National priorities in an international market
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Speech by Mr Philip Dunne, Minister for Defence Equipment, Support and Technology.
It’s a pleasure to be here today to take part in a timely discussion…
…as we prepare to run the triple gauntlet of a comprehensive spending review followed by a Strategic Defence and Security Review, and as you may have a noticed, both preceded by a General Election 75 days from today, or as I prefer to think of it polling stations open 1,736 hours from now.
Challenging times…require change
But looking beyond the horizon of domestic UK politics for a moment, to say these are challenging times is something of a British understatement.
The world is dangerous…and getting more so.
As a nation our appetite for taking risks with our security remains low.
While our national ambition for global influence remains resolute.
At the same time, budgets are being squeezed and traditional military advantage is being undermined by disruptive technology and hybrid warfare.
So if we’re to survive and thrive in this new international dynamic we need to think differently.
I’ll explain what I mean, shortly.
But before I do, I must emphasise that while creating and sustaining armed forces fit for the 21st century will not be plain sailing…for any nation…
In the UK, the prevailing wind is behind us.
Thanks to 5 years of defence reform, we’re on the right trajectory.
We’ve filled the black hole in the defence budget and balanced the books.
For the third consecutive year, we’ve published an affordable equipment plan, worth £163 billion over 10 years, with substantial headroom and flexibility built in…
We’ve rethought our approach to defence acquisition, redefining it along the principles of value for money and open procurement.
…and spelling it out in black and white in our 2012 white paper: ‘National security through technology’.
We’ve also got a grip on our big ticket procurement projects.
And you don’t just have to take my word for it.
We have in this country a National Audit Office admired around the world for its fearsome independence from the government of the day. Consequently its pronouncements on departmental performance, especially its report on major procurement projects, are eagerly anticipated by the Ministry of Defence each year.
So to illustrate how far we have transformed defence acquisition, you can do no better than look at the position we inherited from the NAO’s report on 2009, where the top 15 defence projects were a staggering £4.5 billion over budget in year and 336 months overdue.
Contrast this with last month’s NAO ‘Major projects report’ which confirmed the top 11 defence projects are £397 million under budget and in aggregate only 14 months over time.
A much leaner machine
And we have also got to grips with the formidable administrative machinery of the Ministry of Defence, where I see our transformation as an exemplar of this government’s approach to public service reform.
Head Office is smaller, more focused and more strategic. By the end of next month there will be 25,000 fewer civil servants supporting our armed forces, 2 times the proportionate head count reduction of the frontline.
Budgets have been devolved to the front line commands…with the men and women at the coalface taking responsibility for spending decisions.
And, when it comes to our corporate services, we’ve injected some re-invigorating private sector expertise…only last Thursday I announced the preferred bidder for outsourcing the logistics, services and commodities activity to bring defence’s antiquated inventory management and logistics into the 21st century.
Our Head Office now adopts a more commercial approach…ensuring we are a more intelligent customer; better able to get high-quality equipment and services at best value for the taxpayer.
Equipment coming on stream
Over the past year alone we’ve made a steady stream of investments in next generation kit and delivered new capability into service.
On land, the biggest armoured fighting vehicle order for the British Army in a generation, a £3.5 billion contract for 589 fully digitalised Scout specialist vehicles…
At sea, the floating up of the Royal Navy’s flagship Queen Elizabeth Carrier, followed by confirmation it will be joined in service by our second operational aircraft carrier.
And only last Friday, the Prime Minister announced an £859 million contract for long lead items for the first 3 of our next generation Type 26 frigates.
Beneath the oceans, the launch of HMS Artful, the third of seven Astute class hunter-killer submarines.
In the air, the arrival of the Royal Air Force’s first A400M Atlas transport aircraft, which this month I helped christen the City of Bristol to reflect the contribution that city is making and will make to this programme for years to come.
And last July the Prime Minister announced an extra £800 million of investment in intelligence and surveillance assets for our emerging cyber domain.
The contrast with the previous administration’s legacy couldn’t be starker:
where there was a £38 billion budget black hole, now there is a balanced budget; where there were cost overruns, now there are cost savings; where equipment deliveries were years late, now they are either on time or a few months behind,
in short, where there was chaos, now there is competence.
But we’re not complacent.
Which is why we’re continually working to perpetuate the transformative and progressive culture that has carried us this far.
More specifically…as I said earlier…we’re ensuring that from first to last… everyone in UK defence thinks differently.
And more internationally.
And I’d like to touch on how we’re doing that when it comes to defence procurement.
First: thinking more innovatively
Firstly, thinking more innovatively…an imperative if we’re to prepare for the world as it will be…not as we hope it will be.
Because it’s innovation that delivers the military productivity so key to realising successful military outcomes in a climate of continuing budget pressure.
What’s more, it’s innovation that underpins national prosperity…driving productivity and helping us move towards an export led recovery.
And the wheel turns, neatly, full circle when you consider that a strong economy is the wellspring of strategic strength.
With such high stakes, and a return to a more contingent posture following drawdown from Afghanistan, the MOD is focusing our efforts to unlock innovation wherever we can.
So we’re protecting our S&T spend…ensuring it remains at least 1.2% of the defence budget…
…And we’re investing an increasing amount of that on research into game-changing “disruptive” capability…
This year it was around £40 million.
Next year, we hope to increase that to £60 million.
Meanwhile, our Centre for Defence Enterprise develops novel high risk, high potential benefit innovations on everything from complex weapons to sensor navigation and guidance.
At a showcase earlier this month I saw for myself some of this new research effort into analysing social media trends to identify potential threats of tomorrow.
But investing in innovation is only the start…
We must weave it into the very DNA of defence procurement.
Which is why we’re increasing opportunities for SMEs …where entrepreneurs and scientists provide the niche capability and groundbreaking ideas that give us the edge.
And we’re doing that by making our procurement procedures more transparent, simpler and faster…
…engaging SMEs through a dedicated forum, which I chair…
…and setting ourselves challenging targets through an SME action plan.
And beyond the confines of MOD, we’re working with defence primes…encouraging them to open up their supply chains…
…not just to those in the defence business but to SMEs from across the spectrum…from computer gaming to motorsports.
Because military technology is no longer the main driver of civilian sector advances…it’s increasingly the other way around.
And we’re doing this…amongst other ways…via the Defence Growth Partnership…
…bringing together the best brains in industry, government and academia…
…fostering a collaborative environment to ensure the UK defence industry becomes more innovative, sustainable and competitive.
Things are moving fast.
The DGP’s Centre for Maritime Intelligence Systems in Portsmouth is up and running…a UK Centre of Excellence, to become a test bed for new systems and technology that can be sold around the world.
And it’s soon to be followed by the Defence Solutions Centre in Farnborough, which I have high hopes will also become an international centre of excellence for defence innovation.
So we’re doing our best…but we are also asking industry to step up to the mark.
Which is why we are looking to recalibrate our relationship.
Whereas, in the past, defence contractors looked upon the MOD as a benevolent cash cow that would fund its R&D, and then also pay for any development cost overruns…
Under our stewardship…working with industry…we’ve established a new mechanism to share pain and gain equally above a realistic threshold by aligning our interests more closely.
I want to see industry adopt this partnership approach more widely.
Not just identifying and managing risk and opportunity but also bearing and sharing it, in a spirit of partnership as we develop capabilities for a broader defence (and sometimes adjacent civilian) customer base.
But our ask goes beyond risk.
We’re now demanding that ‘exportability’ is actively considered from the very beginning of the acquisition cycle…
…because developing bespoke capability just for the UK attracts a cost premium that is not always justifiable, or affordable.
This will require industry and government to work together to assess our own requirements in the full context of the global export market…
…sharing both the opportunities and risks that come from developing ‘export ready’ capability.
But done properly the potential benefits are tangible:
First, the MOD gets the best kit for the best price.
Second, industry will reap the rewards of a virtuous circle of innovation, exportability and productivity.
And third, UK PLC will benefit from greater security and prosperity.
Which brings me on to my second point.
Second: thinking more imaginatively
Because…just as we cannot defend our security interests from Fortress Britain, neither can we advance our prosperity solely from within our shores.
Which is why, when it comes to building a strong UK defence industrial base capable of exploiting innovation to its greatest effect…we must be increasingly imaginative in the way we champion foreign investment on the one hand and exports on the other.
So, through our Defence and Security Industrial Engagement Policy…we’re encouraging overseas primes to extend opportunities for UK innovators to become part of their supply chains.
The UK defence industry is rightly proud of its place as the broadest and deepest supply chain outside the US. We have more companies engaged in defence and security than France, Germany and Italy combined.
But we are also using wider government initiatives…
…Like reducing corporation tax to one of the lowest rates in the EU’s big 5 economies…
…tax reliefs for R&D and exploiting patents.
…to ensure the UK remains the number one choice in Europe for foreign direct investment.
Our success is manifest.
As just one example, more than 30% of Saab’s Gripen multi-role fighter aircraft is supplied by British industry.
And when it comes to banging the drum for UK defence exports, we’ve worked hard too.
Through the DGP we’ve been strengthening the roles and capabilities of UKTI’s Defence and Security Organisation.
While, from the Prime Minister down, ministers have taken every opportunity to promote UK defence products across the world.
Far from being embarrassed, as frankly many in the previous administration were, supporting the British defence industry is something we’re proud to do… as I was leading the UK delegation of 80 British companies at IDEX in Abu Dhabi yesterday.
This is not least because we know we have the most robust and comprehensive export licensing process anywhere.
And when it comes to success, the figures speak for themselves:
Year on year growth in defence exports…
And a 22% share of the global defence market…making us the second largest exporter of new defence products and services, behind the US.
No less crucial are the diplomatic returns we get from engaging with other countries…
…returns that make exports a pillar of our international defence engagement strategy…and, ultimately, our national security.
Thirdly: Thinking more internationally.
Which brings me to my third point: thinking more internationally.
Because in this increasingly interconnected world, if we’re to stay ahead of the game…
From first to last, we must pool our resources more widely, a key tenet of our white paper.
It means collaborating on science and technology, as we do with 18 nations, including, of course, the US…
…with whom we have around 100 joint research and development arrangements currently underway.
And with whom I hope we can explore the potential for more joint working under their third offset strategy.
It means developing and procuring capability together…
…multilaterally as with the A400M…
Or bilaterally…as we’ve done with the French on the FASGW missile system or with US on the Common Missile Compartment.
Sometimes, it’ll mean working as equal partners, sometimes it’ll mean differing levels of national commitment, and sometimes it’ll simply mean agreeing to buy off each other’s shelf…as we’re exploring with the US when it comes to Scout and Striker.
Each approach presents pros and cons.
But whichever one we take…I believe it’s inevitable and desirable that UK capability programmes will become increasingly international.
And, if I’m right, it’ll be vital to work hand in glove with our allies and partner nations to make this shift in a coordinated and intelligent fashion…
…Ensuring we can align acquisition, access each other’s markets…and see capability collaboration for what it really is: a force multiplier and a pooling of the market; not a mechanism for eroding national sovereignty, competition or profit.
What’s more, by adopting common equipment platforms, interfaces and standards, our armed forces will be better able to interoperate with our allies…
Making collaborations more than just the sum of their parts when meeting the onslaught of emerging and rapidly evolving threats.
So as we approach the next SDSR…
…despite the challenging targets the MOD has had for the last 5 years…
…defence can enter the process from a position of much greater strength than the doomsayers suggest…
…a strength that is the legacy of 5 years of imagination, innovation and internationalism…
…offset by a regime of realism, efficiency and prudence.
UK defence is in a far, far better place today than we were 5 years ago.
I firmly believe that whoever holds the reins of power…
And of course now 20 minutes closer to the polls opening, I am increasingly positive about the prospects that this will be the party I have the honour to be part of….
But whoever has the rare privilege of joining the ministerial team in the Ministry of Defence, I am sure that if they continue on the course we have set…
As a nation, working closely in concert with our international allies, we will find opportunity in adversity…
To deliver security through defence…
…to secure the future for Britain.