The Ministry of Defence (MoD) is set to introduce a new spending target aimed at boosting the involvement of small and medium-sized enterprises (SMEs) in the UK’s defence sector. Alongside this initiative, the MoD will launch a dedicated hub designed to provide SMEs with greater access to defence contracts, ensuring that more small British businesses can benefit from the nation’s increased military investment.
The move aligns with the government’s commitment to increasing defence spending to 2.5% of GDP by 2027, a pledge set out by Prime Minister Sir Keir Starmer. The new measures aim to ensure that smaller firms—which have historically struggled to access major defence contracts—can secure a greater share of government funding.
A boost for small British businesses
Announcing the initiative, Sir Keir Starmer emphasised the importance of small businesses in the UK’s defence sector:
“The UK’s defence industry is a source of national pride. It supports hundreds of thousands of good jobs up and down the country and represents British manufacturing at its best.
Increasing our investment in defence is not only bolstering our national security, it is an opportunity to put more money into working people’s pockets and boost economic growth.
By helping smaller businesses to access this money, we’re making communities across the UK better off and opening up more opportunities to train for good, skilled, productive jobs.”
The MoD estimates that around 12,000 SMEs could benefit from these new measures, with an increased share of defence contracts helping to drive job creation and economic growth across the country.
More defence contracts beyond London and the South East
Currently, 70% of defence spending takes place outside London and the South East, but ministers acknowledge that only a small portion of this spending reaches SMEs. The new initiative aims to redress this imbalance, ensuring that small businesses across all regions of the UK benefit from the planned increase in defence investment.
Defence Secretary John Healey highlighted the wider economic benefits of increasing defence spending, stating:
“This Government’s historic increase in defence spending to 2.5% of GDP by April 2027 will boost national security and make defence an engine for economic growth throughout the UK.”
He acknowledged the challenges SMEs have faced in accessing defence contracts and vowed to remove barriers that have traditionally locked smaller firms out of the industry:
“For too long, small businesses felt locked out of defence, but we’ve listened and we’re acting. Today’s announcement will ensure that smaller firms benefit from increased defence spending, attracting new suppliers and fast-tracking the technologies of the future into the hands of our Armed Forces.”
“This is a new era for defence, and we will ensure it plays the fullest part in our national economic growth.”
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Creating opportunities for innovation and growth
The new SME hub will serve as a central access point for small businesses seeking defence contracts, providing them with guidance and support on how to navigate procurement processes. The initiative is expected to:
- Increase competition in defence contracting, leading to better value for money.
- Encourage innovation, particularly in cutting-edge military technology.
- Diversify the supply chain, reducing reliance on large multinational corporations.
By bringing smaller, more agile firms into the sector, the government hopes to accelerate the development of new defence technologies while boosting the UK’s economy.
A commitment to long-term defence investment
The decision to prioritise SMEs follows the government’s broader commitment to strengthening the UK’s defence capabilities, with a long-term funding increase aimed at modernising the Armed Forces.
With the global security landscape evolving, the UK is investing heavily in defence infrastructure, including cybersecurity, aerospace, and advanced weaponry. By ensuring that small businesses can play a greater role in this expansion, ministers believe the UK can remain competitive on the world stage while also boosting its domestic economy.
As the MoD implements these new targets, the focus will be on ensuring SMEs have the support they need to compete for defence contracts effectively. If successful, the initiative could reshape the UK’s defence industry, making it more inclusive, innovative, and economically beneficial for businesses across the country.
