British arms companies will be excluded from a €150 billion EU fund to boost European defence unless the Government signs a security pact with Brussels.

US and Turkish defence firms are also not included in the new Security Action for Europe (SAFE) scheme, under which member states take out loans from funds raised against the EU budget to spend on weapons.

In a victory for France, which has insisted that EU moves to rearm must incentivise governments to “buy European”, some 65 per cent of the cost of weapons must be spent in either the EU, Norway or Ukraine, under the plans announced on Wednesday.

The EU is scrambling to ramp up its arms spending in the face of Russian aggression and warnings from Donald Trump over long-neglected defence budgets and US security guarantees for Europe.

Kaja Kallas, the EU’s chief diplomat, said the decision to exclude the UK was “related to member states” and “different worries” in a veiled reference to French pressure.

But she added: “We are working on having this defence and security partnership with the UK.”