Select Committee on Defence Seventh Report


2  Production of the DIS and initial reaction to it

The need for a Defence Industrial Strategy

5. In their Defence Procurement report 2004, our predecessors examined the progress in implementing the Defence Industrial Policy. The evidence given to our predecessors suggested that there were a number of areas where the Policy needed to be developed further or where further progress was needed in implementing the Policy. These included:

6. Our predecessors drew the following conclusions:

    We welcome the fact that MoD has recognised the importance of establishing an industrial strategy to sit alongside the Defence Industrial Policy, and that work is now in hand to take this forward. Such a strategy needs to provide industry with a clear picture of which industrial capabilities and technologies are considered to be of crucial strategic importance in the future. We recommend that MoD take forward this work as a matter of urgency.[9]

    We consider it critically important that MoD develop clear criteria for deciding which sectors of the defence industry it is vital to retain in the future. Issues such as security of supply, in particular to meet urgent operational requirements, should not be underestimated in making such decisions. Much equipment being procured today will be in-service for the next 20-30 years or more and will need to be upgraded and maintained. The imperative of retaining the skill within the UK to undertake such work must be recognised. This applies across the range of equipment: from the highest level to the most basic of military requirements.[10]

7. In the future there is likely to be less work in terms of designing and manufacturing new military platforms and more of a focus on maintaining and upgrading military platforms on a through-life basis. The DIS acknowledges that there are challenges ahead as the complex, technologically challenging and high-value equipments being introduced will last for many years. It recognises that this will mean that there will be an increasing emphasis on an ability to support and upgrade these equipments through life, which will have implications for the level of technological capability and industrial capacity that industry needs to retain.[11]

Timetable for producing the DIS

8. On 26 August 2005 the MoD announced that it had set up a team to deliver the DIS. Lord Drayson, Minister for Defence Procurement, said that the Secretary of State for Defence had asked him "to examine and set out publicly, in as much detail as possible, which domestic industrial capabilities are essential to our national security and competitiveness" and that the DIS would be delivered by Christmas 2005.[12] On 15 December 2005, the Secretary of State made a Statement to the House announcing the publication of the DIS and paid tribute to Lord Drayson for overseeing the production of "this substantial document".[13]

9. Lord Drayson told us that the DIS was produced to such a tight timescale because industry needed to make decisions at the end of 2005 and early in 2006. Industry required a clear framework as a basis to make those decisions. The MoD also had some key procurement decisions, for example on the Future Carrier programme, which needed to be taken in the context of the DIS.[14] We welcome the publication of the Defence Industrial Strategy and congratulate the Minister for Defence Procurement and his team for delivering the Defence Industrial Strategy to a tight timetable.

Consultation process

10. Given the tight timescale in which the DIS was delivered, we were concerned whether adequate consultation had taken place with the defence industry and other organisations, such as defence trade unions. From the evidence we received, the MoD appears to have worked closely with the Defence Industries Council (DIC) and the defence trade associations, such as the Society of British Aerospace Companies (SBAC) and the Defence Manufacturers Association (DMA). The DIC considered that the discussions which took place between the MoD and industry about the DIS "was as helpful a conversation as we have had in the last 15 years. It was conducted well, it was very open, the way that it was handled encouraged openness on both sides…. the outcome of the Defence Industrial Strategy reflects that".[15] Most of the larger defence companies who provided evidence to us also considered that the consultation during the production of the DIS had been full and open.

11. In relation to Small and Medium-size Enterprises (SMEs), we received mixed views about the level of consultation. The DIC considered that SMEs were involved in the debate largely through the trade associations and also with representation on the DIC.[16] However, we also heard that some SMEs did not consider that they had been fully consulted and that their voice was not heard as much as it should have been.

12. The MoD trade unions, as representatives of the views of the MoD staff, considered that they "were only consulted belatedly during the development of the DIS" and that their concerns had not been taken fully on board.[17]

13. During the production of the Defence Industrial Strategy a wide consultation with industry took place, but we are concerned about the adequacy of the consultation with Small and Medium Enterprises and with the MoD trade unions. We look to the MoD to consult more fully with both Small and Medium Enterprises and the MoD trades unions as work on the Defence Industrial Strategy is taken forward.

Initial reaction to the DIS

14. From the evidence we received, the publication of the DIS has been broadly welcomed by the defence industry, in particular for the clarity it provides of the MoD's future needs. Examples of the initial reaction by the defence industry to the publication of the DIS are shown at Table 1.

Table 1: Initial reaction of the Defence Industry to the DIS
Defence Trade Association / Defence Company Initial reaction to the DIS
MBDA Missile Systems "very much welcomes the announcement of the Government's White paper on Defence Industrial Strategy, judging it as a very necessary and eagerly awaited addition to the 2002 Defence Industrial Policy White Paper".[18]
Defence Industries Council "The DIC…. welcomes the Government's decision to publish a DIS…. The DIC fully shares the Government's aim to equip the UK's armed forces with the best operating capability whilst achieving good value for taxpayers. It is also central to a successful DIS that the Ministry of Defence should specify its future priorities and the capabilities that must be retained within the UK with great clarity so that industry can plan with more confidence for the future".[19]
BAE Systems "welcomes the publication of the Defence Industrial Strategy as a blueprint for the way in which the government and the defence industry should work together in the future to meet the needs of our Armed Forces, deliver value for money to the taxpayer and sustain the UK's world-class defence industry".[20]
Fleet Support Limited "a welcome step forward and the broad thrust is supported".[21]
QinetiQ "supports the main conclusions of the Defence Industrial Strategy (DIS). We share the vision that future defence capability will need an agile industry, where defence capability is driven more by technological innovation in sub-systems rather than platforms…. However, there is a disparity in the treatment of the research supply base compared with the other sectors. Although the importance of research and innovation is mentioned throughout the document, the implications of the continual decline in research are not addressed".[22]
Society of British Aerospace Companies Ltd "welcomed the DIS when it was published on 15 December…. an industrial strategy was needed to ensure that the UK's industrial base could be transformed to meet the rapidly evolving needs of the Armed Forces and to sustain the industry's considerable contribution to the UK economy".[23]
Defence Manufacturers Association "very much welcomes the publication of the Defence Industrial Strategy (DIS)., Considerable credit is due to the Minister for Defence Procurement (MinDP), Lord Drayson, and all the officials involved for producing a clear, effective and timely analysis".[24]
EADS UK Ltd "welcomes the publication of the DIS and the detail it provides, which has the potential to assist industry with its business planning. We agree with the broad thrust of what is proposed, in particular the emphasis on through-life capability management and making a greater proportion of the MoD's overall business available to industry".[25]

15. In addition to the evidence received from the defence industry, we also received evidence from academics, trade unions, and other organisations such as the English Regional Development Agencies. Examples of the initial reaction of these individuals and organisations to the publication of the DIS are shown at Table 2.

Table 2: Initial reaction of others to the Defence Industry to the DIS
Other interested parties Initial reaction to the DIS
Professor Trevor Taylor, Department of Defence Management and Security Analysis, Cranfield University "The Defence Industrial Strategy paper is of enormous potential importance for UK defence and security over the long term. The emphasis should be placed on the word "potential"…. On the one hand, the paper brings formal recognition of the importance of the defence industry for the UK's capability to conduct military operations…. On the other hand, the Ministry of Defence shapes industry only through procurement choices and, unless the DIS has an impact on this area, it will steadily pass into irrelevance".[26]
English Regional Development Agencies "The DIS emphasises the need to balance the current capacity to build and support fixed wing aircraft, submarines and surface vessels with future demand for such platforms. This will inevitably have a particular impact on the North West aerospace industry and the marine regions across the whole UK".[27]
Prospect, Trade Union "We are in favour of the Government having a coherent Defence Industrial Strategy (DIS) and we support the overall policy aims of the DIS. We have particular concern about the ability of the MoD to obtain security of supply, in particular for small arms ammunition and high explosive".[28]
Ministry of Defence Trade Unions "While we are in favour of the government having a coherent Defence Industrial Strategy (DIS) and we support the overall aims of the DIS, we have particular concerns about the potential impact on MoD's in-house civilian capability".[29]
Professor Keith Hartley, Centre for Defence Economics, University of York "The Defence Industrial Strategy White Paper is a welcome contribution to public knowledge and understanding of UK Defence Industrial Policy and its likely future developments. It is the first time a UK Government has made such a detailed statement outlining the main features of the UK defence industrial base…. the objectives of defence industrial policy and identifying the key defence industrial capabilities which it seeks to retain in the UK".[30]

16. The initial reaction to the Defence Industrial Strategy has been generally very positive. However, while the initial reaction of the defence industry, defence academics, trade unions, and other organisations has generally been positive about the publication of the DIS and the broad thrust of what is proposed, a number of areas were identified where further work was required. These included:

Much of the evidence we received also emphasised the need for the DIS to be implemented fully if it was to deliver the expected benefits. We examine these issues later in our report.

17. The Minister for Defence Procurement acknowledged that further work was required in some areas. He told us that:



8   HC 572-I, para 107 Back

9   Ibid, para 112 Back

10   Ibid, para 115 Back

11   Cm 6697, Foreword Back

12   MoD website, Latest News, Lord Drayson sets out plans to deliver a clear Industrial Strategy for Defence, Friday 26 August 2005 Back

13   HC Deb, 15 December 2005, col 1462 Back

14   Q 276 Back

15   Q 250 Back

16   Q 232 Back

17   Ev 98 Back

18   Ev 66 Back

19   Ev 76 Back

20   Ibid Back

21   Ev 77 Back

22   Ev 78 Back

23   Ev 80 Back

24   Ev 91 Back

25   Ev 100 Back

26   Ev 89 Back

27   Ev 94 Back

28   Ev 97 Back

29   Ev 98 Back

30   Ev 102 Back

31   Q 276 Back


 
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