The Budget 2025 – what it means for Defence, Engineering, Technology and contractor talent

December 03, 2025

The Chancellor, Rachel Reeves, has delivered her second Budget which, she claims, will take ‘fair and necessary’ choices to deliver on this government’s promise of change. It comes at a challenging moment for the UK economy, with productivity growth downgraded and higher inflation forecast.

However, it also revealed the government’s commitment to long-term industrial growth, security and modernisation. This Budget signals a strategic shift, prioritising capital investment, skills development, defence, manufacturing and digital infrastructure. It’s an attempt to rebalance the UK economy around high-value industries in order to rebuild critical supply chains, upgrade national capability and cultivate a skilled workforce.

The scale of the proposed investment is significant, but so are the challenges: skills shortages are already acute, supply chains remain stretched and productivity growth is slow. For employers in defence, engineering and technology, and for contractors within these sectors, the Budget is a signal that investment in these areas is a priority but also that growth is likely to be gradual, rather than immediate.

Here we look at the announcements and see how the 2025 Budget is likely to affect recruitment and talent pipelines in these crucial areas.

Defence

The Budget reinforced the government’s commitment to increased defence spending, with 2.6% of GDP allocated in 2027. This includes the £5 billion already promised within this Parliament and £1.5 billion for munitions and energetics, with the construction of factories scheduled to begin next year. A £10 billion deal with Norway was also announced to supply the country with frigates, supporting over 4,000 jobs and sustaining hundreds of firms across the supply chain.

Meanwhile, the recently announced Defence Industrial Strategy commits an additional £182 million to boost the talent pipeline specifically for the defence sector and includes setting up ‘Defence Technical Excellence Colleges’ to provide specialised training for the next generation of defence specialists.

The result of this is likely to be heightened demand for engineers, technicians, project managers, munitions manufacturing staff, naval shipbuilding specialists and supply chain managers, as well as logistics and cyber specialists. However, many of these roles depend on long procurement cycles, regulatory approval and complex supply-chain build programmes, meaning that job increases will be steady rather than sudden. Large defence programmes also require long lead times for skills acquisition, so the pressure on sourcing specialist talent, such as naval architects, systems engineers and weapons specialists, is unlikely to ease in the short term.

Contractors, particularly specialists involved in project-based work, should see increased opportunities, particularly in defence-related manufacturing, maintenance and supply-chain roles. Employers may face increased competition as multiple, large defence programmes draw from the same limited talent pools. This might pull skilled workers in from other sectors, or from abroad, and further intensify competition for specialists, and may also result in rising salaries or contract rate expectations.

Engineering

The Budget’s £182 million package to strengthen engineering skills, plus investment into advanced manufacturing hubs such as Belfast’s AMIC and the extension of the DRIVE35 automotive programme, confirms that engineering remains a priority for the government, in line with its Modern Industrial Strategy.

This includes new technical educational offerings via short courses from the Growth and Skills Levy and specialist training for advanced manufacturing, clean energy, digital and technology which should broaden the entry routes into engineering, helping to develop a more diverse future talent pipeline.

This is in response to analysis which suggests that the UK will need approximately 59,000 new engineers annually to meet demand for green and clean tech, particularly as older workers retire, and assist the 76% of UK engineering employers who say that they struggle to recruit for key roles. This Budget’s support for skills programmes, technical colleges and advanced manufacturing will, therefore, help but it’s unlikely to close the skills gap entirely and the results will be incremental.

For employers, the emphasis on learning pathways, such as short courses, technical colleges and apprenticeships, may provide a more diverse talent pool with entry- and mid-level engineering jobs becoming available for people with vocational or technical training rather than traditional university qualifications. This may shift recruitment patterns away from degree-only requirements towards more skills-based hiring.

Organisations can continue to expect tightness in the labour market, particularly in clean energy, automotive electrification and advanced manufacturing. Demand for mechanical, electrical, manufacturing and EV/automotive engineers will remain high, as will wage inflation.

Contractors and short-term project workers with experience in these sectors will find themselves in demand, especially as new facilities, R&D programmes and infrastructure upgrades begin.

Technology and digital

The government’s commitment to digital skills, AI Growth Zones in Wales, investments into NHS technologies and anticipated digital tax reforms represent a push to align technology and digital capabilities with its industrial ambitions. In addition, technical excellence colleges offering digital and technology courses will provide a future generation of software engineers, data engineers and digital infrastructure specialists and more.

The government’s initiatives are expected to gradually increase demand for software engineers, data specialists, cloud experts and cybersecurity professionals, but it won’t be overnight. The larger challenge remains the tech talent shortage which means that even with new training programmes in place, skills gaps remain difficult to fill and organisations face fierce competition for talent.

Paradoxically, while demand for senior and specialised roles are high, adverts for tech jobs have fallen by around 50% between 2019 - 2025, according to The National Foundation for Educational Research, with junior and entry-level positions being particularly affected. This is a potential concern for long-term pipelines and diversity in the workplace.

Contractors, on the other hand, are seeing persistent demand for niche skills, particularly in areas such as AI / ML engineering, data architecture, DevOps, cybersecurity and hardware / embedded systems. Contractors working in digital transformation, systems integration and AI infrastructure remain in demand, although this may fluctuate in the future, depending on the pace of the government’s rollouts.

In future, recruitment trends could shift towards digital-first and hybrid skill-sets and favour individuals who are conversant with, for example, engineering and software / AI, or digital infrastructure and manufacturing systems.

What this means for employers, recruitment specialists and contractors

For talent-acquisition specialists and employers, the Budget signals that:

The demand for skilled labour, especially engineers, technicians, manufacturing workers, defence specialists and digital / tech infrastructure professionals, employers will remain. Employers may wish, therefore, to focus on hard-to-fill specialist roles rather than large-scale recruitment
There will be more contractor and short-term / project-based roles, especially for specialists with niche skills in manufacturing, munitions, nuclear and tech infrastructure. However, the demand may be uneven, with some areas seeing strong and consistent demand and others facing slower uptakes as regulatory processes, planning timelines or project approvals delay progress
Despite skills initiatives such as vocational training, apprenticeships and technical college qualifications, talent pipelines are still incomplete and it will take a considerable time to reskill the workforce. This means that employers may continue to face ongoing shortages
Increased competition for talent may push up rates for contractors and salaries for permanent staff, especially in already-scarce areas such as clear energy engineering, defence manufacturing and cybersecurity
With major projects happening in Scotland, Northern Ireland, Wales, the Midlands and other regions, recruitment will grow outside the ‘traditional’ tech and engineering hubs, offering more opportunities to employers and talent across the country.

For engineering, defence manufacturing or tech professionals, now may be one of the best times to work in these sectors. Up-and-coming talent can take advantage of technical college training or short-course pathways to enter the profession.

Employers should prepare for a market that continues to rely on contractor activity in the short-term and which is heavily influenced by regional and sector-specific cycles.

Closing thoughts

The 2025 Budget is evidence of the government’s long-term commitment to investment in defence, engineering and technology, which are all sectors with strong potential for job creation. And, given the UK’s challenges, which include weak productivity growth and structural skills shortages, the impact will not be immediate or uniform. Skills shortages, training lead times, regulatory hurdles and supply chain pressures will continue to shape the labour market in the immediate future.

However, over the next few years, this budget may help to create stable demand in critical industries, especially for those with specialist skills or flexible contractor experience. This could translate into real opportunities for growth, for well-paid roles and for more inclusive paths into high-value industries. For employers in these sectors, the outlook could be described as cautious optimism, with opportunities arising, but constrained by a tight labour market and the need for patience.

For more insight into how the 2025 Budget might affect your sector contact us.