British defence firms face significant challenges securing financing amid regulatory hurdles and evolving government strategies aimed at boosting domestic military capabilities. Entrepreneurs such as James Thomas, founder of JET Connectivity, illustrate the growing demand for innovative defence technologies alongside the financial constraints that risk stalling industry growth.
Thomas developed a floating 5G network to support soldiers and others operating in environments lacking reliable mobile coverage, inspired by his own experience of being stranded at sea without signal. While demand for JET Connectivity’s products is rising, Thomas says access to sufficient capital remains the key obstacle to scaling production and fulfilling large orders.
More broadly, defence companies often encounter difficulties obtaining loans due to stringent Basel banking regulations. These rules require banks to hold increased capital reserves against loans to firms with complex supply chains, lengthy project timelines, and concentrated customer bases, making defence companies appear riskier to lenders. Consequently, banks may reduce lending volumes or impose higher borrowing costs.
In response, a proposed solution has emerged in the form of the Defence, Security and Resilience Bank (DSRB), a £100 billion financing initiative championed internationally, including by Canadian Prime Minister Mark Carney. The DSRB aims to encourage large-scale institutional investment, working with entities such as the British Business Bank and offering government-backed loan guarantees to reduce lender risk. Advocates claim the DSRB’s model could significantly amplify lending capacity, potentially tripling the usual ratio of capital to loans and unlocking billions in additional finance for defence projects.
Cross-party parliamentary support for the DSRB is growing as concerns mount that rising defence budgets alone will not translate into increased domestic production without improved access to finance. Alex Baker, a member of the Defence Select Committee, highlighted the gap faced by firms holding government contracts but lacking adequate credit facilities, warning this could lead to higher costs and limited procurement success.
Despite momentum internationally—about a dozen countries, including Canada and Luxembourg, are expected to become founding members at an upcoming NATO summit in Ankara—the UK government has yet to commit publicly to joining the DSRB. Instead, Chancellor Rachel Reeves is focused on an alternative approach: the Multilateral Defence Mechanism (MDM). Announced quietly in March by the UK, Dutch, and Finnish finance ministries, the MDM is an arms buyers’ consortium intended to coordinate European procurement and achieve cost savings through joint military equipment purchases rather than directly addressing financing constraints.
The UK is engaged in discussions with partners in the Joint Expeditionary Force—and potentially Poland and Denmark—to enlarge MDM membership. However, some analysts view the MDM as an attempt by the Treasury to assert greater control over defence spending, a stance underscored by the recent resignation of former Defence Secretary John Healey, reportedly frustrated by Treasury influence.
Critics of the MDM argue that while it focuses on procurement efficiency, it does not tackle the core issue of financing supply chain growth. Proponents of the DSRB maintain that it represents a straightforward opportunity for the UK to unlock affordable capital for a broader range of defence suppliers, urging ministers to reconsider their current approach.
For companies like JET Connectivity, the debate over these mechanisms is more than policy—it directly affects their ability to manufacture essential equipment for armed forces and meet existing demand. As the UK navigates competing strategies, the availability of capital remains a pivotal factor shaping the future of its defence industry.