1. The English RDAs aim to co-ordinate regional
economic development and regeneration, enabling the regions to
improve their relative competitiveness and reduce the imbalance
that exists within and between regions. They have five statutory
purposes:
— To further economic development and
regeneration.
— To promote business efficiency, investment
and competitiveness.
— To promote employment.
— To enhance development and application
of skills relevant to employment.
— To contribute to sustainable development.
2. The defence industry is one of the last remaining
sectors in which the UK is globally competitive at all levels
by virtue of a range of sophisticated air, land and sea systems.
This supports tens of thousands of jobs across the UK with some
of the greatest concentrations in the less economically successful
regions. As such, the impact of major changes to the MoD's procurement
strategy could be particularly significant in areas that are least
equipped to deal with such change.
3. Whilst MoD is the dominant customer for such
equipment and services, the industry has had significant success
in export markets and is the world's second largest supplier of
defence equipment. In 2002, exports amounted to £4.1 billion
which supported an estimated 76,000 direct and indirect jobs[14].
4. For example, it is estimated that in the South
West, Scotland and North West of England 6.4%, 3.1% and 2.9% of
all manufacturing employment respectively is dependant on defence
exports alone[15].
The manufacturing economies of other regions such as East and
West Midlands are in no small part underpinned by Roll-Royce and
its supply chain The East of England has great expertise in aircraft
support and modification as well as extensive research activities
whilst the South East has a broad range of high-technology businesses
and R&D institutions involved in defence matters. Elsewhere,
Yorkshire and the North East have specialisms in, amongst other
things, metallurgy, fast aircraft, armoured vehicles and marine
platforms.
5. An example of the economic importance of a
Prime Contractor's footprint in a single region is shown as follows[16]:
— 11 sites;
— 1,200 suppliers;
— 35,000 jobs sustained by its activities;
— 5.4% of regional GDP in 2000;
— £4 billion turnover in 2004.
6. 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.
There are specific issues related to the disposal of de-fuelled
submarines and their reactor compartment which are not addressed
in the DIS but may warrant the attention of the Maritime Industrial
Strategy activity.
7. Defence companies tend to be research
intensive, have higher skill needs, provide more training to their
staff and pay higher salaries than most other industrial sectors.
As such they offer the type of high-skill, knowledge based employment
which is needed to meet the RDAs' statutory obligations. 31% of
defence sector employees have a degree and at £55,000 per
head, GVA is 60% higher than for the economy as a whole.
8. Much of the R&D expenditure in the UK
is related in some way to defence activity. "Direct defence
exports create wide spillover benefits that contribute to productivity
of the UK economy to boost living standards. The evidence from
our own research and wider literature is suggestive of a strong
relationship between R&D and productivity".[17]
Obvious examples include:
— civil aerospace (much of the UK's wing
and engine technology have their origins in military programmes
undertaken since WW2);
— composite materials (increasingly used
in aerospace, construction, marine and advanced automotive applications);
— advanced micro-systems (such as those
originally developed as advanced missile guidance systems but
now used to prevent cars from losing control under extreme braking);
— opto-electronics and infra-red sensors
(used widely in the security, counter-terrorism and para-military
activities including search and rescue).
9. Recognising that the UK cannot compete on
price alone with emerging, low cost economies, the importance
of R&D cannot be overstated. Much of the RDAs' work involves
engagement with Higher Education, public research institutions
and those companies which have a need for innovative solutions
to commercially significant problems. RDAs are therefore active
in exploring practical ways in which they can create the conditions
which encourage investment in R&D and its effective exploitation,
eg working with the Defence Diversification Agency to promote
technology pull-through in both directions.
10. Examples include RDA support for the DTI-sponsored
Innovation and Growth Teams programme. The Aerospace Innovation
and Growth Team (AeIGT) report commissioned in 2003 has evolved
into the National Aerospace Technology Strategy (NATS) which has
determined that, if the UK wishes to maintain its position as
the world's second largest aerospace economy (after the USA) by
2022, the nation will have to invest heavily in R&D. The current
NATS programme envisages an expenditure of around £1.5 billion
over the next eight years of which RDAs are identified as a significant
funder.
11. The first of 18 major NATS programmes is
ASTRAEA—a research programme which aims to facilitate the
routine use of UAVs (unmanned air vehicles) in civil airspace
within a decade. Contracts are being prepared at the time of writing
but it is envisaged that three English RDAs, Scottish Enterprise
and the Welsh Development Agency will contribute around £11
million out of the £32 million total.
12. It seems likely that this work will build
on UAV work previously undertaken for the MoD, and if it is to
be commercially exploited in the future, it will require the skills
of many companies which are currently dependent on MoD contracts.
13. Whilst the identities of the largest defence
contractors are well known, there is more limited visibility of
the long supply chain which is an under utilised source of innovative
solutions to issues facing the MoD. The RDAs feel there is a need
for a cross-sector supply chain analysis of the industry and would
be receptive to exploring ways of participating in such work.
14. English RDAs fully recognise MoD's needs
to choose equipment and services which best meet operational needs
and to obtain best value for money. The RDAs have a role to play
in fostering the conditions which encourage wealth generation
and are committed to working with Defence Select Committee, National
Defence Industries Council, DTI, industry, and MoD itself to this
end in a way which avoids serious damage to the UK's long-term
prosperity.
20 January 2006
13 This document was prepared with input from the
North West, East Midlands and South West RDAs, the Midlands Aerospace
Alliance and West of England Aerospace Forum. Back
14
The Economic Impact of UK Defence Exports, Oxford Economic Forecasting
report June 2004. Back
15
As above. Back
16
NWDA. Back
17
The Economic Impact of UK Defence Exports, Oxford Economic Forecasting
report June 2004. Back
