The Defence Investment Plan 2026: What do SMEs need to know?

HM Government’s Defence Investment Plan 2026 (the “DIP”) marks one of the most significant shifts in defence policy for a generation. With £298 billion of defence investment planned over four years, the DIP is intended to deliver the ambitions of the 2025 Strategic Defence Review while positioning defence as a driver of economic growth, innovation and private investment.

For businesses, investors, venture capital funds and acquirers, the DIP’s significance extends beyond traditional defence contractors. It expressly seeks to make the UK the "leading destination for defence investment", strengthen the defence investment ecosystem, and mobilise both public and private capital into strategically important technologies and businesses.

As we have discussed previously when analysing the British Private Equity & Venture Capital Association’s report on private capital in defence, the defence sector is an area with untapped potential for private capital investment and growth.

Investment in the DIP

The Government has committed £298 billion in defence spending between 2026 and 2030, including £15 billion newly allocated by the DIP.

The DIP identifies several themes that are especially relevant to investors:

• making the UK the leading destination for defence investment;
• strengthening the defence investment ecosystem;
• mobilising public and private capital;
• accelerating defence innovation and technology adoption;
• supporting domestic supply chains and sovereign capability; and
• improving procurement and commercial engagement with industry.

Importantly, defence policy is being reframed as industrial and economic policy. The DIP states the Government’s ambition “to make the UK the most attractive place in the world to invest in defence, security and resilience”. A Defence Finance and Investment Strategy is promised – we will monitor for this.

Why This Matters for Venture Capital

Historically, many institutional investors and venture funds have approached defence cautiously due to ESG policies, procurement complexity and perceived barriers to entry. The DIP suggests those assumptions may need revisiting.

The Government is signalling long-term demand across technologies already attracting venture investment: artificial intelligence, autonomous systems, drones and dual-use technologies.

The DIP commits:

• more than £5 billion into autonomous systems over four years;
• more than £20 billion to transform land capabilities, including AI-enabled systems, autonomous vehicles and advanced weapons;
• £2.5 billion for cyber and electromagnetic capabilities; and
• significant investment across digital infrastructure, targeting systems and emerging technologies.

For venture-backed businesses, the key takeaway is that defence procurement is increasingly technology-led. Founders in software, AI, autonomy, cyber-security, sensor technologies, advanced manufacturing and aerospace now have a clearer route to long-term demand.

Potential for SMEs

While major defence contractors continue to invest heavily in their own capabilities, acquisitions and strategic investments often provide the fastest route to accessing innovative technologies, specialist expertise and valuable intellectual property. As the Government seeks to accelerate the delivery of new defence capabilities, SMEs in areas such as defence technology, artificial intelligence, autonomous systems, cyber security, advanced manufacturing and aerospace are likely to attract increased attention from both strategic acquirers and investors. 

The DIP is also expected to attract a wider pool of capital into the sector. Private equity funds, corporate venture capital investors, infrastructure investors and strategic overseas investors may all seek exposure to the growth opportunities created by long-term investment commitments. For SMEs, this could translate into increased opportunities for fundraising, strategic partnerships and exit transactions.

How we can help

With the rise in Government spending on defence, and the increased focus on home-grown defence procurement, there are increasing opportunities for private capital to be involved in the defence sector. We at Burges Salmon have seen a real buoyancy in the defence market, recently advising on drone operations and data intelligence company StirlingX’s $20m Series A fundraising, global provider of secure communications PentenAmio’s acquisition of Armour Communications, and Ondas Inc.’s acquisition of Rotron Aerospace Ltd.

To discuss the matters raised in this article, please get in touch with Alex Lloyd or Chris Doherty. You can also view our dedicated defence hub, and meet our other defence specialists, here.