Small and medium-sized enterprises remain underused in the UK’s defence sector, limiting both national security capability and wider economic benefits, according to new research by Babcock International Group and the University of Exeter.
The report, The Next Line of Defence: Unlocking SME Potential in UK Defence from Policy to Practice, argues that structural barriers and cultural obstacles continue to deter smaller firms from participating fully in defence programmes. It calls for coordinated action by government and industry to increase SME involvement as the UK pursues its ambition to become a leading, technology-enabled defence power by 2035.
Despite their role in developing niche and emerging technologies, SMEs currently account for only about 4 per cent of UK defence expenditure. The authors say this constrains innovation in areas such as artificial intelligence, cyber security and autonomous systems, while also limiting opportunities for regional job creation.
The study identifies six priority areas for reform: simplifying procurement processes; reshaping relationships between major contractors and smaller suppliers; improving access to long-term and private capital; strengthening defence skills pipelines; upgrading digital and physical infrastructure; and reinforcing sovereign manufacturing capability.
Among its recommendations are more risk-proportionate contracting models, procurement requirements tailored to SME capacity, and faster routes into defence markets without weakening security standards. The report also calls for a cultural shift in how large contractors and government bodies collaborate with smaller firms.
Alongside the research, the authors revealed plans for a new industry-led SME Charter, expected to launch later this year. The proposed framework aims to encourage more consistent engagement with small businesses across the sector through voluntary adoption by major defence companies.
Donna Sinnick, chief delivery officer at Babcock, said SMEs were critical in time-sensitive defence environments. “They can deliver niche technologies quickly and are essential to building sovereign resilience in areas like AI, cyber and autonomy,” she said. While progress had been made, she added, further collective action was needed.
Professor Harry Pitts, deputy director of the Centre for the Public Understanding of Defence and Security at the University of Exeter, said rising geopolitical risks and technological competition made SME participation increasingly important. “Rapid rearmament and defence innovation require advantage at the technological cutting edge,” he said.
He added that policy reforms would need to be matched by practical implementation. “Only a joint effort across industry and government will unlock the agility and expertise of Britain’s small businesses and strengthen the resilience of the defence industrial ecosystem.”
