The Stagnation and Revival of Innovation in the UK's Private Defence Sector
The United Kingdom's defence sector has long been a cornerstone of national security and economic strength. Yet, in recent decades, private sector innovation within this field has noticeably declined. Dominated by a handful of large contractors, the industry suffers from insufficient expenditure and a lack of competition, fostering a "too big to fail" mentality that stifles creativity. This article explores the historical roots of British defence innovation, the factors contributing to its erosion, and the emerging role of small and medium-sized enterprises (SMEs) in revitalising the sector.
A Legacy of Ingenuity: Historical Examples of Innovation
Britain's defence innovation once thrived through private enterprise, particularly during the World Wars. The de Havilland Mosquito exemplifies this era's ingenuity. Developed in the late 1930s by the de Havilland Aircraft Company, this twin-engined aircraft was constructed primarily from wood, a non-strategic material that conserved scarce metals like aluminium during wartime shortages. Its innovative design allowed for rapid production using skilled woodworkers from furniture industries, bypassing the bottlenecks faced by metal aircraft manufacturers. The Mosquito served multiple roles—bomber, fighter, reconnaissance plane—achieving speeds over 400 mph, making it one of the fastest operational aircraft of World War II. This versatility stemmed from private sector agility, where de Havilland's engineers iterated designs without excessive government interference.
Other historical examples underscore this pattern. The invention of the jet engine by Frank Whittle in the 1930s revolutionised aviation. Whittle, working through his private company Power Jets, overcame initial scepticism from the Air Ministry to develop the turbojet, which powered the Gloster Meteor, Britain's first jet fighter. Similarly, radar technology, pioneered by Robert Watson-Watt and his team at the National Physical Laboratory but rapidly adopted by private firms like Metropolitan-Vickers, played a pivotal role in the Battle of Britain. These innovations arose from a competitive landscape where numerous companies vied for contracts, encouraged by government facilities like wind tunnels made available to private manufacturers. In the interwar period, defence spending hovered around 2-3% of GDP, but it supported a diverse ecosystem of firms, fostering breakthroughs that gave Britain a strategic edge.
Post-war, the sector continued to innovate. The English Electric Lightning, developed in the 1950s, was a supersonic interceptor born from private initiative at English Electric, showcasing advanced aerodynamics and afterburners. These examples illustrate how a vibrant private sector, with moderate but targeted funding, drove technological leaps.
The Decline: Insufficient Expenditure and Market Consolidation
The landscape shifted dramatically in the late 20th century. Privatisation efforts in the 1980s and 1990s aimed to inject competition but instead led to consolidation. Companies merged into giants like BAE Systems, which now dominates UK defence contracts alongside a few others such as Rolls-Royce and Leonardo. This created a "too big to fail" dynamic, where these primes secure the majority of funding, often through non-competitive processes. As a result, innovation has waned, with large firms prioritising incremental improvements over bold risks.
Defence expenditure has compounded the issue. In 2024, the UK allocated 2.3% of GDP to defence, slightly above the NATO average but insufficient for fostering widespread innovation. Total spending reached £60.2 billion in 2024/25, yet much of this supports legacy systems and personnel rather than R&D. Compared to the US, where defence spending exceeds 3% of GDP and nurtures a broader ecosystem, the UK's budget constrains smaller players. Skills shortages in science, technology, engineering, and mathematics further hamper progress, with both the armed forces and industry struggling to recruit talent.
The Ministry of Defence (MOD) has historically favoured established primes, making it difficult for newcomers to penetrate the market. Procurement processes are lengthy and risk-averse, deterring innovative SMEs. Privatisation failed to deliver promised efficiencies, as competition between producers diminished, leading to higher costs and slower advancements. Consequently, the UK has lagged in areas like unmanned systems and cyber defence, relying on imports or outdated technologies.
A New Wave: SMEs Leading the Charge
Despite these challenges, a resurgence is underway, driven by agile SMEs operating outside traditional primes. Windracers, a British drone manufacturer, is at the forefront. Its ULTRA unmanned aerial vehicle (UAV) offers multi-mission capabilities for cargo delivery, aid drops, and data gathering, with a focus on cost-effective logistics. In 2025, Windracers achieved the UK's first international civil drone approval for beyond visual line of sight operations between the UK and Norway. Expanding its Hampshire facility and partnering with entities like Bharat Forge for potential Indian military use, Windracers demonstrates scalable innovation in defence applications.
Goldilock, another SME, innovates in cyber defence. Funded by the Defence and Security Accelerator (DASA), it developed a hardware system that physically isolates networks at the flick of a switch, enhancing security for critical infrastructure. Selected by NATO's Defence Innovation Accelerator for the North Atlantic (DIANA) for energy resilience, Goldilock has expanded internationally, investing in Singapore while maintaining UK roots. This approach addresses modern threats like cyber warfare, where traditional software solutions fall short.
Tekever, with strong UK investments, further illustrates this trend. Becoming Europe's newest unicorn in 2025, it pledged £400 million for UK research and infrastructure, including a new Swindon factory creating 1,000 jobs. Its AR3 and AR5 drones support maritime surveillance and defence operations, collaborating with NATO and acquiring West Wales Airport for testing. By focusing on AI-driven systems, Tekever enhances operational resilience without relying on legacy primes.
These SMEs benefit from initiatives like the UK's Defence Innovation strategy, which aims to accelerate technology adoption. Public-private partnerships reduce investment risks, enabling rapid scaling. SMEs contribute £10-15 billion annually to the economy, primarily in regions outside London, driving growth and innovation.
Conclusion: Towards a Balanced Future
The UK's defence sector has lost much of its innovative spark due to low expenditure and oligopolistic structures. Yet, historical successes like the Mosquito remind us of the potential when private enterprise flourishes. The rise of SMEs such as Windracers, Goldilock, and Tekever signals a promising shift, offering scalable solutions beyond major contractors. To sustain this, the government must increase spending towards 5% of GDP, streamline procurement, and support SME integration. By doing so, Britain can reclaim its position as a defence innovator in an uncertain world.