UK and EU Restart Defence Procurement Talks: What the €150bn SAFE Fund Means for British Manufacturers

The collapse of UK EU defence cooperation talks in November 2025 felt like a decisive full stop. The government had rejected participation in the €150 billion Security Action for Europe (SAFE) fund. Value-for-money concerns drove the decision after negotiators failed to bridge a vast gap between what Brussels wanted and what Westminster would pay.

Yet just ten weeks later, Prime Minister Keir Starmer is publicly signalling a willingness to re-engage. The EU has approved a new €90 billion Ukraine loan with provisions designed to bring British manufacturers into the fold. Diplomatic sources on both sides of the Channel describe “greater appetite” for a deal than at any point since Brexit.

For UK defence manufacturers, from the primes down to specialist SMEs, this shifting landscape creates both opportunity and uncertainty. Understanding what is actually on the table has become essential. Why have the dynamics changed? How should companies position for multiple scenarios? These questions now drive strategic planning across the sector.

What Is the SAFE Defence Fund UK Manufacturers Are Watching?

The Security Action for Europe programme represents the EU’s most ambitious defence financing initiative in decades. Adopted by the Council in May 2025, the SAFE defence fund UK companies are tracking provides up to €150 billion in competitively priced, long-maturity loans. Member states investing in defence capabilities can borrow over 45 years at rates most countries could not achieve independently.

The programme addresses a stark reality. EU defence expenditure rose from €218 billion in 2021 to €326 billion in 2024. Yet decades of underinvestment have left critical gaps. The European Commission’s white paper identified deficiencies across air and missile defence, artillery systems, ammunition, drones, military mobility, and AI-enabled systems. SAFE aims to close these gaps rapidly.

For non-EU countries like the UK, SAFE offers something specific. If a country joins under third-country rules, its manufacturers can tender for defence procurement UK contracts across the programme. Given the scale of planned EU defence spending, this represents a significant market opportunity.

The UK defence industry exported a record £20 billion in 2025. This marks the highest annual total since records began more than 40 years ago. Europe already accounts for 34% of UK defence exports, making it the largest regional market. Access to SAFE procurement could substantially expand this position.

Why the November 2025 Talks Collapsed

The breakdown centred on a single issue: money.

Defence Secretary John Healey confirmed to Parliament that the UK had sought to negotiate SAFE access following the May 2025 UK-EU summit. Both sides had announced the prospect of “enhanced cooperation” at that meeting. However, the terms proved unacceptable.

“We committed ourselves to negotiating with the European Union for access to the SAFE funding arrangements,” Healey told MPs. “From the start, we recognised that there would need to be a financial contribution from the UK. We also said from the start that SAFE needed to be good value for money for British taxpayers and British industry. It did not meet those tests.”

The numbers fell dramatically short of alignment. The EU sought approximately €2 billion from the UK. British negotiators considered a contribution “in the hundreds of millions” more appropriate. Some sources suggested the UK’s final position was around €100 million.

France was widely blamed for taking a hard line. Paris reportedly sought to limit non-EU participation to 50% of product value purchased. France also insisted on preconditions including UK participation in other EU defence programmes. Germany, by contrast, publicly stated it wanted the UK involved “as soon as possible.”

Brussels sources described the failure as “an embarrassment.” Both sides had already publicly committed to pursuing enhanced UK EU defence cooperation just months earlier.

What Has Changed Since November

Three developments have shifted the calculus.

First, Donald Trump’s return to the White House has concentrated European minds. His threats regarding Greenland, his criticism of NATO burden-sharing, and the 5% GDP defence spending target agreed at the June 2025 NATO Summit in The Hague have created urgency. The prospect of reduced American commitment has made intra-European cooperation more attractive. This includes working with the UK.

Second, the UK has signalled clear interest in re-engagement. Speaking in Beijing on 31 January, Starmer stated that “Europe, including the UK, needs to do more on security and defence.” He confirmed the government would “look at schemes like SAFE and others to see whether there is a way in which we can work more closely together.” This shift mirrors broader UK-China Trade Reset discussions happening in parallel.

Third, and most immediately significant, the EU has just approved a €90 billion loan for Ukraine with explicit provisions for UK participation.

The €90 Billion Ukraine Loan: A New Entry Point

On 4 February, EU ambassadors approved the legal framework for a €90 billion loan to Ukraine. The loan is funded through joint EU debt and secured against unused budget allocations. It splits into €60 billion for defence procurement UK suppliers could access and €30 billion for general budget support.

The procurement rules follow a “cascading principle.” Ukraine must first buy equipment from domestic suppliers, then from EU countries plus Iceland, Liechtenstein, Norway, and Switzerland. If equipment is unavailable from these sources, Kyiv can purchase from other markets, including the United States.

The approved text includes a specific clause for the UK. Countries with security and defence partnerships with the EU will benefit from priority purchase status. The UK signed such a partnership in May 2025. To qualify, countries must pay “a fair and proportionate financial contribution to the costs arising from borrowing.”

An EU official told journalists: “It’s important to have the UK on board to participate. Both for the geopolitical situation, getting the UK closer is better for Europe. And it will make things more flexible for Ukraine.”

The interest costs on the €90 billion loan are estimated at €2 billion to €3 billion annually. A UK contribution would be calculated proportionate to contracts won by British firms. This is a fundamentally different structure than the fixed entry fee demanded for SAFE.

This matters because it could provide a testing ground for UK EU defence cooperation. It doesn’t require the politically fraught SAFE negotiations to succeed first.

What This Means for UK Defence Manufacturers

The implications differ significantly depending on company size and capability.

For Primes and Large Contractors

BAE Systems, Rolls-Royce, Leonardo UK, and other major contractors already have extensive European relationships. BAE derives 44% of its sales from the US, but Europe represents a growing market. The company’s presence across multiple European joint programmes positions it for expanded continental opportunities. This includes GCAP, the sixth-generation fighter jet being developed with Italy and Japan. Saudi Arabia may also join the GCAP Tempest programme, further expanding opportunities.

These companies should track the Ukraine loan procurement processes closely. The specific list of products eligible for procurement from third countries including the UK is still being negotiated. Primes with existing relationships to Ukrainian defence needs may find early opportunities. So may those with critical capabilities not available domestically in Europe.

The potential reopening of SAFE talks represents a longer-term opportunity. If the UK does negotiate access to a future SAFE round, the scale of procurement available would dwarf the Ukraine loan. However, the political path remains uncertain.

For Mid-Tier Suppliers and SMEs

The picture is more complex for smaller manufacturers. European defence procurement traditionally favours established relationships and domestic supply chains. Breaking into new EU markets requires investment, patience, and often local partnerships.

However, specific opportunities exist. The European defence industrial base faces genuine capacity constraints. Production bottlenecks in ammunition, drones, and specific electronics have created openings. Capable suppliers can compete regardless of nationality. UK companies with strong capabilities in these areas should explore partnership options with European primes already positioned in SAFE-funded programmes. Smaller companies may also benefit from the £20M UKDI defence fund for startups recently announced.

The UK government’s Defence Industrial Strategy launched in September 2025 with £250 million in growth deals. It explicitly emphasises export support. Companies should engage with UK Defence & Security Exports (UKDSE) to understand the practical support available for European market entry.

The Broader European Defence Market

The context extends beyond SAFE and the Ukraine loan. European defence spending is in the midst of its most significant expansion since the Cold War.

Germany’s 2026 defence budget allocates €82.69 billion for the Bundeswehr. The government is targeting 3.5% of GDP by 2029. The ReArm Europe plan loosens fiscal rules to allow member states to spend an additional €650 billion on defence beyond normal budget constraints. The June 2025 NATO Summit commitment to 5% of GDP on defence and security spending by 2035 implies massive sustained investment across the alliance.

For UK manufacturers, this represents an expanding total addressable market. This holds true even setting aside the specific questions of SAFE access. Bilateral deals remain viable. The UK’s £10 billion Type 26 frigate sale to Norway and £8 billion Typhoon sale to Türkiye in 2025 demonstrated that major contracts can be secured through government-to-government arrangements.

The question is whether the emerging EU procurement architecture will increasingly favour intra-EU purchasing. This could potentially disadvantage UK suppliers without formal programme access.

Practical Recommendations

Given the uncertainty, UK defence manufacturers should pursue several parallel tracks.

Monitor the Ukraine loan procurement carefully. The EU is aiming for first disbursements in April 2026. The specific product categories eligible for UK supply should become clearer in the coming weeks. So should the contribution mechanism for British firms to access priority status. Companies with relevant capabilities should prepare to engage.

Maintain European partnership development. Regardless of programme-level access, relationships with European primes and supply chains remain valuable. Joint ventures, technology licensing arrangements, and partnership structures can provide market access. This works even without formal UK participation in EU programmes.

Engage with government export support. The National Armaments Director structure and UKDSE are actively promoting defence exports. Companies should ensure they are registered. They should understand available support and communicate capability gaps or market barriers to officials.

Track the political timeline. The UK-EU Partnership Council met this week with trade, energy, and fisheries on the formal agenda. Defence was not officially discussed. However, diplomatic channels on both topics are active. Any formal reopening of SAFE negotiations would likely follow subsequent political engagement.

Prepare for multiple scenarios. The range of outcomes remains wide. The UK could negotiate SAFE access. It could participate meaningfully in Ukraine loan procurement while remaining outside SAFE. It could develop bilateral alternatives. Or it could find itself progressively disadvantaged as EU procurement architecture matures without British participation. Strategy should accommodate flexibility.

The Path Forward

The next several months will clarify how seriously both sides intend to pursue renewed UK EU defence cooperation.

The EU’s Maroš Šefčovič, trade commissioner, met with UK officials this week. While defence was not formally on the agenda, the broader reset of UK-EU relations creates the context for future discussions. The US-convened critical minerals summit in Washington on 5 February brought UK and EU officials together in another forum.

France remains the key variable on the EU side. Paris continues to advocate for “Made in Europe” policies. It has historically been the most resistant to extensive third-country access. However, the urgency created by Trump’s NATO stance and the practical need for manufacturing capacity may shift calculations.

On the UK side, the government faces competing pressures. Reform UK’s rise in polls makes any arrangement that could be characterised as paying into EU programmes politically sensitive. Yet the defence industrial logic for European market access is compelling. Bilateral deals alone may not be sufficient to maintain competitive positioning as EU procurement mechanisms mature.

For manufacturers, the implication is clear. The European defence market is expanding rapidly. Formal access mechanisms are in flux. The companies best positioned to capitalise will be those preparing for engagement across multiple channels while monitoring political developments closely.

The November 2025 breakdown was not the end of the story. What happens next depends on negotiations that are only beginning.