Budget 2026 and defence: the money is confirmed, now it has to reach scale-ups

Budget 2026 and defence: the money is confirmed, now it has to reach scale-ups

By Robert Jeffries, Managing Director of the UK, Think & Grow · 28th October 2026

The Chancellor used the Autumn Budget to close the funding gap in the Defence Investment Plan and to point new state-backed capital at defence and dual use companies. The next question is how quickly any of it reaches the scale-ups and SMEs who need it most.

In short: the Budget fills the £4.7bn gap in the Defence Investment Plan and points up to £5bn of National Wealth Fund and British Business Bank capital at defence and dual use companies. For defence scale-ups the money is now more certain. How quickly it reaches them depends on contract terms, the new defence finance task force and the 2027 Spending Review.

What did Budget 2026 announce for defence?

When the Defence Investment Plan was published on 30 June, it set out £298bn of planned MoD spending over four years, including £15bn of additional investment. Sources had been identified for £10.3bn of that £15bn. 

Today the Chancellor, John Healey, told the House of Commons he is "fully funding the Defence Investment Plan", with the remaining £4.7bn coming from reprioritising capital budgets across government.

The other defence measures in the Budget:

• The government restated its target of 3% of GDP on defence by 2030, on the way to NATO's 3.5% core defence target by 2035. The route to both will be set out at next year's Spending Review.
• The National Wealth Fund and the British Business Bank will put more focus on defence, dual use technology and sovereign capability, with up to £5bn of investment and lending over four years.
• A new defence finance taskforce will look at new ways to fund defence, including partnerships with private capital, and will start work before the Spending Review.
• The UK will open negotiations with Finland, Poland and the Netherlands on a multilateral defence financing mechanism to support investment and joint procurement across allies.

Outside defence, founders may also note a new founders' relief, cutting capital gains tax to 10% on up to £10m of lifetime gains. 

Will the money reach defence scale-ups any faster?

Voices of Defence Tech: Inside the UK Procurement Gap, which we’re publishing on Wednesday 25th November, starts from a simple observation: the UK now has real money and a clear mandate behind defence, yet scale-ups with tested technology, investor interest and prime relationships still struggle to turn them into signed contracts. 

The procurement gap has become a deployment gap, and it sits between a successful pilot and a funded programme.

A fully funded plan makes the money more certain. It does not, on its own, shorten a buying cycle. In 2024/25 the MoD's direct spend with SMEs was about 4% of the total, roughly £1.24bn of £31.6bn. The SME Action Plan published in July targets £7.5bn of total SME spend by summer 2028. Today's announcement confirms the overall budget. How much of it reaches smaller suppliers, and how fast, depends on how contracts are written and awarded over the next two years.

What does up to £5bn of defence finance mean for scale-ups?

One of the clearest themes in our research for the upcoming white paper is the capital cliff edge between early funding rounds and programme scale. A company can raise a seed or Series A on the strength of its technology, then find that the contract big enough to justify the next round is still years away. 

Up to £5bn through the National Wealth Fund and the British Business Bank, together with a taskforce on defence finance, is aimed squarely at that stage.

The detail will decide whether it helps a 40-person scale-up waiting on a programme decision. We don’t yet know how much will be equity and how much lending, what ticket sizes will look like, or which companies will qualify. Those are the questions worth putting to the taskforce, and they sit at the heart of our white paper and its launch panel in November.

Why does the new European financing mechanism matter?

The scale-ups in our research increasingly treat Europe as an equal priority to the UK. The proposed financing mechanism with Finland, Poland and the Netherlands is at the negotiation stage, with no value attached yet, but it signals that joint procurement with European allies is moving up the government's agenda. For UK companies already building partnerships on the continent, it is one to watch.

When will the big defence spending decisions be made?

The timetable for reaching 3% of GDP, and the detail of how the extra money will be spent, has been pushed to next year's Spending Review. That is where Part Two of Voices of Defence Tech comes in. We will look at what the Spending Review and the next updates to the Defence Investment Plan mean in practice, and whether the measures announced today have started to close the gap.

Read the full paper first

Voices of Defence Tech: Inside the UK Procurement Gap is built from around interviews with founders, investors, industry bodies and former senior officials. It credits what is already working in UK defence innovation, then sets out where funded technology stalls between pilot and programme and what founders, primes, investors and banks can do about it now.

The paper is published on Wednesday 25th November: join the Voices of Defence Tech waitlist.

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Frequently asked questions

Is the UK's Defence Investment Plan now fully funded?

Yes. On 28 October 2026 the Chancellor said the remaining £4.7bn of the plan's £15bn of additional investment will come from reprioritising capital budgets across government.

How much defence finance will the National Wealth Fund and British Business Bank provide?

Up to £5bn of investment and lending over four years, focused on defence, dual use technology and sovereign capability. The split between equity and lending, the ticket sizes and who qualifies have not been published yet.

When will the UK reach 3% of GDP on defence?

The government's target is 3% of GDP by 2030, on the way to NATO's 3.5% core defence target by 2035. The route to both will be set out at the 2027 Spending Review.

How much does the MoD spend with SMEs?

In 2024/25 the MoD's direct spend with SMEs was about 4% of the total, roughly £1.24bn of £31.6bn. The SME Action Plan targets £7.5bn of total SME spend by summer 2028.

What is the new founders' relief?

A cut in capital gains tax to 10% on up to £10m of lifetime gains, announced in the same Budget.

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Sources

• Reuters via Defense News, 28 October 2026
• ADS Advance, 28 October 2026
• The Telegraph, Budget 2026: key points at a glance, 28 October 2026
• House of Commons Library, Defence Investment Plan briefing

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