SMEs set to benefit from UK’s defence investment boost

Above: Prime Minister Keir Starmer and Defence Secretary John Healey meet businesses, apprentices and students as they host a Defence Careers Fair.
Courtesy MoD

Thousands of small businesses in the UK will receive new government support to ensure they benefit from the historic decision to increase defence spending to 2.5% of GDP. This investment will protect UK citizens from threats at home, but also create a secure and stable environment in which businesses can thrive, supporting the Government’s number one mission to deliver economic growth.

The government has today announced its plans to launch a new hub to provide small and medium enterprises (SMEs) with better access to the defence supply chain and committed to set direct SME spending targets for the Ministry of Defence by June this year. This is a chance for small, often family-owned, firms to bring their innovations, their agility and their expert workforce to the task of strengthening Britain’s defences. It will help create new jobs, boosting the economy of small towns and suburbs in the UK.

It follows the Government’s historic uplift in defence spending to 2.5% of GDP by April 2027, with a commitment to hit 3% in the next Parliament. This investment in defence will deliver the stability that underpins economic growth, and will unlock prosperity through new jobs, improving the lives of people in every corner of the UK.

The new hub and investment targets announced today will ensure this increased spending directly benefits SMEs as much as possible – supporting jobs, growth and innovation. This is a vote of confidence in the prospects of up to 12,000 SMEs, supporting them to raise finance and train workers with confidence. It marks further progress to deliver the government’s Plan for Change, putting more money in people’s pockets and rebuilding Britain.

The move is designed to boost the resilience of the UK’s defence industrial base and to seize the full power of rapid technological change as part of the Government’s forthcoming Defence Industrial Strategy.

Nearly 70% of defence spending goes to businesses outside London and the South East, bolstering local economies from Scotland to the North West. However, only 4% of this spending went to SMEs in 2023-2024, which is why the Government is stepping up to provide more support to SMEs and help them get their foot in the door in the defence supply chain.

Prime Minister Keir Starmer said: "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."

Defence Secretary John Healey MP said: "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.

"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 a new era for defence and we will ensure it plays the fullest part in our national economic growth."

The new Hub will work with suppliers across the nations and regions of the UK to ensure that it fully meets their needs. This will strengthen defence procurement through increased choice and faster access to innovation. It will keep the UK at the forefront of defence technology, improving the capabilities available to our Armed Forces, the competitiveness of UK industry and growing potential exports benefits.

Defence is an engine for jobs and growth in every nation and region of the UK. In 2023-24, defence spending by the Government supported over 430,000 jobs across the UK, the equivalent to one in every 60. In the same year, the Ministry of Defence spent a total of £28.8 billion with UK industry, with spending in the East Midlands increasing by 30%, equivalent to £328 million, on the previous year. Northern Ireland also saw a rise of 20%, with other increases in Yorkshire and the Humber and the North West, up 19% and 18% respectively. With increased support for SMEs and the upcoming Defence Industrial Strategy, the Government plans to increase this further.