The announcement of a new defense-related policy tends to moisten the palms of British military personnel. Too often, they say, it means cutting everything by 15% and irreversibly disbanding an entire capability while claiming the country is better defended.
Refreshingly, the Defence Industrial Strategy (DIS) published on September 8 makes some welcome noises. That said, rather like the UK government’s pledges to increase defense spending to realistic levels but only by 2035, the DIS exhibits a marked refusal to deal with some fundamental problems.
Announcing the DIS, Britain’s Defence Secretary John Healey made incisive remarks, particularly on the upside-down nature of procurement and access for genuine innovators, the scarcity of investment in defense industries, and the need to reform the pace of procurement. As so often in the UK, it is likely the Treasury has intervened, because disappointingly little of Healey’s tone filtered down into the policy itself.
The strategy focuses on six areas of development:
- Making defense an engine for growth
- Backing UK-based businesses
- Positioning the UK at the leading edge of defense innovation
- Developing a resilient UK industrial base
- Transforming procurement and acquisition systems
- Forging new and enduring partnerships
To fuel growth, the DIS identifies two key deficiencies in the workforce and investment. The establishment of dedicated Defence Technical Excellence Colleges and a Defence Universities Alliance is welcome, but there is little recognition that the skills necessary for this sector to thrive are often downstream of industries the UK no longer hosts. A skills shortage cannot be considered in isolation; solving it requires a more holistic industrial policy.
A key barrier to defense growth and innovation is the inability of small- and medium-sized enterprises (SMEs) to access Ministry of Defence contracts due to size and capability constraints. This is often solved with “thin priming,” in which a large contractor subcontracts a smaller company to do the actual work. But this approach leaves SMEs at the mercy of large defense companies and often creates conflicts of interest. The DIS promises a new commercial pathway for SMEs to access MoD contracts and sets a new annual target of £2.5bn from the MoD. Sorting this out is commendable and long overdue.
As for investment, the DIS correctly states that a key barrier is so-called Socially Responsible Investment (SRI) policies, which put defense industries off-limits for nearly all mainstream investment institutions. This could be regulated out of existence, at least for British funds, but the DIS postpones the issue to yet another paper, the Defence Finance and Investment Strategy, due next year.
Some relief comes in the form of Defence Growth Deals, which will see the government build on existing defense and related groups of firms in various regions of the country, with the participation of local and devolved authorities and actual funding. Here, we see some joined-up thinking, linking with wider regional investment and political goals, particularly warding off separatist tendencies and disinformation. However, the investment sums involved are trivial compared to the SRI logjam. Another encouraging initiative is to add defense investment to the mandate of the National Wealth Fund.
One of the lessons from Ukraine is the need for an industrial base whose capacity can be significantly increased at short notice, particularly for expendables like ammunition. Work on this is already underway, but it is good to see the DIS taking things further with strategic investment in the nuclear deterrent, the creation of stockpiles of critical components and materials, and a renewed emphasis on flexible, scalable munition production lines across six new factories costing £1.5bn. The government will explore new statutory powers to enable expanded production in times of need, modeled on US and French legislation, and will introduce production scalability as a key metric for procurement.
Healey has also highlighted procurement disasters such as the Ajax armored fighting vehicle, where over 1,000 requirements made success nearly impossible. Procurement remains the wrong way up. Instead of giving the armed forces what the market has to offer, the services write their own menu, leading to unrealistic wish lists, lengthy delays, cost overruns, and risk of failure. The government’s solution is to segment procurements threefold, with separate processes depending on the system’s sophistication. While this may hasten simpler acquisitions, it is unclear how it will resolve problems with complex systems.
Finally, on forging new partnerships, the DIS emphasizes close cooperation with both the EU and the United States. Yet neither looks like a reliable partner for major defense industrial projects, given political risks ranging from German obstructionism to the unpredictability of US administrations. Outside EU structures, Britain’s ability to negotiate such risks away is diminished. On many important systems, Britain may simply have to spend the money and do them alone.