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Defence: Industrial Strategy

Volume 779: debated on Monday 27 February 2017


Asked by

To ask Her Majesty’s Government, in the light of their plans for a national shipbuilding strategy and significant investment in the United Kingdom defence nuclear enterprise, whether they intend to develop an overall defence industrial strategy.

My Lords, the Ministry of Defence is actively involved in the cross-government work on an industrial strategy. Many of the themes in this apply to defence, and we do not plan a separate defence industrial strategy. A substantial amount of work is already under way to encourage the growth and competitiveness of UK industry, including as part of the commitment in the strategic defence and security review to refresh defence industrial policy.

My Lords, although I like the cut of the noble Earl’s jib, which is not surprising considering his naval pedigree, I am disappointed by the Answer. There is a complete absence of analysis of the defence industrial base and no proper study of its real costs. These were identified in the King’s College study instigated by the noble Lord, Lord Sterling, but nothing seems to have been done to focus on them. We know very well the value for this nation of things such as the agile supply cycle, but we also know their value in terms of jobs, through not having to pay welfare payments or unemployment benefit. There are all these benefits, yet we do a simple calculation of costs, which does not make sense. Does the Minister not agree that we have to look very closely at the real cost of equipment and weapons before we decide to buy from abroad, with a loss of jobs, a loss of agility and a loss of ability to keep running our systems here, and that we really must get the balance right rather than taking the simplistic approach of saying, “This costs £4 there and £5 here”?

I agree with the central thrust of the noble Lord’s proposition. As I said, many of the industrial strategy themes, particularly around removing barriers for UK companies to do business with government are well aligned with our refreshment of defence industrial policy. It is all about updating our terms of trade with industry to continue to deliver the best equipment for the Armed Forces at the best value for money, but in a way that supports UK industry to grow and compete successfully. That is the balance we are trying to strike.

My Lords, I declare my interest as chairman of General Dynamics UK. Many years ago now, I was given the task of unscrambling the defence industrial policy, which was centred on so-called national champions. This policy resulted in significant cost overruns and delay in delivery of equipment badly needed by our Armed Forces. Will the Minister please confirm that the Government have no intention of reverting to that policy and remain committed to the policy of competitive procurement which has served the nation well?

My Lords, I can reassure the noble Lord in that regard. The Government remain committed to the principles we set out in our 2012 White Paper, National Security Through Technology, including promoting open competition. We will be refreshing our defence industrial policy very much within that framework.

My Lords, I totally agree with the comments of the noble Lord, Lord West. There is a big difference between cost, which this country has got so used to using as a measure, and value for money. What has been lacking for many years—I know the noble Lord, Lord Levene, feels very strongly about this as well—is a long-term relationship with industry. You cannot expect people to employ engineers, and get thousands of subcontractors and universities involved without long-term relationships. Does the Minister agree that that is a way forward? After all, the United States of America, Russia and China all have huge sovereign industry and it certainly seems to serves them well.

My Lords, I agree with my noble friend that part of the work we have to do, and are doing, is looking at how we can optimise the strategic interaction between the Ministry of Defence and industry, including how we make defence a more attractive customer for people who do not traditionally supply to the MoD, such as small and medium-sized enterprises. It is about creating simpler processes and a more competitive UK supply chain. Of course, we would like to source from companies and organisations in this country, but we have to make it as easy as possible for them to deal with us.

My Lords, last Tuesday, Labour’s shadow defence team, together with my noble friend Lord West of Spithead, held a workshop with representatives of some 20 defence companies. The clear message from that event was that a defence strategy was the best way to streamline procurement and give a clear vision for the future to the defence sector. Have the Government had similar discussions with industry experts on the need for such a strategy? If not, may I suggest that they do? They may learn something.

My Lords, I do not think we need to get too hung up on the word “strategy” as opposed to “policy”. The key questions, it seems to me, are how we can make UK industry more competitive, how we can drive innovation, how we can drive skills and, as I have said, how best to ensure that industry can engage productively with government and that government itself is a more intelligent customer. These are the questions we should address and I am sure they are the ones industry wants us to address.

My Lords, what are the considerations when making decisions about the maintenance and growth of the supply chain, particularly on issues such as the availability of British skilled workers, the current defence industrial locations in the UK and the impact on local economies of buying overseas?

In the industry consultation that we carried out, a number of areas were highlighted, all of which we are looking at in the refresh exercise. They included how we make our processes more straightforward for non-traditional suppliers, the improved use of early market engagement, and communicating our approach more clearly to industry at an early stage. Those things will all play into the issues that the noble Baroness recited.