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I value the approach of constructive criticism which has described our debate on the defence industrial strategy. That is also reflected in the nature of the wider debate and conversation taking place between industry and the Ministry of Defence in this area. Reports from ongoing studies by organisations such as the RUSI further contribute to that. I wholeheartedly welcome the work that the RUSI has done and note the contribution that noble Lords make to it. It is very important, in implementing something as complex and important as the defence industrial strategy, that we maximise our opportunities to address the challenges. I hope that I can help to move that forward this evening.
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The defence industrial strategy aimed to set out a clear vision of the future for procurement to meet the needs of the Armed Forces. For the first time, it gave clarity in terms of putting the needs of the Armed Forces first and setting out a decision structure for the Ministry of Defence to stick to in how we implement procurement decisions. I have aimed in my role as Minister for Defence Procurement to push the department to reform to drive these improvements and, at the same time, to create a virtuous circle of change with industry. Both sides must recognise that that change is rewarded on both sides. Maintaining that momentum is at the heart of what I aim to do.
Several noble Lords, in particular the noble Lords, Lord Astor and Lord Garden, have highlighted the vital importance of small and medium-sized companies; the very largest primes are not the only ones that are important. It is vital that we maintain companies that are global players in the defence industry, but it is as important to ensure that we have the complete value chain of companies—a healthy defence industry—and that we in the Ministry of Defence ensure that we enter into long-term partnering agreements in a way that does not prejudice the interests of small and medium-sized companies. We are putting several initiatives in place to ensure that that does not happen. I will touch on that in a moment.
I shall give an overall update on the implementation of the strategy. The noble Lord, Lord Garden, has highlighted the difficult context in which we are operating. There is no doubt about it. The pace of change is speeding up. The noble Lord, Lord Levene, who has tremendous experience in this area, has highlighted how we are using our defence equipment in an operational context to a much greater extent than we have done for an awfully long time. There has been no need in the recent past for speed in introducing defence technology into current operations, but we need that now to reflect the speed at which the threat changes in operational theatres and the pace of change both industrially, as noble Lords have mentioned, and technologically.
The answer to the challenge facing us is to ensure that we give structure to our defence industrial strategy—and to our defence technology strategy today—which the Ministry of Defence will stick to in the medium term. That strategy should, however, be sufficiently flexible to shift resources, as required, to reflect operational need. To answer directly the point made by the noble Lord, Lord Garden, we have an opportunity in that we are entering a phase with a spending review that involves going through the usual process of rebalancing our equipment programme. For the first time, however, we are doing that in the context of a clear defence industrial strategy, as my noble friend Lady Dean has mentioned, which sets out a framework that allows the Ministry of Defence to look across projects and to look at industrial capability and not simply at projects in isolated silos.
The Ministry of Defence has also developed the ability to look from a commercial standpoint at how we trade off within a capability, and to take intelligent decisions on individual equipment projects with our
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I am grateful to my noble friend Lord Truscott, who has gone over several of the important areas of progress that we have already made this year. I want to highlight the key challenges that remain, rather than the successes achieved. We have shown that today with the publication of our defence technology strategy. To be clear, it is a document of MoD policy that sets out our delivery of a commitment, which we published in the defence industrial strategy, to provide a defence technology strategy this autumn. It clarifies to industry our research priorities and recognises that a key driver of military capability is coming from research. Today, we are living off the fruits of the investment made about 20 years ago in defence research. It identifies the areas of priority for the research community, and it clearly signals a shift in balance. It says that we must move to a more mixed economy in how we incentivise industry to carry out defence research, and we must incentivise by engaging more widely—that relates to the point made by my noble friends and the noble Lord, Lord Levene. We must not reinvent very expensive wheels. We must make sure that we leverage research which is being undertaken in other countries and that our defence technology strategy gives clarity on areas such as the priority for research and the balance in funding that we need to see between early stage research and later development. Frankly, we have put too much emphasis on the late stage development; we have not invested enough in some emerging technologies at the early stage.
Secondly, there is the issue of too much of our defence research and technology being directed by the customer only, with the Ministry of Defence telling industry and the academic community, “This is what we require for the future” without encouraging people to invest in taking risks. We incentivise industry so that where it has taken risks and invested, we provide it with a greater return.
The initiatives that we have announced today are taking us towards a DARPA-like model. There is an awful lot we can learn from the successes enjoyed by the United States with DARPA, given that we have a smaller budget. We have announced three important initiatives. The challenge we have announced is DARPA-like but in a completely different area, which is really important for the Ministry of Defence. We have announced a competition for ideas—a £10 million programme to incentivise a wider engagement of the challenges in defence within the scientific research community. We are trying to engage people who would not normally be engaged in defence research.
These are practical initiatives to change the culture. A number of noble Lords mentioned the importance of changing the culture. That is about the long-term process, and I recognise that whereas it is important to
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We are implementing the change that has resulted from the conclusions of the McKane study, and we are meeting our schedule. My experience in business has made me aware of the dangers of dropping the ball in a merger and not delivering the organisation’s performance. However, we have made progress: we have approved and appointed a defence commercial director; we have identified that the Permanent Secretary is the senior responsible owner for the merged organisation; we have a dedicated two-star programme director; we have identified the leader of the new merged organisation; we are clear on the top-level management; and we will, by April, have in place the support structures to ensure that performance and accountability in the merged organisation is delivered.
I will touch on some of the questions about specific programmes. The matters raised by my noble friend Lord Jones about the aerospace industry, particularly relating to EADS and Airbus, have been mentioned in the press a lot recently, and my noble friend needs a response.
The A400M is an important component of our future military capability. We expect the company to provide those aircraft on time under the contract. Of course, a company going through the turbulence that Airbus has gone through leads to concerns about whether there are problems relating to the A400M project itself. We have expressed our views clearly to the management of the company. I have not visited Broughton but I have visited the Filton facility and have seen for myself the work that is going on there. It is important to stress that the Government’s policy is that we wish to see Airbus, as a part of EADS, develop as a global aerospace and defence company with its heart and soul in Europe but without political interference. We know that the future of that company will depend upon it establishing good corporate governance.
I am supporting my right honourable friend the Secretary of State in discussions with the company, and I know that its management is directed toward that end. We are working hard to ensure that, in this time of turbulence for the company, it has the support and clarity from the British Government to help it through that transition. The indications are that it will, but we need to monitor the situation very carefully.
There were specific questions from a number of noble Lords relating to the maritime programme. In essence, the maritime sector is the most challenging within the defence programme. I am more optimistic because of the progress that I have seen being made on the aircraft carrier programme, and the alliance structure working well within it. However, I really need to see progress before the end of this year.
The noble Lord, Lord Hamilton, asked a specific question relating to British Aerospace and Boeing. The latter has said on the record that it is not interested in pursuing that particular acquisition. It is interesting to see that Boeing has, in response to the
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The noble Lord, Lord Levene, asked whether we see a level playing field for companies whose shareholders reside outside this country. Absolutely; we have the most open defence market in the world and are committed to maintaining that. We are concerned to see that we maintain the intellectual property and skills in this country. That is why we believe the policy is starting to bear fruit in that direction.
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I was asked a number of questions about other programmes, which I do not have the time to go into in detail this evening. I will write to noble Lords to answer their questions. I welcome and will encourage further debate on this important area, and will look for future opportunities to further provide the discussion that the noble Lord has requested. I am absolutely willing to engage with him in future on those matters.
- House adjourned at seven minutes past ten o’clock.
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