Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what information his Department holds on the number of SMEs in the defence sector that have been denied (a) banking facilities and (b) other forms of finance because of environmental, social and governance policies since 2020.

The Government recognises the vital role small and medium-sized enterprises play in fuelling economic growth, and it is important they can access the banking services they need. Last year the Chancellor asked the Financial Conduct Authority (FCA) to collect evidence to help us understand where account closures and refusals are happening and why. The FCA published their initial findings on 19 September, and are doing further work with firms to verify the data and to better understand the reasons behind account refusals. In addition, HM Treasury is continuing to engage with industry to understand any existing or emerging issues regarding bank account access for businesses.

The Government welcomes steps that the financial services sector is taking to improve understanding of how firms can access financial services. In December, guidance specifically aimed at businesses operating in the defence and security sectors was published by UK Finance, the trade association for the banking and finance industry, and ADS, the trade association for the UK’s aerospace, defence, security and space sectors. This work was supported by the Department for Business and Trade.

The Government has been clear that it does not support the exclusion of defence companies from access to debt and equity capital on the basis of Environmental, Social and Governance (ESG) considerations. This was made evident in a Written Ministerial Statement made by the Secretary of State for Defence, in conjunction with HM Treasury, that stated “the important values within ESG should not undermine capabilities developed to help us preserve peace and security, without which sustaining those values would not be possible”. In addition, HM Treasury has recently consulted on a potential regulatory framework for ESG ratings providers which would aim to improve transparency and promote good conduct, which will help address some of the issues which defence companies have raised.