Defence and Security Industrial Strategy - Statement

– in the House of Lords at 1:15 pm on 24th March 2021.

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The following Statement was made in the House of Commons on Tuesday 23 March.

“With permission, I should like to make a Statement on the future defence and security industrial strategy. Last November, the Prime Minister announced he was increasing spending on defence by £24 billion over the next four years. Last week, the Government published their conclusions from the integrated review, the most comprehensive survey since the end of the Cold War.

Yesterday, my right honourable friend the Secretary of State for Defence set out what amounts to the biggest shift in defence policy for a generation—a policy that will see us reinvesting, re-equipping and reorganising to face the threats of tomorrow. In doing so, he reconfirmed this Government’s commitment to spend more than £85 billion over the next four years on equipment and support for our Armed Forces. That reflects the fact that our Armed Forces will need to be present and persistent, and agile and adaptable, in an ever-evolving threat landscape. That is why it almost goes without saying that the most important thing in defence procurement is ensuring our people have the right capability, at the right time, to preserve our national security.

Our success hinges on a productive relationship with industry. The UK’s defence and security industry are world-renowned. Ministry of Defence spending in the sector secures more than 200,000 direct and indirect jobs across the UK, while the industry’s success as the world’s second largest global exporter of defence goods and services supports many thousands more. The sector provides our deterrent and underpins our critical national infrastructure. Through the MoD’s £300 per capita spend across the UK, it generates valuable skills and technology. The security industry alongside it, of more than 6,000 companies, is a font of enterprise and entrepreneurship. Last year, cybersecurity firms raised more than twice as much investment as they had in 2019.

Overall, defence and security is one of the binding elements of our successful union. Our world-class workforce builds everything from submarines to Typhoons right across the country. We have frigates made in Scotland, satellites in Belfast, next generation Ajax armoured vehicle technology in Wales and aircraft production in the north of England. We must never take for granted these industries, the skills they develop or the contribution they make to UK resilience, operational capability, and prosperity. We must do more to recognise explicitly the social value that government procurement can generate throughout the union.

To ensure that we continue to have onshore capabilities that meet our needs and continue to generate prosperity long into the future, I am today publishing our defence and security industrial strategy. I am pleased to say the strategy is a detailed policy document, and rightly so, but its significance can be summed up in a few sentences. It signals a shift away from global competition by default towards a more flexible, nuanced approach. It provides, and we will continue to provide, greater clarity about the technology we seek and the market implications long before we launch into the market, allowing companies to research, invest and upskill. It identifies where global competition may not be compatible with our national security requirements and, at last, it regards industry as a strategic capability in its own right—an industry we must devote our attention to if we are to maintain our operational independence.

Today, I want to highlight three themes in particular that are at the heart of DSIS. The first is our ability to work together to generate growth and prosperity across the union. DSIS sets the framework for greater integration between Government, industry, and academia. It will see us working more closely, too, with top-flight research and those companies, great and small, that make this country so celebrated in the field of innovation. Through a better understanding of requirements, companies will be able to seize opportunities, pool resources and upskill to deliver cutting-edge capability onshore in the UK.

That is a framework that works. Our future combat air system shows that the principles of DSIS are already delivering. A fundamental strategic decision for this country, it will ensure UK air power continues at the cutting edge as it evolves through this decade and beyond. We are investing more than £2 billion over the next four years in this British-led international collaboration, safe in the knowledge that it will leverage hundreds of millions of pounds of investment from the corporate sector. These future systems will not just build technology but develop skills and create opportunity for 2,500 apprentices over the next five years. “Generation Tempest”, as we have dubbed this cohort of future talent, will, in turn, create extraordinary export opportunities with our friends and allies overseas.

Of course, competition remains critical in many areas. Even where we have already developed close partnerships at the prime level, we will expect to see productivity incentivised and innovation encouraged. Across all our national security procurement, DSIS will mean more transparency, more clarity of our requirements and a more co-operative approach to business. We are replicating this joint approach in other sectors: ensuring that we deliver our strategic imperatives, from nuclear to crypt-key; complex and novel weapons; and new opportunities that are opening up in areas such as armoured vehicles as we develop a new land industrial strategy.

Critically, our spending on FCAS reflects an increased willingness to invest in research and development. Overall, we are investing more than £6.6 billion in R&D over the next four years. That will support next-generation capabilities, from space satellites and automation to artificial intelligence and novel weapons. The message that our R&D spend sends, coupled with the clear direction of travel we are providing about our future priorities, will give businesses the confidence to invest.

That brings me to another key element: we must forge stronger international partnerships. By doing more R&D, we will keep ourselves current and encourage the very best from outside these shores to collaborate with UK companies. I have already mentioned FCAS as one example of how a UK-led collaboration with allies and partners can work, but we see it elsewhere in other air programmes, such as the UK’s significant contribution to the US F-35 stealth fighter or our ongoing investment in Typhoon with our European partners. Time and again, we see how international collaboration can deliver the very best kit for our people.

As part of this international emphasis, DSIS also puts a renewed focus on exports. As we demand more of industry to meet our requirements, so we need to offer it more support to win abroad and deliver economies of scale. It is because of our recent investments in maritime that I am the first Minister for Defence Procurement in a generation to talk about selling our state-of-the-art ship designs to our close friends in Australia and Canada, in respect of the Type 26, and, we hope, to others around the world. Notably, our Type 31 is a frigate that will be multi-purpose and has been specifically designed with the needs of international partners in mind.

Our integrated review seeks to capitalise on this new export-led approach, not only setting out our plans to deliver the eight Type 26s and five Type 31s but highlighting our investments in next-generation naval vessels, including Type 32 frigates and fleet solid support ships. We believe it is time to spark a renaissance in British shipbuilding. That is why we are today changing our naval procurement policy to make clear our ability to choose to procure warships of any description here in the UK.

The third and final theme of DSIS that I want to highlight is achieving real reform in how we procure. Some of this is about driving pace and better working inside the MoD to deliver capabilities at the speed of relevance, but it is also about changing how we interact with our suppliers, reforming the Defence and Security Public Contracts Regulations 2011 to focus more on innovation and increasing the agility of acquisition. We are adopting the social value procurement policy to ensure that wider qualities such as skills creation or supply chain resilience are explicitly taken into account in tender evaluation. That will be mandatory under DSPCR from 1 June.

We will be doing more to incentivise continuous improvement in single-source procurement. We want to ensure that the supply chains of our primes are constantly open to innovators, and we want to ensure that our fantastic small and medium-sized enterprises—the lifeblood of defence—get a fair chance when it comes to winning work, not least from inward investors whose interest and investment in the UK we will continue to welcome.

DSIS signals a step change in our approach to the defence and security industrial sectors. Ultimately, DSIS will make a huge difference to our nation’s defence. It will help retain onshore critical industries for our national security and our future. It will help us develop advanced skills and capabilities. It will help us realise the Prime Minister’s vision of the UK as a science superpower. With defence procurement benefiting every part of our union, it will help galvanise our levelling-up agenda, creating a virtuous circle whereby the support we provide to those who defend and protect us becomes a catalyst that propels jobs, skills and prosperity in every corner of our United Kingdom. I commend this Statement to the House.”

Photo of Lord Tunnicliffe Lord Tunnicliffe Opposition Deputy Chief Whip (Lords), Shadow Spokesperson (Defence), Shadow Spokesperson (Treasury), Shadow Minister (Transport) 1:16 pm, 24th March 2021

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?

Photo of Baroness Smith of Newnham Baroness Smith of Newnham Liberal Democrat Spokesperson (Defence)

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?

Photo of Baroness Goldie Baroness Goldie Lord in Waiting (HM Household) (Whip), The Minister of State, Ministry of Defence

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.

Photo of Lord Duncan of Springbank Lord Duncan of Springbank Deputy Chairman of Committees

My Lords, we now come to the 20 minutes allocated for Back-Bench questions. As ever, pith is the order of the day.

Photo of Lord Arbuthnot of Edrom Lord Arbuthnot of Edrom Chair, Risk Assessment and Risk Planning Committee, Chair, Risk Assessment and Risk Planning Committee 1:35 pm, 24th March 2021

My Lords, I draw attention to my interests as set out in the register. This was a good review, which concentrated on many key points, including resilience. But is there not a risk that reducing the Regular Army reduces the connection between the Armed Forces and the public they serve, and hence reduces support for the Armed Forces and that very resilience we need to build up?

Photo of Baroness Goldie Baroness Goldie Lord in Waiting (HM Household) (Whip), The Minister of State, Ministry of Defence

My noble friend asks a very perceptive question. We are satisfied that, despite a reduction to 72,500, we still have a very significant cohort of professional military. We are satisfied that we can discharge all the obligations falling upon us, whether in conflict, peacekeeping, or MACA requests for domestic resilience at home.

We have seen, through the response by the Armed Forces to the Covid pandemic, what tremendous respect and affection the public have for our Armed Forces, and I hope that that will endure. There may be other occasions where we deploy our Armed Forces on MACA tasks or other civil support tasks at home, and that will reinforce not only the professionalism they possess but the affection with which the public rightly regard them

Photo of Lord Houghton of Richmond Lord Houghton of Richmond Crossbench

I draw attention to my interests in the register. As our Armed Forces move from a platform-centric approach to capability to one focused on technological advantage, it is ever more important to connect the operational requirement to the best available technology quickly. In the world of romance, we would be advocating the need for a speed dating agency.

Previously, the romance has failed because the potential match is broken between the cautious process of defence procurement and the monopolistic position of defence industry primes. The relationship has in fact been an obstacle to the rapid achievement of technological advantage. So I ask the Minister: which part of the new defence industrial strategy establishes the dating agency? Who is in charge of it and how does the wider world of technical opportunity sign up to it?

Photo of Baroness Goldie Baroness Goldie Lord in Waiting (HM Household) (Whip), The Minister of State, Ministry of Defence

I say to the noble and gallant Lord that I love the analogy; it is very apposite. He identifies an important point. He is aware that there is constant consultation and discussion within the MoD with our single services about what their needs are. In the past, the blockage has been in translating need into the production of kit or equipment. This new strategy makes it clear that there will now be a much smoother, clearer progression. The early engagement with industry is critical to establishing that we have identified what the single services want—and then we have to make progress in delivering that as efficiently and as swiftly as possible.

Photo of Lord Grocott Lord Grocott Labour

My Lords, given the Prime Minister’s commitment to thousands of additional jobs in the defence sector, can the Minister tell the House how the jobs envisaged in this Statement will be distributed across the regions and nations of the United Kingdom? How will the strategy contribute to levelling up between the north and the south? If she cannot give all those details at the moment, can she please place a copy of them in the Library?

Photo of Baroness Goldie Baroness Goldie Lord in Waiting (HM Household) (Whip), The Minister of State, Ministry of Defence

Yes, it is a very important part of what we are doing. As the noble Lord spoke, I was looking at page 13 of the strategy document, which has a marvellous depiction of the reach across the United Kingdom of what we do with industry and security. It is very clear to me that this is all about the union and levelling-up. The noble Lord will look at those locations and see the potential for many of these areas to benefit from the fruits of the new strategy.

Photo of Lord Chidgey Lord Chidgey Liberal Democrat

The Government state that the future will be digital, cyber and technological. It so happens that many years ago I was fortunate to be an Admiralty student apprentice, becoming a graduate engineer in the process. I call on the Minister to set out where the Government plan to find the young students who excel in the applied sciences now, this year, ready to develop the technical and engineering skills required for the 2,500 apprentices over the next five years. Most importantly, where will they find the highly qualified and skilled instructors to train this new model of a technician-based workforce?

Photo of Baroness Goldie Baroness Goldie Lord in Waiting (HM Household) (Whip), The Minister of State, Ministry of Defence

This is all about an increasingly close partnership between government and industry. The noble Lord will be aware that industry, particularly in defence, employs not just many employees directly but many modern apprentices, and in some cases that has been found to be a proven route for learning and commitment to the corporate organisation. It is an exciting future for young people interested in STEM subjects. Across the nation, particularly in the devolved Administration areas, where I have engagement, there is an interest in progressing STEM and using the critical mass of the MoD providing those skills in the devolved nations to help them with their educational delivery.

Photo of Lord Empey Lord Empey UUP

My Lords, may I ask about the rollout of work? Part of the problem in the industry has been that work is inconsistent and erratic. While there is supposed to be a shipbuilding strategy, can she tell the House whether companies such as Harland and Wolff in Belfast will get actual orders to contribute by supplying ships and other vessels so that there is consistent work in the defence sector, rather than an erratic supply of work?

Photo of Baroness Goldie Baroness Goldie Lord in Waiting (HM Household) (Whip), The Minister of State, Ministry of Defence

The noble Lord will be aware from the White Paper published on Monday that very close attention was paid to the rollout of an exciting shipbuilding programme. There is an intention to refresh our national shipbuilding strategy, and the Secretary of State for Defence is the shipbuilding tsar. So there is a real and rooted interest in the future of the shipbuilding industry in the United Kingdom. I am absolutely certain that all shipbuilders in the UK, if they are interested in the construction of naval marine craft, will engage with the MoD to see what opportunities await.

I can also say to the noble Lord, particularly in relation to Belfast, that of course we have Spirit AeroSystems and Thales. Indeed, I think it was Spirit AeroSystems that recently, this year, got a contract to develop the RAF’s lightweight affordable novel combat aircraft. We are very mindful of the contribution that can be made across the UK.

Photo of Lord Boyce Lord Boyce Crossbench

My Lords, this comprehensive industrial strategy is very much to be welcomed. I focus on the shipbuilding aspects to seek clarification from the Minister on a couple of points. It would seem that opening competition for building of warships is to be nuanced, to use the expression used by the Minister yesterday in the other place and in the strategy paper itself. The noble Baroness has touched on this—but, to be clear, does that mean that building warships offshore in future will not be precluded?

Secondly, the impression is given that RFAs such as future support ships may be classified as warships for the purpose of shipbuilding. Have the Government considered the implications of this, in so far as the present classification of RFAs as merchant ships allows them, among other things, freedom of navigation in certain territorial waters not allowed to warships?

Photo of Baroness Goldie Baroness Goldie Lord in Waiting (HM Household) (Whip), The Minister of State, Ministry of Defence

I think the noble and gallant Lord would agree that what was outlined in the Command Paper is exciting, not just for the UK shipbuilding industry but for the Royal Navy. The thrust of the security and industrial strategy paper is obviously that we want to be sure that we have a sustainable defence industry in the UK, which includes shipbuilding.

On the noble Lord’s particular question on whether we would never look abroad for a ship, I would not say that. It would be a very short-sighted view to take. There might be a situation where a product was available and we would think it safe to buy it without compromising our operational independence.

The classification of ships is clearly a matter for the Secretary of State to determine. I am sure he will do that on a case-by-case basis.

Photo of Lord West of Spithead Lord West of Spithead Labour

My Lords, I think I would give eight out of 10 for this. I am delighted that the Government recognise the importance of defence industries and the sovereign capability. But I join the broadside from the other side of the House—from the noble and gallant Lord—about shipbuilding. Some months ago, the Prime Minister said that there was a renaissance in British shipbuilding, and he mentioned a lot of frigate orders. Since then, there has not be a single frigate order. The Type 32 talked about is not even on the design board. The first three Type 26 frigates were ordered five years ago and the first will not be delivered for another six years, which is appalling. Have there been any meetings between the Secretary of State, the Minister for Defence Procurement and BAE Systems to try to squeeze the time needed to build these ships, which would make them a lot cheaper, and to get sensible orders in for the remaining five, driving the costs down—or are they leaving it just to run and run as a cash cow for BAE Systems?

Photo of Baroness Goldie Baroness Goldie Lord in Waiting (HM Household) (Whip), The Minister of State, Ministry of Defence

To take the last point first, no, absolutely not. While I welcome the noble Lord’s eight out of 10 for the report, which suggests that we are making progress, I think he makes a slightly harsh assessment of the shipbuilding programme. He is aware that we are committed to the eight Type 26 frigates being built in the Clyde, replacing the Type 23s and being in service for the late 2020s. He is also aware of the five Type 31s being constructed in the Forth at Rosyth, which should also be in service for the late 2020s. The Prime Minister outlined the desire to have five Type 22s. There is a steady drumbeat of orders and the yards are processing these orders. If I may say so, the noble Lord’s representation of the situation is rather dismal and not warranted.

Photo of Lord Addington Lord Addington Liberal Democrat

My Lords, to follow up on the question from my noble friend Lady Smith, military procurement has a history of overrunning projects, which people will not back out of because of personal involvement—and there is something in there, too, about jobs. Are we going to have a strategy and justification for saying no to a project, particularly if that means that we are not buying an off-the-shelf replacement which meets a battlefield capacity that we think we might need?

Photo of Baroness Goldie Baroness Goldie Lord in Waiting (HM Household) (Whip), The Minister of State, Ministry of Defence

I am sure the noble Lord will understand that the budget constraints on all departments, not least the MoD, are visible and exacting. Certainly, the MoD is very mindful, which is what underpins the strategy. How we spend money in future has to do two things: achieving the procurement and acquisition of the technology that we need as swiftly as we can get it when we need it, and ensuring that we contribute to the broader economy by generating activity in the domestic economy and possibly the potential for exports. The scenario that the noble Lord envisages is unlikely to arise because from now on procurement will proceed on a very different basis from what we have known in the past.

Photo of Lord Lancaster of Kimbolton Lord Lancaster of Kimbolton Conservative

I remind the House of my interest as chairman of the Reserve Forces 2030 review. If we are to meet the ambitions of the integrated review, we need to find better ways to share skills between the private sector and defence. One way is the use of the sponsored reserve—for example, the Voyager programme, whereby Airbus engineers service the aircraft during the week then don their uniforms at weekends, giving an assured capability. That is, however, an underutilised resource, with fewer than 1,500 instances across defence. Is now the time to ensure that all future major defence contracts include a provision for sponsored reserves?

Photo of Baroness Goldie Baroness Goldie Lord in Waiting (HM Household) (Whip), The Minister of State, Ministry of Defence

I thank my noble friend for his interest in and continued focus on reserves. I also thank him for his report, the Reserve Forces 2030 review, which will be presented to Parliament soon, as my right honourable friend the Secretary of State said in another place on Monday. As the Secretary of State also acknowledged, in previous decades there has been resistance within MoD to recognising the potential of reserves and using them properly. On sponsored reserves, which my noble friend highlights, they are indeed already playing a significant role. I know that the Armed Forces are looking at the options for developing their role, for example in growth areas like space, cyber and other applied digital skills.

Photo of Lord Bilimoria Lord Bilimoria Crossbench

My Lords, as president of the CBI, I can say that industry welcomes the new defence and security and industrial strategy, or DSIS, and the vision that lays out the defence sector’s strategic relationship with industry. The DSIS is ambitious regarding R&D and innovation, exportability and global Britain, and the creation of BARPA is an exciting opportunity. Will the Minister explain how the Government will ensure that innovation is rewarded fairly with a collaborative approach, with the management of intellectual property helping to crowd in private sector investment and MoD R&D activity? Also, does she agree that, by using its purchasing power to help pull developing technologies through to market at the leading edge of science and technology, it will drive prosperity and generate thousands of highly skilled jobs across the country?

Photo of Baroness Goldie Baroness Goldie Lord in Waiting (HM Household) (Whip), The Minister of State, Ministry of Defence

The last point the noble Lord alluded to is very important. Yes, I agree, and we hope that that indeed will be the consequence of the application of this strategy in practice.

On the other issues to which the noble Lord referred, again, early, close engagement between MoD and industry will go a long way to achieving the clarification he seeks. Certainly, introducing intellectual property strategies into the MoD’s acquisition processes for defence programmes to better incentivise and manage risk will also go a long way towards addressing some of the points he raises.

Photo of Lord Liddle Lord Liddle Labour

My Lords, I welcome the integrated review and the defence papers that have come from it; that shows a willingness to engage in long-term thinking. My concern is that the emphasis on sovereign capability comes up against our long history of overspending on defence procurement and the difficulty of controlling programmes. What is the Government’s attitude towards common European defence procurement as a means of securing greater cost-efficiency? Why is it that in Europe we are ending up with two separate attempts to produce a next-generation future combat air system? Would it not make more sense to go for a single common approach? In the past, the financial viability of UK defence business has often been secured by arms sales. Do the Government recognise that in future, this is likely to come up against lots of ethical foreign policy and human rights concerns?

Photo of Baroness Goldie Baroness Goldie Lord in Waiting (HM Household) (Whip), The Minister of State, Ministry of Defence

The strategy lays out a clear basis for how we will engage not just with our companies at home but with potential suppliers abroad. At the end of the day, we want a quality product providing what our Armed Forces need at a price fair to the taxpayer. Internally, we will be very clear about the pricing structures for these products. Equally, we are very clear that, if we are going abroad or dealing with an international provider, we will monitor and scrutinise that closely. We will be guided on a case-by-case basis as to what we need, who best can provide it and whether it needs to be regarded as a strategic imperative or to have operational independence, in which case it will almost certainly be with a UK provider.

Photo of Lord Jopling Lord Jopling Conservative

My Lords, it is all very well for the Government to tell us that there will be opportunities for the British defence industry. Does the Minister agree that sometimes, contracts have been awarded strongly influenced by political or industrial pressures, which sometimes leave our forces with unbalanced structures and indeed with equipment inferior to the best available? Surely, the prime need is that the forces should get the best that is available. One example is the Challenger 2 battle tank: the promised export orders fizzled out very quickly and we were left with a tank which could not share its ammunition with any of the other NATO forces.

Photo of Baroness Goldie Baroness Goldie Lord in Waiting (HM Household) (Whip), The Minister of State, Ministry of Defence

The sort of scenario to which my noble friend refers may well have happened in the past—but that is where it belongs. The point of this strategy is that there will be hard imperatives for the commercial decisions we take. These will be based on what we need, what is best and who can best provide it for us.

Photo of Lord Duncan of Springbank Lord Duncan of Springbank Deputy Chairman of Committees

My Lords, I am afraid that the time allocated for this Statement is now up; my apologies to the speakers who were not called.

Sitting suspended.