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Finance and arms bosses have backed calls for the government to make it easier for City firms and banks to provide support to the defence industry by providing a 10-year outlook of its investment projects.
A task force led by the CBI and consultancy Oliver Wyman and made up of executives from across the defence and financial industries published a report on Tuesday looking at how to build the UK’s defence capabilities while driving economic growth.
Among its other recommendations was for City firms to review investment exclusions related to defence following complaints that the sector is shut out from capital raising because of environmental, social and governance guidelines.
“The money is there to support the industry,” said Lisa Quest, managing partner at Oliver Wyman and co-chair of the task force. “We need to create the right mechanisms for the financial community to engage and accelerate the mobilisation of capital.”
The “national conversation has changed,” said Rain Newton-Smith, chief executive of the CBI, on the fresh urgency around supporting the British defence industry. “The world has become a lot more of a precarious place.”
The Labour government has pledged to raise core defence spending to 3.5 per cent of GDP by 2035 as the UK seeks to build up its military capabilities at a time of rising geopolitical threats from Russia and China.
However, industry experts have said private capital will be needed if the government is to deliver on the ambitions set out in its recent strategic defence review. Companies in the sector will also need access to capital to boost arms production and invest in new technologies.
The task force, co-chaired by defence secretary John Healey and chancellor Rachel Reeves, brings together executives from across the defence industry including BAE Systems and Babcock International, as well as banks such as Barclays, Lloyds and HSBC and pension giants M&G and Phoenix Group.
Its report urges the government to commit to a 10-year investment plan, which it said should outline the capabilities it plans to invest in, when it plans to make investments and how much it plans to spend.
“Substantially improved visibility is a prerequisite to generating accelerated investment in the sector,” said the report.
It also said there should be a “national public dialogue” about the importance of the defence industry and the role it can play in helping drive economic growth across the UK. Defence is already seen as an important source of highly skilled, well-paid jobs in less prosperous parts of the UK.
Industry executives have been waiting for the government to provide details about the implementation of ambitions in last month’s strategic defence review, which recommended greater use of drones, autonomous vehicles and artificial intelligence alongside new nuclear warheads, submarines and fighter jets. A defence industrial strategy is due to be published in the coming weeks.
Newton-Smith said the focus of the task force was on “how do we really drive growth and productivity”, and that it was important to bring together not just the large established defence groups but also newer entrants and smaller players, as well as the financial services industry.
The aim was to “think about how can we give this some heft and have a laser-like focus on really delivering investment into the UK economy”, she added.
Industry executives, notably among the smaller players, have complained of difficulties securing funding given ethical concerns and internal rules among some investors. Some lenders have also been reluctant to provide credit to the sector given perceived reputational risks.
The task force said banks, pension funds and other asset owners should review their internal policies and exclusions related to defence. Its report found that as of March 2024, just 29.8 per cent of EU and UK-domiciled ESG funds had any exposure to aerospace & defence, something it said implied a “significant missed opportunity”.
