Ben Wallace, the UK’s former defence secretary, says Europe needs an additional £1bn defence tech fund, warning Europe’s innovation in this area could “disappear across the Atlantic” without more financial support.
In an interview with Sifted on Wednesday, the seasoned Conservative politician said he’s “talked with a lot of people about the need for businesses in Europe and the UK to have access to debt funding”.
“I’ve identified a need to set up a European security defence fund,” he says, adding that if he were to lead such an initiative, he would need to partner with a financial institution. He stressed that no contracts have been signed yet.
His comments come as defence tech is experiencing a surge in VC interest in Europe, partly thanks to new initiatives such as the €1bn Nato Innovation Fund and amid the backdrop of greater political tensions. Investor concerns about the ethics of such investments, however, still keep many on the sidelines. Defence tech can overlap with many different sectors, including AI, quantum, space and cybersecurity.
“What was really clear when I was defence secretary is that a huge amount of innovation sits in Europe and Britain. But when [defence companies] try to access funding or are mature enough to hopefully win some of the extra defence spending across Europe, they can’t access it because of ESG rules,” says Wallace, referring to environmental, social and governance rules that some investors follow.
Defence companies of all sizes, from startups to large enterprises such as Airbus or Thales, are struggling to raise capital due to ESG standards, says Wallace, who resigned from government in August and last year ran to become Nato’s next secretary-general. Even the banking sector is refusing to back defence tech companies, because of “the classic high moral ground, not wanting to get their hands dirty”, he adds.
“Unless we invest in European industries, we won’t be able to compete for this work and innovation will disappear across the Atlantic,” Wallace says. “Our defence market needs to stop shooting itself in the foot with ESG rules.”
Although Wallace believes that “a lot of people get” the importance of investing in defence innovation, especially as the world becomes more fragmented into blocks, he says there’s a need to first change the culture inside Nato and European governments — which must step up their defence spending.
Ahead of the UK’s general election, expected in the autumn, Wallace says he wants both Labour and the Conservatives to commit to spending between 2.5% and 3% of GDP on defence with a clear timetable, rather than a long-term deadline that gets too diffuse.
“Our industries are ready and able to meet the increased demand that would inevitably follow the increased government funding,” he says.
- Eleanor Warnock contributed to this report.