UK Defence Plan Delay Stifles Supply Base, Forces Firms Abroad
By Sarah Young
Impact of Defence Investment Plan Delay on UK Defence Sector
LONDON, June 29 (Reuters) - Britain's nine-month delay in setting out its defence spending plans to meet a rising threat from Russia has forced some small suppliers to collapse, others to hold off investments and many more to expand abroad instead.
Prime Minister Keir Starmer is finally expected to publish the Defence Investment Plan on Tuesday, one of his final acts before he steps down in July, after his defence and finance departments spent months arguing over how to fill an estimated £28 billion shortfall.
Many companies in the sector say that delay has damaged the UK's military supply base and potentially the government's efforts to make its cash-strapped forces war-ready.
Investor Confidence and Business Impact
"We need the DIP to provide the confidence to private investors to scale investment," said Shefali Sharma, chief executive of Oxford Dynamics, an AI defence company. "Currently its absence is costing businesses."
As they wait, contract awards from Britain's Ministry of Defence have dried up and even small procurements are taking longer than usual, pushing British defence companies to focus on winning business overseas and meaning the UK is losing out on jobs and investment.
Collapse of Small Suppliers
Dozens of smaller companies have gone out of business, or shut down their defence units to focus on other industries as a result, the defence lobby group ADS told Reuters.
Shift in Demand to Overseas Markets
The chief executive of UK defence company Cohort said that over the last 18 months demand from militaries in other countries where it works, such as Germany, Poland, the Nordics and Baltics, has been clearly ramping up, in contrast to Britain.
"Because of the lack of defence investment plan, it's really difficult for the MOD to contract new programmes," CEO Andrew Thomis said, adding that procurement which had been expected in the UK has not yet come through.
Cohort, which is a parent group of seven different defence-related companies, said that while its total revenue is expected to grow 12% in the last financial year, the UK's share fell below 50%, having stood at 80% just a few years ago.
UK Losing Out on Manufacturing Investment
Britain's dithering at a time when other countries are awarding contracts has hurt domestic production.
Case Study: Q5D and Overseas Expansion
Q5D, an early-stage company based near Bristol in south west England which has automated the manufacturing of the wiring used in drones and other equipment, has won contracts with the U.S. Army, but not in the UK, making the U.S. the more likely site for a new factory.
"I would love to build one here ... but given all our sales are actually in the U.S. it makes more sense to do that," CEO Stephen Bennington said.
"I think there's very little point in us investing and looking at the MOD just at the moment until they sort themselves out."
Case Study: SEA's Expansion to Canada
Similarly, one of Cohort's British-based companies, SEA, has set up a facility in Canada to make torpedo launch systems because that is where the demand is.
"The pace of these things overseas does seem to be faster," Thomis said.
Impact on AI Defence Companies
For AI defence company Oxford Dynamics, which employs about 45 people, and whose technology is already being used on MOD infrastructure, the delay to the DIP has stopped it from pushing ahead at speed, because of a lack of clarity.
"We believe the DIP will allow us to narrow our focus...to then go all in on whatever capabilities are required," CEO Sharma said, explaining that the company is waiting for a steer of exactly what the MOD wants.
Start-ups Facing Collapse
Without the demand signal provided by the DIP, some start-ups have collapsed. One example is Aeralis, which had designed a modular jet it hoped might compete to replace Britain's fleet of Hawk trainer jets, but which entered administration in May.
Continued Demand Driven by Support for Ukraine
During the delay, the one area of demand that has held up comes from Britain's involvement in helping Ukraine on a range of technologies.
"It's been (Britain's) support into Ukraine that has been driving the innovation in this space, and the pace of innovation readiness," said Rob Merryweather, BAE Systems' group technology director, referring to next-generation navigation systems.
Rapid Development of Strike Weapon for Ukraine
A British project to develop a low-cost advanced long-range strike weapon for Ukraine has also moved at speed since February 2025, with the prototypes tested within months, and three companies now working on a £45 million development contract.
(Reporting by Sarah Young; Editing by Kate Holton and William Maclean)
