A new era of intensifying geostrategic competition is unfolding against the backdrop of rapid technological innovation, an increasing number of hybrid threats, and constrained public finances in liberal democracies. The government’s commitment to increasing the defence budget to 2.5% of GDP has cross-party support, providing greater certainty to the defence industrial base and therefore helping investment decisions in this area of the economy.
However, the range of sovereign capabilities needed to meet the evolving needs of national security, and the breadth of the defence and industrial base required to provide them, also necessitates a new approach to attracting domestic and international private capital to support growth and innovation in these sectors. As a core UK strategic capability, the financial and related professional services industry has an important role to play in supporting this defence-tech-finance ecosystem.
Harnessing private funding for nationally or socially desirable objectives will always carry with it the need for a nuanced analysis of how to marry the objectives with the realities of financial markets and the motivations of different classes of investor. Strategic defence is no exception, although it presents specific features that do not arise in other areas of public-private partnership, and which need to be understood on their own terms.
Government should work with the financial and related professional services sector to:
- Build domestic and international investor confidence through a long-term strategic public-private narrative for UK defence.
- Promote competition within the defence ecosystem by increasing private investment in SMEs and the supply chain, by supporting and leveraging private investment opportunities in emerging dual-use technologies and defence-related infrastructure.
- Harness UK ‘soft power’ to deepen international investment and increase export markets for UK defence-related companies.
- Establish a transparent dialogue with the defence industry and private sector finance around ESG and ethical challenges to mobilising private capital, particularly around investment in the nuclear deterrent supply chain.