Britain Risks Losing Cutting-Edge Defence Technology Amid Delays to Government's Military Spending Plan
UK defence start-ups face collapse as government delays push firms abroad
Britain risks losing cutting-edge defence technology as several promising start-ups consider relocating abroad, while other companies are in danger of going bust amid continued delays to the government's military spending plan, executives have warned.
Some businesses were also adding a risk premium to price quotes for government work, said two executives, amid growing frustration over the dearth of contract awards from the UK Ministry of Defence.
"This is the worst business environment we have felt for over a decade," said one industry stakeholder. Activity is at a "standstill", they added, with the delays "forcing dozens of businesses to move abroad or, indeed, into administration".
The 10-year Defence Investment Plan (DIP), originally expected last autumn, has been repeatedly delayed amid warnings that the military faces a £28bn funding gap over the next four years.
The growing sense of frustration has extended to European companies. Many of the continent's burgeoning defence start-ups have set up a presence in the UK in response to what they saw as encouraging signals from the government about their plans to embrace technology such as drones.
They include the German drone makers Helsing, Stark and Quantum Systems and the unmanned ground vehicle producer ARX Robotics, as well as Portuguese drone maker Tekever.
However, optimism - and hopes of winning contracts - has increasingly turned to disillusionment for some companies.
"Strategies have been published, plans have been made, timelines have been communicated - nothing has happened," said an executive at a young German defence company. "The government says the right things - and does nothing. The UK has enough strategic papers to serve all of Nato, but it has zero drones."
The delays to the DIP have created "paralysis across the defence enterprise", said Samira Braund, defence director at industry trade group ADS, with small- and medium-sized businesses bearing the brunt of the uncertainty.
One small defence and security company on the south coast of England was preparing to wind up its defence arm, while the founder of another defence start-up had remortgaged their house to keep their business afloat while waiting for the government to sign a contract, according to a senior figure in the sector.
Skycutter, which has been designing drones for Ukraine with the UK MoD for the past two years, said it was considering its options after being offered a lucrative US contract.
The start-up recently topped the list of companies competing in the opening round of the Pentagon's new combat drone trials. It submitted a bid in partnership with Ukraine's SkyFall and ranked first out of the 11 winning companies with a 99.3/100 score.
The first phase of the contract from the Department of War has a potential value of up to $20mn, while a second could be worth double that amount. However, the second phase would require a significant presence in the US, Skycutter said, adding that US venture capital firms had been in touch offering to help accelerate the expansion.
"We would prefer to maintain a substantial presence in the UK but, given the absence of contractual certainty here, are considering our options and whether we may have to move to the US," Skycutter said. "Long-term decisions on footprint, jobs and production will ultimately be driven by where there is consistent demand and contractual certainty."
Rob Taylor, a former Royal Marine and founder of military technology company 4GD, said he was considering moving his business to the US and was speaking to a US family office for investment.
"We can't even get a document out on time.... there is a sense that we need to get more serious about this," he said, adding that there was a growing sense of cynicism among companies.
"Realistically we are looking at a market that is in effect in hiatus. It is unlikely to get moving quickly and even once it does, the majority of the [planned defence] increase has already been spent," Taylor said.
Mimi Keshani, co-founder and chief strategy officer at Hadean, said the technology start-up had "several priority MoD consumers ready to buy, and in urgent need of our capabilities, but they are struggling with budgetary approvals".
"This isn't directly tied to the DIP but it is not made any easier by a lack of a clear demand signal from the MoD," she said.
By contrast, the company already had multiple deals with the Pentagon, which had helped it raise funding.
Keshani did not rule out moving abroad: "If we keep raising money and doing business abroad then logically it makes sense to be where your customer, revenue and capital reside. The best way to keep technology sovereign is to buy it."
The MoD said: "We want the UK to be the best place in the world to start and grow a defence business and since July 2024 we have signed nearly 1,200 major contracts, with 93 per cent of that spend going to UK-based companies."
The department added it was working to "finalise the DIP" and would publish it "as soon as possible".
