UK banks under fire for closing down defence companies’ accounts

Ministers have begun an investigation amid concerns it could harm national security

The Ministry of Defence has begun an investigation after several of its contractors reported they were being denied banking services or being charged higher rates due to the nature of their work. PA

UK banks are being asked to explain why they have closed the accounts of defence companies amid fears it could jeopardise national security.

The Ministry of Defence has begun an investigation after several of its contractors reported they were being denied banking services or being charged higher rates due to the nature of their work.

Defence industry body ADS says it found defence contractors have encountered reduced access to financial services and investment due to environmental, social and governance (ESG) policies, which encourages ethical investment.

Ministers are to raise concerns the practice could affect jobs and undermine the competitiveness of the sector, which employs 417,000 people.

The Government said it will review how banks offer services to politicians after the accounts of Nigel Farage and others who expressed certain views were closed without explanation.

James Cartlidge, the minister for defence procurement, said he is to hold talks with ADS, to discuss how the Government can end the practice.

“Russia’s illegal invasion has highlighted why we must advocate for a strong defence industry, without which we could not have supplied Ukraine with the means to defend its freedom,” said Mr Cartlidge.

“Defence businesses large and small have told me that ESG rules have undermined them, from facing more expensive finance to being denied basic banking facilities.

“We are currently investigating the extent of this challenge – but I am clear that a strong defence industry supports well-paid jobs around the UK and enables our Armed Forces to keep us safe in dangerous times.”

Some smaller defence companies have been refused accounts or told existing accounts will be closed and their balance refunded, as well as having been denied insurance, according to ADS.

Larger firms have struggled to access investments as the proportion of funds that exclude the defence on ethical grounds has risen from 59 per cent in 2021 to 91 per cent this year.

An ADS spokesperson said: “The aerospace and defence sectors have already seen reduced access to investment and financial services, due to investor concerns about ESG performance or other reputational risks.

“Our small and medium-sized enterprises are facing unprecedented barriers in accessing the finance they need.

“This can range from high-value investment rounds, down to difficulties faced accessing basic business banking services due to overzealous interpretation of risks from banks.

“For many funds, defence stocks have overtaken tobacco as less desirable, despite the vital role defence plays.”

In a video posted to social media, Mr Farage complained he was the victim of “serious political persecution” and prejudice due to his role in campaigning for Britain to leave the EU.

However, the BBC, citing sources, said Mr Farage’s balance had fallen below the financial threshold necessary to hold an account at the exclusive private bank Coutts.

The government recently passed legislation requiring regulator the Financial Conduct Authority to review how banks treat “politically exposed persons”, said a spokesman for the Treasury.

This is “so we can strike the right balance between the customer's right to free speech and the bank's right to manage commercial risk”.