Defence and Security Industrial Strategy

Baroness Smith of Newnham Excerpts

Wednesday 24th March 2021 Lords Chamber

[Lord Tunnicliffe (Lab) [V]]

My Lords, the publication of this strategy is welcome, especially since companies across all sectors have had an extremely tough year. The Government have noted that businesses have cut back on research and development, training and other investments in future capacity and productivity, due to Covid-19. However, the impact of the pandemic on the defence and security sectors is not explored in detail in the strategy. How many jobs have been lost? How many people remain on furlough? How much government support has been awarded to these sectors?

Labour welcomes the publication of this strategy. Indeed, the very use of “strategy” is a victory in itself. We welcome the confirmation that global competition by default, begun by the White Paper in 2012, has gone. It is high time that we put an end to a British Government being just as happy buying abroad as building in Britain. We also welcome the change in naval procurement policy and the commitment to invest £6.6 billion in defence research and development over the next four years. We welcome the Prime Minister’s extra £16.5 billion in capital funding after the last decade of decline, but 30,000 jobs in the defence industry have gone since 2010, and nearly £420 million in real terms has been cut from defence R&D. In many UK regions, the money promised today will still be well short of what has been taken away over the last decade.

The strategy

“aims to establish a more productive and strategic relationship between government and the defence and security industries.”

This is welcome, since the weapons of the future are just as likely to be developed in the private sector as in an MoD lab. We now need to ensure that this is the start of a new era, with the aim not only of making and maintaining in Britain but of developing the technologies and companies that we will need in 10 years’ time to procure in Britain. Innovation and growth are driven by our precious SMEs, and this is certainly true in these sectors. The defence supply chain is made up of highly specialised SMEs and the strategy even states that SMEs make up 95% of the security sector. We must ensure that these businesses are supported as well as protected.

It is welcome to see that the SME spend is going in the right direction, but it is not fast enough. The current MoD SME action plan states that the Ministry of Defence has a target of 25% of its procurement spend going to SMEs by 2022, but that target is not mentioned in the new strategy. Can the Minister confirm whether the target has been dropped?

The strategy says the Government will be publishing a fresh SME action plan to set out how the department will maximise opportunities for SMEs to do business with the MoD. The current SME action plan is due to last until the end of next year. Will the refurbished plan start after that?

The strategy also alludes to other new strategies, so it would be helpful for the Minister to give more details about when the new defence, science and technology collaboration and engagement strategy and the AI strategy will be published. How will the AI strategy seek to catch up with the long-standing AI investments in China and the US?

The National Security and Investment Bill is also currently progressing through this House, and it is interesting to see more detail about how it relates to the MoD, which was probed in Committee. The strategy reveals that a separate MoD directorate will be established, focused on broader economic security and supporting the implementation of the National Security and Investment Bill. How will that new directorate work with the investment and security unit in BEIS? Will the new directorate help businesses with the processes of mandatory and voluntary notifications?

Today the Government are asking industry to do more with more. Ministers have to get this right. The next step is to focus clearly on delivery. The document contains a wealth of detail, most of which is about the new initiative and changes in direction. Will the Minister commit to reporting to the House on progress in 12 months’ time?

[Baroness Smith of Newnham (LD) [V]]

My Lords, another day, another defence Statement repeat, and an opportunity for us to probe the Government’s thinking about wider issues of the integrated review in terms of security, defence and, on this occasion, the defence industrial base.

Like the Labour Front Bench, we broadly welcome this paper. However, I would be a bit more cautious than the noble Lord, Lord Tunnicliffe, and I have a few more questions that might sound a little more concerned about the Government’s thinking in terms of the future. As the foreword to the report states

“our forces require equipment which is state of the art. Just as we are refreshing what we require of our Armed Forces, we are reviewing the equipment they will need to face tomorrow’s threats and setting out a path for innovation for the future.”

That is absolutely right. However, should we be thinking about tomorrow or more about the day after tomorrow? I ask that in particular because yesterday’s Statement in the Commons reaffirmed the Government’s commitment to spending another £85 billion over the next four years on equipment and support for our Armed Forces. That spending is clearly very welcome, but it essentially takes us to the end of this Parliament. What is the longer-term thinking? Research and development is clearly important, but there is a danger that the Government are still thinking in parliamentary cycles and not necessarily about the wider defence procurement situation, which is very different and runs into decades, not merely two or three years. What thinking is going into longer-term planning? The Statement that has been repeated today gives some important insights, but it gives us tomorrow, not the day after tomorrow.

Unlike the noble Lord, Lord Tunnicliffe, I have a slight concern that the new approach signals a shift away from global competition by default. It is right that the UK is resilient, that it has a secure industrial base, that we are able to engage in research and development and that we should be able to have first-class building of ships and other equipment, as stated, right across the United Kingdom. The defence industrial base is clearly very important.

The Statement talks about exports. If the UK is saying that it is no longer going for global competition by default, what work are Her Majesty’s Government doing to persuade our partners and allies, and others who might consider purchasing from the UK, that they should not also pursue a domestically focused agenda? While it is clearly important that we develop things domestically, that export market is flagged up, so there are some questions that may need further exploration.

I ask the Minister to give us a bit more information about the proposals on procurement. Over the past decades—this is not a problem of any individual Government; it is systematic—there have been issues about major capital projects being prone to overspend and overrun, with knock-on effects on the defence budget. How will the changes to procurement affect this? Will we not have so many bespoke projects? How does that fit with the discussions that the Government are having with our defence industry? Can the Minister reassure us that the proposals put forward in the Statement and the strategy document are led by defence needs, not defence industry priorities?

[The Minister of State, Ministry of Defence (Baroness Goldie) (Con)]

My Lords, I thank the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Smith, for their comments. I think I feel a bit like the musical song, “Getting to Know You”. I never seem to be quite away from this Dispatch Box on defence matters, but that is a privilege. I thank the noble Lord and the noble Baroness for their generally positive response to the strategy. I understand that the noble Baroness had some reservations and I shall try to assuage her concerns.

Frankly, I think this new defence, security and industrial strategy marks a watershed for the MoD. It is a substantial document. It is the first time in a long time that we have had true analytical discernment of what the challenges are. We need to understand not only what the threats are but how we are going to respond to them and then recognise that we actually need to be able to respond to them when they arise rather than thinking about the response and hoping to find the technology or the equipment some way down the line. The strategy completely turns on its head the whole pace and depth of the co-operation and collaboration with industry in a very positive manner.

The noble Lord raised the issue of jobs. As he is aware, the defence and security industry in this country is one of the major job providers. We think that over 200,000 jobs across the UK are sustained by these industries, which are globally recognised and renowned. The whole essence of the strategy is not only to secure the defence equipment support and technology that we need when we need it but also to ensure that there is an input to the economy and there is an export potential, so I think his reservation about the job situation is perhaps unfounded. We can look to the strategy to make a singular improvement in how we relate defence investment activity to a broader benefit to the economy and to our exports.

The noble Lord narrated a number of aspirations. I largely agree with them and I suggest that those are in essence met by the paper. He wanted to know how individual parts of the intelligence would join up, and he was interested in some of the specifics about acquisition and procurement.

In the section devoted to that, there are some very reassuring statements, including the proposed reform of the defence and security public contracts regulations, reforming the single-source contracts regulations, and publishing afresh the MoD SME Action Plan; I reassure him that is to be published later this year. In that connection, I mention the successful and effective investments of DASA, the defence and security accelerator, which has done pivotal work since it was introduced. It is an essential support, not least to SMEs and start-ups. That is conducive to a more diverse and innovative market.

The noble Lord particularly mentioned the artificial intelligence strategy. That will be in conjunction with the new defence artificial intelligence centre, which is hoping to accelerate the adoption of this transformative technology across the full spectrum of our capabilities and activities.

The noble Lord also raised the very important matter of measuring delivery against the laudable intentions and objectives of the strategy document. I say to him that, yes, this is recognised and that, because a lot of this is not just MoD but across government, Ministers across government, led by the Secretary of State for Defence, will regularly review progress against the strategy.

The noble Baroness, Lady Smith, was perhaps a little less warm in her reception of the document, although I detected that she is broadly in approval. She asked the pertinent question: is this about today or the day after tomorrow? I suggest that it is about both because, given how the strategy is structured, it recognises and continues much of the good work that has emerged in recent years. It is knitting that together, as I said, based on analysis of the threats we face and how we must respond. There are certain strategic imperatives and areas of independence of operation where we will want that to happen from providers in the UK. I say to her very strongly that this is a strong signpost of the direction of travel for both the MoD and our industry partners.

The noble Baroness asked a pertinent question, which was well justified, about the international community because, as the noble Lord, Lord Tunnicliffe, identified, we have departed from the former premise of “global by default”. She is quite right because, although there will be a premise on which we operate for our strategic imperatives and areas where independence of operation is absolutely critical—it will fall to our UK providers to assist with that—we also recognise of course the importance of the international community.

Our global alliances and partnerships are of strategic importance and, as a leading advocate for the development of innovative, adaptive capabilities, the UK will invest in emerging technologies, using the strength of the UK’s world-class industrial and technological base. We will be open to working with allies and partners through international programmes, and these existing initiatives will continue. There is clearly an opportunity to work closely with our partners and other industry providers abroad. The noble Baroness will be aware that the UK will work internationally to develop key military capabilities, such as developing our future combat air system.

So I reassure the noble Baroness that, although we understand that this Statement gives a clear direction of travel to encourage and support our United Kingdom-based defence and security industry partners, it is not to the exclusion of international provision, where we consider that that does not compromise our security but offers an attractive proposition.

The noble Baroness spoke about overrunning budgets in the past. That is a very legitimate reservation to mention. There have been procurement issues in the past and these have not been proud moments for the MoD. But the way in which the strategy is constructed and conceived, which is about engaging with industry from the earliest moment, identifying what we need, discussing with industry how that might be provided and then being sure that there is a constant monitoring process of how that develops as orders are placed, means that many issues that used to obstruct the smooth progress of our procurement contracts are now being ironed out. In some cases, they are actually being eradicated, because of the much more innovative and intelligent approach to how we liaise with our industry and security partners.

I have tried to answer the principal points the noble Lord and the noble Baroness raised. I hope I have addressed them adequately.