Having churned my way through and subsequently provided opinion on the protracted sequence of ‘Integrated Review’ documents published by HMG two weeks ago and that, amongst many interesting revelations had originally been conceived around building a bridge between foreign office, defence, security and foreign aid strategy, my mind went back to quite excellent independent review conducted, at the behest of then Secretary of State for Defence Gavin Williamson, the results of which were published in July 2018 under the title ‘Growing the Contribution of Defence to UK Prosperity’.
My basic premise is that Philip Dunne’s independent review was an excellent document and one that I would have seriously hoped that all stakeholders involved would have re-read and taken fully on board within the Integrated Review process that followed. Frankly, as I cast through the results that appeared in IR, I am bound to wonder how many of those involved bothered to read it!
I will not dwell too much further on the Integrated Review here (my four separate opinion pieces are available on request) save perhaps to suggest that although IR ended up being a shadow of what Foreign & Commonwealth Office, MOD and Home Office architects who, in 2019, started to put it all together under the watchful eyes of the Treasury, Cabinet Office, Department for International Trade and even the Crown Commercial Service might well have hoped when they set out to plan the next generation of foreign, defence and security policy in the hope that in a post Brexit world the decisions reached might provide not only the relevant future needs for defence, security and foreign policy but also that of extending our international reach and in the process perhaps, increasing our levels of trade.
I will also say this – full of glossy new proposals IR certainly was but let no one imagine that when it finally emerged it was anything other than a strategy to control costs, to suppress ambitions, to plan for tomorrows needs and maybe different types of warfare yes and very commendable too BUT in order to pay for what we think we will need ten years from now we would need to ditch still formidable capability designed to fights the wars of today.
In his independent report Philip Dunne stressed that Defence has made a number of important steps in meeting its prosperity objective. It makes a major contribution to our economic well-being, with 500,000 people working directly and indirectly in Defence and over 25,500 apprentices developing skills. In several local communities Defence is one of the leading providers of high skilled jobs adding that there is more that can be done as Defence has to adapt to rapidly evolving technological threats, so too should it seize the opportunities to adapt and improve its own processes to help meet the challenges of the high-tech defence future. Few would disagree with that statement.
The report reminds that Defence makes a huge contribution across all regions of the UK whether as a major employer, a large investor or as a hub for local communities. Defence is the third largest landowner in the country with 220,000 hectares often benefiting remote and rural communities and that overall, around 500,000 people support defence across the UK. It outlines that the UK’s defence industry is one of the world’s strongest with an annual turnover of £22 billion supporting 260,000 jobs, many of which are highly skilled and well-paid. Most importantly, he acknowledges that defence is a major contributor to the nation’s skills and one of the largest employers of apprentices with over 25,500 currently enrolled.
Mr. Dunne acknowledges that, in addition to the MOD 2018 budget of almost £37 billion, defence’s direct contribution to GDP features over £7 billion of exports generated each year on average. Just recently a shipbuilding contract worth up to £20 billion was signed between BAE Systems and the Australian government for British-designed Type 26 frigates – the biggest Naval defence contract for a decade. To that add the design work that BAE Systems is engaged on the CANADIAN Hunter class variant of Type 26 and that subsequent to his report being published, the UK through Babcock International has begun construction of Type 32 class frigates for the Royal Navy and that are hoped will provide additional export opportunities.
The Dunne Report emphasises that Defence’s relationship as a customer and industrial partner with many high growth sectors in the economy generates more activity, particularly in the aerospace, space, cyber, and increasingly the knowledge economy and creative sectors and goes on to remind that Defence is also driving investment in British industry through the National Shipbuilding Strategy, which was launched last year to transform the UK maritime industry and boost the prosperity of regions, shipyards and maritime supply chains across the country. The MOD is (note: this has now been done) also set to launch a Combat Air Strategy to ensure Britain maintains a world-leading combat air capability.
The Government response to the Dunne report followed in March 2019. In it, not surprisingly, Defence Secretary Gavin Williamson reaffirmed his commitment to growing defence’s contribution to UK economic growth, setting out a new package of measures to drive productivity and innovation in the sector.
Acknowledging the Reviews importance in highlighting the huge economic value of defence, the supporting of 260,000 jobs and the approximate £7bn contribution it makes to exports every year, during a Prosperity Conference held in Coventry at the Manufacturing Technology Centre Mr. Williamson announced a number of new initiatives including a £0.5m investment from the Defence Innovation Fund for a pilot programme with industry to further strengthen the international competitiveness and productivity of the UK defence sector. In addition he announced a joint programme supported by Invest Northern Ireland and the Department for Business, Energy and Industrial Strategy to pilot a Defence Technology Exploitation Programme (DTEP) in Northern Ireland, worth an anticipated £1.2m in Research and Development investment and he made a commitment to working with the Welsh Government on the potential for an Advanced Manufacturing Research Institute alongside the Defence Electronics and Components Agency (DECA) in North Wales in order to ‘cement’ the region as a centre of excellence for innovation.
Other initiatives announced included recognition of the need to improve the quality of data on the UK defence sector and make this available to decision-makers by stimulating greater academic involvement in the area.
Allow me to add here that until the highly successful Defence Export Services Organisation had been so seriously damaged by extensive cuts that took place between 2002 and 2010 and that are arguably still ongoing in the present day UK Defence and Security Exports Department for International Trade and having been stupidly moved away from MOD responsibility to that of the latter department in 2009 by Baroness Shriti Vadera and Gordon Brown in a clear attempt to side-line its activities, a mass of expertly collected data from all over the world had been collated by DESO and made readily available to any of its stakeholder members.
The Secretary of State for Defence also announced in March 2019 proposals to create a Joint Economic Data Hub with industry that would sit within the UK Defence Solution Centre and would be overseen by a new independent advisory panel. The purpose was to collect and aggregate economic data from across the defence sector. Finally, there was a commitment to sponsor an international Defence Economics Conference at Kings College London later in 2019 – this being planned to be the first of a series of events to develop understanding of the significant economic value of defence. I have attached the link to the full Philip Dunne Review below:
However, below I have listed the comprehensive list of recommendations made in ‘Growing the Contribution of Defence to UK Prosperity:
2.1 MOD should discuss with the Office of National Statistics whether existing surveys could be expanded to capture more information about spend with supply chains and prosperity, and how defence activity in the economy can be more easily identified.
2.2 The MOD should commission independent academic research into assessing and measuring the total economic benefit that Defence gives to the economy, consistent with the Treasury Green Book. This research might also attempt to highlight where MOD has already generated a prosperity “premium” to the wider economy.
2.3 The MOD should support DIT plans to strengthen DIT-DSO.
2.4 Industry need to show more leadership in driving the ‘Team UK’ approach, which also needs more encouragement from MOD.
2.5 Incentives should be developed for the Armed Forces (and others with a role) to provide strategic support for defence exports
2.6 Engagement between MOD and Treasury would be desirable to improve access to training and other critical enablers for defence exports.
2.7 MOD and industry should additionally bring forward proposals to improve how industry can access UK test and evaluation to support export of capability, whether in service, in development or not currently in service with the Armed Forces.
2.8 Defence needs to take a more strategic view of managing risks in its supply chain, both in understanding key UK requirements for freedom of action and operational advantage, and in how it goes about assuring the underpinning intellectual property in the supply chain. This should include stronger levels of cyber assurance and closer scrutiny of the security implications of changes in company ownership.
2.9 Further work, consistent with the Treasury Green Book, is now needed in MOD to give clearer, practical guidance on the prosperity factors defence is most likely to consider, the reasons for their importance and the primary metrics which might be used in assessing their value and relevance. It should also permit sufficient flexibility in the way in which these factors might be weighted.
2.10 As a critical enabler of growth and productivity in both defence and the wider economy, MOD should focus on technical education, skills and training in shaping MOD’s strategic approach to prosperity, including when talking with potential investment partners. 2
2.11 The MOD and its key suppliers should develop a common approach and format for collecting data, preferably based on a digital solution, to underpin new guidance and metrics on key prosperity factors.
2.12 MOD should resource its responsibility to promote prosperity more appropriately and effectively. This should take account of new or recent additional commitments to support strategic exports. It should also implement policy on exportability in the design and development of defence equipment, and where appropriate help exports of equipment and services not in service with the UK Armed Forces.
2.13 MOD should increase agility and pace in defence procurement, adopting a culture more focused on finding the right procurement solutions and less on defining and avoiding obstacles at the outset. This requires MOD to develop its skill-base as a client, better understanding how defence requirements and the market interact and shape each other. Building the quantity and quality of commercial skills across Defence is an important part of this work.
3.14 MOD should publish how much it invests in its military and civilian workforces.
3.15 MOD and industry should improve their evidence base to define skills requirements to help address future needs. 3.16 Independent research should be commissioned on the social and financial impact attributed to defence industry jobs. 3.17 In specialist sectors such as space and cyber, the Armed Forces should consider facilitating whole career flexibility with secondments across Defence, including in industry, at points during careers to remove barriers and retain skills.
3.18 The MOD should improve the data it collects on Service leavers, including skills levels, qualifications, and post Service salaries.
4.19 MOD to consider whether its commitment to spend 1.2% of the defence budget on S&T is sufficient following the Government Industrial Strategy target to raise total UK R&D investment to 2.4% of GDP by 2027.
4.20 The current level for funding of the MOD’s Innovation Fund should be maintained, if not increased, and its profile brought forward. 4.21 MOD should maintain its priority on driving innovation, perhaps by further developing co-funding between the Innovation Fund and individual Front Line Commands to encourage take-up into use.
4.22 MOD should adopt open architecture across the defence spectrum.
4.23 The MOD needs to scale up its approach so that innovation becomes an integral part of larger procurement.
4.24 Defence needs to incorporate a greater appetite for risk into its innovation pipeline.
4.25 To make Defence an attractive innovation partner, MOD needs to find an equitable way to share risk and reward, provide clarity and certainty on intentions, and make contractual processes less daunting, especially for SMEs.
4.26 MOD should continue to build on this work and consider what other measures it could implement to in particular encourage and incentivise non-defence companies to see defence as a customer.
4.27 The intellectual property issue with industry should be resolved quickly and in a way that does not disadvantage UK companies against foreign competitors and does not discourage new partner companies from working with the MOD.
4.28 To prioritise resources, MOD should look to improve how it shares its thinking and intentions with industry at an early stage, so that companies know where to focus their innovation efforts.
4.29 MOD should look at how it can use emerging procurement structures in tandem with existing procurement organisations to speed up acquisition and deployment of new capability.
4.30 Defence should explore opportunities to deploy part of its Innovation Fund alongside MilTech development capital, either through a dedicated structure or by developing relationships with trusted investors.
5.31 MOD should explore how it might harness devolved and regional expertise and strengths to identify opportunities which may exist for Defence in contributing to, and benefiting from, local industrial strategies. The Devolved Administrations and the LEP Network in England should form part of this engagement.
5.32 The Cities and Local Growth Team formed with BEIS and Department for Communities and Local Government should be consulted when defence considers significant or local projects.
5.33 As Defence strengthens its international engagement cadre and works with DIT-DSO and the Defence Growth Partnership in building a more coherent approach to exports, MOD should consider opportunities for adopting elements of the same approach at home, including with relevant government departments and regional and local government structures.
6.34 When developing the selection criteria for new procurements starting after withdrawal from the EU and during any implementation period, it would be desirable for some weighting to be attached to the prosperity impact in the UK and for the criteria to be transparent to the tenderers, whether international or domestic.
6.35 MOD to take early action to safeguard its freedom of manoeuvre in procurement post Brexit.
6.36 Consideration needs to be given as to whether and how any differing UK prosperity weighting and criteria should apply to major procurements expected to be placed after the implementation period following Brexit.
6.37 Given the strategic objective which the MOD now has to contribute to UK prosperity, the MOD should commission academic work to inform a discussion with Treasury to settle the question of whether additional tax revenues flow back from procurement spend in the UK and whether a cost premium applies to maintaining freedom of action and operational advantage from UK manufacture.
6.38 The Department and industry to look, together and against a fixed timescale, at how their relationships could work better, including engagement with SMEs.
6.39 MOD should look sympathetically at creating a financial framework with more flexibility, to encourage Defence’s training institutions to be more entrepreneurial and exploit the brand to their and wider UK benefit.
6.40 MOD Ministers to ask Treasury to work constructively with MOD to reduce cumbersome VAT administration and improve efficiency.
6.41 MOD should consider building on the work done to pull the regional information together for this Review and to publish periodically details of its regional footprint and prosperity impact.
To be fair, some of the conclusions above have been picked up and incorporated and there are some vague references inside the Integrated Review white paper to the Philip Dunne Review.
But I fear that there are not nearly enough and that overall, recognising that the MOD is struggling with finances as a result of being over ambitious in the past, many will not see the light of day outside the House of Commons Library. Some may regard my inferences here as maybe insulting to HMG and missing the point about affordability – a word that doesn’t appear much if at all within the IR.
I fully get the need to change and adapt to a new world order and I commend much of what the Government has done within IR to position us for what our military and academics see as already current or potentially new threats. What I don’t get is that throughout IR and its associated papers all I see in regard of the prosperity agenda and recognising the crucial importance that defence plays to the economy both in employment, taxations, supplying the military with the equipment that they need and in regard of the importance of defence exports is more lip service rather than concerted real action.
CHW (London – 8th April 2021)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785