Memorandum from the Defence Industries
Council (12 May 2003)
1. On 14 October 2002 the Secretaries of
State for Defence and Trade and Industry jointly launched the
Government's Defence Industrial Policy. This was set out in more
detail in a Policy Paper signed by the Minister of State for Defence
Procurement and the Minister of State for Employment Relations,
Industry and the Regions. Industry welcomed the Government's announcement
as a clear sign that it had begun to recognise more fully the
importance of the defence industry to the national economy. However
Government's progress and commitment towards implementation and
review will be critical to the success of Defence Industrial Policy.
2. The policy was launched after considerable
debate between MoD, DTI and the defence industry. The debate continues
and the recent formation of an inter-departmental and industry
group is key to ensuring that the agenda continues to move forward
positively. The main areas that are being discussed by the group
are: the scope and knowledge of the industry; research and technology;
capability and future requirements; acquisition; market access;
the financial health of the industry and people. Government and
industry are committed to reviewing progress and implementation
in October 2003 using the mechanism of the National Defence Industries
Council (NDIC). Industry is pressing for this to be the first
of a series of annual reviews.
SCOPE AND
KNOWLEDGE OF
THE INDUSTRY
3. Defence Industrial Policy recognises
that the internationalisation of the defence industry has blurred
traditional definitions. An increasing number of companies with
foreign parentage now have British boards and workforces. Likewise,
UK-based firms have growing operations outside the UK industrial
base and an increasingly international set of shareholders. The
UK defence industry is therefore defined in terms of those companies
who are investing and creating technology in the UK, creating
and sustaining jobs, keeping and developing skills and intellectual
property.
4. Both Government and industry have acknowledged
that a better information base on the industry would help inform
the policy and its implementation, and they are considering how
this might best be achieved. For industry the key objective will
be ensuring that Government has a better understanding of the
capabilities of the UK defence industry.
RESEARCH AND
TECHNOLOGY
5. The UK is well served by a world-class
research capability in many areas of defence studies and military
technologies. This has meant that whilst there have been much
reduced levels in funding in recent years, the UK has maintained
its intellectual capital and developed significant competitive
edge in certain areas of technology. Whether this edge can be
sustained in the light of the massive acceleration in defence
spending in the USA is a major challenge facing the Policy.
6. It is inevitable that the resources available
from the MoD, DTI, industry and academia will need to be used
in a more focussed and co-ordinated manner to meet this challenge.
The long-term health of the UK defence industry must depend on
this investment being maintained but also used more effectively.
Public resources are tightly constrained and many projects need
to be done in collaboration with international partners. The choice
of partners will also be a critical factor.
7. In industry's view the Policy needs to
re-examine the many existing and developing facets of R&T
policy to ensure a secure and efficient approach to R&T funding.
This would allow the defence industry to effectively meet the
future military requirements of the UK Armed Forces to the benefit
of the national economy.
CAPABILITY AND
FUTURE REQUIREMENTS
8. Defence Industrial Policy recognises
that HMG needs to identify and encourage the development of those
parts of the UK defence industrial base that can provide the equipment
and services MoD will need in the future and create wealth in
the UK economy. These judgements however have to be based on a
sound analysis of what the UK Armed Forces will require, in terms
of military capability, in the future. MoD and industry are already
engaged in detailed discussion about how industry can become more
involved in the evolution of requirements in the concept phase
of the acquisition process.
9. In industry's view relating these future
requirements to the industrial capabilities that UK industry has
to offer, or might be able to offer in the future will be key,
and judgements will need to embrace the prime contractor level
and all other levels within the supply chain. The consideration
will also need to include high value-added capabilities with the
potential for attracting inward investment, and for incorporation
in collaborative programmes, and transferability into wider commercial
applications outside the defence sector.
ACQUISITION
10. MoD has already issued guidance to its
Integrated Project Team Leaders regarding their need to consult
widely at an early stage on the implications of their projects
for the UK economy. Industry believes that the impact of this
guidance should be monitored closely to see that the intentions
of the Policy are effectively carried out.
11. Another key area for industry will be
for Government and industry to explore more fully the relationship
between UK acquisition policy and practice. In addition there
is a need to review the development of the MoD's Smart Acquisition
programme to look at how its objectives can be reconciled with
those of Defence Industrial Policy. Areas such as Competition
and Partnering and better management of risk are central to both
initiatives. Industry believes that MoD's thinking on these issues
is developing and wishes to sustain a constructive dialogue.
MARKET ACCESS
12. Access to major overseas markets, notably
the US and Europe, is critical to the defence industry. As to
open international competition, and whilst recognising some benefits
that competition has given to the efficiency of the UK industry,
the UK is almost alone amongst major nations with an indigenous
capability in its policy of inviting overseas suppliers to bid
for contracts as a standard practice. Industry believes that this
position has weakened the UK industrial base, particularly as
overseas contractors operate within the protection and support
of their own governments. Industry believes that the Policy should
vigorously address both the opening up of other markets and the
securing of access for UK industry to technologies developed abroad
for equipments that are to be acquired by MoD.
13. As part of the work being taken forward
through Defence Industrial Policy a Defence Exports and Market
Access Group has been formed. For industry the key objectives
for this group will be better co-ordination between HMG and industry
on market access issues and establishing goals for UK export performance
in the major markets.
FINANCIAL HEALTH
14. There is a degree of international portability
in the global defence industry that did not exist in the past.
If industry is to prosper in the UK it is important that the climate
is seen to be one in which legitimate defence businesses can operate
profitably. The Policy's willingness to provide a more appropriate
balance between risk and reward in defence contracting is both
necessary and welcome. It is intended to consider the implications
of this as part of the implementation of the Policy. Industry
is proposing a detailed examination of the impact of defence procurement
on company profitability and the ability of companies to justify
new investment—this is under discussion.
PEOPLE
15. There will be no viable defence business
in the UK without the right skilled people available and willing
to work in what is a rapidly changing industry. For industry the
key will be making sure that there is a supply of necessary skilled
people to meet current and future demands—and retaining
them. Retraining will also be important in some areas. Similar
considerations must apply to the MoD. Industry is proposing further
discussion to look at what special requirements for skills exist
in the defence sector and whether supply is likely to present
problems for the defence community in the future—this is
also still under consideration.
CONCLUSION
16. The launch of Defence Industrial Policy
by MoD and DTI is a welcome development for UK industry. Work
is now in progress to take forward and implement Defence Industrial
Policy to ensure that what emerges is coherent, and leads to effective
action. The formation of an inter-departmental and industry Group
to take the agenda forward is critical to this objective and a
welcome indication that Government and industry will be able to
pursue this initiative. Review by the NDIC in the autumn will
be the next major threshold. In industry's view the goal is clear:
to ensure that an effective UK defence industry will exist in
twenty years time to support the UK Armed Forces and to make a
substantial contribution to the UK economy.
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