‘Deluded' banks driving up the cost of British rearmament
Supacat, which makes Jackal reconnaissance vehicles for the Army, said high street lenders were still refusing to provide loans or even bank accounts to military contractors, despite being repeatedly urged to do so by ministers.
Many discriminate against defence companies under so-called environmental, social and governance (ESG) guidelines, or to qualify for special B-corp statuses that prohibit working with 'controversial industries'.
The lack of support from mainstream banks and investment funds often means they must choose between abandoning growth plans or borrowing from creditors who demand much higher rates of interest, warned Nick Ames, Supacat's chief executive.
He said: 'It's why defence is expensive. You find [a reluctance] with banking, with debt funds, with equity funds. The only finance you can get is therefore flipping expensive.'
The unwillingness of banks to work with defence companies threatens to make Britain's rearmament push more expensive, he added. The Government is scrambling to restock Britain's munition supplies and modernise the military, with defence spending set to rise to 2.5pc of GDP by 2027.
As previously revealed by The Telegraph, the list of defence contractors that have been spurned by banks range from start-ups working on simulators and underwater drones to larger companies that provide equipment such as guns used by police counter-terrorism squads.
Before the Ukraine war, even BAE Systems, the country's biggest defence company, was warned by shareholders that its involvement in Britain's nuclear deterrent had 'become a real problem', the company's chief executive has said.
In recent months, ministers have urged financial institutions to be more supportive, with Sir Keir Starmer hailing the domestic defence industry as as 'a source of national pride'.
But bosses say there have been few concrete signs of change, even as banks insist publicly that they have no problem with the sector.
The issue is particularly sensitive for smaller firms to discuss publicly, as many fear being blacklisted by lenders or targeted by violent protesters if they speak out.
Mr Ames said there was a widespread view that lenders 'will bank you as long as you're big enough, but if you're small, and in defence, they're not interested'.
He said: 'The Government has got to be much firmer. The banks all sit there at these events and say, 'Oh no, no, no, we're investing in defence,' but it's deluded.
'I don't think they really know what goes on when you actually go and talk to your high street bank.'
Supacat's Jackal, a high-mobility reconnaissance vehicle, was originally rushed into service in 2008 to support troops in Afghanistan.
It is designed to protect troops from roadside explosions and mine attacks, with some 500 having been purchased by the Ministry of Defence.
Mr Ames said even his company had struggled to secure finance in recent years, with a bid to supply armoured vehicles to the German special forces thwarted by a failure to secure loans from any mainstream lenders. It was also 'flatly refused' banking services by HSBC.
This year, Supacat was also dropped by its website designer over its military links and bosses were told by another company that their defence work barred them from purchasing carbon credits, which are used to mitigate a company's environmental impact.
Many defence companies resort to playing down their links to the sector, and the potential lethality of their products, because of such concerns.
Kevin Kraven, chief executive of ADS, said the issue underscored a 'lack of societal pride' in the industry, but said there were now more positive discussions happening with some banks, particularly around the types of finance most needed by defence companies.
He said: 'The tone of the discussion has changed a lot. What has not happened is practical measures.
'But, clearly, it is bonkers to be saying we shouldn't support our defence industry, particularly at a time when the world is in the state it is in.'
In January, Mark Rutte, general secretary of the Nato alliance, complained that banks and investment funds were putting defence into the same category as 'illicit drugs and pornography'.
On Friday, UK Finance, which represents banks, said there was no conflict between ESG rules and working with defence companies and insisted efforts were under way to 'tackle barriers that do arise'.
David Raw, the group's commercial finance spokesman, said: 'The UK banking sector is fully committed to supporting defence companies. They are a vitally important contributor to our national security and banks provide a significant range of support and lending to them.
'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.'
Some banks that do work with defence companies have also found themselves targeted by protesters who intimidate staff or vandalise branches.
A spokesman for HSBC said: 'The bank has a defence policy that is designed to comply with the legal and regulatory requirements of the many markets in which we operate.
'We feel that policy strikes the right balance between respecting those laws, supporting our customers and abiding by international norms.'
A government spokesman said: 'In a time of increasing geopolitical instability, maintaining a robust and thriving defence sector is essential to our national security.
'No company should be denied access to financial services purely on the basis that they work in defence.
'We are working with banks and defence sector to protect defence companies access to banking.'
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