Britain is at war – not in a traditional sense, but our state, people and way of life are under persistent pressure. We are being tested in every sector, every day with all the non-traditional tools.
The enemy is attacking in the dark, not with bombs from planes, Rigid Raiders beaching marines or tanks rolling across borders. It’s far more pernicious and invidious. It comes through malign code, satellite disruption, organized public dissent and subtle pressure on our economy. Attacks on a range of UK websites by the pro-Russian hacker group NoName057(16) or the denial of the Viasat satellite network in 2022 by Russia are just two examples.
The government’s National Security Strategy and Strategic Defense Review have set a course for our collective future: old and new challenges, deep and effective alliances, strong relationships, new capabilities, refined approaches and modernized ways in warfare. They have done so in a thoughtful, evidence-rich way.
While the Strategic Defense Review hedged on the cost, the trajectory to financing security and defense at 3% of GDP, let alone beyond, is unclear. What is clear is that the pressures our services are facing are rising much, much faster than investment.
Investment from London’s financial epicenter
So, what to do with an expanding challenge and contracting budget and time not on our side? The answer lies in London’s financial epicenter, also known as the City.
Britain is the home to one of the world’s richest financial sectors. Only New York outmatches London’s capital houses. The global insurance market is headquartered in the Square Mile. Deal flow originates in and around Mayfair.
The FTSE stock market index is home to the most recognizable defense brands, like BAE Systems and Rolls-Royce. Our universities are a prolific source of ideas, concepts, demonstrators, intellectual property and patents. But thus far, the financial sector’s engagement in security and defense has been tepid at best.
This must change.
Obstacles to investment
Investors have reasons to be wary. So-called “environmental, social and governance” concerns expressed in lending terms prevent investment in defense. In the UK, defense start-ups struggle to secure professional services and are often “de-banked” — denied access to routine banking and legal support under strict ESG policies — just when they are growing. Business models demand patient capital for deep-tech development – space, artificial intelligence, quantum biosciences – which is at odds with the flash-cash character of most funds.
Government, anxious about risk, vacillates on long-term purchase commitments, which are the very catalyst for business success. Overall, investors want low-risk, quick and high return positions, which is not how the security sector operates. If the UK government is to meet and match the threat, a different financial model is desperately needed. And fast.
Global military spending climbed 9.4 percent above inflation last year to $2.72 trillion. This is a substantial market in any comparison, but one where private capital is largely absent yet could gain enormously.
The opportunities are numerous and diverse, few are “high-risk” and all should be viewed as strategic infrastructure investments. For instance, the demand for ammunition has far outstripped the dormant supply chains, which now need long-term patient capital to restart factories; as an investment category, this is just like building battery factories.
Success in war is profoundly dependent upon information, but defense investment into data centers is almost absent; private capital injection and returns would be no different to that from main street retail. Simultaneously thinking fast and slow is at the heart of winning in combat and quantum processing is key, but investment is absent; building a million-qubit computer is a capital investment in growing our national capacity.
Recommendations for change
Recently, under the title of the “Resilience Working Group,” a group of professionals working in finance, defense and adjacent fields, including communications and lobbying, came together to crystallize a vision for how we might draw on the might of London’s financial sector to boost our national resilience.
We believe that the government must provide the backbone of defense, but resilience cannot depend on the state alone. It will require partnership among government, industry, financiers and innovators.
The advisory group made two key recommendations. First is the absolute need to unlock private capital and have it flow into security and defense to scale critical technologies. Government must lead this. Second is the need for an arms-length “defense growth fund,” backed by the government, to help start-ups scale from lab to market.
A full list of proposals is set out in our “Charter for Change” and includes refreshing public–private partnerships and moving beyond old procurement models to new collaborations on space, cyber and artificial intelligence. Investors need confidence that backing defense innovation is not only acceptable, but vital.
The UK has extraordinary minds, technology and intellectual property and the City has the capital and structures to act. We just need to bring the two together. Security and prosperity are not symbiotic; they are critically interdependent. The sooner we can make that link, the safer our planet and people will be.
