Defence industry debanking crisis puts national security ‘at risk'

Telegraph

19 hours ago

British defence companies vital to national security claim they are being debanked because high street lenders see them as a threat to their reputations.
In an alarming report about the financial challenges facing UK-based manufacturers, nearly three quarters surveyed said they had experienced 'issues' accessing basic banking services as major lenders become wary of taking on clients involved in arms.
Companies said these issues included being barred from obtaining insurance, taking out loans and opening a bank account – which stops employers paying staff or suppliers.
One business owner quoted in the report, which was carried out by the ADS – the trade body representing more than 1,500 small defence companies – said their bank account was shut down after being told they did not meet the bank's 'terms and conditions'.
The report will raise fresh questions over the Government's push for Britain to become 'battle ready' as it prepares to counter growing threats from countries such as Russia.
Earlier this month, the strategic defence review said that Britain must be ready to once again 'fight and win' a full-scale war by rearming and upgrading its equipment.
But according to the ADS, the companies that will be instrumental in achieving this objective are facing financial barriers so severe they 'risk going under'.
Small defence manufacturers produce the vital parts used in military hardware, from the tiny components used in tanks to artillery cases.
Of 200 owners surveyed by the ADS, 72 per cent reported issues accessing banking services.
One owner quoted in the report said: 'Our bank account was actually forced to be closed and the only explanation they could offer was that they didn't meet our terms and conditions.'
The report said banks' reputational concerns have been a 'key driving factor' in a more hesitant approach in providing their services to defence firms.
Some banks, the report claims, described being lobbied not to support the defence sector, while others referenced pro-Palestinian protests targeting high street branches with perceived links to the Israel-Hamas war.
Last June, activists from Palestine Action attacked up to 20 Barclays bank branches across the UK by throwing red paint and smashing windows as part of their demand that the bank divest from 'Israel's weapons trade'.
One owner of a small defence company, quoted in the report, said: 'The financial sector has completely decimated the defence industry, they'd rather have an account with the local car-wash than a firearms dealer or somebody in the defence industry.'
Santander and Lloyds closed 300 accounts belonging to 'public administration and defence' companies last year alone, according to correspondence with MPs on the Treasury select committee.
Luke Charters, a Labour MP and chairman of the all-party parliamentary group on financial technology, told The Telegraph: 'As war rages on our continent and Russia continues to mobilise their wartime economy at pace, we have to ensure the [small defence companies] who will keep us safe aren't being blocked from banking access.
'Our sovereign defence financing capability is not only a matter of national security; but an absolute necessity at this moment in time. We cannot risk it being undermined by historical red tape, that has persisted for far too long.'
A spokesman for the ADS said: 'The scale of the issue with regard to smaller businesses accessing financial services is increasing in magnitude – and without appropriate options, smaller businesses risk their ability to deliver on their full potential.
'The long-term effect of this is that exciting businesses – that deliver the capability responsible for protecting our national security – risk going under, or are unable to deliver the pace, scale and innovation that our increasingly unstable environment requires.'
An interviewee for the report, described as a 'financial stakeholder', said: 'People chucking bricks at windows, ATMs, chucking paint at staff. It's horrible.
'Banks do take threats to their staff seriously and that is difficult. It doesn't get directed at the defence industry, or maybe it does, but banks are more visible. They've got this high-profile, high-street presence that people can target.'