Select Committee on Defence Ninth Report


NINTH REPORT

The Defence Committee has agreed to the following Report:—

DEFENCE RESEARCH

BACKGROUND

1. To retain a military capability that is effective against continually developing threats, the Ministry of Defence, like all defence departments around the world, has a perennial requirement for new and ever better weapon systems. To produce such equipment requires research & development—separate disciplines, though often terms that are lumped together. Development is concerned with translating technological knowledge into the required new equipment, and involves engineering design, manufacture and testing to confirm performance against specifications. Research — the focus of this inquiry — precedes development, and involves the generation of that technological knowledge, pushing out its boundaries and identifying new possibilities. Even if equipment is purchased off-the-shelf some research is necessary in order to make sensible procurement decisions. Sitting in both the research and development camps, technology demonstration usually involves building prototypes and simulation 'test-beds' to prove emerging technology before investing in full development.

2. The MoD undertakes or commissions research for two main purposes: to allow it to be both an 'intelligent customer' and an 'intelligent decision maker'.[1] The Department needs to be an intelligent customer so that the £5 billion[2] it spends each year on acquiring new equipment platforms (including ships, tanks and aircraft) and systems is used to maximum effect. That entails having access to sound and impartial technical advice in formulating operational requirements, agreeing specifications, assessing options, advising those in the MoD making acquisition decisions and planning the testing of equipment before it is accepted by the Department.[3] The MoD recognise that this requires knowledge which can only come from hands-on research and practical experience, both to generate the required knowledge directly and to be able to acquire more by exchanging it with other researchers. The people involved need to be practising scientists and engineers, not technical librarians.[4] The MoD also needs to be an intelligent decision-maker in a broader sense. It has to be able to make technical assessments of threats and the military capabilities of both current and potential future adversaries (as well as those of the UK itself and its allies) to inform policy decisions about the balance of investment in different types of equipment or capability.[5] The Defence Evaluation and Research Agency (DERA) plays a vital role in providing the MoD with the knowledge and skills it needs to discharge both its intelligent customer and its decision-maker roles.

3. A subsidiary but important aim of the MoD's research effort is to help ensure that British defence contractors remain sufficiently abreast of technological developments to be able to bid world class products to meet the MoD's equipment needs.[6] Hoping to sell its equipment to the MoD and customers overseas, industry in the UK also carries out its own research, some of which complements the MoD's research that supports the development of equipment for the Department.

4. Despite the importance of the benefits of defence research, government funding for such research has been in decline in the UK for some time. A fundamental shift in the balance of government research funding, between civil and defence purposes, was signalled in 1987. In its response to a report that year by the House of Lords Science and Technology Committee[7], the government recognised the importance of increasing civil research and development, as a share of public R&D, and announced that it was taking action accordingly by restricting the real level of defence R&D.[8] The government response also announced new central structures to review and shape the balance of government-funded research, under a new Advisory Council on Science and Technology[9] (since replaced by the Council for Science and Technology)—

    The new central structure machinery will keep under regular consideration science and technology priorities for both civil and defence R&D. As announced in the [1987] Statement on the Defence Estimates,[10] the Government will in future be paying careful attention to the risk that investment in defence R&D may restrict the scientific, engineering and skilled manpower resources available to the civil sector of industry, and will be giving special emphasis to avoiding duplication of successful equipment developments already achieved by our NATO allies. Defence procurement policies will continue to aim to meet the requirements of the armed forces in ways which make more discriminating and economical use of United Kingdom R&D resources. These policies are intended to lead to a gradual reduction in the real level of defence R&D over the next decade.[11]

The 1987 Statement on the Defence Estimates had conveyed a similar message—

    The Government shares the underlying concern of those who fear that necessary investment in defence R&D may crowd out valuable investment in the civil sector. Thus, while defence R&D has contributed to the advance of technology, Britain's resources of qualified scientists and engineers, and the skilled manpower supporting them, are not inexhaustible. Although there is much that we can do ...to harness our defence R&D effort to benefit the wider civil economy, defence and civil work are in competition for the same skills, and it would be regrettable if defence work became such an irresistible magnet for the manpower available that industry's ability to compete in the international market for civil high technology products became seriously impaired.[12]

5. The rationale used for holding down the defence research budget a dozen years ago was that scientific staff were a fixed resource that needed to be rationed between the civil and defence sectors. We doubt whether this was more than a convenient diversion from the truth that the resource being rationed was really money. It is ironic that in 1987 this argument was used as an excuse for reducing the funds that defence research had available to compete in the market for personnel, and that now the MoD argues that its funding of defence research may further diminish because of the growing contribution of civil technologies in information technology and related disciplines to the development of defence technology.

6. The pattern was set in 1987, however, and six years later, in 1993, the White Paper Realising Our Potential anticipated that the decline then underway in government-funded defence research would continue, with a reduction of a third by the turn of the century.[13] It anticipated, however, that industry would undertake more of the defence research needed, as a result of exposing to competition a greater proportion of the funds spent with or by DERA—from a quarter in 1992-93 to two-thirds by 1997-98.[14]

7. Looking back over the last dozen years or so, statistics produced annually by the Office of Science and Technology (OST) show that expenditure on defence research and development — much of the data does not separate the two— has indeed had a generally downward trend, but also that this has been the pattern for both government-funded and industry-funded R&D alike. Key points from the OST statistics include:

  • A reduction in the proportion of government-funded defence R&D, as signalled in 1987. In 1986-87, 45% of government-funded R&D was dedicated to defence; by 1995-96 it had reached a low of 37%; and in 1997-98 it was 39% (see Figure 1).


Source: 'Science, Engineering and Technology Statistics 1999',Office of Science and Technology, Cm 4409, Table 3.2

  • Over the last 12 years (1986-87 to 1998-99) a fall in civil government-funded R&D expenditure of only 9% in real terms, which on current plans will bounce back to 1986-87 levels by the end of the Comprehensive Spending Review period in 2001-02. Defence R&D expenditure, on the other hand, has fallen by 26% in real terms. Although it is projected by the government's expenditure plans to rise over the next three years, by 2001-02 it will still be 17% less than 15 years before (see Figure 2).


Source: Cm 4409, Table 3.2

  • A divergence in the trends of the research and development components of the MoD's R&D expenditure. While MoD development expenditure is now set to rise in real terms, research expenditure is set to continue its recent decline. From a high point in 1993-94, MoD research expenditure is projected to be 31% less in real terms by 2001-02 (see Figure 3). The MoD record expenditure on 'research' in a slightly different way,[15] and compared with the OST figures the MoD's data shows a more dramatic decline in its research expenditure of 40% in real terms since 1992-93 (paragraph 58).


Source: Cm 4409, Table 3.2

  • A decline also in R&D expenditure funded by industry, and particularly in the defence sector. In the eight years to 1997 (the latest data available), industry's civil R&D rose by 3% in real terms but its defence R&D fell by 42% (see Figure 4).


Source: Cm 4409, Table 4.1

8. Whether civil or defence, the competitiveness of UK industry in world markets is at stake. UK competitiveness, and the research base behind it, has become an increasing concern. The government's 1998 competitiveness White Paper Building the Knowledge-driven Economy acknowledges that it has a role to play as a direct investor in the economy's knowledge base, as well as in shaping an environment in which businesses can invest in research, but it places an emphasis on what academia and industry should be doing to improve the UK's position.[16] The White Paper states that 'Britain's success in the knowledge-driven economy of the future is ultimately down to business ... The present government will not resort to the interventionist policies of the past',[17] and that 'university R&D is too rarely translated into UK commercial success [and] UK industry spend on R&D has declined relative to our major competitors'.[18] Industry-financed R&D in the UK represents a declining proportion of GDP, which is now lower than most of the other G7 nations. US firms currently spend twice the proportion of their country's GDP on R&D as UK firms (Figure 5).[19]


Source: Cm 4409, Table 7.1

9. The DTI's annual UK R&D Scoreboard, assessing UK industry's investment in research and development (the two elements combined) in comparison with its competitors overseas, provides some further evidence of this unfavourable position. The 1999 Scoreboard[20] surveyed 561 UK companies and 300 international top R&D-investing companies. Given that the UK companies were compared with a sample comprising the best international firms, it is perhaps not surprising that across the 561 UK companies examined expenditure on R&D represented only 1.9% of sales, whereas the 300 international firms invested 4.9%.[21] The analysis does show, however, that across all sectors of economic activity, only 16 of the world's 300 highest R&D-investing firms were UK companies.[22] Those top 16 UK companies invested 2.9% of sales in R&D, compared with 3.1% for international firms in the same sectors of the economy.[23] The 1999 Scoreboard also shows, however, that in the Defence and Aerospace sector UK industry's position is relatively good. The UK's 10 leading R&D-investing firms in this sector spent on average 5.0% of sales on R&D, compared with 4.4% for the international top 10 defence firms (although the UK's position is somewhat skewed by the large size of British Aerospace whose total sales and R&D figures match those of the other nine UK firms put together — a more typical (median) figure for UK R&D investment in this sector is 3.5% of sales[24]).

10. In seeking to improve the UK's position on its investment in all areas of research, however, the public-sector research laboratories also have a contribution to make, and the 1998 competitiveness White Paper announced a programme to ensure that "the public sector research establishments make the most of the commercial potential of their research outputs".[25] To examine how this might be achieved for the non-defence research establishments, the Office of Science and Technology has a 'commercialisation review' underway which is due to report by the end of 1999. In the defence sector, the MoD is currently consulting on proposals arising from the Strategic Defence Review for a public-private partnership for DERA—an important issue that we examine in the last part of this report.

11. Against this backdrop of change and growing pressure on research, and defence research in particular, we conducted a brief inquiry last year on DERA. In our report,[26] we expressed our concern that the inexorable decline of research funding might turn out to be a false economy, and we indicated our intention of conducting a fuller inquiry of the state of defence research[27]—the subject of this current report. In that earlier report we also dealt briefly with the proposed public-private partnership for DERA. Although there was little information then available about the proposals, we had wished to register our reservations about the possible implications for the MoD, including the potential loss of impartial advice for the MoD, the damage to the coherence of the defence science base, the possible detrimental impact on the MoD's relationship with industry, and the risk of disrupted access to US technologies.[28]

12. This current inquiry sought to examine these issues further, by reviewing defence research expenditure against the backdrop of the technology transfer process it supports and the strategy for defence research being adopted by the MoD. With further information now available on the proposed public-private partnership, including a consultation document issued on 5 May 1999, we go on to discuss this key plank in the MoD's research plans and its implications for DERA, its staff, for industry, the Department and our allies.

13. We took much written evidence from the MoD, the DTI, the Office of Science and Technology, defence firms, trade associations, professional institutions, trade unions and others. We also received a briefing on the implications for defence research arising from the 'revolution in military affairs' (paragraph 22) from Rear-Admiral Richard Cobbold of the Royal United Services Institute for Defence Studies, Dr Andrew Rathmell of Kings College London and Major General Alan Sharman of the Defence Manufacturers Association. We took oral evidence from representatives of the DERA trade unions, representatives of the Defence Industries Council, the Chief Executive of DERA and the Director of the Defence Diversification Agency, and finally the then Minister for Defence Procurement, Lord Gilbert, and MoD officials. We wish to give particular thanks to our specialist advisers, Professor David Kirkpatrick of University College London and Rear-Admiral Cobbold, for their assistance.


1  Ev p 140 Back

2  UK Defence Statistics 1999,Table 1.5 Back

3  Ev p 140 Back

4  ibid Back

5  ibid Back

6  Ev p 65 Back

7  Civil Research and Development, government response, Cm 185 Session 1986-87 Back

8  Cm 185, para 4 Back

9  Cm 185 op cit, para 8 Back

10  SDE 1987, Cm 101-I Back

11  Cm 185 op cit, para 32 (our emphasis) Back

12  Cm 101-I op cit, para 522 Back

13  Realising our Potential, Cm 2250, para 4.4 Back

14  Cm 2250 op cit, para 4.5 Back

15  Science, Engineering and Technology Statistics 1999, Cm 4409, page 90; the MoD's Defence Statistics Bulletins 1 and 2; and Annual Defence Statistics explain the differences in the accounting and classification behind the different statistics Back

16  Our Competitive Future: Building the Knowledge Driven Economy, Cm 4176, para 2.31 Back

17  Cm 4176 op cit, para 1.12 Back

18  ibid, para 2.32 Back

19  ibid, Chart 2.1. Japan, US, Germany and France have higher figures, Canada has the same, and Italy a lower proportion of GDP spent on R&D Back

20  Published June 1999, by Company Reporting Limited Back

21  ibid, Company Data volume, pp 3 and 51 Back

22  ibid, Company Data volume, pp 70-71 Back

23  ibid, Commentary and Analysis volume, page 1 Back

24  ibid, Company Data volume, pp 3 and 51 Back

25  Cm 4176 op cit, para 2.38 Back

26  The Defence Evaluation and Research Agency, Sixth Report Session 1997-98, HC 621 Back

27  HC 621 op cit, para 16 Back

28  HC 621 op cit, paras 19-29 Back


 
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