Most defence tech firms report a declining market

Seventy-three per cent of defence-oriented technology firms surveyed said the market had declined, eighty-seven per cent had been hit by funding delays and reductions, and ninety-three per cent were reassessing investment or recruitment in the sector, according to evidence given to the Defence Committee.

Julian David, chief executive of techUK, was giving evidence on the implications of the Defence Investment Plan for British industry.

He said: “Last time we were here, we reported on our survey of members, and 73% said that the market has declined; that was in May. Funding delays and reductions have hit 87% of respondents, and 93% of them are now reassessing investment or recruitment of people to focus in this sector.”

David said members had expected the opposite when the plan was published, telling the committee: “From a tech point of view, defence-oriented tech members expected, therefore, that there would be a big uptick in the focus on tech and that orders would flow, particularly to SMEs. We have not found that to be the case.” He added that techUK had checked again with members since the survey and “they have not really seen a lot of progress.”

On the effect on smaller firms he said: “The problem, particularly from an SME point of view, is that they live off the cash flow. If there is no cash flow or no predictable path to cash, they are going to either try to find markets elsewhere or cut back and wait and see.”

David also raised departmental staffing, saying: “I would highlight the fact that, in terms of delivery, the MOD is still not properly staffed in order to deal with procurement, particularly of new things and from smaller companies. Sometimes that is disguised, in that one commercial team’s headcount is 70%, with a gap of 30%, but 40% of the team is filled by contractors who cannot fulfil the whole process of sign-off authority.”

Arnab Dutt of the Federation of Small Businesses gave figures from his own organisation’s research, telling MPs that only thirteen per cent of small businesses use pipeline documentation to find public opportunities, against twenty-eight per cent who use active procurement platforms, and that sixty-two per cent of small businesses looking for public sector contracts report that finding suitable opportunities is difficult.

Dutt said: “Another awful piece of research is that 19% of companies that have already engaged with the MOD said that they will not be doing so again because of the systemic barriers and the level of hard work and engagement. Among that 19%, there could be some brilliant businesses, so that is another issue.”

He told the committee that the Federation had received minimal consultation on the plan, describing it as the organisation’s main bugbear since publication.

David told MPs that of £7.5 billion of small and medium-sized enterprise spend by May 2028, only £2 billion is direct and £5.5 billion indirect, and that the department tracks progress without committing or delivering. He said what is needed is targets and performance indicators for the people doing the procurement, measured as they go, “as opposed to waiting until the end of 2028 and then asking whether it happened.”

He also raised the departmental definition of a small or medium-sized enterprise, which differs from the one in the Procurement Act and the fair payment code, meaning firms used to reporting one way now have to report another.