2026 represents a critical inflection point for UK Defence. Following the publication of the UK Strategic Defence Review (SDR) in June 2025, the Defence Industrial Strategy (DIS) has set out the government’s ambition for how defence should partner with industry to deliver capability at pace and at scale.
Central to both is defence reform, set to be the most substantial restructuring of UK Defence for decades. A consistent theme across the SDR, DIS and Defence Reform is the importance of UK-based Small and Medium Enterprises (SMEs). The DIS describes SMEs as the ‘heart of our vibrant and flexible defence industry and key to our ambitions’.
This recognition is welcome. However, translating ambition into practical, timely outcomes remains a significant challenge. Initiatives announced in the DIS – including a refreshed SME Action Plan and commercial pathways, SME spending targets, and the creation of the Office for Small Business Growth – are positive steps. The critical question is whether they will drive meaningful change at the pace required.
Procurement reform: a familiar challenge
Both the SDR and DIS acknowledge the need for procurement reform, particularly to reduce barriers for SMEs and non-traditional suppliers, and to address the long-standing ‘feast and famine’ approach to defence investment. These challenges are not new. Despite multiple reform initiatives over several decades, a gap between rhetoric and reality persists. The data is sobering. Of the major defence projects and programmes reported in the MOD Annual Report 2023–24, only two out of 49 were delivered on time and on budget.
Yet, despite a stated intent to diversify the supply chain, the top ten defence suppliers still account for 38.7% of MOD expenditure – a figure almost unchanged from a decade ago.
Against this backdrop, it is reasonable to ask, ‘what will be different this time?’ At present, the jury remains out. Public commentary at the time of writing has highlighted limited visible progress against SDR and DIS commitments. This includes delays to the Defence Investment Plan (promised for autumn 2025 and now expected no earlier than February 2026), slippage in the SME Action Plan, and a lack of clarity on the role, funding, and operating model of the new UK Defence Innovation organisation.
Compounding this, in-year financial pressures within the MOD have resulted in delays and deferrals to anticipated contract awards and invitations to tender. Despite the government’s commitment to increased defence spending, many UK defence-focused SMEs are forecasting reduced revenues in FY25/26.
Moreover, the current uplift represents only around 0.2% of GDP growth at a time when manufacturing and labour costs are rising more rapidly. Increasingly, the MOD is also looking to private capital – both venture and private equity – to invest in the defence sector. While investor interest is growing in response to commitments on increased defence spending, without meaningful procurement reform it will be difficult for investors to realise returns within time frames that make defence a genuinely attractive proposition.
The SME perspective
For SMEs, these issues are particularly acute. Smaller businesses are far more exposed to short-term volatility in defence spending, with direct impacts on workforce stability, innovation pipelines and manufacturing capacity. It is, therefore, unsurprising that many are increasingly looking overseas – not only to diversify and build resilience, but also in response to the structural challenges of the UK MOD procurement system.
If the ambitions of the SDR and DIS are to be realised, progress must be made quickly and credibly. For those SMEs pursuing export opportunities, the transition from the former Defence Sales and Exports Organisation (DESO) to the new Office for Defence Exports represents a significant opportunity to improve support and coherence, provided it is adequately empowered and resourced.
From transactions to partnership
There is no shortage of diagnosis when it comes to MOD procurement challenges. The harder task is collaboratively identifying and implementing solutions that deliver real change. This will require a shift from a predominantly transactional procurement model to one based on a deeper partnership between defence and industry.
Procurement reform does not imply that the MOD should cease to be a discerning customer in a congested and fast-moving market, nor understate the inherent trade-off needed between speed of delivery and the assurance required when fielding complex safety-critical capability in a live operational environment. Technology continues to evolve rapidly, and budgets will always be finite.
Reform is also not a silver bullet. Skills shortages within defence remain a constraint and, even with additional funding, competition will remain intense, and not all SMEs will succeed.
Nevertheless, there are grounds for cautious optimism. Initiatives such as Task Force Kindred offer a glimpse of what is possible when operational urgency, delegated authority, and a more explicit appetite for commercial and capability risk are aligned. While such conditions will not always apply, a more nuanced procurement model – one that enables early decisions on risk appetite and delegation – would represent a significant step forward.
The segmented approach to procurement outlined in both the SDR and DIS is central to this vision. It must now be implemented rapidly and, as far as possible, insulated from the in-year savings rounds that have historically undermined acquisition decisions. Similarly, the work of Commercial X in seeking new freedoms and alternative routes to market shows promise and should be accelerated and embedded.
Leadership, delivery and urgency
The newly appointed National Armaments Director (NAD) and the Defence Industry Joint Council (DIJC) face an ambitious agenda with finite resources. Early successes against the DIS are being reported, including record defence exports in 2025 (press release here), but these have largely been associated with major programmes and prime contractors. For SMEs, where time and cashflow pressures are more acute, the tangible benefits of reform are yet to be widely felt. The establishment of the Office for Small Business Growth is, therefore, a critical milestone and one which might finally start to turn the tide.
Expectations are high, and delivery will matter.
Looking ahead to SDSC-UK 2026
The 2026 Specialist Defence and Security Convention UK (SDSC-UK) will provide an important forum to explore these acquisition and reform challenges in more depth. Senior leaders from the NAD Group are scheduled to address delegates, provide updates on progress, and engage directly with exhibitors and attendees to hear first-hand perspectives from the SME community.
For over a decade, SDSC has played a vital role in bringing together SMEs, defence users, and capability and acquisition leaders to collaborate on addressing the UK’s defence and security challenges. This year’s event will be the largest yet and, for the first time, will be held at the NEC in Birmingham.
Here is the opportunity for SME attendees to feedback on the issues they face and call for pace in reform delivery.
About the author
Maj Gen (Retd) Robin Anderton-Brown is a former Director of Capability at UK Strategic Command and Multi-Domain Integration Programme Director. He is now Director of Allium Associates Ltd, an outcome-focused consultancy that helps connect industry and Defence. Robin is also a strategic advisor and ambassador for SDSC-UK.
