£2.5 Billion Is Coming for UK SMEs: Why Diverse Suppliers Should Be First in Line for the Defence Boom
Anmol Sharma
The UK government has committed to raising defence spending to 2.6% of GDP by 2027, with NATO allies agreeing a longer term ambition of 3.5% by 2035. Within that spending, the Defence Industrial Strategy sets a specific target to boost spending with SMEs by £2.5 billion by May 2028. For diverse owned businesses, women owned, ethnic minority owned, disabled owned, veteran owned, LGBTQ+ owned, and social enterprises, this is one of the most significant supply chain openings in a sector that has historically been hard to break into.
The UK government has committed to raising defence spending to 2.6% of GDP by 2027, with NATO allies agreeing a longer term ambition of 3.5% by 2035. Within that spending, the Defence Industrial Strategy sets a specific target to boost spending with SMEs by £2.5 billion by May 2028. For diverse owned businesses, women owned, ethnic minority owned, disabled owned, veteran owned, LGBTQ+ owned, and social enterprises, this is one of the most significant supply chain openings in a sector that has historically been hard to break into.
Why UK Defence Spending Is Rising So Fast
Defence Secretary John Healey put it plainly earlier this year: "This is a new era of threat, it demands a new era for defence." That statement sits behind two major 2025 policy documents, the Strategic Defence Review (SDR) and the Defence Industrial Strategy (DIS), both of which put sovereign capability and industrial resilience at the centre of government thinking.
In practice, this means:
UK defence spending reaching 2.6% of GDP by 2027, up from 2.3% in 2024
A longer term NATO ambition of 3.5% of GDP by 2035
A push to onshore and reshore critical parts of the defence supply chain
Increased MOD spend with SMEs, both directly and through prime contractors
The Numbers Behind the Boom
The scale of new investment is substantial:
Up to £6bn allocated to munitions and related capability this Parliament, including a £1.5bn "always-on" munitions production pipeline
Six new energetics and munitions sites across the UK
£1bn for integrated air and missile defence
£5bn for near term technologies, including autonomous systems and directed energy weapons
A 13 year, £9.6bn Future Defence Support Services programme covering fuel, components, uniforms, and more
MOD spending already supports around 272,000 highly skilled UK jobs, and programmes such as the Dreadnought submarine fleet and the Global Combat Air Programme are expected to add tens of thousands more.
The £2.5 Billion SME Target, Explained
MOD direct expenditure with SMEs stood at £1.2bn in 2024 to 2025, out of £31.7bn in total MOD spending with UK industry. The Defence Industrial Strategy commits to increasing that SME spend by £2.5bn by May 2028.
This target is backed by a new institution: the Defence Office for Small Business Growth (DOSBG), launched in January 2026 as a central body to help SMEs find, compete for, and win defence work. It started with a cohort of 30 pathfinder SMEs and is explicitly tasked with improving diversity and resilience across defence supply chains, not just speeding up paperwork.
Nearly 70% of UK defence procurement is already directed outside London and the South East, which matters for the regional, often family owned businesses that make up much of the UK's diverse supplier base.
Are Diverse Owned Businesses Actually Wanted in Defence?
Yes. The government's guide to entering defence is explicit that the sector needs new capability, new thinking, and new technology, and it highlights businesses moving in from oil and gas, motorsport, and other nontraditional sectors. Women owned, ethnic minority owned, disabled owned, veteran owned, LGBTQ+ owned, and social enterprise suppliers fall squarely inside that same target group, even though they are rarely named directly in defence procurement literature.
The barriers that have historically kept them out, unclear entry points, unfamiliar accreditation requirements, and low visibility to buyers, are the same barriers the DOSBG and its partners are now trying to remove.
Social Value Now Helps Decide Who Wins Contracts
Suppliers bidding for major government contracts must commit to net zero by 2050 and publish annual carbon reduction plans. The MOD defines social value as the financial and non-financial value an organisation's social impact brings to the country, and it is now treated as a strategic part of winning bids, not a compliance afterthought.
This connects to a wider procurement shift. From October 2025, the government's updated Social Value Model under PPN 002 became mandatory for central government contracts, replacing the earlier PPN 06/20 framework. Its Fair Work theme covers equitable pay, workforce diversity, and inclusion as factors buyers must weigh when evaluating bids. For defence primes trying to prove a genuinely diverse, resilient supply chain, knowing which suppliers exist and whether their information is current is becoming a practical necessity.
What Still Makes Defence Hard to Enter
Entering the defence market is still not simple. The main hurdles are:
Commercial complexity, including standardised DEFCON contract conditions, open book costing, and milestone based payments
Accreditation requirements such as Cyber Essentials Plus, Defence Cyber Protection Partnership compliance, and JOSCAR registration
No single entry point across the MOD, prime contractors, and bodies like UK Defence Innovation
Long procurement cycles that require multi year planning rather than quarterly thinking
The Bigger Picture
UK defence is trying to solve two problems at once: building the industrial capacity the country needs, and doing it with a supplier base that is more resilient, more regional, and more representative than the one it has relied on for decades. Buyers cannot diversify a supply chain they cannot see, and suppliers cannot win work they do not know exists. As spending rises and social value becomes a bigger part of how contracts are judged, closing that visibility gap matters just as much as any single grant or funding pot.
Frequently Asked Questions
What is the Defence Office for Small Business Growth (DOSBG)?
The DOSBG is a UK government body launched in January 2026 to help SMEs find, compete for, and win defence contracts. It offers a digital portal, guidance, and support aimed at simplifying defence procurement for smaller and nontraditional suppliers.
How much UK defence spending currently goes to SMEs?
MOD direct expenditure with SMEs was £1.2bn in 2024 to 2025, out of £31.7bn total MOD spending with UK industry. The Defence Industrial Strategy targets a £2.5bn increase in SME spending by May 2028.
Can diverse owned businesses supply the UK defence sector?
Yes. The sector is actively seeking new capability from nontraditional suppliers, including businesses outside the traditional aerospace and defence base. Diverse owned businesses, including women owned, ethnic minority owned, disabled owned, veteran owned, and LGBTQ+ owned businesses, fall within this target group.
What accreditations do UK defence suppliers need?
Common requirements include Cyber Essentials Plus, Defence Cyber Protection Partnership (DCPP) compliance, and registration on JOSCAR, the shared supplier assurance platform used by primes and Tier 1 buyers across the sector.
What does social value mean in defence procurement?
The Ministry of Defence defines social value as the financial and non-financial value an organisation's social impact brings to society. It is now a factor in how defence contracts are evaluated, alongside price and quality.
Where can SMEs find UK defence contract opportunities?
Key starting points include the Defence Sourcing Portal for MOD tenders, UK Defence Innovation for technology competitions, and Make UK Defence's Fit for Defence programme for structured support.
