Scotland’s Defence Sector: Capability, Investment and National Resilience

Reflections from an FWB roundtable dinner

FWB recently hosted a private dinner bringing together senior leaders from across Scotland’s defence sector and its wider supply chain. The discussion, held under the Chatham House Rule, brought together representatives from industry, technology, energy and investment to reflect on the strategic challenges and opportunities facing the sector.

We were joined by Paul Watson, Managing Director of the Arrowhead frigates programme at Babcock International Group. His remarks helped frame a wide-ranging conversation that explored Scotland’s role in the UK defence industrial base, the importance of long-term investment and the broader geopolitical forces shaping defence priorities.

We explored several themes, which included:

Scotland’s place in the UK defence landscape

Participants reflected on how Scotland’s position within the UK defence ecosystem has evolved. Scotland continues to host major defence capabilities and programmes, yet there is a perception that it plays a smaller role in the wider UK defence economy than it once did.

Scotland ranks fifth among UK regions for direct Ministry of Defence funding; however, it ranks tenth for funding SMEs, highlighting a structural challenge. Scotland continues to benefit from large prime contracts, but innovation and supply chain resilience appear less developed than in other areas of the UK.

Strengthening this SME ecosystem is seen as essential for Scotland to capture greater economic value from defence spending and build a deeper, more resilient industrial base.

Investment cycles and the challenge for SMEs

Smaller businesses, in particular, face challenges under the current defence investment structure. Defence programmes often involve long and intermittent funding cycles and relatively low production volumes. This makes it difficult for SMEs to plan and invest with confidence.

Our discussion emphasised the importance of certainty in government policy and spending priorities. The sector needs clear, long-term signals to give companies the confidence to make sustained investment in technology, infrastructure and talent. Without predictable commitments, the risks associated with investing in defence markets become much harder to justify, particularly for SMEs that are trying to scale.

Geography and mobilisation

Unlike some UK defence centres, Scotland lacks a geographic hub around which the sector is concentrated. In places such as Barrow-in-Furness or Devonport, large anchor programmes have created strong industrial clusters supported by deep supply chains.

Scotland’s capabilities are more dispersed, and whilst this reflects the breadth of expertise across the country, it risks the sector’s ability to collaborate and mobilise effectively. Our attendees discussed how greater coordination and stronger regional networks could help unlock further growth.

Skills and the long-term workforce challenge

With defence programmes often spanning decades, building capability requires a long-term approach to developing and retaining engineers, technicians and specialists.

The transferable skills between sectors, particularly defence and energy, were highlighted. Scotland’s expertise in offshore engineering, energy systems and advanced manufacturing provides a strong foundation that could support defence programmes if those capabilities are effectively aligned.

More broadly, the discussion touched on shifting attitudes towards education and career pathways, including growing interest in technical and vocational routes that align more closely with industry demand.

Innovation, capital and the scale-up challenge

Scotland is widely recognised as having a high level of innovation and entrepreneurial activity; however, our discussion touched on the challenge of turning strong ideas into companies of meaningful scale.

The UK continues to generate world-class innovation and new-technology ventures that are often comparable to those in the United States. But the key difference lies in access to capital, particularly at the scale-up stage. Encouragingly, some investors are beginning to revisit the defence sector after decades of limited engagement.

One government-backed investor present at the dinner noted their organisation is now exploring defence opportunities for the first time in forty years.

However, long-term investment can be difficult to sustain within short political cycles, particularly when defence budgets are already committed years in advance. Greater flexibility in innovation funding was suggested as one way to respond more quickly to emerging technology opportunities.

Industry leadership in technology

Another theme was the need for industry to play a more proactive role in shaping the technologies of the future.

While government remains central to defence capability through procurement and policy, our discussion highlighted the need for companies to invest in innovation ahead of demand.

As one participant observed, innovators rarely need to be told what to build. The challenge lies in ensuring the investment environment allows those innovations to grow into scalable businesses.

From platforms to capability

The nature of defence itself is evolving. The sector must increasingly move beyond delivering platforms such as ships, aircraft, or equipment and deliver integrated capabilities that combine hardware, software, data, and operational systems to achieve greater effectiveness.

As one participant summarised, the industry must learn to “skate to where the puck is going” by anticipating future needs rather than taking a reactive approach, as technology continues to evolve rapidly.

Energy security and national resilience

The relationship between energy and security emerged as a further critical pillar of national resilience. Attendees highlighted the intrinsic link between energy security and defence, noting that robust energy infrastructure (from reliable supply chains to refined domestic capabilities) is essential to the UK’s resilience. The discussion also highlighted the growing convergence of defence and energy policy, raising important questions about how the UK can advance its energy transition while safeguarding the capabilities required for national security.

A changing geopolitical environment

The conversation inevitably broadened to the wider geopolitical landscape. Many guests framed the current global tensions as “renewed great-power competition”, with particular emphasis on the United States and China. There was a consensus that the current geopolitical tensions may represent a phase of international competition, suggesting that both political leaders and the wider public may need to adjust to a new strategic environment in which defence, resilience and national security take on greater prominence.

Unlocking investment

If the need for greater defence investment is widely recognised, the challenge lies in mobilising capital.

Participants noted that significant private capital could potentially support defence capability if the right mechanisms were in place. Ideas such as national investment instruments or “war bonds” were discussed, alongside questions around how expertise and collaboration between industry and government could be strengthened.

Leadership and national mindset

The discussion concluded by returning to the theme of leadership and its role in strengthening defence capability and national resilience. Our attendees emphasised the need for clear political direction and sustained public engagement, noting that waiting for opinion to shift or for crises to materialise risks forfeiting the chance to act early. Whether the pressures arise from energy shortages, food disruption, or wider geopolitical shocks, the conversation highlighted the importance of recognising risks early enough to act decisively.

Looking ahead

Scotland has the foundations required for a strong defence ecosystem: deep engineering expertise, a long industrial heritage and a growing technology sector.

The opportunity now lies in building stronger connections across industry, government and the investment community. Supporting SMEs, attracting long-term capital and developing the next generation of skills will all play a role in shaping the sector’s future.

As the discussion around the table demonstrated, the potential is significant. Realising it will depend on sustained collaboration and coordinated action across industry, government and the investment community in the years ahead.