Defence and Security Industry Council has committed to ensuring that increased defence spending benefits people in the Midlands. 

This positive story for the region is supported by the findings of our UK Attractiveness Index, where West Midlands was ranked the prime destination outside the capital for attracting FDI projects. Birmingham, the region’s prominent city, ranked fourth for its attractiveness to overseas investors.  

South Yorkshire is another region able to showcase and benefit from its expertise in defence and security innovation. Already home to the world‑leading Advanced Manufacturing Research Centre (AMRC) – one of five high-value manufacturing catapult centres across the UK – and a growing space-tech ecosystem, the region is set to benefit further from being designated as one of the UK’s first Defence Growth Deal regions. This brings with it long-term economic growth through job creation, skills development, and a strengthening of the local supply chain. 

A growing trend

The UK’s ability to attract global investment into strategic industries is becoming an increasingly important indicator of the country’s long‑term economic resilience.

Our UK Attractiveness Index provides up-to-date insight on the current UK economic climate, the cities and regions ripe for overseas investment, and what the future of FDI looks like when it comes to government strategy. 

This trend signals a more competitive environment for businesses aiming to attract capital, enter new markets, or scale high‑value capabilities. Clear legal guidance helps organisations demonstrate the stability, compliance, and strategic clarity that investors increasingly expect, particularly in sectors where national security considerations and government strategy play a decisive role.

Speak to an expert

Whether you're scaling, digitising, or protecting your IP, you need commercially focused, responsive advice built on real sector experience. With Irwin Mitchell, you work with lawyers who understand the pressures and pace of the sector, helping you respond quickly to daily demands while shaping strategies that underpin long-term expansion.  Uniquely, a number of our lawyers carry security clearance meaning they can advise on complex contracts in this sector.

If you’d like to discuss any of the topics outlined in this article, or would like to find out more about the opportunities available to businesses operating in the UK’s defence and security sector, then please do not hesitate to get in touch with me at pete.maguire@irwinmitchell.com