UK defence tech investment has the foundations. What is missing is the connective tissue.
UK defence tech companies are broadly optimistic about their prospects. But a new report from Barclays warns that good intentions are not enough to translate Britain’s world-class innovation base into the scaled, investable defence capability the country needs. We had a read of the report ahead of its publication and found that it paints a detailed picture of where the UK is with defence tech.
The report, “Scaling UK Defence Tech: Unlocking Growth, Investment and Strategic Advantage through Innovation,” draws on surveys of more than 1,600 UK business decision-makers and roundtables with defence tech, dual-use and space tech companies. Its central finding is both encouraging and uncomfortable: the UK has everything needed to lead in defence tech except the systems to make it happen at scale. This is a story that we are hearing from all aspects of UK defence tech, from the VCs who are keen to fund, start-ups that find it hard to get into defence, through to the established businesses tied up in bureaucracy and regulatory red tape in UK defence tech investment.
One roundtable participant summed it up.
“All the inputs are there: we have world class technology, academia and talent, we have strong sovereign demand across markets and allied countries, we have indications that capital will be coming in and supporting commercialisation timelines. What’s missing is the connective tissues between them.”
UK defence tech investment, strong foundations, but a delivery gap
Eighty-one per cent of defence tech, dual-use and space tech companies surveyed were confident about the future prosperity of their business in the UK over the next year, and seventy five per cent rated Britain as a more attractive market than other locations for their next major phase of growth. Defence exports alone exceeded £20 billion in 2025, while the aerospace, defence, security and space sectors added £46.8 billion to the UK economy and supported nearly half a million jobs.
That confidence is underpinned by genuine strengths: we have deep talent pools, world-leading university R&D, and strong early-stage grant infrastructure. “The UK has a very good ecosystem for really low-level TRL R&D-type work,” one firm told Barclays. “If you have an idea that you want to turn into a prototype technology, say TRL 1-3, the UK is great.”
But the report finds that early-stage confidence does not automatically convert into scaled companies. The challenge, Barclays argues, is not generating defence innovation but “converting that into adoption, scaled procurement, and investable growth.”
Countries that can successfully convert this ambition into scalable innovation ecosystems stand to potentially gain some elements of not only strategic advantage, but also sustained economic and export growth.
Procurement: the biggest single barrier
The survey found that thirty per cent of defence tech companies cited procurement complexity or lack of transparency as the top barrier to converting public sector opportunities into signed contracts, way higher than the eighteen per cent who said the same of private sector opportunities. A further twenty seven per cent of the wider UK business population said faster, clearer procurement processes was the single factor that would most affect their decision to work with the defence sector.
The companies Barclays spoke to were direct about why. The procurement system was not, they said, structurally designed to adopt innovative technologies at the pace those technologies evolve.
“The real problem is getting from that proven state to procurement,” one participant said. “That is by far the biggest challenge and I’m not seeing a lot of help from the MoD. It’s fantastic for opening doors. But there’s no fast track.”
One of the starkest observations in the report is that procurement systems too often demand perfection when what defence tech needs is speed. Procurement, one participant noted, seeks a “100% solution when 80% will do”, a structural misalignment that slows deployment and disconnects the MoD’s end users from its procurement teams.
“The fundamental challenge is that there needs to be a mechanism by which MoD can directly contract with SMEs on a scalable basis, and I don’t think it exists,” another company said.
“On procurement — it’s slow, disjointed, there’s a lack of understanding on that disconnect between military end user and procurement team. Things becoming obsolete because it’s not rapid enough. And risk appetite… it’s taxpayer money but there has to be risk appetite.”
700X Naval Air Squadron Heavy Lift Quadcopter drone UK MOD © Crown copyright 2026
Trapped in the valley of death
Beyond procurement, Barclays identifies a persistent growth-stage financing gap, that “valley of death” we keep hearing about, between early grant support and the commercial finance needed to scale. Companies move through the early Technology Readiness Levels well-supported, then hit a wall.
“If you want to move to TRL 4-6, there’s not much opportunity,” one firm said. “The size of the pots of money aren’t big, and it’s hard to move away from the grant infrastructure and you get diminishing returns. You often can’t fund labour on grants, which makes them difficult to administer. We need to move from grant funding to procurement work.”
The issue is compounded by a fundamental disconnect between the validation government provides and what private lenders need to see. “The government has effectively been underwriting that early technology risk through grants,” one founder said. “But you can’t use that as collateral for debt, for loans. What you need are financial instruments to join the dots.”
Private capital brings its own problems. Venture investors, companies said, struggle to appreciate the patient timelines defence tech requires. “When you link that back to how we’re funded, private capital and investors, it has to be really, really patient. And that’s the biggest challenge we’ve got at the moment.”
A separate Barclays survey finding underlines the scale of latent demand: 43 per cent of businesses who saw opportunity in defence said a government-backed Defence Guarantee Scheme would encourage them to enter the supply chain.
The American comparison
Running through the report is a warning about Britain’s competitive position relative to the United States. IPO in the UK was the most likely growth route for twenty five per cent of the defence tech companies surveyed, but acquisition by a non-UK buyer was close behind at twenty two per cent, a figure the report treats as a quiet alarm about strategically important capabilities being harvested elsewhere.
The companies Barclays spoke to were direct about what they see across the Atlantic. US mechanisms such as Other Transaction Authority contracts, the Defence Innovation Unit’s 90-day entry contracts, and multi-year support packages were cited repeatedly.
“The support package you’re offered [in the US], it’s usually multi-year and multi-faceted – a combination of grants and tax breaks to help you get up and running – and they normally span 5-10 years. There’s none of that in the UK.”
The report also notes that the UK acting as a first customer is often the condition for unlocking overseas buyers. “On the export side, the tension is that a lot of countries look towards the UK as a first customer, which is unfortunate because everyone else has more money and is willing to make commitments. But until the UK does something, they won’t do anything.”
What Barclays is asking government to do
The report makes three recommendations.
The first calls on ministers to translate recent policy announcements, the Strategic Defence Review, the Defence Industrial Strategy and the Defence Investment Plan, into investor-facing implementation clarity. This means clearer demand signals from MoD and procurement bodies, a published Defence Finance and Investment Strategy, and a stronger ladder of support from early-stage innovation through to commercial scale.
The second addresses the financing gap directly. Barclays calls for the National Security Strategic Investment Fund to be supercharged to address Series B-plus and growth-stage gaps, for the British Business Bank Growth Guarantee Scheme to be extended with a defence-focused arm covering SMEs and dual-use firms, and for a standardised due diligence framework to reduce the friction that currently makes defence-sector lending so consistently difficult for banks.
The third calls for procurement reform to be treated not just as an efficiency issue but as a core enabler of private investment. Specifically, it calls for a permanent Defence Technology Accelerated Procurement Pathway, led by UK Defence Innovation, that would enable rapid testing, adoption and procurement of defence-relevant technologies in both peacetime and wartime conditions.
“Faster, more transparent and more modular procurement reduces revenue uncertainty, improves cashflow visibility, and strengthens the investment case for defence-tech firms,” the report states.
The UK is at risk of becoming a defence tech “IP farm that other people harvest”
The message is delivered with urgency. One company in the roundtables captured the stakes as clearly as anything in the 38-page report: “The instinct from government is that there’s risk in backing companies like that. My pushback is that the risk is in not doing it. If government were to come in and invest a significant amount of money in [my company]… we’re going to take that money and build infrastructure in the UK, jobs in the UK, institutional investor pools… The UK is at risk of becoming an IP farm that other people harvest.”
Barclays’ “Scaling UK Defence Tech: Unlocking Growth, Investment and Strategic Advantage through Innovation” is published on 14 September 2026. The report is based on surveys from the Barclays Business Prosperity Index (Q3 2025 and Q2 2026), a technology and innovation survey of 501 UK business leaders conducted in May 2026, and qualitative roundtables and interviews with 25 defence tech, dual-use and space tech companies conducted in April and May 2026.
