The MoD wants to buy more from defence SMEs. The question is whether any of it is real. We’ve heard it all before…

While the M&A team at Heligan were at Farnborough Air Show, the MoD published its SME Action Plan on 21 July with warm forewords, a "Think-SME" culture pledge and a tidy list of quarterly milestones.  The headline promise is another £2.5 billion funnelled into a fragmented crowd of roughly 12,000 suppliers by summer 2028, a 50% uplift on the £5 billion base.

Taking it at face value, that is an attractive signal.  My problem is that I've read documents like this before, and so, as it turns out, has the government.  Where the announcement explicitly states "Some of you may be reading this thinking, 'I have heard all this before, and nothing has changed.' You are right. It has not"  it just pre-empts your scepticism so you should probably keep it…

Look at the numbers

In 2024/25 the MoD spent £1.24 billion directly with SMEs out of £31.6 billion of total procurement.  Under 4% went straight to small firms.  The direct target creeps to £1.48 billion for 2026/27 and £2 billion for 2027/28 and the bulk of the growth is routed through the supply chain, targeted at £5.5 billion by 2027/28. 

Although the amounts vary by year, if you take the £2.5 billion additional spend, divide by 12,000 firms the government boasts and over the two years it equates to £104,166 per year.  I know I’ve simplified to highlight my point but it really doesn’t move the dial.  At all. 

Also, most of the promised money doesn't come from the MoD spending differently it comes from the primes being told to.  BAE and the other strategic suppliers are the delivery mechanism, which means the department is largely outsourcing its own target.  And the direct number grows off a base so low the percentage looks meaningful while the actual pound notes are modest.  Half the figures in the plan's own table still read "to be confirmed"…

The one line that might matter

If anything moves the dial, it's one particular sentence in the investment section whereby the MoD says it will provide "clarity that ESG regulations do not hinder defence finance or investment" and will court venture capital and the high-street banks ahead of a Defence Finance and Investment Strategy.  The shortfall in the DIP means private capital has a huge role to play and there is recognition that by removing barriers (whereby genuine barriers or perceived barriers) it could help facilitate new capital into the sector which is a positive step. 

So?

Is this government rhetoric?  Largely, yes.  Well-intentioned, candidly self-aware and backed by a spending line the department is mostly asking others to hit.  Will it make a difference? Possibly, and mostly through the back door.  If the private markets are genuinely told defence is investable that matters more than any procurement pledge.  Private capital is already flowing into the sector through specialist debt funds, VC investors and private equity investors – the cycle is still early and more investment will follow (and it has to).