Small Businesses, Big Impact: SMEs in UK Defence
Small and Medium Enterprises (SMEs) are playing an increasingly important role in the UK’s defence sector. This is driven by their agility, innovation potential, and deep expertise across a wide range of technologies and services. As defence spending ramps up following the Strategic Defence Review - marking the largest sustained increase since the Cold War - SMEs are being positioned as key contributors to national security and industrial resilience. The review calls for a 'whole-of-society' approach to defence, and SMEs are critical.
SMEs bring a host of advantages to defence. They are often the source of innovation, with many smaller firms leading the way in areas like artificial intelligence, cyber security, autonomous systems, and advanced manufacturing. Their size allows them to pivot quickly, respond to operational needs, and develop niche capabilities that fill critical gaps in the supply chain. SMEs also play a vital role in local economies and communities, creating jobs and supporting regional growth. Government estimates suggest there are up to 12,000 active SMEs in the UK defence sector, and supporting this network is essential to building a more diverse, resilient, and future-ready industrial base.
The Defence Industrial Strategy, released at the beginning of September, emphasised the government's commitment to strengthening partnerships with SMEs. The plan included several new measures to aid SMEs in accessing the supply chain and scaling up. In large terms, this included the aim to spend £2.5 billion with SMEs by May 2028 - a 50% increase from 2023/24. It also outlined the creation of a new Defence Office for Small Business Growth, which will provide SMEs with support for accessing the supply chain and scaling up, as well as helping the MoD and primes to provide more opportunities for SMEs. It will also provide better equality of information, improve advice to SMEs on exports, and this office will represent SMEs at the Defence Joint Industrial Council. Because of this, SMEs should be looking to engage with the office as soon as it opens, as it gives an opportunity for their voices to be heard and their needs to be represented in policy and procurement decisions. The aim is for this office to be launched in January 2026, providing a centralised and proactive resource for SME engagement. The strategy also announced another key development to watch out for - the SME Action Plan, scheduled for autumn this year. This will include the creation of a bespoke commercial pathway, which will allow SMEs to harness the opportunities presented by the Procurement Act 2023, which makes procurement more accessible and transparent. This also plans to make the contract process less onerous and faster; brilliant news for SMEs, as the bid process can be time-consuming and resource heavy.
However, despite these promising developments, there are still significant barriers. While the MoD reports that 25% of its spending reaches SMEs, only 4% is direct - highlighting a gap that disadvantages newer or less connected businesses. Indirect spending, often routed through large primes, can limit visibility and control for SMEs. At the same time, SMEs are increasingly impacted by a stream of new and upcoming legislation - the Defence Investment Plan, due at the end of October, will be a crucial marker for the industry and could release a host of opportunities for SMEs (or could not). Many still find the procurement system difficult to navigate and feel that contracts increasingly favour incumbents since the Procurement Act. Accreditation requirements, long tender timelines, and misaligned budget cycles can further discourage SME participation. To truly unlock the potential of SMEs, the government must increase direct procurement, simplify bidding requirements, and ensure fair access to opportunities.
SMEs are not just suppliers - they are engines of innovation, economic growth, and national resilience. With the right support, they can help transform the UK defence sector into one that is more agile, inclusive, and capable of meeting future challenges. The Defence Industrial Strategy sets the tone - but real impact will depend on how well SMEs are empowered to deliver.