Small and medium-sized enterprises play a growing role in supplying technology, services, and innovation to the UK’s defence sector. Government policy has focused on widening access to procurement and encouraging new entrants to support economic growth and national security.
Defence investment has increasingly been directed toward early-stage companies developing emerging technologies.
The Ministry of Defence has announced the launch of a £20 million defence innovation fund to provide accelerated contracts for small and innovative British startups. The announcement was made by Defence Secretary John Healey MP as part of a wider commitment to increase spending with small and medium enterprises to £7.5 billion by May 2028. The measures apply to UK-owned businesses seeking to supply technology and services to the Armed Forces.
Introduction
The Ministry of Defence published the announcement on 28 January 2026, setting out a new funding route for small and innovative British businesses. The programme is designed to expand access to defence contracts and encourage early-stage companies to work with the Armed Forces.
The launch forms part of the government’s Defence Industrial Strategy, which positions defence as a driver of economic growth and technological development. Officials said the approach is intended to open procurement pathways for new suppliers across the UK.
Policy context and defence sector growth
The government has identified defence as an area for supporting jobs, innovation, and regional development. Small businesses are described as an important source of agility and new thinking for meeting evolving Armed Forces requirements.
The Defence Industrial Strategy outlines plans to strengthen domestic supply chains and increase participation from British-based companies. The new fund is presented as one mechanism to broaden access to defence procurement.
Launch of the £20 million defence innovation fund
The bespoke fund will offer accelerated contracts to small and innovative British startups that have had limited or no previous business with the Ministry of Defence. To access the programme, businesses must be fully or partly UK-owned.
- Accelerated defence contracts
- Eligibility for UK-owned startups
Fund overview
| Fund size | £20 million allocated to support small and innovative British defence startups |
| Purpose | Provide faster access to contracts and encourage entry into the defence sector |
Funding commitments and SME investment targets
The fund forms part of a wider commitment to increase Ministry of Defence spending with small and medium enterprises to £7.5 billion by May 2028. This includes an additional £2.5 billion in planned SME spending alongside a £400 million ringfence for novel technology.
Officials said the measures are intended to improve opportunities for smaller companies to compete for defence work. The investment framework is designed to support innovation across the defence supply base.
Technology themes and Armed Forces requirements
Contracts awarded through the fund will be driven by the needs of the UK Armed Forces and led by UK Defence Innovation. The search for new suppliers is organised around defined capability themes to identify technologies that can be developed for operational use.
- Artificial intelligence and data science
- Robotics and autonomy
Capability
| Lead organisation | UK Defence Innovation overseeing technology selection and engagement |
| Scope | Technologies aligned with operational and capability requirements of the Armed Forces |
Support mechanisms for early-stage defence businesses
Alongside the fund, the Ministry of Defence is introducing a ‘Dragon’s Den’ style event to provide seed funding for new defence technology ideas. The initiative will involve the Defence Investors’ Advisory Group to help connect companies with private financing.
Officials said these measures aim to assist businesses at earlier stages of development. The approach is intended to improve access to both public contracts and private investment.
Procurement reform and access for new suppliers
The Ministry of Defence has launched an Office of Small Business Growth to help smaller firms navigate the procurement system. The office is designed to address complexity and improve engagement with new suppliers.
The department has also introduced “Lite” Enterprise Agreements to reduce commercial barriers for software and AI companies. These agreements are intended to make it easier for innovative firms to work with defence programmes.
Stakeholder Comments
Ministerial Comments
John Healey, Defence Secretary said;
“I am determined to make Britain the best place in the world to start and grow a defence business, and our military the fastest innovating in NATO. Backed by our sustained increase in defence spending, we are opening up new routes into the sector and giving small British-based businesses the opportunity to develop and deliver technology for the Armed Forces.”
To Conclude
The £20 million defence innovation fund introduces a new route for British startups to access accelerated contracts and engage with the Armed Forces. Combined with wider SME spending commitments and procurement reforms, the measures aim to broaden participation in the defence sector.
Officials said the approach is intended to strengthen domestic supply chains, encourage innovation, and support long-term growth across the UK’s defence industry.
Sources: Ministry of Defence and The Rt Hon John Healey MP.
Prepared by Ivan Alexander Golden, Founder of THX News, an independent news organisation delivering timely insights from global official sources. Combines AI-analysed research with human-edited accuracy and context.
