UK defence tech firms struggle to turn successful trials into contracts

The United Kingdom is pushing to grow its defence technology industry, but many companies are still struggling to turn successful trials into contracts and larger production orders.

A new Barclays report says the UK has the technology, specialist skills and growing number of companies needed to build a globally competitive defence technology sector. But complex procurement, gaps in growth finance and uncertain routes into government contracts are making it harder for businesses to expand.

The findings come as the government increases defence spending and creates new routes for smaller companies and businesses developing technologies with both military and civilian applications to work with the Ministry of Defence.

Barclays says the challenge is increasingly about converting successful innovation into procurement, commercial revenue and investment that allows companies to grow.

UK defence technology companies remain confident despite difficulties in scaling

There is little sign of a lack of appetite among the companies themselves.

Barclays found that 81% of defence technology, dual use and space technology businesses surveyed were confident about their prospects in the UK over the next year. Some 66% planned to increase investment by at least 20% during the coming 12 months.

Three quarters considered the UK more attractive than other markets for their next major phase of growth.

The research was conducted by Censuswide on behalf of Barclays between 7 May and 13 May and covered 107 UK business decision makers operating across defence technology, dual use and space technology.

A separate Barclays Business Prosperity Index survey of 1,000 UK business leaders found that 66% believed the government’s Defence Investment Plan (DIP) would create meaningful growth opportunities. Skills development, regional investment and partnerships, and research and development were among the areas identified by respondents.

Despite the confidence shown in the surveys, Barclays found that defence technology companies continue to encounter problems with procurement, access to growth finance and working capital, and the route from early innovation funding to commercial adoption.

Government is opening new routes for technology companies into UK defence

The report comes as the government introduces a series of measures intended to bring more technology companies and smaller suppliers into defence.

The DIP sets out £298 billion of defence spending over four years and places greater emphasis on using that expenditure to strengthen domestic industry and support British businesses.

UK Defence Innovation has also been established to bring together defence innovation activities and accelerate the development and adoption of advanced and dual-use technologies.

Its priority areas include autonomy, decision advantage, logistics and support, effects and protection.

The government has separately allocated £100 million to the Rapid AI Delivery Taskforce, known as TF RAID, to accelerate the use of artificial intelligence, autonomy and other technologies within defence.

An Industry Front Door provides businesses with a route to present technologies and capabilities to Defence.

The Ministry of Defence states that submitting a proposal through the Industry Front Door does not constitute a procurement process and does not represent a commitment to future commercial activity.

Barclays identifies the transition between those early stages of innovation and subsequent commercial adoption as one of the areas where companies continue to face difficulties.

Defence procurement reforms seek to improve access for smaller UK suppliers

The government is also changing the way defence equipment and technology are acquired.

The Ministry of Defence has introduced a Segmented Acquisition Model that allows different procurement approaches to be used for different types of capability rather than applying the same process across all programmes.

The changes are intended to provide more appropriate routes for rapidly developing technologies while retaining different acquisition processes for large and complex equipment programmes.

Commercial X is another part of the effort to speed up the purchase of innovative and digital capabilities and improve access for smaller suppliers.

The government has also established the Defence Office for Small Business Growth as it seeks to increase the participation of smaller companies in the defence supply chain.

The MoD currently spends around £5 billion annually with small and medium-sized businesses. It plans to increase direct and indirect spending with SMEs by a further £2.5 billion by summer 2028.

The Barclays report says procurement is only part of the difficulty facing companies seeking to grow. Access to finance becomes another concern as businesses move beyond early development and seek funding for expansion.

Barclays calls for a clearer route from successful trials into defence procurement

Barclays is calling for the government to establish a permanent Defence Technology Accelerated Procurement Pathway led by UK Defence Innovation.

Under the proposal, successful testing and trials would be connected more directly with mainstream procurement.

The bank is also recommending that the National Security Strategic Investment Fund place greater emphasis on Series B and growth stage financing.

It wants a defence-focused extension of the British Business Bank Growth Guarantee Scheme to improve access to working capital.

Barclays is also calling for clearer government demand signals and procurement pipelines, as well as stronger links between early-stage funding, contracts and subsequent private investment.

Matt Hammerstein, CEO of Barclays UK Corporate Bank, said the UK already possessed many of the ingredients required to build a leading defence technology sector, including research capability, specialist talent and a growing community of businesses.

“The challenge is now ensuring that innovative companies can successfully move from development to adoption and commercial scale,” Hammerstein said.

He said that required “clearer demand signals, access to finance at every stage of growth, and faster routes from successful innovation into procurement.”

Rising UK defence spending puts greater focus on turning technology into production

The report arrives as higher defence expenditure is expected to create opportunities across both established manufacturers and newer companies working in artificial intelligence, autonomous systems, space and other emerging technologies.

Barclays found similar expectations across the wider business community, with two thirds of the UK business leaders it surveyed expecting the Defence Investment Plan to generate meaningful growth opportunities.

The government has meanwhile created UK Defence Innovation, TF RAID, the Industry Front Door and the Defence Office for Small Business Growth, alongside changes to defence procurement intended to widen industry participation.

Barclays is calling for those efforts to be accompanied by stronger links between innovation funding, procurement and private finance.

The report says the UK already has strong research capabilities, specialist talent and early support for defence innovation.

The next stage will depend on how effectively companies can move from those programmes into contracts and secure the finance required to increase production.

For businesses surveyed by Barclays, confidence in the UK market remains high. The report says clearer procurement routes, greater access to growth finance and better visibility of future government demand will be needed if that confidence is to translate into sustained expansion.