Budget creates new opportunities for UK defence SMEs

The 2026 Budget could create significant new opportunities for SMEs across the UK’s defence, security and dual-use technology sectors, as Government investment increasingly focuses on strengthening Britain’s domestic defence industrial base.

The Government confirmed in today’s Budget that its Defence Investment Plan will be fully funded and set a target for UK defence spending to reach 3% of GDP by 2030. The Defence Investment Plan includes £15 billion of additional investment above previously agreed commitments.

Alongside direct Government expenditure, the Budget includes measures designed to attract more private capital into defence. The National Wealth Fund and British Business Bank are being given a stronger focus on defence, dual-use technologies and sovereign capability, with measures designed to unlock up to £5 billion of investment for UK defence businesses.

A new Innovative Defence Financing Taskforce has also been announced, underlining the Government's intention to explore new ways of financing defence investment. HM Treasury included the Taskforce's Terms of Reference among the official documents published alongside the Budget on 28 October.

We believe these announcements are particularly important for smaller and mid-sized businesses that already sit within, or have the potential to enter, defence and security supply chains.

Andy Cowie, Partner at James Cowper Kreston, said:

“The really interesting part of this Budget for the defence sector isn't simply that more money is being committed. It is the increasingly clear message that Government wants to mobilise private capital and strengthen the businesses that make up the UK's defence industrial base.

That creates an opportunity for SMEs. Many of the most innovative businesses in defence, security and dual-use technology are relatively small, entrepreneurial companies developing specialist technologies and capabilities. For those businesses, the challenge now is to make sure they are ready to take advantage of the investment that is coming into the sector. Access to capital is part of that, but so too are having the right financial structures, management information, tax strategy and investment plans to support growth.

We are also seeing opportunities for businesses that might not historically have considered themselves defence companies. Advanced manufacturing, engineering, cyber security, communications and other technology businesses can all have capabilities relevant to defence and national security.

The Budget therefore represents more than an increase in defence spending. It is another step towards developing a larger UK defence ecosystem, and SMEs have an opportunity to become an important part of it.”

The Budget comes as defence is increasingly being viewed not only as a national security priority, but also as an industrial and economic growth opportunity. The Government's measures include increasing private-sector participation in defence projects through new financing approaches and public-private partnerships.

From innovation to investable business

We believe increased access to capital could be particularly important for businesses seeking to commercialise technologies with both civilian and defence applications.

For management teams, however, securing investment or winning larger defence contracts can bring new challenges. Businesses need to demonstrate that their financial reporting, forecasts, tax position, funding strategy and corporate structures can withstand the scrutiny that accompanies external investment and rapid growth.

Andy Cowie continued:

“There will inevitably be a lot of attention on the headline spending numbers. For SME management teams, I think the more useful question is: what does this mean for my business?

If you have technology, products or specialist expertise that could solve a problem within defence or security, this is a good time to examine where you fit within the market and what you would need to do to scale.

Funding alone does not create a successful defence business. Companies still need a credible proposition, strong financial foundations and a clear strategy for turning innovation into sustainable commercial growth.”

A growing opportunity for the South of England

As advisers to businesses across the Thames Valley and South of England, we see significant potential within the region’s established concentration of technology, engineering, innovation and research-led businesses.

We believe some of the greatest opportunities could emerge at the intersection of defence with technology, advanced engineering, cyber security and dual-use innovation.

We provide audit, accounting, tax, corporate finance, business advisory and specialist support to entrepreneurial and growing businesses. Get in touch with one of our specialists today.