6 min read
When the Ministry of Defence launched a string of reforms targeted at improving its work with small business, they did not stint on the rhetoric.
Ministers championed the founding of the “transformative” Office for Small Business Growth, as part of a key pillar of reforms first touted in the Defence Industrial Review. “The OfSBG will oversee a comprehensive programme of change, ranging from policy and commercial process simplification,” the department’s press release read.
But resignations, a collapse in morale, and spats over what the government considers British have plagued the reforms, with much of the industry in open revolt. One member of an advisory panel that oversaw the reforms viewed the changes quite differently from the government: “All they’ve done, ultimately, is create a website.”
Following Russia’s invasion of Ukraine four years ago, defence policy has returned to the forefront of British politics. The long-broken system of armed forces recruitment has been addressed, numerous reviews on strategy have been considered and, slowly but surely, cumulative spending has increased.
Relations between the defence industry and the MoD are strained, however. For his part, Defence Secretary John Healey has worked to bridge the divide, though his energy is sometimes said to have been misplaced.
While the UK-US alliance has always been hard to separate, a growing number of British businesses are concerned about the looseness of the definition of what makes a business British.
As the MoD announced the next stage of UK’s ‘Project NYX’ in January, a programme to advance unmanned drones to work alongside Apache helicopter systems, defence minister Luke Pollard announced he was working with “leading British industry” on the project.
Yet the support rang hollow among those pushing for more domestic support. Of the seven companies selected, only one was headquartered in Britain, with the others primarily based in the US, New Zealand, France, Portugal and Italy respectively.
Three days after the announcement, Pollard told a defence industry dinner that the only prerequisite to being considered a British company is having a registered British postcode.
The definition, if Pollard is to be taken literally, is a controversial one. It would allow huge foreign defence companies, including Lockheed Martin and Anduril, both recipients of Project NYX funding, to be seen as British simply because they have offices in this country.
To doubters, the problems of a weaker form of protectionism is obvious: British companies excluded from foreign markets but facing a deeper level of competition at home against foreign firms.
PoliticsHome asked the MoD whether the definition given by Pollard – that the only requirement to be considered British is a single postcode – was indeed the government’s definition. The department did not explicitly confirm that but appeared to do so implicitly by pointing to a speech Pollard gave six months ago about ‘British-based’ companies. Little wonder critics label their approach “Britwashing”.
“The Office for Small Business Growth is welcome rhetoric, but rhetoric does not create growth. The issue is not intent, it is delivery,” Rob Taylor, managing director of 4GD, tells PoliticsHome.
“The MoD refuses to pull the hard levers such as meaningful SME set asides, tender weighting and enforceable definitions of what ‘British’ means. Instead, we get flashy new websites and a multitude of working groups while genuine UK firms are outgunned by foreign entities deemed ‘British’ because they rent a postcode.
“Other nations unapologetically back their domestic industry, we dilute ours with semantics. If ministers are serious about sovereignty and growth, they must end Britwashing and use legislation and contract awards, not press releases, to prevent systemic economic self-harm.”
Another chief executive bluntly describes the definition as bringing the MoD into “disrepute”.
While some do see the problem as one of malice, many acknowledge that it is a grim reality companies face. British investment is becoming harder to come by, and investors on the other side of the Atlantic are more than happy to make up the gap. Cynics might also detect the benefits of a wider definition of ‘British’ to the government when it comes to trumpeting the benefits of increased defence spending to the domestic economy and jobs market.
In this context, the battle for smaller defence firms is starker, and contributes to the consternation being prompted by the MoD’s support for large companies.
“The government’s ambitions and rhetoric around supporting SMEs is positive. However, for many businesses, it doesn’t reflect the reality,” an industry source said.
“Calling a team the ‘Office for Small Business Growth’ doesn’t make the government any more pro-enterprise. Until ministers address clogged procurement cycles and stop taxing businesses so harshly, all this does is create more bureaucracy.”
Even some of the business leaders advising the MoD on its small business strategy say the relationships are worsening by the day. A £20m incubator fund to offer accelerated government contracts for firms has been treated with scepticism, and faith overall is waning.
One businessman involved in discussions said the government had done little more than pay “lip service”, with the underlying problems they face unchanged.
As the temperature rose between some of the SMEs and the government, the major consultancy firm Turner and Townsend was brought in to help the MoD formulate the final steps behind the Office for Small Business Growth. Shortly after that, the final design phase meeting between some of the small businesses and the MoD was cancelled at short notice.
“It’s laughable,” one member tells PoliticsHome. “They literally brought in a multinational consultancy to decide what happens to small business providers, after they decided they didn’t like what we had to say.”
Insiders claim that the small businesses were overruled by Turner and Townsend, with many deeply unhappy with the government’s rollout.
“What they’ve done, ultimately, is create a website, and find £20m before the end of the financial year which needs to be spent. It’s 0.1 per cent of what they’ve pledged to spend on this.”
For their part, the government said it did not “recognise” the fact the final meeting had been cancelled. The government also said it was standard to bring in a major consultancy for the final stages of the development of a project, especially for such transformative works.
The Office for Small Business Growth’s industrial lead Ken Turley quit after only three months in the role, frustrated with the attitude of the MoD. Insult was added to injury when department officials claimed the resignation was part of a planned restructure, much to the surprise of Turley’s allies.
Before publication of this article, Turley did not respond to a request for comment.
An MoD spokesperson said his departure was part of a planned restructure: “This government is backing British jobs, British industry and British innovators. Since July 2024, we have signed 1,100 major contracts, with 84 per cent of our annual spend going to British companies.
“Last month we launched a dedicated Defence Office for Small Business Growth to boost opportunities and access, on top of our commitment to increase spending with SMEs by £2.5bn by May 2028. The team is continuing to develop its strategy in close consultation with industry.”
