Industry and Regulators Committee
Tuesday 13th October 2026
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11:12
Speaker 1
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Speaker 1
Which are having a real impact, and £182 million for defence skills programmes worth of funding, including a quarter of £1 billion for five defence growth deals. So there is a lot there in terms of clarity, direction and the Defence investment Plan underscores, you know, over the next, you know, four years of we just had just shy of, you know, £300 billion spent over the next four years. I think there are clear demand signals within that.
We've got the Defence Investment Summit coming up before the end of this year. I think that is a great opportunity for this country to demonstrate the extent to which we are both investing more, but also open for business and, more than that, open for a real partnership with industry. This can't just be a classic transactional relationship. Indeed. I think we've, you know, come in for some criticism over the years for being too transactional.
I think this is about making sure that, yes, we're clear with the order book as we will be about investable opportunities, but it's also important that we're not just going out to tender with commissions for particular projects or platforms, but we are going out in the spirit of the integrated forces design model we're working to , with our requirements over the next decade and work with industry from design, right through to procurement and then delivery, so that industry partners can help us to determine what it is that we need, and whether those are kind of exquisite offers that are designed specifically to meet our needs, right through the spectrum to kind of off the shelf.
But I think we there's, you know, to, to your question, I don't want to sound complacent. You know, I appreciate there's more we can be doing. There's more clarity to come, but I don't think we're in a bad place in terms of the money that's available. The signal the demand signal that's been sent out both through the Defence investment strategy, but also the defence investment plan. And there is a, you know, through through some of the mechanisms we set up, like the Defence Industrial Joint Council.
I think there is a genuine commitment at every level of the department, ministerial and official to work in genuine partnership with industry to to make sure that we meet our requirements and also build a stronger defence industrial base for the country.
We've got the Defence Investment Summit coming up before the end of this year. I think that is a great opportunity for this country to demonstrate the extent to which we are both investing more, but also open for business and, more than that, open for a real partnership with industry. This can't just be a classic transactional relationship. Indeed. I think we've, you know, come in for some criticism over the years for being too transactional.
I think this is about making sure that, yes, we're clear with the order book as we will be about investable opportunities, but it's also important that we're not just going out to tender with commissions for particular projects or platforms, but we are going out in the spirit of the integrated forces design model we're working to , with our requirements over the next decade and work with industry from design, right through to procurement and then delivery, so that industry partners can help us to determine what it is that we need, and whether those are kind of exquisite offers that are designed specifically to meet our needs, right through the spectrum to kind of off the shelf.
But I think we there's, you know, to, to your question, I don't want to sound complacent. You know, I appreciate there's more we can be doing. There's more clarity to come, but I don't think we're in a bad place in terms of the money that's available. The signal the demand signal that's been sent out both through the Defence investment strategy, but also the defence investment plan. And there is a, you know, through through some of the mechanisms we set up, like the Defence Industrial Joint Council.
I think there is a genuine commitment at every level of the department, ministerial and official to work in genuine partnership with industry to to make sure that we meet our requirements and also build a stronger defence industrial base for the country.
11:15
11:15
11:15
Lord Camoys
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Lord Camoys
Just to provide further comfort on the delivery, the Defence Investment plan was clearly higher level. It looked across ten years with more detail than the first, less than the second five. There's a real sense of long term direction in terms of our our military strategy. What we clearly didn't want to provide too much public detail about exactly what we're doing every week, every month, every quarter, because a lot of it is highly classified. But we are now turning that defence investment plan into a delivery plan with industry.
We've already started to share the fruits of our work in a much more detailed way. Looking over the next six quarters and beyond in a much more granular way. Industry is leaning in, engaging with us very much a collaborative exercise, which is what this is all about, turning from a transactional relationship to one that is a true relationship with industry, bringing good ideas, investment capabilities to us to help us move out of the gate quickly.
And that's where we are today. That will start to be shared more broadly as we go forward, but we are actively in in moving out on the on the ambitions of the dip right now.
We've already started to share the fruits of our work in a much more detailed way. Looking over the next six quarters and beyond in a much more granular way. Industry is leaning in, engaging with us very much a collaborative exercise, which is what this is all about, turning from a transactional relationship to one that is a true relationship with industry, bringing good ideas, investment capabilities to us to help us move out of the gate quickly.
And that's where we are today. That will start to be shared more broadly as we go forward, but we are actively in in moving out on the on the ambitions of the dip right now.
11:16
Baroness Carberry of Muswell Hill
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Baroness Carberry of Muswell Hill
Perhaps I could just pick up on your answer there. Mr. Pearce, about the delivery plan and perhaps focus in on some of the procurement processes that we've heard a lot about during the course of this inquiry. And in particular, we have heard over and over again anxieties about pace and speed of contract processes. And in some cases, we've heard about it taking 6 or 7 years even to get to contract.
So is the delivery plan addressing this? And how is is that particular issue going to be dealt with so that we can speed up processes which at the moment do not appear to be commensurate with the threats of modern warfare?
So is the delivery plan addressing this? And how is is that particular issue going to be dealt with so that we can speed up processes which at the moment do not appear to be commensurate with the threats of modern warfare?
11:17
Lord Camoys
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Lord Camoys
I completely agree with your concern and accept it that it's something has to change within defence at and fast. It's it is very much part of what we're looking to support and achieve through the rolling out of the of the dip, but it's actually being dealt with partly through other means in inherent in the defence. Industrial strategy is working with industry to speed up and simplify our procurement processes. Indeed, it's something called out in the SDR, something fundamental that has to has to shift.
And the requirement for that to change has only got greater. The SDR, remember, was assumed we had ten years to deliver this transformation by the autumn of last year. The prognosis was we only had five years. So we have to accomplish a lot more change at the front end of this programme to to result in capabilities arriving in time. So we're doing a lot here. If I look forward, I would say that we need to procure in more ambitious and well calibrated ways.
We have a tendency to over procure. We have a tendency to design for the exquisite as opposed to the good enough. And in some areas we want to be exquisite still, because it's it's a key capability to overcome our adversary in other areas. Good enough is by definition good enough. And that's what we need to procure for.
And the requirement for that to change has only got greater. The SDR, remember, was assumed we had ten years to deliver this transformation by the autumn of last year. The prognosis was we only had five years. So we have to accomplish a lot more change at the front end of this programme to to result in capabilities arriving in time. So we're doing a lot here. If I look forward, I would say that we need to procure in more ambitious and well calibrated ways.
We have a tendency to over procure. We have a tendency to design for the exquisite as opposed to the good enough. And in some areas we want to be exquisite still, because it's it's a key capability to overcome our adversary in other areas. Good enough is by definition good enough. And that's what we need to procure for.
11:28
Baroness Harding of Winscombe
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Baroness Harding of Winscombe
I completely understand and and agree about this important shift in culture. And, and Secretary of State, you've talked clearly about what you're doing within the department. I wanted to sort of push you on whether or not actually to achieve this culture shift in the Mod, you need greater political direction and air cover from the very top of the of the office, from the centre of government and what you need from the Prime Minister to create that shift in the country, to allow the Mod to get some stuff wrong, to actually spend some money, not wisely, in order to shift the culture to innovate as you're describing, what do you need from the top of the office?
11:28
Speaker 1
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Speaker 1
Well, I mean, firstly, I mean, with this Prime Minister, I mean, I'm just struck by. You know, his willingness to run into really big, hard things. We've seen that domestically with social care. We're seeing it internationally on AI and the way in which he's going about that, actually trying to do so through multilateralism, which is kind of slightly gone out of fashion in the world, to put it mildly so.
And his sort of level of, of kind of intellectual curiosity about things, I think is, is a strength. And his kind of communication is, is one of his superpowers. So in terms of helping the country to understand and to walk through some of this, I don't think we could ask for a better champion who instinctively also understands where defence fits in his overall vision for reindustrialisation and spreading opportunity, as well as growth across the country.
I think the other big asset we have is the Chancellor. So. You know, the Treasury as an institution is one I've come to know and love. In my previous experience in government, and for reasons I do understand, on the fiscal side of the Treasury's responsibility, it can ironically, sometimes with an abundance of caution and learning from examples of waste, inefficiency, white elephants, governments seen over the years, it can sometimes lend itself to thinking that more regulation, more process, more scrutiny, more sign off is the answer.
And actually it can slow us down and and actually mitigate against growth value for money productivity, certainly. So having building a high trust environment with the Treasury is really important. Now, that helps with the Chancellor because he's done my job before. That is that can be a double edged sword when people know know the department well and can see through flannel. But I think that's a good thing. But I think the.
But the other thing I'd say is I think my impression is through the Dipp process, difficult though it was for everyone involved, I think it does mean that the Treasury and the Ministry of Defence are working from the same number sets, the same set of assumptions, the same agreed plans, the same understanding of the challenges, and therefore that is a good ground for us to speed things up. But that that's that's not an event. That is a process.
We are going to have to continue. Just as the Treasury challenges us on value for money, doing what we say we will, delivering to time and to budget. We will also have to do a bit of upward management to the Treasury to make sure we're operating in a high trust, as well as a high performance environment.
And his sort of level of, of kind of intellectual curiosity about things, I think is, is a strength. And his kind of communication is, is one of his superpowers. So in terms of helping the country to understand and to walk through some of this, I don't think we could ask for a better champion who instinctively also understands where defence fits in his overall vision for reindustrialisation and spreading opportunity, as well as growth across the country.
I think the other big asset we have is the Chancellor. So. You know, the Treasury as an institution is one I've come to know and love. In my previous experience in government, and for reasons I do understand, on the fiscal side of the Treasury's responsibility, it can ironically, sometimes with an abundance of caution and learning from examples of waste, inefficiency, white elephants, governments seen over the years, it can sometimes lend itself to thinking that more regulation, more process, more scrutiny, more sign off is the answer.
And actually it can slow us down and and actually mitigate against growth value for money productivity, certainly. So having building a high trust environment with the Treasury is really important. Now, that helps with the Chancellor because he's done my job before. That is that can be a double edged sword when people know know the department well and can see through flannel. But I think that's a good thing. But I think the.
But the other thing I'd say is I think my impression is through the Dipp process, difficult though it was for everyone involved, I think it does mean that the Treasury and the Ministry of Defence are working from the same number sets, the same set of assumptions, the same agreed plans, the same understanding of the challenges, and therefore that is a good ground for us to speed things up. But that that's that's not an event. That is a process.
We are going to have to continue. Just as the Treasury challenges us on value for money, doing what we say we will, delivering to time and to budget. We will also have to do a bit of upward management to the Treasury to make sure we're operating in a high trust, as well as a high performance environment.
11:31
Baroness Harding of Winscombe
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Baroness Harding of Winscombe
I don't doubt our Prime Minister's communication skills at all as you set out, but this isn't a party political point. It was quite striking that defence wasn't mentioned in his party conference speech. Do you need him to make a big strategic statement to help give your officials more air cover, to change the way they work, to take more risk, to innovate, as you describe?
11:31
Speaker 1
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Speaker 1
Well, I think in defence of, of the of the of the conference speech, I mean, I think it was really about the vision for the condition of Britain, and it was a vision for the kind of Britain we want to be here at home. I think that, you know, there's no doubt in my mind that he understands and is concerned about the threat environment that we're operating in, is concerned about the risks that we and our allies are carrying and is engaged internationally.
I mean, the fact he sort of did 2.5 hours in the Commons yesterday with an international update the first day back, I think it should reassure that he is focused appropriately on both foreign and domestic and the links between the two. I think the the prize for us as a government at a time when we want the public to understand the threat environment, we want to build national resilience and we need the the country to play its part. We want people to be alert but not alarmed.
We also want people to see security as the essential precondition for hope and opportunity. And so I think that the reason why I think the Prime Minister is uniquely placed to do this is you do need someone who is able to tell that compelling story, that can marry hope and opportunity on one hand, against the backdrop of threat and, and, and, and uncertainty and risk on the other. And we have to bridge those two.
What we can't afford to do is just to be about hope and opportunity without also focusing on kind of risks and insecurity. And I think you'll see in the coming weeks and months, the Prime Minister bridging those two things, particularly as he's engaged in international fora as well. That's a good opportunity for him to get that message across.
I mean, the fact he sort of did 2.5 hours in the Commons yesterday with an international update the first day back, I think it should reassure that he is focused appropriately on both foreign and domestic and the links between the two. I think the the prize for us as a government at a time when we want the public to understand the threat environment, we want to build national resilience and we need the the country to play its part. We want people to be alert but not alarmed.
We also want people to see security as the essential precondition for hope and opportunity. And so I think that the reason why I think the Prime Minister is uniquely placed to do this is you do need someone who is able to tell that compelling story, that can marry hope and opportunity on one hand, against the backdrop of threat and, and, and, and uncertainty and risk on the other. And we have to bridge those two.
What we can't afford to do is just to be about hope and opportunity without also focusing on kind of risks and insecurity. And I think you'll see in the coming weeks and months, the Prime Minister bridging those two things, particularly as he's engaged in international fora as well. That's a good opportunity for him to get that message across.
11:33
Lord Camoys
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Lord Camoys
Baroness. I would just add that it gives you comfort. I feel very I very much do have air cover for the change programme that the National Armaments Group is engaged in, and I'm leading. I find the ministers enormously supportive of the process of change and actually asking how they can do more to support. There are a whole series of decisions around how we orchestrate our procurement, because we have to move at pace, and I see a lot of support for that, and it's grounded in the SDR.
The SDR calls us out in the necessity for change, the necessity for doing things different, including the cultural shift. The Defence Industrial strategy articulates that. So does the defence Investment Plan and the defence. The defence finance investment strategy comes out. We'll also talk about another piece, which is about making sure no UK defence company struggles for growth because of lack of access to capital. You know, we want the UK to be the best place in Europe, if not the world, for a defence company to establish itself.
And I see enormous passion throughout the ministerial group and among the quad to do that. So yeah, I see that air cover. I mean, look at my background. I'm not a defence careerist. I'm not a civil servant. I come out of industry. I ran a space services company and I was a venture capitalist. That's a very strong statement of intent. I think about the the nature of the kind of behaviours we need to start to infuse in our procurement engine.
Thank you.
The SDR calls us out in the necessity for change, the necessity for doing things different, including the cultural shift. The Defence Industrial strategy articulates that. So does the defence Investment Plan and the defence. The defence finance investment strategy comes out. We'll also talk about another piece, which is about making sure no UK defence company struggles for growth because of lack of access to capital. You know, we want the UK to be the best place in Europe, if not the world, for a defence company to establish itself.
And I see enormous passion throughout the ministerial group and among the quad to do that. So yeah, I see that air cover. I mean, look at my background. I'm not a defence careerist. I'm not a civil servant. I come out of industry. I ran a space services company and I was a venture capitalist. That's a very strong statement of intent. I think about the the nature of the kind of behaviours we need to start to infuse in our procurement engine.
Thank you.
11:35
Lord Best
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Lord Best
Best is my questions are all about the SMEs, the small and medium sized enterprises. We've. We've heard a lot from them. It's not only that they bring innovation and new ideas and entrepreneurial spirit and all of that, but the large defence contractors depend upon them to scale up and do a lot more. And they do face incredible barriers. I know you set aside 2.5 billion between now and 2028 for the SMEs, but are examples of things that they face.
A brand new start up being asked for three years of audited accounts. A document, a procurement document that managed to pass the 1000 pages mark for an SME to deal with security clearances that take more than six months for the individuals concerned. Can I can I put some specifics that you might like to react to and see whether you're actually able to, to comply with these ideas? A single front door.
So there's somewhere to go where you know, your queries and issues are going to be discussed directly for an SME. It may be the Defence Office for Small Business Growth gets expanded and does that job, a single standard contract for the small SMEs instead of these incredibly lengthy and difficult contracts, payment terms that don't wait until delivery before you get your money. Requiring these. These SMEs to borrow to pay the staff. With banks very reluctant to lend when there's only a single purchaser.
All. All difficult issues. Can we. Can we get to the specifics and help the SMEs to to flourish?
A brand new start up being asked for three years of audited accounts. A document, a procurement document that managed to pass the 1000 pages mark for an SME to deal with security clearances that take more than six months for the individuals concerned. Can I can I put some specifics that you might like to react to and see whether you're actually able to, to comply with these ideas? A single front door.
So there's somewhere to go where you know, your queries and issues are going to be discussed directly for an SME. It may be the Defence Office for Small Business Growth gets expanded and does that job, a single standard contract for the small SMEs instead of these incredibly lengthy and difficult contracts, payment terms that don't wait until delivery before you get your money. Requiring these. These SMEs to borrow to pay the staff. With banks very reluctant to lend when there's only a single purchaser.
All. All difficult issues. Can we. Can we get to the specifics and help the SMEs to to flourish?
11:37
Speaker 1
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Speaker 1
Yeah, I think that's I think that's a great challenge. And there's no doubt in my mind about the fact we need to do much more to support SMEs to, to engage in opportunities that will come through the Defence Investment plan. We don't start from a bad place, but we don't start from a place that I think any of us would be happy or comfortable with. So I think there's a lot more to go at.
I mean, instinctively, I think the Defence Office for Small Business Growth is and should be the the front door, it was established back in January this year. So it's still nascent. And I think there is an opportunity and actually a responsibility on us to make sure that as well as looking at what we can do to remove barriers in defence processes and drive up SME spend, that we we also continually engage with the SME sector to see how that's actually working, as we're still in the early stages, but the website, the contact centre, the guidance services are specifically designed to improve access and reduce confusion.
So the proof of the pudding will be in the eating. How do SMEs feel? That is going? How easy are they finding it to to engage? Similarly, I absolutely take your term, your challenge on payment terms, both in terms of making sure that we pay readily and on time for for work that's being undertaken, but also recognising that, you know, if we're dealing with our primes and for all sorts of reasons, we're all familiar with a well laid time scale doesn't quite go to plan.
There is a big difference between a buy or a Leonardo kind of adjusting reprofiling and an SME who is standing up the workforce, getting ready to to do the work, being told, actually, we're going to we're not going to be with you for another three months. So making sure that we are agile and responsive and supportive and recognising some of the support that would be required where those sorts of things happen, I think, is part of making sure that we are a good.
That is back to what I said earlier about being a good partner. That's not just about strategic partner in terms of setting our overall strategy and thinking about procurement. It is also about how we work effectively on contract design and delivery. In terms of the single standard contract, it is, of course, instinctively appealing to me, but I'm a politician and I like simplicity. I'll probably turn to Rupert to talk through how in practice that that that is doable.
I mean, instinctively, I think the Defence Office for Small Business Growth is and should be the the front door, it was established back in January this year. So it's still nascent. And I think there is an opportunity and actually a responsibility on us to make sure that as well as looking at what we can do to remove barriers in defence processes and drive up SME spend, that we we also continually engage with the SME sector to see how that's actually working, as we're still in the early stages, but the website, the contact centre, the guidance services are specifically designed to improve access and reduce confusion.
So the proof of the pudding will be in the eating. How do SMEs feel? That is going? How easy are they finding it to to engage? Similarly, I absolutely take your term, your challenge on payment terms, both in terms of making sure that we pay readily and on time for for work that's being undertaken, but also recognising that, you know, if we're dealing with our primes and for all sorts of reasons, we're all familiar with a well laid time scale doesn't quite go to plan.
There is a big difference between a buy or a Leonardo kind of adjusting reprofiling and an SME who is standing up the workforce, getting ready to to do the work, being told, actually, we're going to we're not going to be with you for another three months. So making sure that we are agile and responsive and supportive and recognising some of the support that would be required where those sorts of things happen, I think, is part of making sure that we are a good.
That is back to what I said earlier about being a good partner. That's not just about strategic partner in terms of setting our overall strategy and thinking about procurement. It is also about how we work effectively on contract design and delivery. In terms of the single standard contract, it is, of course, instinctively appealing to me, but I'm a politician and I like simplicity. I'll probably turn to Rupert to talk through how in practice that that that is doable.
11:40
Lord Camoys
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Lord Camoys
Sure. And I'm going to bounce that on to Ben in a second. Having said that, because he's in charge of it and knows that you're looking for facts. But we do deal with over 12,000 SMEs today. We do do £5 billion a year of business with SMEs today, albeit only 25% of that number is direct. So a lot of them come through the primes. I do want to change that.
So the the extra 2.5 billion target by the middle of 2008 is actually growing our business by 50% with SMEs. So it's a very big ambition. And that in itself has to drive a change of behaviour. And you've obviously seen and read the SME action plan. That is a holistic plan across looking across all the things you're talking about, making access to capital easier, addressing payment terms both direct and indirect. Actually, we pay SMEs very quickly.
Sometimes what happens is it goes into the primes and then the primes pay them slowly. That's what we've got to address by setting standards, expectations of standards without primes, without which they'll cease to be primes. We are looking to standardise contracts wherever we can and get rid of longevity. And we do now have a single front door, but we are not set up for 12,000 companies to come through that door at once. And somehow we have to digitalise that that engagement as well, probably working through ecosystems and communities that bring SMEs to us.
Before I hand off to Ben to talk about some of the granularity, because I think there's a lot of facts here that are moving in the right direction. I would just say that what I see when I meet with SMEs , and I would call out, particularly the recent SME roundtable at Farnborough, which I was attended with Mindy or I, there is a complete change of tone now, much more trust, much more transparency, much more engagement. SMEs are coming up with ideas.
We're taking those ideas and running with it. So, for example, one of the reasons why SMEs struggle to engage on the larger programmes is because they're very large and they often require a lot of skill sets they don't have. They might be able to deal with one piece of the procurement, so they're forced to sit behind the primes who put together the front, the front piece. If we procure a more modular ways, we give SMEs the chance to bid direct with us for the module.
Better still, why don't we have a dating agency for SMEs to come together and collaborate into? Coalitions together can bid against a prime. Those are things I'm. I warmly encourage and endorse and we're looking to get after. So. But you can't get there without the dialogue changing, without creating forums for SMEs to, to, to, to meet you and talk about their specific issues, then we can start to fix them.
Ben. Thank you.
So the the extra 2.5 billion target by the middle of 2008 is actually growing our business by 50% with SMEs. So it's a very big ambition. And that in itself has to drive a change of behaviour. And you've obviously seen and read the SME action plan. That is a holistic plan across looking across all the things you're talking about, making access to capital easier, addressing payment terms both direct and indirect. Actually, we pay SMEs very quickly.
Sometimes what happens is it goes into the primes and then the primes pay them slowly. That's what we've got to address by setting standards, expectations of standards without primes, without which they'll cease to be primes. We are looking to standardise contracts wherever we can and get rid of longevity. And we do now have a single front door, but we are not set up for 12,000 companies to come through that door at once. And somehow we have to digitalise that that engagement as well, probably working through ecosystems and communities that bring SMEs to us.
Before I hand off to Ben to talk about some of the granularity, because I think there's a lot of facts here that are moving in the right direction. I would just say that what I see when I meet with SMEs , and I would call out, particularly the recent SME roundtable at Farnborough, which I was attended with Mindy or I, there is a complete change of tone now, much more trust, much more transparency, much more engagement. SMEs are coming up with ideas.
We're taking those ideas and running with it. So, for example, one of the reasons why SMEs struggle to engage on the larger programmes is because they're very large and they often require a lot of skill sets they don't have. They might be able to deal with one piece of the procurement, so they're forced to sit behind the primes who put together the front, the front piece. If we procure a more modular ways, we give SMEs the chance to bid direct with us for the module.
Better still, why don't we have a dating agency for SMEs to come together and collaborate into? Coalitions together can bid against a prime. Those are things I'm. I warmly encourage and endorse and we're looking to get after. So. But you can't get there without the dialogue changing, without creating forums for SMEs to, to, to, to meet you and talk about their specific issues, then we can start to fix them.
Ben. Thank you.
11:42
Speaker 2
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Speaker 2
So yes, the Office of Small Business Growth is, is the front door only starting in January as the Secretary of State said. And at the moment it's really concentrating on those cross-cutting issues which we've identified, which affect all SMEs as the most kind of powerful and impactful thing they can do immediately. As we scale them up, they'll be able to receive more of these requests and deal with companies. Obviously, dealing with 12,000 companies is a challenge, so we're still working through how we provide a level of service which is proportionate and achievable.
A standard contract is a really good suggestion. As part of our accelerated commercial pathways. One of them is specifically for SMEs and trying to make it easy for SMEs to work with us and taking all the best practice that we have and applying it, and then removing any barriers which we find along the way, and that becoming a standardised approach for how to contract with SMEs. It does slightly depend on what type of product or service they offer as to which contracting route we would choose, but that that does exist now it's been launched and then on payment terms, I hope you'll find this comforting.
We pay 94.6% of our contracts within five days and 99.9% within 30 days. So in terms of making sure that they have access to funding and smoothing that financing situation for SMEs, we're definitely playing our part.
A standard contract is a really good suggestion. As part of our accelerated commercial pathways. One of them is specifically for SMEs and trying to make it easy for SMEs to work with us and taking all the best practice that we have and applying it, and then removing any barriers which we find along the way, and that becoming a standardised approach for how to contract with SMEs. It does slightly depend on what type of product or service they offer as to which contracting route we would choose, but that that does exist now it's been launched and then on payment terms, I hope you'll find this comforting.
We pay 94.6% of our contracts within five days and 99.9% within 30 days. So in terms of making sure that they have access to funding and smoothing that financing situation for SMEs, we're definitely playing our part.
11:44
Lord Camoys
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Lord Camoys
The final area I would just just allude to, which is a fertile area for SMEs, is innovation. Remember that on one side we've got procurement of the stuff that we know of, the solutions we know we want to adopt. But as a separate exercise, we're also fostering a lot of innovation, including early stage innovation. UK Defence Innovation has £400 million a year to put into mid-stage TRL technology readiness. Level opportunities are constantly horizon scanning for new ideas, new capabilities.
This is a very fertile area for SMEs to jump on board, and the money we've got now allows us to bring their technology forward without it costing them an arm and leg, without them having to bet the company on getting a contract at the end of it. If you look at a project like project competition we ran recently called Project Break Stop, which is looking for a mid range cruise missile, we deliberately created an environment for lots of innovation by not overspecifying what we needed, leaving room for manoeuvre for companies to come up with clever ideas or different ways of solving the problem.
20/20 companies. I think 24 companies applied, only one of them a defence prime. So lots of SMEs. We most of them we had never heard of. One was a formula one engineering company. Go figure. When you think about it, a missile isn't so different from a Formula One company. Anyway. Every single one of those companies got funded to the next level, went away having learned something, went away, hopefully wanting to come back and have another go even though they didn't win, got down to five.
Next phase, they got down to three. Within six months we had three functioning cruise missiles at very low cost that that did what they said on the tin. And two of those companies were brand new SME suppliers. So really exciting way to foster innovation in the UK. I'm really I mean, the secretary state talked about failure. Well, did we fail with those 20 companies we decided not to procure from? I don't think so.
We all learned a lot. They learned a lot. They'll be back. It's a really exciting way to foster innovation. The key was to put those SMEs in contact with frontline commands and their rapid capability offices, so we can rapidly prototype and iterate with people who really know what the problem is and live that problem on the battlefield. We can then get to minimum viable product and product market fit, making that entity far more fundable because they've got a development customer alongside them.
These are the kind of models I find incredibly exciting for rapidly growing SME communities in the UK and their technology, without them having to bet the farm or put themselves at risk. What emerges is a company that can then scale super fast, with us waiting to deliver the contract, and the venture capitalists very eager to come in and fund those kind of companies because of where we've taken them.
This is a very fertile area for SMEs to jump on board, and the money we've got now allows us to bring their technology forward without it costing them an arm and leg, without them having to bet the company on getting a contract at the end of it. If you look at a project like project competition we ran recently called Project Break Stop, which is looking for a mid range cruise missile, we deliberately created an environment for lots of innovation by not overspecifying what we needed, leaving room for manoeuvre for companies to come up with clever ideas or different ways of solving the problem.
20/20 companies. I think 24 companies applied, only one of them a defence prime. So lots of SMEs. We most of them we had never heard of. One was a formula one engineering company. Go figure. When you think about it, a missile isn't so different from a Formula One company. Anyway. Every single one of those companies got funded to the next level, went away having learned something, went away, hopefully wanting to come back and have another go even though they didn't win, got down to five.
Next phase, they got down to three. Within six months we had three functioning cruise missiles at very low cost that that did what they said on the tin. And two of those companies were brand new SME suppliers. So really exciting way to foster innovation in the UK. I'm really I mean, the secretary state talked about failure. Well, did we fail with those 20 companies we decided not to procure from? I don't think so.
We all learned a lot. They learned a lot. They'll be back. It's a really exciting way to foster innovation. The key was to put those SMEs in contact with frontline commands and their rapid capability offices, so we can rapidly prototype and iterate with people who really know what the problem is and live that problem on the battlefield. We can then get to minimum viable product and product market fit, making that entity far more fundable because they've got a development customer alongside them.
These are the kind of models I find incredibly exciting for rapidly growing SME communities in the UK and their technology, without them having to bet the farm or put themselves at risk. What emerges is a company that can then scale super fast, with us waiting to deliver the contract, and the venture capitalists very eager to come in and fund those kind of companies because of where we've taken them.
11:47
11:47
Speaker 3
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Speaker 3
Good morning. We've talked a lot this morning about developing a new relationship between the Mod and the defence industry. More of a partnership relationship, less a narrow transactional way of doing business. But are there risks in that in terms of what some might call potentially a more cosy relationship? Earlier this year, the National Audit Office produced a report that pointed to potentially what the Public Accounts Committee estimated could be as much as £1.5 billion worth of fraud.
So what are the safeguards that can be put in place to guard against those risks as the relationship is changed in the way that we've all talked about seeing as desirable?
So what are the safeguards that can be put in place to guard against those risks as the relationship is changed in the way that we've all talked about seeing as desirable?
11:48
Speaker 1
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Speaker 1
So I think this is a risk we need to be alive to. And it's not just a risk of coziness or worse still, fraud and corruption. It is also how you get the balance right between competition and the innovation and value for money that competition inspires at the same time as also taking into account social and economic value, the benefits of backing Britain by buying British, and the fact that sometimes there will there will be potentially tensions between those two things.
So I think we this is why I think in sort of setting out the sort of the intent to to buy British. We've also got to be prepared in some cases to defend going to open competition or to going to UK competition and to sometimes, as I encountered just in my first few months in this office, being willing to look colleagues in the eye who are rightly banging the drum for their constituency interests , or looking industrial partners in the eye and saying, I hear I hear your case for a direct award.
But in this particular instance, we judge it not to be of benefit and to be prepared to to feel the occasional brickbat if if work is going elsewhere. We've got a really good track record actually in mod of spending outside. Well, firstly spending in, in Britain, but also spending outside London and the South east. So we've got a good story to tell. I think it's , I think it's also about making sure that in that spirit of going out with.
You know, problem sets rather than specific requirements, encouraging industry to work together as well. That in itself helps to drive innovation and competitiveness. And also working with trade union partners as well, who are, I think, also have an important stake in this and recognise some of the direct choices and trade offs that we face, but it is something we're going to have to keep a sharp eye on. And sort of as we kind of set out the sort of the framework around buying British and we publish, you know, the new guidelines around measuring social value, just making sure that we've got a degree of.
Sort of independent and impartial. Sort of rules and frameworks that can help us kind of steer through some of those choices and trade offs. So we're not leaving too much to individual discretion, because I think that's where some of the risk comes in. There has to be checks and balances.
So I think we this is why I think in sort of setting out the sort of the intent to to buy British. We've also got to be prepared in some cases to defend going to open competition or to going to UK competition and to sometimes, as I encountered just in my first few months in this office, being willing to look colleagues in the eye who are rightly banging the drum for their constituency interests , or looking industrial partners in the eye and saying, I hear I hear your case for a direct award.
But in this particular instance, we judge it not to be of benefit and to be prepared to to feel the occasional brickbat if if work is going elsewhere. We've got a really good track record actually in mod of spending outside. Well, firstly spending in, in Britain, but also spending outside London and the South east. So we've got a good story to tell. I think it's , I think it's also about making sure that in that spirit of going out with.
You know, problem sets rather than specific requirements, encouraging industry to work together as well. That in itself helps to drive innovation and competitiveness. And also working with trade union partners as well, who are, I think, also have an important stake in this and recognise some of the direct choices and trade offs that we face, but it is something we're going to have to keep a sharp eye on. And sort of as we kind of set out the sort of the framework around buying British and we publish, you know, the new guidelines around measuring social value, just making sure that we've got a degree of.
Sort of independent and impartial. Sort of rules and frameworks that can help us kind of steer through some of those choices and trade offs. So we're not leaving too much to individual discretion, because I think that's where some of the risk comes in. There has to be checks and balances.
11:51
Lord Camoys
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Lord Camoys
I can assure you there's no cosiness at all. It doesn't stop it being a business like relationship. There's no cosiness. If cosiness to me means we wave things through, we accept mediocrity, we wait for them to catch up. Absolutely not. If you want to be a successful partner of defense going forward, you're going to have to be really, really good. You're going to have to be on your mettle.
You're going to have to invest, invest in skills, in jobs, in young people, in apprenticeships, with the with the benefit that comes from us leaning into a relationship based approach to wanting our supply chain to be strong and vibrant and capable comes a responsibility for industry to step up to our expectations of them. So I will never use the term cosy when I'm talking about my relationship with industry, and I wouldn't expect them to say the same back.
They want us to have a sharper edge, to move at pace to, to, to have more consistent behaviour, to allow them to invest. And I will I'm trying to change national armaments to do that. And in return, what I want from them is professionalism, a commitment to productivity, a commitment to excellence. We talked about primes. I want them to prove to me that they are fostering their SME communities in the right way.
Otherwise they have no business being a prime, for example. So it's a very businesslike relationship with shared goals. We can't get away from two things. The first is that a strong and vibrant defence industrial base in this country is an absolutely essential prerequisite of our deterrence and our ability to fight and win. So it's it's really vital and we can't get away from something I totally agree with. It's one of the reasons I took this job, which is if we're going to be spending 2.5%, let alone 3.5% of GDP on defence, we are honor bound to do that in a way that delivers jobs and growth and capabilities into this economy and grows the great British companies of tomorrow.
Of course, we need to do that. But in seeking those two objectives, the last thing we're going to let slip is standards.
You're going to have to invest, invest in skills, in jobs, in young people, in apprenticeships, with the with the benefit that comes from us leaning into a relationship based approach to wanting our supply chain to be strong and vibrant and capable comes a responsibility for industry to step up to our expectations of them. So I will never use the term cosy when I'm talking about my relationship with industry, and I wouldn't expect them to say the same back.
They want us to have a sharper edge, to move at pace to, to, to have more consistent behaviour, to allow them to invest. And I will I'm trying to change national armaments to do that. And in return, what I want from them is professionalism, a commitment to productivity, a commitment to excellence. We talked about primes. I want them to prove to me that they are fostering their SME communities in the right way.
Otherwise they have no business being a prime, for example. So it's a very businesslike relationship with shared goals. We can't get away from two things. The first is that a strong and vibrant defence industrial base in this country is an absolutely essential prerequisite of our deterrence and our ability to fight and win. So it's it's really vital and we can't get away from something I totally agree with. It's one of the reasons I took this job, which is if we're going to be spending 2.5%, let alone 3.5% of GDP on defence, we are honor bound to do that in a way that delivers jobs and growth and capabilities into this economy and grows the great British companies of tomorrow.
Of course, we need to do that. But in seeking those two objectives, the last thing we're going to let slip is standards.
11:53
Speaker 2
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Speaker 2
I can I just add to that. So we've been given very specific targets by the Treasury, and we're organizing around that in order to meet that challenge. Part of that is around bid rigging as well, and we're working very closely with the Competition Markets Authority who are being incredibly helpful in supporting defence. And then if I talk about the Defence Industrial Joint Council briefly. So that's our mechanism to build this strategic partnership.
But the membership of our 21 members, it's primes, mid-tier SMEs, academia, trade associations and trade unions. So it isn't one group favoured over another where we do work very closely with the primes. It's specifically to manage risk performance, productivity and resilience. And it's not like preferred bidder status or helping them with business development. And then finally, I'd just say that's all about engagement with the defence sector. We're very open to business with adjacent sectors as well.
So we we know we have to have serious conversations with the automotive industry, for example, and we've begun that process.
But the membership of our 21 members, it's primes, mid-tier SMEs, academia, trade associations and trade unions. So it isn't one group favoured over another where we do work very closely with the primes. It's specifically to manage risk performance, productivity and resilience. And it's not like preferred bidder status or helping them with business development. And then finally, I'd just say that's all about engagement with the defence sector. We're very open to business with adjacent sectors as well.
So we we know we have to have serious conversations with the automotive industry, for example, and we've begun that process.
11:54
11:54
Lord Barber of Ainsdale
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Lord Barber of Ainsdale
consideration should be given to putting a clear plan in place to recover funds that have been lost to fraud and economic crime, and a proposal to that. A senior individual should be appointed at two star level, predominantly focused on this issue of safeguarding against economic crime and fraud. Is that a proposal that's still under consideration or.
11:55
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11:55
Lord Fuller
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Lord Fuller
Yes, thank you, Madam Chairman. Our national defence is predicated on certain critical raw materials that all of which are sourced from our allies, certain unique production processes which are always located at home, robust supply chains, which aren't always necessarily controlled here within the UK, has the government and your department mapped all these critical critical vulnerabilities, and can you share what you can about what mitigations you have in place to address these sort of single points of failure?
11:56
Speaker 1
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Speaker 1
Yeah, you're absolutely right. To identify this risk. The Defence Supply Chain Capability programme is embedding resilience across planning, acquisition, decision making and trying to improve our visibility on end to end supply chains. We are addressing strategic dependencies through critical minerals analysis, supply chain mapping, as you described. And also looking at this not just in terms of our own sovereign capability, but particularly surfacing this conversation with our NATO allies as well, where I think we are all concerned about the same supply chain resilience around critical minerals, semiconductors, batteries, energetics, and and our overall industrial capacity.
So, you know, if you think, you know, across our alliance, we've got kind of considerable breadth and depth, but there are still there are still challenges. And the defence industry warning and Advisory Point gives us a single point of engagement for reporting and managing security incidents as well. So yeah, I think this is something we are suitably concerned about and focused on, not just domestically, but also with our NATO partners as well.
So, you know, if you think, you know, across our alliance, we've got kind of considerable breadth and depth, but there are still there are still challenges. And the defence industry warning and Advisory Point gives us a single point of engagement for reporting and managing security incidents as well. So yeah, I think this is something we are suitably concerned about and focused on, not just domestically, but also with our NATO partners as well.
11:57
Lord Camoys
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Lord Camoys
So just to amplify that a little bit, I think we're in the vanguard of looking at our supply chain several layers down. We've built a digital twin of our supply chain, which we continue to evolve, and we've infused that with real time data from our suppliers. So we're beginning to get a level of common visibility that allows us both systemically and in a case by case basis, to get after those areas of fragility.
So where you have a systemic problem, that might be something government looks to fix, where you have a you see fragility in a particular supply chain. You might go after the prime or the group of SMEs, but without the visibility, it's difficult to do that. So we are we're really investing in in the digital side to help us do this better takes you to all sorts of strange places. You know, it's the old, for want of a nail.
The battle was lost. You know, your supply chain is only as strong as its weakest link. So we really have to take this very, very seriously because resilience and staying power is everything. And again, in terms of our deterrence and our ability to fight and to win, there's a very key thing. Critical minerals is just one vector for that. We look at the 28 critical minerals that we've identified as critical to defence, and we're looking at each of them in terms of our supply, the consistency of that supply, the quality and our ability to control it.
And fortunately, this is an area where we're not alone. We can work with our allies, countries like Australia, Canada. I'd call out as having particular strengths in critical minerals. So of course the United States. And we're not bad, actually, but we need to we need to look at this holistically with our allies and work together to ensure that we have mutual resilience. We ourselves have some interesting critical minerals. You probably saw that National Wealth Fund recently made an investment in an asset called Tungsten West.
You know, that was about to disappear from the UK. And we stopped that and we turned it around. And now we're investors in it and we're making commitments towards off take of tungsten, which is clearly an absolutely critical mineral in terms of the defence sector. So it's a journey, but I think we've made some very important first steps towards a much more muscular supply chain strategy.
So where you have a systemic problem, that might be something government looks to fix, where you have a you see fragility in a particular supply chain. You might go after the prime or the group of SMEs, but without the visibility, it's difficult to do that. So we are we're really investing in in the digital side to help us do this better takes you to all sorts of strange places. You know, it's the old, for want of a nail.
The battle was lost. You know, your supply chain is only as strong as its weakest link. So we really have to take this very, very seriously because resilience and staying power is everything. And again, in terms of our deterrence and our ability to fight and to win, there's a very key thing. Critical minerals is just one vector for that. We look at the 28 critical minerals that we've identified as critical to defence, and we're looking at each of them in terms of our supply, the consistency of that supply, the quality and our ability to control it.
And fortunately, this is an area where we're not alone. We can work with our allies, countries like Australia, Canada. I'd call out as having particular strengths in critical minerals. So of course the United States. And we're not bad, actually, but we need to we need to look at this holistically with our allies and work together to ensure that we have mutual resilience. We ourselves have some interesting critical minerals. You probably saw that National Wealth Fund recently made an investment in an asset called Tungsten West.
You know, that was about to disappear from the UK. And we stopped that and we turned it around. And now we're investors in it and we're making commitments towards off take of tungsten, which is clearly an absolutely critical mineral in terms of the defence sector. So it's a journey, but I think we've made some very important first steps towards a much more muscular supply chain strategy.
11:59
Lord Fuller
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Lord Fuller
And please you use the word offtake there. It's the first time, I think, in this inquiry we've heard that. And that's most encouraging because that gives that sense of some pipeline. I think it's small businesses or large businesses are interested in, but we're an industry committee and the Secretary of State has mentioned strategic dependencies. Are there any ways in which we can help the conversation, or do you feel you've got it all in hand?
12:00
Speaker 1
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Speaker 1
So, look, one of the things that. That I am concerned about always is the tendency to, to kind of silo working. It's, it's kind of endemic in the British state and. You know, the longer I spend in government, the more I understand why that is the case, because often coherence can mean slowing down and people just want to crack on. But so we need to kind of make sure that we do cohere more effectively, but also don't lose momentum.
So to, to that challenge and building on Rupert's point, there's a risk that, you know, silo thinking leads the Ministry of Defence and the conversation we're having around our defence industrial base. For us to think solely in terms of precisely that our defence industry in a in a warfighting context, we we should not be neutral or agnostic about the current strengths and the medium term strengths of things like our steel industry, automotives, and a whole number of other parts of our industrial base which we would normally think of as not being defence related, but in a war context would absolutely be both relevant and needed in terms of switching into supporting kind of our productive capacity and our and our sustaining the war effort.
And so actually, the, the great thing about this inquiry, but also the role that your committee and the Commons committee as well can play is to look right across our industrial base and right across industry and think about this in terms of sovereign capability and the way that we conventionally do. But I'd really like people to be thinking about sovereign capability in a war fighting context, because if you make like war fighting the strategic objective and focus, it inspires a whole different set of choices.
And actually, I mean, I think this broadens out to the wider global economic context at the moment, where on one hand, you've got a whole bunch of NATO alliance allies who are absolutely focused on spending more and working more effectively together because we can see the threat environment. So, you know, it's not to say it's all perfect, but or easy, but there's absolute agreement on that. In a defence warfighting context, you switch into the economic lens you've got made in Europe, you've got America first.
And if we're not careful, healthy competition starts to look like self-defeating rivalry. And so, you know, just sort of keep coming back to this point. We I say this internally in the department. I'm saying it much more frequently publicly as well. NATO tells us we ought to be ready to to fight and win a war by 2030, not because we want one, not because we're saying it's definitely going to happen.
But we can see a scenario in which would that becomes more plausible and likely than we would be and should be comfortable with. So if if we accept that premise, that has to reflect through all the choices we make and the way we behave. And I think we are here in the UK and across the NATO alliance, taking that seriously to slightly different degrees in different contexts. And I would like all of us to think really seriously about that challenge and apply it not just in terms of what the Ministry of Defence is doing, but how we're thinking about industrial strategy across the board.
So to, to that challenge and building on Rupert's point, there's a risk that, you know, silo thinking leads the Ministry of Defence and the conversation we're having around our defence industrial base. For us to think solely in terms of precisely that our defence industry in a in a warfighting context, we we should not be neutral or agnostic about the current strengths and the medium term strengths of things like our steel industry, automotives, and a whole number of other parts of our industrial base which we would normally think of as not being defence related, but in a war context would absolutely be both relevant and needed in terms of switching into supporting kind of our productive capacity and our and our sustaining the war effort.
And so actually, the, the great thing about this inquiry, but also the role that your committee and the Commons committee as well can play is to look right across our industrial base and right across industry and think about this in terms of sovereign capability and the way that we conventionally do. But I'd really like people to be thinking about sovereign capability in a war fighting context, because if you make like war fighting the strategic objective and focus, it inspires a whole different set of choices.
And actually, I mean, I think this broadens out to the wider global economic context at the moment, where on one hand, you've got a whole bunch of NATO alliance allies who are absolutely focused on spending more and working more effectively together because we can see the threat environment. So, you know, it's not to say it's all perfect, but or easy, but there's absolute agreement on that. In a defence warfighting context, you switch into the economic lens you've got made in Europe, you've got America first.
And if we're not careful, healthy competition starts to look like self-defeating rivalry. And so, you know, just sort of keep coming back to this point. We I say this internally in the department. I'm saying it much more frequently publicly as well. NATO tells us we ought to be ready to to fight and win a war by 2030, not because we want one, not because we're saying it's definitely going to happen.
But we can see a scenario in which would that becomes more plausible and likely than we would be and should be comfortable with. So if if we accept that premise, that has to reflect through all the choices we make and the way we behave. And I think we are here in the UK and across the NATO alliance, taking that seriously to slightly different degrees in different contexts. And I would like all of us to think really seriously about that challenge and apply it not just in terms of what the Ministry of Defence is doing, but how we're thinking about industrial strategy across the board.
12:04
12:04
Speaker 1
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Speaker 1
Well, I used to think about this, you know, one of the one of the good innovations under the previous government was the NSC for resilience, which I attended as the health secretary. And it was great because it played in a whole number of domestic departments that wouldn't normally attend the National Security Council into that conversation about resilience. And it's really valuable. And I used to think a lot about, you know, the challenges in the NHS today set against what we would do if there was a major disaster and how the NHS would cope.
And we should be thinking about that across health, education, logistics in particular. But you can see the challenge.
And we should be thinking about that across health, education, logistics in particular. But you can see the challenge.
12:04
12:05
Lord Camoys
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Lord Camoys
Why does society is definitely an issue for us. It's very important that the wider society is resilient because we know that war, if you look at the lessons of Ukraine, war is not just on the frontline. It's, you know, our adversaries will reach into our society and try and degrade society, look at attacks on our on our GPS system, for example, and the timing, timing, exquisite timing is woven through so many of our critical national infrastructure systems.
And so we do have to look at that as well. But we we are quite unusual in that we actually war game with industry. So we do industry war games that that look at the role, the changing role of industry from the onset of war, through the logistics of getting our capabilities into onto the battlefield and then supporting it. And that has thrown up some really interesting areas, which we need to get after to strengthen our, our interworking with industry.
And so we do have to look at that as well. But we we are quite unusual in that we actually war game with industry. So we do industry war games that that look at the role, the changing role of industry from the onset of war, through the logistics of getting our capabilities into onto the battlefield and then supporting it. And that has thrown up some really interesting areas, which we need to get after to strengthen our, our interworking with industry.
12:05
Baroness Hayter of Kentish Town
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Baroness Hayter of Kentish Town
You just see what happened in the supermarkets being, you know, they're losing all their stock. Any of us who know Lord Robertson, you know, he keeps asking us whether we've got our water, wind up, radios, wind up, torches at home. The message is, well, I think Baroness Carbury would like to come in again.
12:06
Baroness Carberry of Muswell Hill
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Baroness Carberry of Muswell Hill
If you'll forgive me, Secretary of State, for moving away from that big picture account you gave of the state of the world and and what we're facing. And go back to the phrase you've used a few times by British. And nobody can argue with boosting sovereign capability and boosting our own capacity and boosting employment. But in the light of the replies to Lord Fuller's question about critical supplies, could you give us a sense of how practically the department is going to go about finding the balance between boosting UK companies by more procurement, particularly down the supply chain, and looking elsewhere, where, frankly, we can procure more timely and superior supplies and components and equipment.
How practically is that balance going to be struck?
How practically is that balance going to be struck?
12:07
Speaker 1
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Speaker 1
So I think this is I mean, ultimately it does come down to questions of judgment. And in any procurement, we we do have to balance a whole range of considerations. You mentioned timeliness and value for money effectiveness, social impact, economic impact, the opportunity costs that arise from those sorts of different choices. I mean, I think that, you know, there isn't a sort of choice between military capability and British industry.
You know, back to the sort of the previous question we were having, you know, the conversation we were just having around resilience. I mean, I do see buying British not as a sort of protectionist stance, but actually as a means of broadening and deepening our defence industrial base, which is going to be critical for warfighting. And actually, I don't think there is a necessarily a tension between buying British and working in partnership with with allies.
And I think about programmes like GCap, for example. There is plenty of work to go around, even if every NATO member tomorrow could afford to double our defence spending, we wouldn't be able to spend it because the every country is facing similar challenges in terms of the breadth and depth of our defence industrial base. So I think it is about building overall UK sovereign capability and national resilience, but also thinking about that same challenge then at a NATO level as well.
So how do we make sure across our alliance and with our allies, that they are as strong, that their defence industrial base will be able to sustain the warfighting machine? Because the danger is especially with integrated supply chains, as we have, we think, well, let's not worry too much about it because, you know, we buy from Germany and they're all right. Well, it's like the, you know, the, the, the airplane analogy. We saw this a bit during the pandemic quite, you know, quite literally with masks.
But, you know, you put your own face oxygen mask on before helping others. And we should be under no illusions that if we were in a war fighting scenario, that is exactly how our NATO allies would would behave. They would be thinking about themselves first, perfectly, legitimately, His first perfectly. legitimately and thinking about others. Alongside that. But but there's a slightly second order issue. So that's the way in which I think we've got .
To think
You know, back to the sort of the previous question we were having, you know, the conversation we were just having around resilience. I mean, I do see buying British not as a sort of protectionist stance, but actually as a means of broadening and deepening our defence industrial base, which is going to be critical for warfighting. And actually, I don't think there is a necessarily a tension between buying British and working in partnership with with allies.
And I think about programmes like GCap, for example. There is plenty of work to go around, even if every NATO member tomorrow could afford to double our defence spending, we wouldn't be able to spend it because the every country is facing similar challenges in terms of the breadth and depth of our defence industrial base. So I think it is about building overall UK sovereign capability and national resilience, but also thinking about that same challenge then at a NATO level as well.
So how do we make sure across our alliance and with our allies, that they are as strong, that their defence industrial base will be able to sustain the warfighting machine? Because the danger is especially with integrated supply chains, as we have, we think, well, let's not worry too much about it because, you know, we buy from Germany and they're all right. Well, it's like the, you know, the, the, the airplane analogy. We saw this a bit during the pandemic quite, you know, quite literally with masks.
But, you know, you put your own face oxygen mask on before helping others. And we should be under no illusions that if we were in a war fighting scenario, that is exactly how our NATO allies would would behave. They would be thinking about themselves first, perfectly, legitimately, His first perfectly. legitimately and thinking about others. Alongside that. But but there's a slightly second order issue. So that's the way in which I think we've got .
To think
12:10
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12:10
Baroness Harding of Winscombe
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Baroness Harding of Winscombe
Including via a set of new munitions factories. This is another sort of Covid PTSD moment for me, because I am deeply worried that as a country, we haven't remembered that we need to have always on vaccine. production and always on diagnostics. And that's because it's actually really quite hard to maintain always on in peacetime. So I wanted to. explore how you are setting up that capability. What are the types of.
contracts that you're offering those factories, and how are you going to enable it to be . Viable for
contracts that you're offering those factories, and how are you going to enable it to be . Viable for
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Speaker 2
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Speaker 2
them and for their supply chains to genuinely be always on? But Baroness, you you hit the nail on the head. It isn't easy. And you've got to be quite selective about it. And I would add another. concern in defence, which is many of the models for the delivery of munitions. capabilities are changing. If you look at drones, for example, which is one of the things we'd like to be able to procure on an always on basis.
If you look at on the.
If you look at on the.
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Speaker 2
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Speaker 2
Forward in. supporting the. efficacy of ammunition. That's a completely different model we're not used to. So I can't go out there and buy 5 million drones, put them in a factory and hope they'll be competitive a year from now. So the whole way we procure and the whole way we. stockpile is, is subject to change. We've got to evolve to these new.
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Speaker 2
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Speaker 2
Which involve a lot more pacey. innovation into a. capability and are pulling. forward industry into a new. relationship with defence. So that always that has to be built into the way we procure always on as well. So it is a huge challenge. But another way, I might only want to buy. 10,000 drones for a particular type a year for my own purposes, for training and operational purposes.
But I want to know that my partner can can ten x 100 x. production at the flick of a switch, if you like. When I find myself on a glide path to war. These are huge challenges for. industry and defence have to solve together. Now, to some extent, my life has made easier because as you know, we're very proud to support Ukraine. We provide over.
But I want to know that my partner can can ten x 100 x. production at the flick of a switch, if you like. When I find myself on a glide path to war. These are huge challenges for. industry and defence have to solve together. Now, to some extent, my life has made easier because as you know, we're very proud to support Ukraine. We provide over.
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Speaker 2
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Speaker 2
In the short term. An always on. capability is easier for me to procure because I'm able to procure for my own operational need, and I procure for Ukraine. If you look at something like this, an amazing success story of Thales in. Belfast with LM, the medium range missile that is proving itself to be, you know, a really, really. capable missile and a kinetic effect on the battlefield. And most notably is is able to support Ukraine in going after the new jet powered shards and protecting the citizens of their of their cities.
That is something where we've taken production up by orders of. magnitude and, and the nature of the.
That is something where we've taken production up by orders of. magnitude and, and the nature of the.
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Speaker 2
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Speaker 2
purchasing from the Middle East and from Ukraine now is sufficient that we don't have to worry too much about always on. There's just a big drawer of capacity there, but we supplement that with with an always on capability. That is that is our our daily bread, if you like, for training for training purposes. That's, that's where we're going to go. And we've got, I think, half a dozen.
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Baroness Valentine
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Baroness Valentine
Workforce and industrial development for the defence sector in some areas. But I wanted to ask to to related questions. One is what are the plans for areas with important defence industries. But without those defence growth deals and connected to that, how will the government ensure that regional and local .
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Speaker 1
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Speaker 1
In terms of what we're doing so far, and I don't think that we should see the five growth deals we have at the moment as the sort of summit of our ambition. I think they have worked and are working well to bring. together a whole range of. partners in a place to build on existing defence industrial.
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Speaker 1
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Speaker 1
That we have the funding available to support two defence excellence technical colleges in Scotland. But the. myopic politics of the Scottish Government mean that the money is there. The opportunities could be there for young people in particular, but not just young people in Scotland. But the separatist agenda of the SNP is more important to them than providing skills, jobs and opportunities to to the people of Scotland. And that's intolerable.
That's why the Scottish Secretary has announced that if if the Scottish Government continues to drag its heels, we're just going to spend the money without them and provide the provision without them. And if they want to have a. constitutional row about that, I think the people of Scotland would prefer us to focus on. opportunities for young people, in particular in Scotland, rather than the usual. constitutional obsessions of the SNP. So I think there's lots there's lots to go at, lots that is being done.
I think beyond those areas to your challenge, those areas that do not have yet. defence growth deals, we are. thinking all the.
That's why the Scottish Secretary has announced that if if the Scottish Government continues to drag its heels, we're just going to spend the money without them and provide the provision without them. And if they want to have a. constitutional row about that, I think the people of Scotland would prefer us to focus on. opportunities for young people, in particular in Scotland, rather than the usual. constitutional obsessions of the SNP. So I think there's lots there's lots to go at, lots that is being done.
I think beyond those areas to your challenge, those areas that do not have yet. defence growth deals, we are. thinking all the.
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Speaker 1
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Speaker 1
What more we can do, even starting from a really good starting point of defence expenditure outside London and the South East, what more we can do to spread. opportunity growth in every postcode, to coin a phrase, and the one area where at ministerial level Luke Pollard is is most exercised. And I think actually the Mod is generally is the North east of England. We have a really great story to tell overall in terms of where defence expenditure goes.
But if I look at where our money is currently going, you know, Mod.
But if I look at where our money is currently going, you know, Mod.
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Speaker 1
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Speaker 1
In the North East of England. 36,700 in the south west of England. So it shows that even in the Mod where we've got a really good story to tell about driving industry, driving growth, jobs and opportunities. across the length and breadth of the United Kingdom of Great Britain and Northern Ireland. We've we've got a we've got an Achilles heel there in the North east where we've where we've got big employment challenges as well.
So I'm
So I'm
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Speaker 1
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Speaker 1
join those two things up? Well, I think that's I think there's a few a few ways of doing that. One is and to the to the point build on the point I was just making around the north east. One is to make sure that we do support, you know, new new growth and new opportunities across the country, as well as building on.
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Speaker 1
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Speaker 1
You know, Team Plymouth in particular. One of the strengths of that, and there's more to do and more for us for my department to do. But one of the strengths of that approach is you've got the right partners around the table to look at things like housing supply, as well as the skills offer, the transport links, the way in which Plymouth can can pull in people from across the region. And the final thing I'd say is, as we meet those skills.
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Speaker 1
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Speaker 1
We really have to be much more muscular about growing our own. The Home. Secretary regularly. complains about the extent to which cabinet ministers come to her, asking for visas to get skilled workers into the country. And I regret to confess, as a committee, I've barely been in this job for three months and I've already been at it myself. In terms of some of the skills shortages we had in Scotland.
That was the that was necessary and right to fill an immediate skills gap that that presented a real delivery challenge for us as a country. But it is not acceptable at a time when we've got a million young people in this country.
That was the that was necessary and right to fill an immediate skills gap that that presented a real delivery challenge for us as a country. But it is not acceptable at a time when we've got a million young people in this country.
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Speaker 1
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Speaker 1
That we're not the only ones in this race. So, you know, and I used to think about this a lot in the health context. You know, it's all very well taking a short termist view that we can just pull the lever and import some workers from elsewhere. Be very grateful to them that they're here and the contribution they make. And it saves us some money because we don't have to bother training people.
We're already. We're just taking someone else's skilled workers in a, in a global environment where the competition for these types of skills and this type of labour is becoming more fierce, we should not assume that we can continue to just pull the lever. But
We're already. We're just taking someone else's skilled workers in a, in a global environment where the competition for these types of skills and this type of labour is becoming more fierce, we should not assume that we can continue to just pull the lever. But
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Speaker 2
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Speaker 2
I would I would also argue morally. Nor should we. Well, Baroness, just I agree with everything. Obviously the Secretary just said, but I just had one further thing, which is that we are looking to publish a defence jobs plan shortly. I'll ask Ben to talk about that in more detail. But that is the nexus between government and industry and, of course, trade . unions to get ahead of these plan for this growth, we're going to be successful.
We're going to need the right skilled people in the right place at the right time. So this is something we are looking at. holistically across government . Trade
We're going to need the right skilled people in the right place at the right time. So this is something we are looking at. holistically across government . Trade
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Speaker 7
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Speaker 7
unions and, and, and industry. We're just agreeing with number ten and best when we can publish our defence jobs plan. So that should be coming out imminently. The other thing I'd like to mention is. underneath the sort of skills work and the growth deals work, we also have regional defence and security clusters all around the country, which work very closely with our UK defence innovation teams, and that they also play a role in that local community, identifying and feeding back to us what skills are missing and how we need to feed into things like defence, technical excellence, colleges to to plug those skills gaps.
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Speaker 1
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Speaker 1
You know, addressing that demand for an. additional you know, just to put it in context. 53,000 workers in priority occupations by. 2035 and and also. supporting around. 50,000 opportunities for young people annually by 2035. So there is both a big. requirement and also therefore a big ambition. It is going to require sustained.
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Speaker 1
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Speaker 1
You know, is well known for its for its defence industry. The numbers there when you actually look per capita, don't look nearly as impressive as some of those. striking images we often see as ships come alongside. So, you know. £140 per. person in Northern Ireland. 1000 jobs supported. So it sort of comes back to my point really, which is really good story to tell.
And there are lots of government departments at the moment with the Prime Minister's emphasis on growth in every postcode and, you know, who are, you know, would love to be with this starting point. But even in the mod, we would be the first to say absolutely no room for complacency. And we want to make sure we are genuinely spreading . Opportunity
And there are lots of government departments at the moment with the Prime Minister's emphasis on growth in every postcode and, you know, who are, you know, would love to be with this starting point. But even in the mod, we would be the first to say absolutely no room for complacency. And we want to make sure we are genuinely spreading . Opportunity
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Lord Camoys
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Lord Camoys
And just in September, a man was charged in connection with alleged plans to sabotage drone manufacturing sites in Swindon, keeping defence capacity available depends on defence companies being protected from physical and cyber attack. Secretary of state can you assure the committee that the. government is able to give defence businesses, large and small the guidance, support and protection they need to keep themselves safe and their. operations secure and without revealing, obviously anything sensitive? Can you let us know what you're doing to address the .
Unique
Unique
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Speaker 1
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Speaker 1
We've seen with some of the attributions that have been made against Russia, in particular by some of our friends in Europe. We we can see a pattern emerging. targeting those companies that have played a particular role in. supporting our friends in Ukraine. So with that in mind, we have been. providing classified classified briefing to appropriately to to senior. security cleared industry.
personnel to help inform them of the threat.
personnel to help inform them of the threat.
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Baroness Hayter of Kentish Town
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Baroness Hayter of Kentish Town
Committee on the same day as your committee, so it can only be described as masochistic. Yeah. And we're also wanting you to be able to at the end say whether anything we've, you know, you'd like to leave in front of us. So there are a few ones. One, one is about. regulation because we've heard that some of the regulations are a bit out of date. It was probably apocryphal, but we heard about some of the autonomous marine vehicles having to have a .
Life
Life
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Speaker 1
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Speaker 1
And in. improving kind of democratic. accountability and our ability to actually respond as politicians, when the public complain rather than hide behind. regulators and say it's some someone else's, some unelected quangos, full, there is a big, big drive on. deregulation across government and. improving how we become more agile as a state, much more.
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Speaker 1
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Speaker 1
Which I think is really important in terms of the sort of the growth and opportunity side of the government's ledger, but is also really important on the on the defence and. security side as well. The Chancellor's. recommitted to reducing the administrative burden of regulation on business by. 25% by the end of the Parliament. We are still. routinely receiving reports of regulatory.
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Speaker 1
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Speaker 1
You don't just kind of take off all of the. regulatory oversight and constraints because we're talking about lethal capability. But at the same time, we have got throughout our armed forces and throughout our industry, people who are chomping at the bit to push the frontier of innovation. I met , but, but but there's still more to do. I mean, I met one Royal Marine who was. developing underwater drone.
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Speaker 1
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Speaker 1
But there's still more to do and more to go. And in that spirit of industrial partnership, we keep coming back to this has got to be a two way. conversation where industry tells us that there is pointless regulation getting in the way, where our armed forces frankly tell us there's there's there's. regulatory handcuffs getting in their way, and we agree with them that they're pointless and not serving their purpose or the risk. Calculus is in the wrong place.
And
And
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Speaker 2
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Speaker 2
we're not getting the balance right. We're really keen to act. Yeah. And I see a lot of support from. government towards that and from regulators as well, which is very encouraging. So I'd probably call out perhaps test and evaluation as an area where we can do more, because it's very expensive for SMEs to have to take their wares off to Canada or somewhere to, to, to do the testing. So I'm thinking particularly about areas like maritime.
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Speaker 2
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Speaker 2
Maybe even aviation autonomy as well, where I think we can do more. And we talked about somebody doing something in their pond at home. Well, actually the the MCA is working with defence to lighten the load and allow us to, to do more in our coastal waters to test out defence autonomy. So it's again, it's a journey, but things are getting . Better
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Speaker 7
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Speaker 7
much a constructive relationship with regulators. Now as part of a defence industrial strategy, we've committed to running a series of regulatory sprints. We started with autonomous systems. That's reported now. So it was commissioned in February, reported in May, and that work is now being implemented by the Uncrewed Systems Centre and by the civil services, who are in particular looking at things like software assurance. But actually, the really big opportunity here is the.
regulatory Regulating for growth bill, because within it , it contains.
regulatory Regulating for growth bill, because within it , it contains.
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Baroness Hayter of Kentish Town
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Baroness Hayter of Kentish Town
Which meant life jackets had to be in place, would be lifted. So there's the two things. There's the regulation, but there's also the testing facilities. And you particularly mentioned about the SMEs. You know, they need access to that. Yeah. I gather there are difficulties of not being able to . Turn
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Speaker 2
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Speaker 2
which are problematic. But and we are on it. Are you? We are we're on that. And as Ben has eloquently said, the Defence Industry Joint Council is where industry and defence come together to look at these issues. That's where the. practicalities of these working groups are so powerful. I mean, we could in a vacuum, we're not going to get to half of the practical problems industry faces, but we .
Bring
Bring
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Baroness Hayter of Kentish Town
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Baroness Hayter of Kentish Town
industry to the table in a much, much better position to do that. I've just got a small question, because you mentioned a couple of times about sovereignty or buying British. I understand from some companies they're not absolutely certain about what you mean by a British company. I don't know whether you're some definition is awaited about whether it means it's headquartered here. It's owned here.
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Speaker 2
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Speaker 2
Is there a definition or are you coming up with one? There is a definition and it's being involved in conjunction with industry as part of the. Again, another. DIJC joint initiative is to define sovereignty, define essentially Britishness. It is focused more on location of IP jobs, skills and growth potential as opposed to pure ownership. So it's more. practical about, you know, how does how do British people.
benefit from a business well, made a matter less who owns it?
benefit from a business well, made a matter less who owns it?
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Speaker 7
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Speaker 7
where they've got great prospects. Ben, again, do you want to add a little bit on that? We've been running consultations with hundreds now of companies in the UK, facilitated by Ads and by made UK as well, and under the auspices of the Defence Industrial Joint Council, in order to make sure that the definition which comes out is something which has the intended consequences. The current . Legal
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Speaker 1
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Speaker 1
What I really care about and what I'm really getting at when I say being a Britain by buying British is are the jobs and the growth and the. opportunities felt by people here in Britain whose taxes are paying for this. It's the thing I care about kind of more than anything else in terms of, you know, how we. define buying British, recognizing that there are other important equities. But for me those are the most important ones.
And where we've got a lot to go at. And I think that's both about, I think. honoring the sort of the the the.
And where we've got a lot to go at. And I think that's both about, I think. honoring the sort of the the the.
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Speaker 1
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Speaker 1
moral opportunity and obligation we have to provide jobs and opportunities and growth for our people. But it is also about, for me also not being remotely complacent about taxpayer support for increased defence spending. It's high at the moment. Long may that continue. It is necessary. I think people can see the unstable and uncertain world we're in, but I don't take it for granted. So the more that people can see the money that they're going into putting into defence as.
taxpayers being translated, not just in terms of.
taxpayers being translated, not just in terms of.
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Speaker 1
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Speaker 1
you that you'd like to leave with us as a sort of closing statement? I think I think the only sort of. The only sort of final things I would say are. We've got to see, I think, sort of made this point throughout the session, but we've got to see the defense industrial base here in. Britain and the collective defence industrial base of NATO members as a key part of war, fighting and winning, not.
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Speaker 1
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Speaker 1
means to others, you know, in a in a kind of transactional sense. It is about the broad industrial base and capacity, the productive capacity we have when it's about out. innovating and out producing our, our enemies. And I think there's a, there's a danger if that is not seen as. absolutely as integral to the defence of the realm as the Army, the Navy, the Air Force, and so on. So that would be the sort of the first thing I'd say.
The second thing I'd say is we have an absolutely. outstanding minister in this area as well, Luke Pollard, in terms of appearing before your.
The second thing I'd say is we have an absolutely. outstanding minister in this area as well, Luke Pollard, in terms of appearing before your.
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Baroness Hayter of Kentish Town
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Baroness Hayter of Kentish Town
relished the opportunity also, so I'd be very happy to appear appear in future. Well, thank you and I'm glad you did give give way to a little bit of persuasion. I think it's important actually. I think hearing your tone, I know he's very, very good on the detail, but actually I think hearing your tone is also extraordinarily important to us. Can I thank you and to your your two colleagues, this is the final oral session before we write our.
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