2010/11/02 - Defence and Security Industrial and Technology Policy

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Speech delivered by Minister for Defence Equipment, Support and Technology at the Honourable Artillery Company, London on Tuesday 2 November 2010.

Rees [Ward, Chief Executive of ADS], thank you for that kind introduction, and for hosting what I’m sure will prove to be a successful day.

Ladies and Gentlemen, good morning.

Two weeks ago, the Government published this country’s first ever Strategic Defence and Security Review.

The past few months have been an uncertain and worrying time for everyone in Defence because we all knew that change must come.

As you know, the choices we have made in the SDSR about the future structure of our Armed Forces will result in changes to our equipment and support requirements, and therefore to what we will be buying from industry.

So I wanted to talk to industry about what the SDSR means as soon as I could.

And to emphasise that the SDSR marks the start - not the end - of the road to Future Force 2020.

The Defence Reform Unit, under Lord Levene, is undertaking a fundamental review of how the MoD delivers capability, and will report at intervals between now and next July.

There will be another Defence Review in 2015, which I trust will be held in a more benign financial environment.

And the Prime Minister’s strong view, with which I naturally agree, is that this clear vision for the structure of our Armed Forces will, and I quote, “require year-on-year real terms growth in the Defence budget in the years beyond 2015.”

Furthermore, alongside the SDSR, we recognise the need for a more measured, strategic consideration of MoD’s industrial and technology needs, together with industry’s contribution to broader economic competitiveness.

So I am pleased to confirm probably the worst kept secret and the reason that you are all here today - that we will publish a Green Paper by the end of this year, which will set out our intended approach to industrial policy and the closely related issue of technology policy.

There will then be a formal public consultation in the New Year to give everyone who has an interest a chance to contribute.

The result will be published in a White Paper next Spring that will formalise our Defence Industrial and Technology policy for the five years until the next strategic review.

But the major window of opportunity for industry opens now, today.

This is your chance to make a real difference to what the Green Paper says.

To influence the way we do business.

To help us set the strategic context, and to bring clarity to - and to build confidence in - all our plans.

And this is not just about defence.

To reflect the full scope of the SDSR itself, I am pleased to confirm that both the Green, and subsequent White Papers will also include security issues.

This will mean we can better reflect the new challenges that have been identified such as cyber-related threats.

I think it is essential that we take this broader view of industrial and technological issues.

So I’m delighted that Baroness Pauline Neville-Jones, the Minister of State for Security, is with us today to give us her perspective.

I’m sure Pauline and I agree with the Defence Secretary when he said, “It would be wrong to duck the tough messages that inevitably come from the tough reviews we have just completed.”

There simply isn’t the money there was before.

Even if there were, any responsible government would still want to get the best possible deal for taxpayers.

This is a time, and you will have to excuse the cliches because I think they are right, for tough choices and hard bargains.

That is the right approach for a responsible government, and today I want to set out our stall.

Before I do, let us remind ourselves why are here.

Oscar Wilde once said, “Anyone who lives within their means suffers from a lack of imagination.”

I doubt he would have been so sanguine if he’d been faced with an annual £46 billion bill to pay the interest alone on our national debt - much bigger, of course, than the Defence budget.

Or the £38 billion ‘black hole’ we’ve been left with in the Defence budget.

And even Wilde’s imagination would have struggled to predict how much the world has changed since the last proper Defence Review.

Britain today faces a complex array of threats from diverse sources, as our new National Security Strategy makes clear.

US Defence Secretary, Robert Gates, captured the change best of all, referring to “a bright Tuesday morning in September when a decade of slumber, in a holiday from history, came to a crashing halt.”

The strategic shock of 9/11 shattered many previous assumptions.

But, even after this, the Government of the time did not see fit to alter the main conclusion of the 1998 Strategic Defence Review.

That Review made no allowance for two major concurrent operations, and the equipment and support required.

Or the assumption that an initial period of intense fighting would rapidly give way to a less resource-intensive peace-keeping phase.

The 1998 SDR had many good points, yes, but it was never fully funded.

If it had been, and this is an important point for me, we would be starting from a much more realistic baseline today, and the problems we face would have been far fewer.

The Defence Industrial Strategy in 2005 had much to commend it too.

But by the time it was launched, any hope that the equipment programme would mirror the reality of operations had long passed.

And DIS was never properly followed through in full.

You knew it; we said so in opposition.

It was simply of question of when reality would intrude.

The SDSR is that moment.

After 12 years without a Defence Review, with an overheated equipment programme, a seriously overcommitted budget, and overstretched armed forces, the previous Government left us no choice.

We have to face up to reality.

The reality that our security relies on a healthy economy.

The reality that addressing the deficit and bringing the Defence budget back into balance is a vital part of how we protect our security.

The reality that when you’re in a hole you stop digging.

You cannot go on a procurement binge, increase commitments, and squeeze spending at the same time - because the results are inevitable.

We do not intend to fall into the same trap.

That’s why the SDSR protects our mission in Afghanistan, and sets a path to a coherent and affordable Defence capability in 2020, and gives greater clarity for industry.

That’s also why the SDSR took the tough but realistic decisions it did, and not just the decisions on policy, force structures, and equipment.

We are cutting back on personnel in each of the Services, and reducing the number of civilians in Defence by 25,000.

I know that jobs will be lost in industry too.

All these losses are a great sadness to me.

As the Prime Minister has said, “Every one of those is a job, a livelihood, a family.” …

So we must all play our part in making sure that these cuts are not in vain.

Here’s the bargain I want to strike.

You’ve challenged me to think like you do in industry when I approach decisions; to be more commercially-minded.

I’m happy to accept that challenge.

Do I share your desire for stability and greater certainty? Yes.

Do I want to maintain a healthy skills base, particularly in specialised areas? Yes.

Do I understand the requirement for profit and shareholder dividends, and the need to make a decent rate of return? Yes.

And am I proud and willing to support exports? Absolutely. Yes.

But industry should be under no illusions about the quid pro quo.

Every pound that’s spent on equipment, support, and technology must serve the needs of Defence.

That means industry’s long-term prosperity depends on offering ever better value for money to the British taxpayer.

Because it is not the Government’s money; it is not industry’s money.

It is the money that hard-working people, up and down the land, have entrusted to us so that our Armed Forces have what they need.

It’s my moral obligation to achieve this.

So you must put yourselves in my shoes when you approach decisions.

Let me return to the objectives of our industry and technology policy.

First, and to repeat, the primary objective for all of us must be to provide our Armed Forces with the equipment and support they need, at the right time, and at a cost that represents value for taxpayers’ money.

We all agree that Defence acquisition is one of the most complex, costly, yet critical activities of Government and industry.

And we should never fail to praise the very many successes of all those who work so hard to support our Armed Forces.

But we can all recite examples where there have been failures, sometimes pretty spectacular ones.

If we’ve learned anything, it is surely that the drive for “perfection” has often meant higher costs and delivery delays.

And that when the product finally hits the market, it is often admired but rarely bought, except by those who have no choice.

For the sake of our Armed Forces, and to achieve stability in the Defence programme, we must all change the way we do business.

Second, having a strong British defence and security industry brings many benefits.

It is a key pillar of many of our international security relationships.

It provides jobs and maintains skills.

It is a leading driver of technological innovation.

And it is one of Britain’s greatest success stories, particularly when it comes to exports.

So our industry must remain innovative, and also able to compete in global markets - because with that its strategic value is enhanced, and the benefits that accrue to the country grow.

Third, as I’ve said, I wish to see a healthy economy because our security and Defence are directly tied to it.

So we must be ambitious, yes, but we must be realistic.

Because strategy that does not marry ends, ways, and means is not strategy; it is little more than wishful thinking.

In the current financial circumstances, we cannot simply buy everything we might want.

We must restrict ourselves to what we really need, and can afford.

To do this, we need to turn over a collective new leaf.

To start with, we must make sure that we’re asking the right questions before we publish our Green Paper.

That above all is what I’m trying to achieve between now and the publication of the Green Paper.

Naturally, our engagement with industry will include discussions on the areas where there have been the most significant changes.

But our main priorities will be:

  • strengthening bilateral international co-operation and collaboration
  • supporting small and medium-sized enterprises that are a vital source of innovation and flexibility
  • protecting the industrial capabilities associated with our sovereign requirements
  • recognising the vital importance of Science and Technology to our future security; and
  • giving our full support to exports

We must also thoroughly re-examine all the relevant industrial sectors and have as clear and unambiguous strategy as possible for each.

You need this to make your long term plans.

So we want your views - that’s why we’re all here today.

Our engagement will also examine the range of factors in our acquisition decision making process to ensure that we have got the balance right.

And the White Paper will set out our sovereign requirements, and how we will protect associated industrial capabilities, though they will reflect the overall financial constraints we have to work in.

If there is a danger of losing essential skills or a technology edge permanently, tell me; I promise to take notice of what you say.

There also has to be some behavioural change on both sides.

We don’t just want you to tell us what’s wrong - we’ve got a pretty good idea of that already!

We want solutions, or better still, tell me what you’re going to do to make things better on your side so that I can make sure that we go forward together in step.

I said earlier that I have to think like you, and vice versa.

Let me explain.

I do believe in free trade, and in buying off the shelf wherever possible.

Often that shelf will be stocked with British products.

But if those products don’t offer better value for money, then we will be buying elsewhere.

However, relying on overseas suppliers is not always compatible with retaining sovereignty in the use of our Armed Forces.

To take just one example I’m giving a lot of thought to, nowhere is the issue of defining our sovereign requirement brought sharper into focus than in the fixed wing sector.

This is an issue of crucial importance to the process I am launching today.

Make no mistake, though. I am committed to making markets work.

That’s why we have pledged our full-blooded support to exports, because this contributes to the viability of our supplier base.

I’m sure that many of you will also be at tomorrow’s UKTI DSO annual symposium where Gerald Howarth will be saying more on this.

It’s also why we’re encouraging SMEs to participate as much as possible.

And why we’re engaging closely with Lord Young as the Government’s enterprise adviser.

SMEs can be an important source of research and innovation that can maintain our competitive edge.

And they bring a high level of customer focus, agility, and increased competition.

These are just the qualities we need in responding to fast-moving military threats, and also in driving better value for money.

SMEs sometimes also bear the brunt of excessive delays, frequent changes, and complexity in the acquisition process.

That’s why we want industry to seize the initiative by offering more efficient and effective solutions, which must include prime manufacturers talent spotting and nurturing SMEs.

We can then focus on our own research investment in a way that ensures we are an intelligent customer, enabling industry to pull-through and develop technology for Defence use.

But I also recognise that the pressures we all face here are the same in other major Defence markets - in France, in Germany, in Italy, and in the US which is seeking $100 billion in savings in the next five years.

Defence budgets and domestic demand are falling in these countries too.

Like us, they are focused on export success to offset these reductions.

So we must look at ways of exploiting investment in UK Defence capabilities that serve both the UK and export needs, taking notice of any possibilities offered by co-operation with overseas partners.

Having a strong British industry brings many benefits, and I recognise the need to retain sufficient flexibility in the UK.

But demand from the UK alone in some capability-related industry sectors is insufficient to sustain a functioning market.

And exports certainly won’t always be the answer.

So sometimes it may be more beneficial to work directly with other nations, accepting that will mean more mutual dependence.

I believe this is most effective where we work bi-laterally, at least at the development stage.

Today’s Anglo-French summit, of which more later, is a major step in that process, and one I hope you will join me in welcoming.

Finally, let me be clear: we need points of contact and representative bodies that are inclusive of all who have a stake - and that there are more representative of the SMEs than they have been in the past.

The Government will look to industry to make sure that happens.

Ladies and Gentlemen, I hope that sets out our plan clearly.

I’ve shared your frustration with initiatives that have over-promised and under-delivered.

The cycle of grossly over-committed plans, short-term cuts, and re-profiling of expenditure must be broken.

Though the promises may be limited, we will deliver what we promise.

We will be ruthless in over-turning barriers to delivering Defence capability, and reducing the cost of doing business with the MoD.

We will help to create a more stable base for industry, less dependent on the UK economy alone.

But with the new realities we face, affordability and capability must share equal billing.

This means we will seek consistent value for money from industry.

Because it ultimately benefits the Armed Forces; it builds your credibility with the Government; and because Parliament and the British taxpayer demand it.

It was Mrs. Thatcher who famously noted the similarities between families and businesses when they sit down to do their budgets.

They accept that they can’t get everything they want, and focus on what they really need.

In Defence and Security, it’s time that Government and industry did the same.