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Business and Trade Committee

Oral evidence: Industrial Strategy, HC 121

Tuesday 8 September 2026

Ordered by the House of Commons to be published on 8 September 2026.

Watch the meeting

Members present: Liam Byrne (Chair); Antonia Bance; Chris Bloore; John Cooper; Sarah Edwards; Alison Griffiths; Leigh Ingham; Charlie Maynard; Mr Joshua Reynolds.

Questions 896 - 916

Witnesses

 


Examination of witnesses

Witnesses: John Godfrey, Nathan Mathiot and Mike Tinmouth.

[Sarah Edwards took the Chair]

Q896   Chair: Welcome to the Business and Trade Committee, which is newly formed, as we now also take innovation into our remit. We are continuing our investigation into the industrial strategy and the sectors involved, and today we will look at defence. We are looking at sectors of concern, but also at issues that might be cross-cutting, and this afternoon we will also look at how that potentially impacts the Government’s devolution agenda.

I welcome our witnesses, who are from the defence and finance industries, so we are keen to hear what you have to say. The Government have announced £15 billion in extra spending on defence in this Parliament, with the intention to raise spending to 3% by the next Parliament. It would be helpful if our witnesses could introduce themselves, and say where they come from and what their angle is.

John Godfrey: I am John Godfrey, the MD for policy and public affairs at TheCityUK, which is a member organisation representing banks, insurers, asset managers and related professional services. One thing that I do is look after our defence and resilience group, which has a membership of about 70 firms, and its aim is to improve the flow of finance into the defence and resilience sectors.

Nathan Mathiot: I am Nathan Mathiot, director of policy and public affairs at ADS. We are a UK trade association for civil aerospace, defence, security and space companies across manufacturing and services. Around two thirds of our members have a primary interest in defence. As a whole, we have about 1,000 defence SMEs, if you count it in certain ways, so we represent a significant industrial footprint.

Mike Tinmouth: I am Mike Tinmouth, the co-founder and chief operating officer of ACUA Ocean. We are a Plymouth-based dual-use technology company, so we were very much founded for both the commercial offshore sector and the defence and security sector. We build long-endurance robotic systems designed for the deployment of surface, subsurface and aerial assets out at sea, including the North sea and those types of operating environments. We are a team of 30, we are classed as a growth business and we were one of the companies that presented to the former Defence Secretary as one of the potential future unicorns in the UK.

Q897   Chair: We have a certain amount of time to get through our questions, so please be concise with your answers. We might have follow-up questions. We want to get through the whole panel and get as much information from you as possible—that would be very helpful.

First, the defence investment plan talks about the different platforms and the new direction we are going to take. Nathan, can you expand on whether the platforms described in there are the right ones? Are we going in the right direction? Do you have concerns, or are you taking some comfort from what is contained in the plan?

Nathan Mathiot: What we see in the defence investment plan is a shift slightly away from purely platform-centric thinking towards thinking about the systems—rather than just the warship, it is the data and the AI systems that might be on there, or it might be the autonomous vehicles that are accompanying it. The Navy has looked at moving towards a hybrid navy, and it has made some platform decisions to reflect that, both about where it is going to buy new things, but also about not going ahead with some. Similarly, in the Royal Air Force there is a significant commitment or re-commitment to the Global Combat Air programme, as well as commitments to collaborative combat aircraft, which are going to be autonomous accompanying aircraft to support that. So it is a slightly wider focus.

I think the shift towards autonomous systems as a whole, while not losing sight of the traditional platforms that anchor an overall full-spectrum military offer, is probably the right one in broad terms. If you only look at what is happening in the east and in the middle east, you can see quite clearly the direction of travel. So, overall, I think it is trending in the right direction.

Q898   Chair: Mike, what is your view on this, and how does it affect your company?

Mike Tinmouth: It is good news for companies like ACUA Ocean. We in the UK are a world leader when it comes to robotics and automation. When it comes to the ability to scale in times of conflict, that will only be achieved through smaller, more autonomous platforms. You cannot spend 10 or 15 years building big, complicated warships. What you need is the ability, at speed and scale, to produce these. We were very pleasantly surprised by the direction of travel.

It also recognises that there is going to be no one size fits all; there is not going to be a silver bullet solution that solves all problems. This is going to be a multi-domain, multi-environment solution. You are going to have a selection of smaller assets and larger assets working together that are operating aerial, surface and subsurface. When it comes to software and robotics, the point is to have that interoperability between different solutions and, we hope, a direction of sovereign capability, where more of those systems are built here in the UK, off a sovereign operating system that will enable us to retain skills, knowledge and control here in the UK.

Q899   Chair: Obviously, that sort of sovereign capability is important. It feels like there is a time limit, in terms of how far we need to come in a very short time to feel prepared. Do you think we have enough time to get there, based on your experience of the development time and the work you do?

Mike Tinmouth: We are a world leader, but we will not be if we do not invest in UK companies. The clock is ticking and the advantage is slipping away to better funded nations, both friend and foe. From our position, we see advantages. We think this is the only direction of travel, but it needs to be backed by cash, contracts and programmes really rapidly to capitalise on our position.

Q900   Chair: John, we just had a mention of the finances. What is your view about the platforms and investment across the industry?

John Godfrey: I agree that the reform of the platforms is likely to be helpful. If it adds greater nimbleness and more interoperability, that is very helpful indeed. But the most important thing is if it enables the procurement process to move faster, because this is the absolute problem for financiers. The lack of a demand signal for almost the last two years has meant that the companies one might like to lend to or invest in have in many cases mothballed or given up, and there is nothing to lend against or invest into. So speed is of the essence here for working capital and subsequently for capex.

Chair: That is very helpful. Thank you.

Q901   Leigh Ingham: Just to follow up with a quick question, Mike, you said something about the UK losing out to better organised and better funded nations. Which nations do you think are getting it right?

Mike Tinmouth: Right now, countries like Germany are putting their cash where their mouth is and are in the process of writing big cheques. The UK has always been very good at doing little £100,000 or £200,000 contracts with lots of SMEs. Germany is taking the different approach of trying to understand where the future capability they need is and writing the £5 million, £10 million, £20 million or £30 million programmes that investors in finance want to see. Once they have the demand signals from the market that there are contracts and there is revenue to be made, it unlocks the growth capital that the industry requires.

Right now, we are performing behind our European allies—the US has always been leagues ahead on spend. The knock-on impact is that if you look at Europe’s growth unicorns and decacorns, we have only recently—in the last couple of weeks—started to see sovereign UK unicorns, with Cambridge Aerospace and Kraken Robotics, whereas in Germany, you have ARX Robotics, Quantum Systems, Helsing and STARK. Over the last two or three years, Germany has been producing them at scale because they have been backed by the big contracts that help them to win and unlock that capital.

Q902   Chair: That is very helpful. John, you were nodding along when Mike was talking about the investment that Germany is making. Do you have anything to add? What is your take on the way that other countries are financing?

John Godfrey: The only thing I would add, and it goes without saying, is that private capital is globally mobile. It will not sit in the UK waiting for something to happen when there are opportunities in other markets. Perhaps we can come on to how that might be accelerated later but, basically, capital will not sit on its hands waiting for things to happen here.

Q903   Alison Griffiths: We have already talked about some of the reforms that have taken place since the Ministry of Defence announced its reform programme in 2024. What are the most important changes that have happened, if any have? What has not happened?

John Godfrey: What has worked in the reform process is still theoretical to quite a large degree. That is partly because those reforms were not all implemented instantly; it has taken a bit of time to get round to building them in. Also, there has been a lack of a demand signal: how do you know whether the new system will work if you do not know if there is any significant amount of money behind it at this point?

But in theory at least—hopefully it will begin to work in practice too—the creation of a National Armaments Director, including staffing up that function and, although it is taking a little longer than one would like, equipping it with sufficient financial and commercial knowledge to engage with our end of town, as it were, has significant potential. Closer engagement between MOD—both the DIAG and the National Armaments Director’s offices—and the City, broadly defined, would make all this work better. That just involves either side travelling five stops on a tube to engage with the other side.

Q904   John Cooper: To jump in on that, that interface—between the MOD, which has the knowledge about the platforms, the kit and the things that go bang, and you who are providing the finance—is absolutely critical. Do you know whether we are at the stage of you actually getting together?

John Godfrey: There are meetings that take place. We find that, in relative terms, it is quite straightforward to engage with the military part of the MOD. We are running a series of events in the City called “How we fight”; we have had combined services there, and the Army, the Navy and the Air Force will be coming down. Those are very popular, as the City wants to know more about these subjects.

We have had less engagement with the financial parts of the MOD, which is really because, for the whole time we were waiting for the DIP, the National Armaments Director and colleagues said, “We can’t come out and meet you, because we don’t know what we need to talk about.”

Nathan Mathiot: I think we have seen some real progress across the board. There are several different components to this. There is the defence reform agenda that John was just touching on, with the creation of the NAD, the military strategic headquarters and the formation of the Quad. That is all internal structure stuff about how the MOD governs itself, and that is reasonably well embedded, even if not completely there.

Then there is the delivery of the defence industrial strategy. Today is its one-year anniversary, and we have had five defence growth deals launched, five defence technical excellence colleges, and the establishment of the Defence Office for Small Business Growth. There are lots of interesting bits and pieces as well as the UK defence innovation—

Q905   Alison Griffiths: My underlying question was about what you just said: has anything actually changed as a consequence?

Nathan Mathiot: I think so, but not necessarily enough if we want to achieve the ultimate effect, which is the big picture of achieving sufficient deterrence and meeting our NATO commitments. The defence investment plan was an important plank in that. That was great in terms of having a sense of current funding allocations, but the question of the funding road map is very live in the media right now as we go to the Budget and the spending review. It is in translating that existing set of aspirations into a funded pipeline where we hear from our members a degree of frustration, but I suppose you could say that it has only been a few months since that was actually released.

Mike Tinmouth: To echo those comments, commercial speed is the thing that has been really lacking. When you have spent the best part of two years waiting for the announcement of the defence investment plan, there is an expectation that thereafter the purse strings will be loosened and there will be a flow of cash. Although there have been some very positive examples, that has not been universal. Now one of the challenges—this is the restructuring part of the conversation—is that we have seen funding allocated to programmes, but those programmes are not able to be delivered because there are not enough commercial personnel in position to deliver them. They are now receiving delays of two or three months while the restructuring—

Alison Griffiths: While you recruit.

Mike Tinmouth: While you are recruiting, and while you restructure and rebuild teams and so on. That is one of the challenges of the ongoing changes, and all the back-office staff need to catch up and fall in place.

There are definitely positive signs. I also echo, in terms of positive progress being made, the setting up of organisations such as NSSIF, the UK’s sovereign defence fund, which is an excellent source of venture funding into earlier-stage businesses, particularly dual-use companies. Those are steps in the right direction. Those organisations are very well received, knowledgeable, and located in the MOD, and they can act as that gatekeeper towards future funding and investment, as well as into the MOD and requirements. So there are some real positive signs, but speed in terms of the commercial readiness and delivery of contracts remains the biggest challenge.

Q906   Antonia Bance: Do you think the defence investment plan has put enough emphasis on supply chain resilience?

Nathan Mathiot: Partly. Fundamentally, a balancing act has taken place between the strategic defence review, the defence industrial strategy and the defence investment plan, and between achieving military readiness and dialling up production capacity, while also sustaining industrial readiness as an integral lever of that. There is a bit of a gap there when thinking through, from an economic security perspective, what levers are available to the Ministry of Defence and the wider Government, but I am conscious that you have a cross-section of speakers to explore that in more detail later.

In a sense, the supply of materials is not really a business the MOD has historically been involved in, but it has taken more of an interest—for example, by taking over steel production in more recent years. There is something there, for me, where there is a bit of a gap, but I can understand, to some extent, the primary focus on production capacity at the heart of all these initiatives.

John Godfrey: From a purely financial perspective, the problem that we identified in our group, and probably top of our list of challenges, is the funding of SMEs that sit in the supply chains of the bigger primes. Those are typically £2 million to £10 million companies. It is sometimes difficult to finance those companies for lack of demand signal and because there is an expectation of partial or full guarantee. There is also a problem with those companies because of the procurement process. If the procurement process is not visible to the financier in any way because the product is so sensitive, then there must be a way to develop a better way of joining those up—whether through technology or anonymisation, there are mechanisms to do this. That would enable us to finance much quicker. At the moment, a company goes off and wins a contract, everything goes dark and eventually you are expected to lend against something even though you are not allowed to know what it is or how much of it there is going to be. That is really difficult. There are ways to work through that, however, to make that aspect of the supply chain much more resilient.

Mike Tinmouth: I will echo and expand on those comments. To get on my soapbox, supply chain to sovereign capability is one of the things that British businesses are brilliant at—working with local supply chains and local small businesses. When we were developing our uncrewed surface vessel—a 25-tonne, 14-metre, fully capable vessel—about 94% of our spend was with UK businesses. That is something that we are really proud of because it maintains small businesses and skills in local communities. Where we are lacking is across the wider supply chain. Everybody is looking for those contracts.

We also need to be investing not just in the resilience of the supply chain, but in things such as manufacturing. Plymouth, where we are based, is home to the UK’s National Centre for Marine Autonomy. It is a fantastic world-leading location. However, all our manufacturing and waterfront warehouses have been turned into townhouses with beautiful views of the ocean. That is fantastic for people wanting to live in a nice area, but it means that we do not have the capability and capacity to build things where we need to build them. I think that the supply chain needs to look across the entire manufacturing life cycle as well.

Nathan Mathiot: Fundamentally, we are not going to see businesses investing in what is effectively spare capacity if there is a lack of confidence in that future demand. It may be that where there is a strategic dependency or concern, the Government should think about minimum demand offers, or support for “warm production”, so that we are not turning around in a crisis and expecting that to suddenly ramp up and there is a bit of skin in the game. What happens in defence is that there are often peaks and troughs. You then have an issue with the workforce going into other sectors and so on, so when the time comes, there is not the workforce and support to answer.

Mike Tinmouth: That is an excellent point. This is where we are seeing dual use being absolutely critical, because it can flatten the peaks and troughs of defence spending. There will ultimately be peace dividends where defence spending reduces in time. That is where being able to build and develop with the commercial sector also means that, in the event of conflict, you already have an already-on capacity; you are not building from scratch but are able to grow and scale up from that with the skills. It is an excellent point, and why investing in dual use is key.

Q907   Antonia Bance: I want to ask an additional question, probably to Nathan. One aspect of supply chain resilience that has been causing a lot of concern in recent months is related to the new steel safeguards. Do you have any comments on the implications you are seeing? We are three months into the new steel safeguards being in place. As an MP representing a lot of downstream industry, I know what I think, but I would appreciate hearing what you think.

Nathan Mathiot: It is a challenge. We understand what the Government were trying to achieve with the introduction of the steel trade measure in July. There was an influx of cheap commodity-grade steel into the UK. Clearly, we want a vibrant steel industrial base here for a variety of reasons. Unfortunately, we have been caught in the crosshairs from an aerospace and defence perspective, with specialist alloys where there simply is not the industrial base, and there is a whole host of issues to do with OEM specifications. You cannot just change from one mill to another. We are working intensively with the Department for Business, Innovation, Science and Trade on potential mitigations or exemptions. We are talking to steel industry colleagues as well. We will see what the Government feel they are able to do while not undermining their understandable reason for bringing in the trade measure.

Q908   Antonia Bance: So you are hopeful of tweaks at the review point?

Nathan Mathiot: “Hopeful” may be too strong a word, but we are in a live conversation. I give credit to the Government for being open to a conversation and receiving our evidence. The thing is that the shoe has not fully dropped yet because the quotas have not all been used up. We are anticipating a problem. We can already see, from the volumes we know are used by our members across aerospace and defence, and the allocated quotas, that we are going to hit the buffers at some point.

Q909   Mr Reynolds: Mike, my question is very similar to Antonia’s. How easy is it today for defence firms to access the capital that they need to grow?

Mike Tinmouth: Very difficult, particularly here in the UK. We have relatively immature defence venture capital compared with places like Germany. Most of the growth capital is coming from the US—and always has historically. This is where NSSIF starts to break the model, because of the role it plays in interfacing with the MOD.

We are also seeing a lot of generalist venture capital firms moving into this space that do not have the background and access in terms of knowledge of defence. This is a stat I always use: in the US, about 56% of venture capitalists are former founders of businesses. They have been at the coalface and built a business. In the UK, it is 13%; we have an immature market. We have a lot of people who are very smart and come from management consulting, accounting and the like, who look at businesses and go, “What’s the risk profile of that?” Defence does not fit. Dual use does not even really fit. Maritime robotics—building giant ocean robots to go out and protect critical infrastructure—sounds risky. It sounds lucrative and exciting, but risky. There is a real challenge.

That is where access to product-market fit and contracts is absolutely key, because that is the big de-risker for growth. There are a lot of people who want to dive in with money when you have all the contracts, but at the critical stage where SMEs need to grow, it is very, very difficult. As a result, brilliant British businesses are starting to move abroad. Just yesterday, I was at ADS and heard that one of our peers in the market is relocating to the United States because that is where the capital sits. We are still struggling with that. Organisations like NSSIF are bridging that, but there is a huge gap, and the UK is falling behind.

Q910   Mr Reynolds: John, you said that TheCityUK has diagnosed part of the problem: the fact that businesses cannot disclose what they are building, or the costs or the finance that are needed. What would TheCityUK like to see the MOD tweak to ease that conversation with the City?

John Godfrey: We have been working on a couple of practical ideas. To pick up on the capital point, we have been working to secure some changes in the standard form of documentation that is used in the venture capital world. That sounds very dull, but it is quite important because some of the standard “agreement to fund” language still carried an awful lot of leftover ESG content, which basically excluded whole swathes of defence. We have managed to change that so that the standard documentation will now exclude UN controversial weapons, but the rest of defence will be explicitly included so that you are allowed to invest in these other things. We think that will help as the new-style contracts replace the old ones. That is one thing that we have been doing.

As I said, the solution to joining finance and procurement more closely together is really a technology solution. It has to be super secure; the banks and funders that are involved must be cleared to the right levels; the data must be anonymised. That is not beyond the reach of technology.

I would put one other thing on the agenda around this: areas where regulation overlaps. One would assume, as a financier, that when a company has won a contract with the MOD, the MOD has done massive diligence to make sure that Mike is who he says he is and all the rest of it. When they come to raise finance, the financiers have to do the same thing all over again—anti-money laundering, know your client and all of that. I think there is a solution, which would be to have what is effectively a compliance passport. Once you have passed the test at the MOD, that should be good enough to at least accelerate the financing process. My sense is that the Financial Conduct Authority would be supportive in trying to develop something of that sort.

Q911   Mr Reynolds: On that point, in terms of non-disclosures and all those other pieces, is there an idea of how much private finance defence firms are missing out on because they are not able to secure finance without disclosing customers and contracts?

John Godfrey: It is very hard to come down to a number, but I will just give you a sense of the scale and the enthusiasm east of here, in the City, for funding. If you look just at J.P. Morgan—one bank, albeit a very big one—they have a fund globally for defence and resilience that is $1.5 trillion, so 5% of that, if it landed in the UK, would be pretty much three times the new money in the DIP. The scale depends precisely on the demand signal, but it is large.

Q912   John Cooper: John, you indicated earlier that there is a lot of interest from the City in the kit—looking at it and perhaps even having a little hands-on play with it and all of that. But how is that translating into an appetite to actually invest? Has that changed? Has the mood changed? Are people more willing to actually put money up now?

John Godfrey: I think the appetite is changing. Let us take first the cultural appetite, if you like. Five or 10 years ago, the feeling was, “Well, this is all a bit sensitive. Our staff won’t like it and some of our shareholders might not like it. It’s not part of ESG.” The Russian invasion of Ukraine has absolutely changed that. To my way of thinking, there is barely any more a question of woke fund managers who will not put their money in. It is now the case that investing in defence and resilience is a positive part of the S of ESG, so there’s that. Then you come down to the slightly harder-edged bit of this: am I going to write a cheque for it? And, as ever, I’m afraid that brings us right back round to, “Where’s the demand signal? I do need to take a hard-edged commercial decision, but I don’t have any moral issues with it.”

Q913   John Cooper: So you think it is less a moral thing and much more a simple, straightforward, hard-headed business decision. You are not seeing the demand signal and then you are judging those businesses that are in defence like any other business.

John Godfrey: Absolutely. As Mike said, people will lend against a contract, but if you do not know whether there is going to be a contract, it is very difficult to lend.

Q914   Leigh Ingham: Last week, the Prime Minister confirmed in the Chamber that the UK is considering joining the Defence, Security and Resilience Bank. I am keen to hear your perspective. What are your thoughts about the UK joining that?

Mike Tinmouth: We are all in favour of it. It is access to more capital; it is access to more markets and more joined-up thinking. We see there being very much a pan-European, pan-western, allied and aligned nations approach. That is where we think the growth opportunities sit for British businesses that are looking to export, and it is where we see international capital—where there is a lack of UK capital—coming in, so we strongly support that. It is worth noting that it focuses more on growth-stage businesses, so there will still be a gap for earlier-stage businesses, but we are fully in support.

Nathan Mathiot: That was a welcome comment by the Prime Minister. I mostly agree with what Mike said. The DSRB potentially has an important role to play in capital mobilisation, but I do not think we have ever felt it was necessarily a silver bullet. The wider thing that we have all been rabbiting on about, for good reason, is that there are potentially opportunities and sources of capital available, but the central problem is the customer demand signal at the heart of things. With the multilateral defence mechanism that the UK until now has been quite invested in, and the piece about demand aggregation, I think that is still part of the equation. I think it is a two-part solution. It is the more the merrier, in some senses. We are broadly in support.

John Godfrey: You would expect me to say this from the financial sector perspective, but obviously it depends on what the terms and conditions of joining are, how much capital you subscribe and what the cost-benefit is, essentially. But in principle, I am absolutely in agreement with my two colleagues. It would send a strong signal of financial interoperability as well as operational interoperability, if that is not a hideous mangling of the English language. If it adds to the guarantee capacity that exists in the market, that is a big tick; if it helps us with exports, which I believe it would, that is also a big tick; and it may well increase the volume of funds available and help with the pricing. I am supportive, with the right terms and conditions.

Q915   Leigh Ingham: I have a very quick follow-up. You mentioned the MDM very briefly. Do either of you want to add anything about where you see the gaps with the DSRB versus MDM, or whether they need to be amalgamated?

John Godfrey: My sense of it is that they perform different functions, but they could be complementary to one another. I would keep them at arm’s length from one another, frankly.

Q916   Chair: I am interested in returning to something you mentioned at the beginning, John. We discussed this a little bit, and panellists spoke about the flight of capital to some places, but I wondered if you felt that there was less of that happening. While there is the ability for capital to move, do we have a strong enough demand signal now that we have things like the defence investment plan and other such announcements from the Government? Do you think it is weak? Do you think it is strong? Obviously, you mentioned that potentially joining the Defence, Security and Resilience Bank would be another signal that would strengthen that. What is your take on where the capital wants to go and how we can retain and invest it?

John Godfrey: I do not think we have done enough to keep the capital here at this point. The DIP is one type of signal. The type of signal that my markets are really waiting for is supposedly coming in the defence finance and investment strategy—we are still waiting for that. We always want more detail. We have that still to come, and that may strengthen the signal.

It would be enormously helpful if the Chancellor could do a few things around here to help with the signalling. The first would be to make sure that a meaningful part of the Budget content covers defence. Then there is potentially the publication of the DFIS. There is then potentially a large defence investor summit coming up, we hear—either in November or December—and that is an opportunity to send a very powerful message.

The other half is about co-investment. More needs to be made of co-investment, alongside public finance institutions, whether that is the BBB or the UK National Wealth Fund, or even the National Housing Bank. Basically, if you are talking about dealing with some of the lower-hanging cost items, including military housing and, of course, UK Export Finance, these things all have to sing in a chorus, as it were.

Chair: We have run out of time but thank you very much for all the evidence you have provided to the Committee and for your time today.