LONDON — Talks for the United Kingdom to join a major European Union defense fund have ended without agreement, the British government announced Friday, in a diplomatic and economic setback to Prime Minister Keir Starmer’s pledge to reset post-Brexit relations. Negotiations foundered over money, with the EU demanding a financial contribution of billions of euros for British companies to gain enhanced access to the bloc’s €150 billion ($173 billion) Security Action for Europe (SAFE) loan scheme. The lack of a deal ahead of a Sunday deadline means UK defense firms will be excluded from the fund's first bidding round and limited to a smaller role in future European rearmament projects.

The breakdown comes just months after Starmer and European Commission President Ursula von der Leyen hailed a "new era" in UK-EU relations at a summit in May 2025, which included a new Security and Defence Partnership. Both sides described the recent talks as conducted in good faith but indicated the gap on the financial terms was unbridgeable. While the door remains open for future negotiations, the immediate failure is a blow to Britain's defense industry and complicates the broader effort to deepen cross-Channel cooperation on security at a time of rising threats.

The SAFE Fund and the Sticking Point

The SAFE program is a centerpiece of the EU’s response to Russia’s full-scale invasion of Ukraine and concerns over the future of the trans-Atlantic alliance. Announced in March, the scheme involves the European Commission borrowing up to €150 billion to provide long-term, low-interest loans to member states. The goal is to encourage the joint procurement of critical military assets like artillery, ammunition, and drones, thereby strengthening Europe's collective defense industrial base.

A UK-EU pact signed in May paved the way for British participation, but a separate technical and financial agreement was required. The core dispute centered on an "entry fee" the UK would pay for its companies to play a larger role. Currently, as a "third country," UK firms can contribute components worth up to 35% of the total value of any SAFE-funded project. The UK sought a new status that would raise this ceiling, with reports suggesting a target of 50%.

The EU reportedly demanded a fee ranging from €2 billion to as high as €6.5 billion for this enhanced access. The UK government, while accepting it should pay, balked at this price. British offers were reportedly in the range of several hundred million euros, a fraction of what Brussels sought. Nick Thomas-Symonds, the UK minister for EU relations, stated the government's position was clear: "we will only sign agreements that are in the national interest and provide value for money".

Implications for Industry and European Security

The collapse is a direct disappointment for Britain’s defense and aerospace sector. Industry group ADS called it a "frustrating setback" that limits opportunities for UK suppliers at a critical time for European defense investment. Major British defense contractors like BAE Systems, Rolls-Royce, and Babcock have significant operations across Europe, and the SAFE fund was seen as a key avenue for future collaborative projects.

Analysts note that the UK's exclusion from the fund's preferential terms underscores a broader, unresolved challenge in post-Brexit defense cooperation. A policy brief from the Centre for European Reform (CER) think tank notes that the UK's relationship to EU defense tools is "shallower than that of many other non-EU partners," including Norway, which is formally associated with EU defense agencies. The CER argues that closer integration would strengthen the pan-European industrial base, and failure to cooperate "will only make Europe weaker".

Peter Ricketts, a former UK national security adviser, suggested the EU's rumoured high fee indicated some member states "don't want the UK in the scheme," highlighting lingering political sensitivities. The negotiations also occurred alongside other complex "reset" talks on issues like post-Brexit border checks on food and linking carbon trading schemes.

The Broader "Reset" and the Path Forward

This setback occurs within Starmer’s wider project to rebuild trust and practical cooperation with the EU after years of strained relations under the previous Conservative government. The May 2025 summit established a new strategic partnership framework covering areas from youth mobility to energy cooperation. Officials on both sides were quick to stress that progress continues on these other fronts.

Both London and Brussels have left the door ajar for a future agreement on SAFE. An EU spokesperson noted the fund is "open by design" and that talks could resume. The UK's Thomas-Symonds also pointed out that British firms retain the ability to participate under existing third-country terms.

The failure to reach a deal ahead of the first funding round, however, is symbolic. Nineteen EU nations have already applied for loans from the initial tranche, with Poland, Romania, and France among the largest potential beneficiaries. Canada is also in separate talks to join the scheme. For now, the UK will watch from the sidelines, a reminder that even with renewed political goodwill, the practical terms of post-Brexit cooperation remain difficult to settle.