Denial of Banking Services: UK Defence Sector

Lord Howell of Guildford Excerpts

Wednesday 4th June 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to my noble friend for his question, and I agree with everything he said. The Government have been clear that no company should ever be denied access to financial services solely on the basis that they work in the defence sector, and the banking sector should never take a blanket approach to any one sector. I very much recognise the story that my noble friend tells, and that SMEs face unique challenges working in the defence sector, compared with larger, more established suppliers, including in accessing financial services, as the noble Lord said in his original Question. As my noble friend said, they face difficulties opening bank accounts and an increased risk of sudden bank account closure, as well as higher costs of borrowing and access to capital, and they often face a higher compliance burden. That is why we have set out that supporting and unlocking the full potential of SMEs will be a key consideration of the forthcoming defence industrial strategy.

[Lord Howell of Guildford (Con)]

My Lords, it sounds as though the Government are well aware that this is a fairly widespread practice, particularly among the larger lending banks. What advice have they therefore given to the banks about defining what the defence sector is? The defence sector, of course, through its supply chains, affects the vast bulk of British industry, so it is important that they define it in a sensible way.

[Lord Livermore (Lab)]

I do not think any specific guidance has been given in the way that the noble Lord asks, but the most important thing to say here is that the banking sector should never take a blanket approach to any one sector. Of course, the decision as to what banking services to offer is ultimately a commercial decision but, as I said, banks should not take a blanket approach and they should make sure that decisions are taken on a case-by-case basis. The Government are actively engaging with banks to ensure that they understand the importance of the defence sector. The FCA has worked to understand why banks might close or reject accounts, and where it has found areas where firms need to improve customer outcomes, the Government expect them to consider the FCA’s findings and take them very seriously.