Defence firms being ‘de-banked’, MPs told

A rising share of British defence companies are being refused overdrafts and working capital by their banks, the Director-General of Make UK Defence has told MPs, in evidence that ranged across the cost of rearmament, the stalled Defence Investment Plan and the state of the country’s defence industrial base, the UK Defence Journal understands.

Andrew Kinniburgh, who represents just under 1,000 defence companies including the major prime contractors, told the Treasury Committee on 3 June 2026 that the proportion of his members reporting problems with financial services had climbed from 11 per cent to 17 per cent between last year and the start of this year. “For instance being de-banked, not being able to get an overdraft, not being able to get the working capital they need through various means, whether that’s venture capital or private equity, or through traditional kind of retail banking and business banking,” he said.

Asked whether this reflected a deliberate move by banks to disinvest from defence, Kinniburgh said the picture was muddied. “That’s the killer question, actually, because there is a mudding of the water here,” he said. “If you’ve got a shaky balance sheet as a business, the bank is going to question you anyway,” he added, saying the difficulty was drawing the line between the absence of the Defence Investment Plan, weak defence spending and those shaky balance sheets. Publishing the plan with a clear timeline, he argued, “will give confidence to the market to all the markets”, and would help let the brakes off on overdrafts and working capital.

The session, which also heard from Lucia Retter, Assistant Director for Defence and Security at RAND Europe, and Max Warner, a senior research economist at the Institute for Fiscal Studies, opened with the committee chair paying tribute to the three Royal Navy aircrew who died when their helicopter crashed in Devon in the early hours of that morning.

Much of the evidence turned on the gap between the UK’s defence ambitions and the money committed to them. Kinniburgh said that without the Defence Investment Plan the country was “stuck on 2.6% of GDP, which is, we would argue, wholly unacceptable, and not enough to give us a credible defence deterrent”. He wanted to see a clear path to 3 per cent, then 3.5, alongside the 1.5 per cent on defence infrastructure, pointing out that a single new submarine effectively means building three sets of infrastructure once basing and maintenance are counted. “You’re actually effectively building three sets of infrastructure for one piece of equipment,” he said. The central uncertainty, he added, was the scale of the financial black hole inherited from earlier years: “There’s no point in us having a plan to 3% 3.5% if then it’s going to get clawed back, because there’s a black hole from previous years.”

Retter said the Strategic Defence Review had been costed against an assumption of defence spending rising to 2.5 per cent of GDP by 2027 and 3 per cent in the next parliament, before the commitment to 3.5 per cent by 2035. The capability gaps the review identified, she said, spanned readiness and stockpiles, digital and technological integration, the fielding of autonomous systems at scale, and the perennial late delivery of equipment. “The gap currently means that our deterrence posture is more brittle than we would like it to be,” she said. “Our messaging and signaling to both allies and adversaries is also undermined because of the gap that we are currently seeing.”

Warner made the point that the review’s own terms of reference had required it to be affordable within lower spending than the government was now planning to reach, yet ministers had accepted all its recommendations. “Now it seems that everyone more or less agrees it’s not affordable,” he said. He cautioned against fixating on spending as a share of GDP rather than on what the money actually delivered. “What matters really is what we’re getting for that money,” he said, warning that with many countries increasing defence budgets simultaneously, prices across the supply chain were at risk of rising.

Pressed on what reaching 3.5 per cent would mean for the public, Warner set out the scale in stark terms. Moving from 2.6 to 3.5 per cent would mean an extra £30 billion to £40 billion a year, he said, equivalent to roughly £500 per person, or about £2,000 for a family of four. That was comparable to adding the entire Department for Transport budget to the Ministry of Defence, he said, and would require the equivalent of three to four pence on all rates of income tax, or a similar rise in VAT. The increase was too large to find through efficiency savings alone. “These are chunky savings you’d need to make,” he said. He framed it as a fundamental choice: “Either we accept the state is going to become bigger and we’re going to raise taxes quite substantially to pay for that, or we don’t want the state to expand and we’re going to have to cut something quite chunky elsewhere.”

The committee returned repeatedly to the consequences of the delayed Defence Investment Plan, which Kinniburgh said he hoped might appear the following week. He said the absence of the plan was deterring even the largest contractors from committing money to the UK. “Those companies are simply not, until they see the defence investment plan, going to put money into the UK,” he said, describing a state of paralysis in which firms weighing whether to invest in Britain, Germany, Poland, the Baltics or the United States were holding off.

On the workforce, Kinniburgh warned of acute skills shortages, citing the cost of nuclear-rated welders, who he said could command six-figure salaries that defence firms could not match. He pointed to a team of 300 welders working for Babcock recruited from the Philippines, arguing the country should instead be training apprentices, but said firms could not commit to taking them on without a clear demand signal. He also raised the looming 50 per cent tariff on certain steel imports due on 1 July, warning it would raise procurement costs and criticising the Ministry of Defence, and particularly the Defence Infrastructure Organisation, for spot-buying standard steel from China that could be sourced in Britain.

Retter argued that the problems in procurement were less about structures than about culture. Reforms had come and gone since the 1960s, she said, all aiming to make procurement faster and less wasteful, but the fundamental enabler was a change of mindset that empowered officials to make decisions without endless layers of approval. She pointed to the speed achieved under urgent operational requirements, such as Operation Scorpius supplying equipment to Ukraine, as evidence of what was possible when external pressure and a higher tolerance for risk were present.

Warner set out how the fiscal rules were shaping where defence money went, noting that the Ministry of Defence had shifted from spending about a quarter of its budget on investment through the 2010s to a planned figure of over 40 per cent, partly because investment spending was treated more favourably than day-to-day spending under the current rules. He also addressed the argument that defence spending would pay for itself through growth, accepting there could be positive spillovers from defence research and development but cautioning that the magnitudes were unlikely to be large.

Retter added a note of caution on the government’s messaging, observing that the UK appeared unusual among European states in justifying higher defence spending primarily on the grounds of economic growth, where Germany, Poland, the Nordic and Baltic states framed it more directly around the threat and the changed geopolitical environment. While the regional economic benefits of defence were real, she said, growth should not be presented as the primary purpose of rearmament.

Kinniburgh agreed that growth was not the main aim but argued defence could be a powerful engine for it, pointing to towns such as Barrow-in-Furness, Yeovil, Helensburgh and Plymouth whose economies depended heavily on defence work. He closed with two proposals he urged the committee to put to the Treasury. The first was redirecting some £1.8 billion of patent box tax relief, much of it currently benefiting large pharmaceutical firms, towards defence. “Take that out of there and put it into defence, 1.8 billion quid, free money, back of the net,” he said. The second was issuing wartime-style defence innovation bonds to fund early-stage research and development, an echo, he said, of the defence bonds that raised the equivalent of tens of billions of pounds in the Second World War.

The committee said its next session on defence spending, held jointly with the Defence Select Committee, would seek to question the Chief Secretary to the Treasury and a defence minister directly, though no date had yet been confirmed.