UK’s defence strategy must include greater SME support from banks
Defence firms are being rejected by UK financial institutions such as HSBC and Lloyds over ethical concerns and have failed to obtain loans for future manufacturing projects, halting vital progress. The UK government recently revealed plans to turbocharge the UK defence industry to boost national security, yet this seems unlikely under the current circumstances.
The UK suffered a major setback in March when British arms companies were excluded from the 150bn Euro EU fund to accelerate European defence, stemming from pressure from the EU for the UK to sign a security pact with Brussels.
Earlier this year, the UK government pledged to provide defence SMEs with better access to the defence supply chain, committing to set direct SME spending targets for the Ministry of Defence by June, but it has yet to materialise. In recent months, defence secretary John Healey revealed talks with the chancellor to help defence firms rejected by banks, expressing concerns over their image, but there has yet to be an update. According to the Heligan Group, to safeguard the future of the UK defence sector, banking blockers must be removed to allow for growth.
Simon Heath, partner at Heligan group, said, “Outside of the Defence Primes such as BAE Systems, traditional high street banks and alternative lenders have always been wary of providing debt to the defence sector, particularly for companies that offer kinetic solutions that may lead to the harming or loss of life. The UK has a rich seam of supply chain companies in the defence sector that are starved of critical funding for growth and working capital because of the end markets they serve. It is time for change and to support UK defence businesses.
“UK SME defence supply chain companies are often innovators or offer highly specialised skill sets that are not replicated by the larger defence primes. Specialist advisory services and investors to the defence and national security sectors, are consistently highlighting the lack of support provided to these critical companies.”
The UK is now in a new era of Defence and National Security, defined by an increased US isolationism driven by an ideological alignment to strong-arm, deal-led tactics that will force the UK to re-assess and re-align its military and security posture. We collectively cannot rely on the pre-2025 security bubble that has been in place since the Second World War and must consider that a conflict with Russia is a possibility in the next five years. Our ability to defend and project power will need to change.
“Access to capital is the most common complaint of ambitious management teams within the defence sector, and we support any initiative that encourages further lending and investment to these globally leading innovators. Removing ESG red tape or barriers from the defence sector, a sector where the UK punches above its weight, should be expedited, given the continuing geopolitical unrest.
“Investment will be a key facet going forward, and defence and national security investment has, until now, been niche and undervalued. That has now changed. Investment will be a critical enabler of the broader ecosystem of defence and national security spending, with the barriers more open to those that can navigate and exploit the opportunities available most effectively, concluded Heath.”