The UK government has unveiled a landmark £400 million Defence Innovation Fund aimed at accelerating military technology and opening the defence sector to small and medium-sized enterprises (SMEs). The initiative, announced in Chancellor Rachel Reeves’ first Spring Statement, is set to begin in July 2025 and marks a significant shift in the UK’s approach to defence procurement.
Designed to bring cutting-edge innovations into military use more rapidly, the fund will prioritise technologies such as artificial intelligence, robotics, cybersecurity, autonomous vehicles, wearable battlefield gear, advanced sensors, and mobile green energy systems. The government hopes this will help modernise the armed forces and stimulate broader economic growth through dual-use technologies.
For decades, UK defence contracts have been dominated by large corporations like BAE Systems, Thales, and Rolls-Royce. While these major players will remain central to national defence, the Ministry of Defence (MoD) is now actively seeking to involve the country’s 5.5 million SMEs, many of which are at the forefront of disruptive innovation.
Defence Secretary John Healey said the UK must “outpace threats before they emerge,” emphasising the need to tap into the talents of smaller tech firms and entrepreneurs. The fund aims to remove long-standing barriers for SMEs by offering faster funding, simplified application processes, and shorter-term modular contracts—allowing smaller firms to engage without the heavy financial and bureaucratic burdens often associated with defence procurement.
“This marks a cultural shift in how we think about defence,” Healey said. “It’s about empowering small businesses to make a big impact.”
The fund will also support the creation of regional innovation hubs in areas such as the North East, West Midlands, and Wales, ensuring that opportunities are spread beyond London and the South East. Dedicated onboarding teams will help guide SMEs through the procurement process, and faster payment mechanisms will be introduced to ease cashflow concerns—particularly important in the current funding climate, where venture capital has become more cautious.
While SMEs will still need to meet high standards on security and performance, the overall tone from the government is one of inclusion. Start-ups with relevant technologies are being encouraged to engage with the Defence and Security Accelerator (DASA) and Defence Equipment and Support (DE&S), which will begin issuing calls for proposals next month.
The fund is expected to not only boost UK defence capabilities but also help SMEs bring dual-use products to market—ranging from AI tools and drone systems to wearable tech and microgrid infrastructure—creating new opportunities for commercial expansion and exports.
With global security threats rising and supply chains under strain, the government says innovation at speed is no longer optional. For SMEs with the right ideas, the defence sector may now offer both commercial promise and a chance to help shape the UK’s national security future.
