This paper examines how UK defence sector challenges and policy reforms impact private capital investment, focusing on procurement, investor risks and innovation barriers.

Overview

This paper analyses how the UK government can increase private capital investment in the UK defence sector to help finance the development of innovative technologies and scaling up production capacity. The paper finds that, while the government’s defence spending will remain the primary driver of growth in the sector, changes in the way it procures defence equipment, communicates with investors and controls investments in defence companies could attract more capital towards defence.

Key Recommendations

• Embrace Risk in Faster Procurement: Develop a political communication strategy that openly addresses the risks of faster, more accessible procurement, articulates long-term goals and makes clear that some risk is acceptable in pursuit of overall success.
• Centralise Market Intelligence: Establish a market insights and analysis unit within UK Defence Innovation (UKDI) to consolidate information from across UKDI, DSTL, DE&S and other MoD bodies, identifying companies with strong potential for strategic UK onshore industrial capability.
• Coordinate Investment: Create a defence investment coordination forum to institutionalise communication with trusted private investors, ensuring capital reaches areas with high potential and value for UK national development.
• Streamline Investment Screening: Establish a certification regime for trusted defence investment funds, allowing vetted funds to be exempt from repeated notifications if their structures protect sensitive information and prevent undue influence.

By implementing these recommendations, the UK can foster a dynamic defence innovation ecosystem, accelerate procurement and attract global private capital, maximising the sector’s contribution to UK national security.