UK Prime Minister Keir Starmer and the Secretary of State for Defence John Healey have launched a new hub for small and medium sized enterprises (SMEs) and, in the same breath, offered to set spending targets to the benefit of SMEs by June 2025.
The two policies, unveiled on 3 March during a Defence Careers Fair held inside 10 Downing Street, aim to provide SMEs with greater access to the defence supply chain – a recurring complaint of innovative British start-ups.
This decision will affect 12,000 domestic businesses according to the governent. SMEs have come to play the part of a fulcrum balancing the government’s priorties: defence and economic growth.
“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,” Starmer emphasised during the event.
Starmer’s government appears to be embracing this newfound philosophy in the fallout of recent discussions with the US, whose President, Donald Trump, made clear his intention to refrain from leading European security any longer – a dramatic break with 80-years of American foreign policy.
As a result, the UK increased defence spending from 2.3% to 2.5% of GDP by 2027, with an eye on 3% at some point post-2029. This does indicate that the UK is taking rearmament more seriously amid a fracturing global order.
Of course, this is not the first time that the UK has announced it will provide greater support for SMEs. In August 2024, the Ministry of Defence opened up contracting opportunities to 39 SMEs for non-combat equipment covering 180,000 items for the Royal Navy under the MaST programme.
This time around, it appears that the key difference is that the British government will offer more direct investment in these smaller British suppliers.
Why SMEs?
Innovation is being driven largely by the commercial sector as armed forces lean on dual-use technologies, notably drones and artificial intelligence, to maintain a competitive edge over adversaries.
The Russia-Ukraine conflict has exposed this reality in the past three years as Kyiv scours for technological advantages to diminish Russia’s quantative edge. And it has achieved this to some extent, having inflicted a heavy toll on Russia’s Black Sea Fleet and churning out home-made drones at an unprecedented rate (up to four million annually).
However, still, it seems SMEs are excluded from the government’s procurement process which has been updated this past year to ensure smoother, faster, and more agile procurement protocols.
On 28 March, Members of Parliament reflected on the problem of SME exclusion, with one Labour politician, Alan Strickland, suggesting the problem was that businesses “are shut out by bureaucratic processes.”
Another Member of the House of Commons, Jim Shannon of the Democratic Unionist Party, intimiated that the problem lay with the imbalanced distribution of funds according to regional economic hubs when he asked whether Northern Ireland’s defence industrial base will play an integral part.
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 claims it will narrow this gap with more support to help SMEs get their foot in the door in the defence supply chain.
