Britain faces the most dangerous strategic environment since the end of the Cold War. Brutal wars are raging in Europe, the Middle East, and beyond. Our armed forces stand at the forefront of this struggle — whether that’s securing NATO’s Eastern Flank or countering Houthi terrorism in the Red Sea. Cutting foreign aid and raising defence spending, if only by 0.2 per cent, was one of the (very) few Labour decisions I have welcomed since they came to office.
Political activism continues to attack the defence industry from top to bottom
When people think about our defence industry, they mistakenly think that it is a few, big businesses — the ones they can name. But it is small businesses that will be central to ensuring Britain’s defence industry remains world leading. Just one example is the Dreadnought submarine project, the future of our nuclear deterrent, which has 1500 SMEs in its supply chain.
Yet political activism continues to attack the defence industry from top to bottom, depriving SMEs of access to finance, insurance and graduate talent whether that’s through banking regulations, Environmental Social Governance rules, or campus protests. Recent events sum up the current status quo: last month, the Government announced their Defence Industrial Strategy then a day later, over 100 groups mobilised to protest the “Defence Security Equipment International” arms fair at the Excel. Our defence industry has one hand tied behind its back and both the government and our financial institutions should learn from the Jaguar debacle the dangers of forgetting their heritage, their purpose and their bottom line. Not just for the sake of profit margins, but more importantly for our national security.
Before recess, I met with a defence SME based in my own constituency and heard how they had been debanked on three separate occasions: by Lloyds, Barclays and HSBC respectively. This isn’t some Iran backed arms dealer; this is a British business that sells arms to our allies. For a small firm, where cashflow is everything, this could easily push them into bankruptcy. Sadly, this isn’t a one-off, with trade group ADS finding that almost three quarters of their members have struggled to access basic banking services. Even when they have been able to secure banking services, they have then faced decoupling by insurance and accounting firms whose whole raison d’etre seems to be obtaining a B-Corp certification.
I’m all for allowing private companies to act as they wish, but this is in no way a “free” market; the heavy hand of Government has been resting on the scales for years. Maximising profits is no longer a priority and has been sidelined by rules and regulations whether that’s through ESG or Net Zero obligations. One of the main problems with ESG is its lack of nuance, meaning that for many financial services companies even the word “defence” is an instant red flag. Companies are now so concerned with getting a gold star sticker that they plunge funding into superficial sustainability projects rather than cutting edge innovation.
This backwards thinking could have real financial implications. As James Graham of the Prosperity Institute recently revealed in this magazine, the Parliamentary pension fund withholds investment from British defence and yet it has invested in Tencent holdings parent company WeChat, an extension of the CCP’s surveillance state. What a perverse incentive. If the Conservative Party gets back in at the next election and puts an end to ESG along with Net Zero targets and subsidies, pension pots that are dependent on them will suffer. This is already happening with stocks in Danish energy company Orsted which have taken a hit following Trump’s turn against wind energy. Conversely, British defence companies’ stock has risen consistently in recent years and yet British savers have been denied these fruits.
This has all spawned from the same kind of progressive politics built on the wilful misunderstanding that we were the victors of World War II only because we were morally superior to the Nazis. The truth is that here in Britain we have always been at the forefront of defence technology and innovation whether that’s the longbow, the radar or Sir Reginald Mitchell’s Spitfire. There is nothing moral about sending troops into battle underequipped because of underinvestment. But now 4GD, a company simulating defence scenarios using virtual reality, have threatened to move to America because they can’t secure investment in this country.
This subversive attitude to defence is exemplified in our universities, where employees of defence firms are hounded by protestors when they come onto campus to discuss careers with bright students. The problem has grown so bad that the Ministry of Defence has a list of offending universities where defence contractors have been pressured into staying away. My own university, Warwick, appears on this list, presumably following an incident in which a pro-Palestine student group committed to “shutting down” the STEM careers fair, barricading themselves inside the room wearing balaclavas to protest the attendance of BAE.
Even when protests don’t dissuade defence firms from attending, they impact other students’ perception of the industry. The attitude of this vocal minority could be preventing the best talent going into a sector that is essential to national security and will prevent any trickle down to smaller businesses. Ironically, these campus mobs are protesting the very arms that preserve their democratic freedoms.
Unable to compete on manpower alone, innovation and technology have been used to give us the competitive edge
We’re a country that has always punched above our weight; unable to compete on manpower alone, innovation and technology have been used to give us the competitive edge. As we have seen in Ukraine, modern warfare will be far more reliant on technologies than ever before. It is British-made systems, such as the ASRAAM missile assembled in Bolton, that are helping shield Ukrainian civilians from Russia’s relentless terror bombing. We owe it to ourselves and our allies to stay ahead of the competition and the Government should be working to make access to finance easier for British defence companies across the board, whether BAE or the SME in my constituency. You would think that war in Europe would be enough of a wakeup call for the Government to roll back at least some of this madness.
If they are serious about firing up our industrial base, there are things the Government could do to reset the balance. For a start, the Government needs to class defence investment as strategically vital, something the French already do having carved out tailored financing for defence companies. All it would take is a simple letter from the Chancellor to the FCA changing their remit to state that defence is both ethical and vital.
British firms already face layers of government checks in order to build and export arms. This should be a seal of approval and yet banks aren’t allowed to account for this when running their own checks due to anti-money laundering regulations. This process should be streamlined: if it’s good enough for our government it should be good enough for the banks.
In response to a letter I wrote on the subject, the Government have said they will lay secondary legislation later this year to bring ESG ratings providers into regulation so that they are subject to rules set by the FCA. This might rein in some of the more outlandish ESG schemes but will also embed the concept and righteousness of ESGs for the foreseeable, when the whole nonsense needs to be rolled back.
Whilst I know that tweaks in the law would be welcomed by defence SMEs, nothing short of a full-scale attitude change across our institutions is required if Britain is to remain at the vanguard of the defence sector. This sector is a stark reminder that political virtue signalling is not just about culture war issues; it’s an insidious way of thinking that is a direct affront not just on our prosperity but also our national security.
