Defence Procurement: Small and Medium-sized Enterprises

James Cartlidge Excerpts

Tuesday 28th January 2025 Westminster Hall

[James Cartlidge (South Suffolk) (Con)]

It is a pleasure to serve under your chairmanship, Mr Stringer. I congratulate the hon. Member for Newton Aycliffe and Spennymoor (Alan Strickland) on securing an excellent and very timely debate. If I may say so, as someone who ran an SME, was involved in public procurement, and was Minister for Defence Procurement, this is a subject that gets my pulse racing. Perhaps I am an anorak, but it certainly does—particularly considering the changing nature of warfare and its extraordinary impact on procurement, which he rightly mentioned. Of course, we are talking about Ukraine.

There has been much criticism of procurement in recent years, and the Minister for the Armed Forces was pretty damning yesterday, but I am incredibly proud of what we did in government, uniquely in the world, in standing by Ukraine. That was one of the greatest procurement achievements in our country’s recent history. We shipped out there the NLAW—made in Belfast, as the hon. Member for Strangford (Jim Shannon) mentioned —despite legal advice to the Government that we should not. Ben Wallace took the risk, with the full support of then Prime Minister Boris Johnson, and we stood by Ukraine. If we had not, it may have capitulated, which would have been terrible for world peace.

That reminds us of the ethical importance of supporting the defence sector. Peace is the No. 1 ethical goal of the UN, but to have peace we need defence, and for that we need a thriving defence sector. Too often, we hear an ESG—environmental, social and governance—narrative that we should not invest in defence. As I understand it—it was in The Times—20 defence companies have either been advised against attending careers fairs because of safety fears or decided to cancel under pressure, which is shocking.

I have two specific questions for the Minister on ESG. Can she confirm that, in reviving the Higher Education (Freedom of Speech) Act 2023, the Government will seek to strengthen how protest against defence companies is dealt with on campus? The Chancellor mentioned in a speech yesterday the importance of opening up investment in the UK from our pension funds. She is 100% correct about that, but can the Minister confirm that we will be clear to those pension funds that investing in defence is ethically positive because it helps support the security of our country and the wider world?

Let me make a couple of economic points. When we talk about investment, we must understand the importance of laying out the pathway to 2.5% quickly. ADS, the trade body for SMEs in defence, is worried about the procurement freeze, tightening—whatever we want to call it—in the MOD, which is undoubtedly happening, and its impact on cash flow and confidence among defence SMEs, at a time when they are facing higher tax costs, regulations and so on. I hope that the Government can bring forward the pathway to give businesses the confidence to keep investing in the defence sector.

Equally, there is much to be positive about. The hon. Member for Newton Aycliffe and Spennymoor was absolutely right to say that because war is changing, procurement needs to change, and SMEs must play a huge part in that. There are some features of the integrated procurement model I announced that I think are particularly important. One is export. The hon. Member for Honiton and Sidmouth (Richard Foord) mentioned the Jackal, and he mentioned the Czech Republic, where I made my first ever trade visit. The Jackal was proudly on display, and I sincerely hope that that deal is successfully concluded. That underlines how, to support the defence sector, we need international market success, because our market is not big enough to support our defence sector.

Perhaps the most important point, which several colleagues referred to, is accessibility for SMEs. They can feel that it is difficult to penetrate the defence procurement system. As Minister, I spoke many times about the most uplifting experience I had in procurement, which was visiting an SME that had developed a drone that was being used in Ukraine. That is obviously very sensitive, but I can say that it had cutting-edge capability. When I was there, that SMEs was getting feedback within hours. To get that, there has to be access, at a secure level, to frontline data, so we wanted to develop far more engagement with defence SMEs at “Secret”. I strongly recommend to the Minister continuing to create that feedback loop between industry and Government, so that SMEs know what is happening.

Finally, on dual use, I was determined to recognise—if I had had more time in government, perhaps I would have got further with this—that there are so many brilliant companies in our economy that probably do not think about getting involved in defence. We need to fire up that talent base and get them involved in defence procurement, particularly in areas such as software, because that is what will drive procurement going forward. If we get the funding in place, back our defence companies and send the signal that investing in defence is morally right because of the threats we face, then we can look forward to a bright future for our defence companies.

--- Later in debate ---

[The Minister for Defence Procurement and Industry (Maria Eagle)]

I will certainly do that, Mr Stringer. This debate has been excellent, and it is good to see so many colleagues in the Chamber to participate, even if they could not make the length of speech that perhaps they had hoped. None the less, everybody was able to get the nub of what they wanted to say into the debate. For that we have my hon. Friend the Member for Newton Aycliffe and Spennymoor (Alan Strickland) to thank, because it is he who secured the debate; I congratulate him on it. I welcome this debate on the involvement of SMEs in defence procurement because this is an issue, as my hon. Friend and many others have said, that is of critical importance to the future of our military and to our capacity to deter potential adversaries.

We all know that Britain faces acute and growing dangers—conflict in the middle east, the war in Ukraine and tensions in the Indo-Pacific—and we also know that our armed forces have been underfunded and hollowed out over the last number of years, which is why we are having a root-and-branch strategic defence review to assess these threats and develop the capabilities we need to counter them. It is why we are boosting spending this year by just under £3 billion in real terms, and why we are going to set out a pathway to 2.5% of GDP on defence. I am not going to repeat everything that was said in the House yesterday on this, but I realise that it is a matter that everybody across the House is concerned about.

Our armed forces are only as strong as the industry and procurement system that supports and equips them. The procurement system itself was described during the last Parliament by the Public Accounts Committee as “broken”. It is clear that changes need to be made. My hon. Friend the Member for Newton Aycliffe and Spennymoor set out some of what he wants to see, including the ability to respond more swiftly to the changing face of warfare. A number of Members, including the hon. Member for South Suffolk (James Cartlidge), have set out some of what they have seen, during their time in this place, of that effort being achieved, particularly in respect of the support we have been giving over the past few years to Ukraine. There is nothing like an emergency situation like that to ensure that we innovate. It is important that we learn the lessons of that innovation for our procurement more generally.

I am particularly concerned, as is my hon. Friend the Member for Newton Aycliffe and Spennymoor, to get SMEs more involved in our procurement processes. He made a number of suggestions, as did other Members around Westminster Hall, of how we might be able to do that. The hon. Member for Honiton and Sidmouth (Richard Foord) mentioned Supacat, which I saw last week at the international armoured vehicles conference. Everything he said about Supacat is correct. It is an excellent example, and the hon. Gentleman was able to provide the Chamber with numbers in relation to jobs and the improved economic growth in his area that it is able to provide. That is precisely the kind of thing that we want the new defence industrial strategy, when it is published, to be able to pursue and do better with.

The hon. and learned Member for North Antrim (Jim Allister) said rightly that MOD spend in Northern Ireland is less than in some regions of England, and he quoted some numbers. He is quite right, but there is no indication that SMEs over there have less ability to innovate or to provide services of the type that the MOD needs. I hope to be able to do precisely what he asks and increase that number. I will be visiting in due course, not too far in the future, and I hope to hear from some of the SMEs that he and the hon. Member for Strangford (Jim Shannon)—who is, unusually, no longer in his place—talked about.

My hon. Friend the Member for Stockton North (Chris McDonald) talked about the Teesside defence and innovation cluster and some of the companies in his constituency. He is right: I promised him a visit—I think we are trying to organise it now. When I am considering which proposals to take forward in the defence industrial strategy, before it is published, it is tremendously helpful to hear directly from SMEs about their experience. I have already done some of that and, between now and the end of the consultation, I will be doing as much, in as many regions, as I possibly can, in all of our nations around the UK. I hope to be in a position to get a good sense of the big issues that smaller companies are raising with us.

My hon. Friend the Member for Caerphilly (Chris Evans) was passionate in making his points about late payment; this is not the first time that he has raised that issue in parliamentary settings. The Government do recognise the importance of fair payment practices. Direct suppliers to the MOD are required to sign up to the prompt payment code to be eligible for MOD contracts. The Director General Commercial recently wrote to large suppliers to remind them of that responsibility because some are better at complying than others.

My hon. Friend the Member for Plymouth Moor View (Fred Thomas) argued, “Let us not decide that all defence primes are evil”—I think that is the word he used. I thought that was going a bit far, but his point was that they are not the enemy; they can be part of the solution. There are examples of good practice, where primes have been very clear about involving small, innovative, agile companies. There are some examples that are not so good, and we need to improve the way in which small firms engage with MOD contracts, whether directly or through contracting with a prime on a particular programme.

My hon. Friend the Member for Mansfield (Steve Yemm) asked me to visit. I think I have offered to visit absolutely everybody else in Westminster Hall, so it would be churlish of me to say no to him. I cannot promise to visit before the end of February, but I can promise to come and see some of what his constituency has to offer. It obviously has a long history of engineering and of working hard in tough industries. I look forward to that visit. He mentioned that he is visiting a firm that supplies products across domains, and it sounds like he will have an interesting time.

I look forward also to dealing with the points made by the hon. Member for Epsom and Ewell (Helen Maguire). I was glad to hear her say that she is in favour of a comprehensive industrial strategy because the defence industrial strategy that we are going to bring forward is part of a thorough, countrywide industrial strategy for all Departments. She will recall that that strategy identified defence as one of the eight growth sectors on which we ought to rely to improve economic growth and spread prosperity across the nations and regions—and that is what we want to do. In fact, the defence industrial strategy that we will bring forward will act as the sector action plan for that broader strategy, so we will be joining up.

The hon. Member for South Suffolk raised the issue of protest-related activity on university campuses and what that means for the ability of defence companies to recruit the best talent. This Government recognise the crucial importance of attracting new entrants to the defence sector. Obviously, university campuses provide a way of engaging with young people who might want to work for existing companies or set up their own and get involved in the defence sector. We do need to do that. We are working closely with the Department for Education and with Skills England to address the skills landscape in the defence sector. Part of that is about making sure that young people at educational institutions such as universities can get the full range of information, at university careers fairs and so on. I hope that between all of us we can make an improvement, to the extent that there is a problem that was identified by The Times.

[James Cartlidge]

I think what everyone wants to see from the defence sector is that we champion the ethical value of investing in defence because it delivers security, and in doing so challenge those who protest as if these companies were somehow out there to harm us.

[Maria Eagle]

I agree with that and I think there would not be too much disagreement across the House of Commons about that. I think it is something we can agree on, and that we should try to get that sense out there. Increasingly, as people see the increasingly dangerous world we are living in, there is the capacity for any concerns that there might have been about defence in the past to be seen properly in context, and for it to be seen that actually, defence is a key part of our ability to continue with our way of life as we choose in a democracy.

I have a couple of minutes left before I hand over again to my hon. Friend the Member for Newton Aycliffe and Spennymoor. It has been an excellent debate. In many ways we have not had enough time to get through all the contributions that colleagues around Westminster Hall would have wanted to make, but as I go about trying to deal with our defence industrial strategy, it is helpful for me to hear from colleagues, just as it is helpful for me to get around the country as much as I can to listen directly to SMEs. It helps make sure that the policy prescriptions we come out with in the defence industrial strategy are the right ones; that we can change procurement in a way that will assist SMEs to have full involvement as they wish in defence procurement; and that we can spread prosperity and economic growth across all our regions in England and all the nations of the UK. That is the prize in front of us, and that is what we can do if we get this right.