Britain is preparing to open negotiations with Brussels on a deal that would allow UK defence companies to contribute to major military projects funded through the European Union’s new defence loan programme.
The European Commission is moving ahead with plans to issue long-term loans worth up to €150bn (£130bn) to member states, enabling them to jointly purchase equipment such as artillery, drones, missile defence systems and ammunition. The initiative, known as the Security Action for Europe (SAFE) scheme, was unveiled in March as part of Europe’s efforts to rearm following Russia’s invasion of Ukraine.
While the UK cannot directly apply for these loans, a defence pact agreed in May opened the door for British firms to supply equipment to EU-funded projects. The agreement in principle will now be followed by detailed talks to fix the terms of British participation, after EU ministers formally authorised negotiations on Thursday.
Limits and entry fees
A central point of discussion will be the cap on British firms’ contributions. At present, non-EU companies are limited to providing 35% of the total value of any defence project funded through the scheme. This threshold could be revised during negotiations, although France is said to be pushing for tight restrictions to prevent companies outside the bloc from securing too great a share of the contracts.
The EU is also expected to demand that the UK pay an entry fee in exchange for access to the scheme. British ministers have indicated a willingness to contribute financially but insist they must retain intellectual property rights and have some influence over projects. Defence Secretary John Healey has previously said the UK is prepared to pay its “fair share” but wants to “have a say” in how the scheme operates.
Race to secure a deal
Nick Thomas-Symonds, the minister responsible for EU relations, has signalled that London is pushing to conclude negotiations within weeks so that UK-based defence firms can compete in the first bidding round. Applications for contracts under the SAFE scheme are due by the end of November, with loans expected to be issued early next year.
Billions in funding already allocated
Nineteen of the EU’s 27 member states have already applied for support. Poland has been allocated the largest share at €43.7bn, followed by Romania at €16.6bn, while France and Hungary are each set to receive €16.2bn. The loans are designed to give countries with weaker credit ratings access to cheaper borrowing by leveraging the EU’s stronger financial standing.
For the UK, the talks represent both an opportunity and a test of its post-Brexit defence relationship with Europe. A successful agreement would give British manufacturers access to billions of euros worth of contracts while also bolstering NATO’s collective response to Russian aggression.
