Funding of Defence Research and Technology
55. The DIS acknowledges that "well targeted investment in
R&T is a critical enabler of our national defence capability".[104]
The DIS notes that many nations with growing economic wealth are
now investing heavily in R&T. It states that:
Although UK investment in [the total of defence and civil]
R&T has risen in cash terms, it fell as a proportion of GDP
from 2.3% of GDP in 1981 to 1.9% now. There exists a risk that
in the coming decades the UK could fall behind both our key allies
and emerging economies in our ability to support sophisticated
and competitive technology based industries. We could become increasingly
dependent on defence technology solutions generated by other countries,
including those developed from civil applications.[105]
56. A study sponsored by the MoD analysed eleven major defence
capable nations and showed a highly significant correlation between
equipment capability and R&T investment in the last 5-30 years.[106]
The DIS states that the study showed that:
there is a simple 'you get what you pay for' relationship
between R&T spend and equipment quality, with a sharp law
of diminishing returns, and that R&T investment buys a time
advantage over open market equipment.[107]
The UK is currently in a relatively good position, reflecting
high R&T expenditure in the past, but the gap with the US
is growing.
57. The National Audit Office reported that the MoD's spending
on research in 2001-02 had fallen by 30 per cent in real terms
since 1994-95.[108]
Sir John Chisholm argued that R&T expenditure should be increased
and that, if it were not, the consequence would be lower quality
equipment in the future.[109]
He called for a 25 per cent increase in defence research funding:
We have done a calculation and it runs along the lines that
if defence expenditure has reduced by 50% in real terms over this
period of time and it was that defence expenditure which gave
us the equipment today which we feel satisfied with, you might
argue that you need to increase defence expenditure back to where
it was. We could mitigate that a little by saying that surely
we are more efficient now than we were 15 years ago, but an increase
of the order of 25% is what we believe would be a sensible policy
decision.[110]
58. We sought to examine further the impact of the reduced level
of funding of defence R&T. Mr Ferrero said that as he looked
at QinetiQ's laboratories today he could "see a constant
reduction in government investment in these [key] technologies
and, ultimately, a reduction in the level of innovation that is
coming out of the labs".[111]
Sir John Chisholm stated that the decline in research funding
had resulted in less resources for the laboratories. Once funding
fell below a critical level, QinetiQ had to stop doing some types
of research.[112] Sir
John told us that:
In recent years what we have seen is that the remaining funding
has gone as a proportion more to shorter-term research which supports
more urgent needs and therefore the larger cutbacks tend to fall
upon the longer term, more generic research which is the area
from which many of the more profound developments in technology
eventually emerge.[113]
59. We found it worrying to hear that one of the areas where there
had been reductions in research funding was sensor systems, which
in the past had produced important innovations such as thermal
imaging.[114] It is
also of concern that reductions in R&T funding have made it
more difficult to recruit and retain high quality researchers.[115]
60. QinetiQ saw itself as providing an important
link in the chain between MoD, the customer, and the supply base,
which included SMEs and universities. The company recognised the
importance of SMEs in relation to R&T and was developing SME
partnerships and university partnerships to capture efficiently
these niche capabilities.[116]
In contrast, the Chairman of the DIC considered that very little
R&T took place in SMEs, although he acknowledged that they
did participate in some R&T programmes.[117]
61. We asked the Minister what further work, following
the publication of the DIS, needed to be undertaken in relation
to R&T and when this work would be completed. Lord Drayson
emphasised that the UK was the second biggest spender on defence
research, but recognised that the MoD could improve "the
value" it got from the defence research undertaken. He also
acknowledged that the MoD needed to improve the performance in
bringing through the outputs of research to making a difference
to defence capability.[118]
The MoD would publish a Technology Strategy in 2006 which would
seek to address these issues, and would "look at the balance
of where we are making our research spending". The MoD would
open up more of its research spending to competition.[119]
62. We asked the Minister about Sir John Chisholm's
proposal that funding on defence research should increase by 25
per cent. Lord Drayson said he wanted the MoD to make decisions
based upon data and that "what we are going to be prioritising
this year is more emphasis on excellence".[120]
He considered that before thought was given to how much money
should be spent on defence research, it was important to make
sure that the money was spent wisely. The MoD's policy was to
increase its defence research spending in line with inflation,
but the MoD would "look at whether we have got that balance
right".[121]
63. We are concerned that the decline in defence
research spending will impact upon the quality of future equipment
for the armed forces. We look to the MoD to address the level
of spending on defence research in its Technology Strategy to
be published this year. It would be useful if the Technology Strategy
could set out clearly the level of defence research spending by
Government and industry over time.
64. We look to the MoD to make a strong case for
increased funding of defence research during the discussions with
HM Treasury on the Comprehensive Spending Review. We see this
as a key investment for the future.
Centres of Excellence
65. QinetiQ's submission identified a gap in the
DIS which is the role played by Research and Technology Organisations
(RTOs). In addition to QinetiQ's businesses, the RTOs included:
Roke Manor, ERA, AEA, PA Technology and Government organisations
such as Dstl. QinetiQ's submission pointed to a risk that fragmentation
of the research supply base could result in defence research "Centres
of Excellence" becoming non-viable.[122]
66. Sir John Chisholm considered that it was important
to encourage the Centres of Excellence rather than undermine them
by spreading the available resources too thinly.[123]
Lord Drayson acknowledged that the Centres of Excellence in military
research worked well and was a model which had been used very
successfully in the pharmaceutical industry. He told us that "Centres
of Excellence are definitely working for us. It is an example
of a new approach to the management of R&D which is giving
benefits".[124]
We expect the further work on Research and Technology to encourage
and maintain the Centres of Excellence for defence-related research.
96 Cm 6697, pp 38-45, pp 122-124, paras B11.1 Back
97
Cm 6697, para xxxxv Back
98
Q 184 Back
99
Ev 78 Back
100
Ev 80 Back
101
Ev 82 Back
102
Ev 83 Back
103
Ev 92 Back
104
Cm 6697, para A5.2 Back
105
Cm 6697, para A5.7 Back
106
Cm 6697, p 39, Figure A5(i)-Capability Advantage from R&D
Investment Back
107
Cm 6697, para A5.8 Back
108
National Audit Office, The Management of Defence Research and
Technology, HC 360, Session 2003-2004, Table 4, page 9 Back
109
Q 185 Back
110
Q 198 Back
111
Q 136 Back
112
Q 192 Back
113
Ibid Back
114
Q 193 Back
115
Q 197 Back
116
Q 208 Back
117
Q 272 Back
118
Q 300 Back
119
Ibid Back
120
Q 301 Back
121
Q 302 Back
122
Ev 79-80 Back
123
Q 210 Back
124
Q 304 Back