Rachel Reeves hopes a turbocharged defence industry could boost growth and national security - but those in the sector complain they are being barred from banking facilities
Cutting edge British defence companies are being refused bank accounts by some of the UK’s biggest financial institutions over ethical concerns, The i Paper can reveal.
One company that makes critical armoured vehicles used by the British military, including by Special Forces in Afghanistan and Iraq, was turned down by HSBC for a bank account whilst others have struggled to get loans or investment for future manufacturing. Often the reasons for a bank refusing to offer facilities are not given but can be linked to involvement in potential “lethal” activities or not being “green” enough.
The growing concern for some in the defence industry , who fear they are being “debanked”, comes as the government is hoping to turbocharge the sector in the wake of the Trump administration pulling back from supporting European security.
The government has recently promised to increase defence spending to 2.5 per cent of GDP raising funding by £6bn a year. Chancellor Rachel Reeves is keen that small and medium-sized defence manufacturing firms help drive economic growth.
SC Group, which was previously known as Supacat, and has won contracts with the Ministry of Defence worth tens of millions of pounds, has said it has struggled to get any investments or loans because it is not “green.”
SC chief executive Nicholas Ames claims it was almost impossible to arrange a commercial loan to invest in future manufacturing in Britain because lenders were only looking to finance green companies.
Ames alleges it was almost impossible to get any financing unless a company provided “dual use” products, which can be used for both civilian and military use.
He said: “Every time we [approach] banks, debt funds or equity funds, they’re all going: ‘We’ve all moved into [ethical investing], we’ve all moved into the green funds. Come back to us with something green.”
A number of major defence companies have told The i Paper of the problems they are facing being “debanked” by major institutions.
The defence industry has long complained about so-called environment, sustainabily and governance (ESG) red-tape that critics say guide investors away from the British defence sector.
How UK defence firms could relocate to the US
Another major British defence firm, 4GD, which uses AI and robots to help train British soldiers, said they had to stop attending investment meetings in the UK after being turned away once the hosts realised they worked in defence.
The company is now considering relocating to the US and claims it currently has three US states pitching for them to move across the Atlantic, but the firm is waiting to see if ministers act on their pledge to investigate the issue.
Robert Taylor, director of 4GD said that it has been turned down by every major lender for loans and has been forced to seek more expensive alternative funding that has resulted in 20 per cent of his revenues being used to service private finance loans.
Mr Taylor said: “There are only probably one or two high street banks that have reliably offered bank accounts to defence companies. We have had a number of colleagues be debanked just before tenders, especially when there is a transition from what would be considered non-lethal to lethal work.”
Mr Taylor’s firm has stopped seeking investment from British companies due to the trepidation around military work.
He said: “We have basically, as a company, stopped going to investment meetings in the UK. They were just complete waste of time. We were turned away at meeting rooms. We’ve been turned away before the meetings. We’ve been turned away in the room. The second defence comes up: ‘Not interested. Sorry, can’t.”
The lack of financing is forcing UK firms to take investment from the US or Israel, providing further ethical risk and undermining the UK’s sovereignty and national security.
Last week Defence Minister Maria Eagle met with several banks and defence companies after two Labour MPs launched a campaign to help defence firms get access to finance.
Labour MP Luke Charters, who convened the meeting, said recent Trump tariffs and global instability proved the need for a strong UK financing base for defence firms.
He said: “We need to make sure we’ve got a UK sovereign capability to invest in British defence…on the EU and the US, we don’t know. We can’t rely on [them]. We need our own sovereign industrial base building and making things in Britain.”
Shadow defence secretary James Cartlidge said: “It is disturbing to hear of our ability to defend the nation being undermined by so called ‘ethical’ banking rule… As Minister for Defence Procurement I met a number of companies who said they’d been denied banking services because they were involved in defence.”
Former Conservative defence minister Tobias Ellwood said: “Over time, defence has been lumped in with arms dealers, nuclear proliferation and military aggression, with little distinction between defence and offence. This all must change. We need to turn on the financial taps to our defence firms that stand ready to deliver the best of British innovation and help better prepare us for the growing threats we now face.”
‘Debanking’ defence firms increases threat to Ukraine
It comes as similar issues in Europe have caused the EU to take action to ensure defence spending was considered ethical as Europe faces up to providing significant additional huge military support to Ukraine.
EU Commission President Ursula von der Leyen promised a “far-reaching simplification” of sustainable financing rules after defence contractors had raised concerns.
The UK Sustainable Finance Association, which represents a number of major investors and pension funds, rejected the argument that sustainable funds regularly exclude defence firms.
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Chief executive James Alexander said: “Investors recognise the necessity of defence funding given the global context and rarely exclude mainstream defence firms from sustainable funds. It is also important to recognise that the primary driver of defence investments is government willingness to prioritise national security.”
A UK Finance spokesperson said: “The UK banking sector is fully committed to supporting defence companies… Providing finance in this area is complex, and banks can face the threat of violent protest. They must also ensure they comply with a range of domestic and international laws and regulations. “
An HSBC spokesperson said: “We have always taken a very responsible approach to the defence sector, and we will continue to do so.”
A Government spokesperson said: “We have been clear that we see no conflict between sustainable investment and investment in our world-leading defence sector.
“We continue to consult widely with defence and financial services stakeholders to tackle barriers around access to finance.”
