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Defence Industrial Strategy

With permission, Madam Deputy Speaker, I should like to make a statement about the defence industrial strategy, which I am publishing today and which has been laid before the House. The men and women of our armed forces play a vital role as a force for good in the world. I know that the whole House—and every complexion of party in the House—is very proud of the work that they do, in dangerous and demanding circumstances, whether in Iraq, Afghanistan, the Balkans or closer to home. We recognise that three elements are required for them to be the best in the world: the intellectual element, involving training, planning and doctrine; the physical element; and the element of morale. All those elements are important. Our armed forces can be this effective only if the Ministry of Defence and industry work as a team to provide them with the best possible tools to do the job, particularly in regard to the second element, the physical component of our fighting power, which involves equipment and capability. The defence industrial strategy, which we released today, is the product of five months of concerted effort by Ministry of Defence civil servants, the armed forces, other Government Departments, industry and the trade unions. It has at its heart the provision of effective and capable equipment to our armed forces. On a personal note, I should like to pay tribute to the noble Lord Drayson, who has overseen the production of this substantial document. The House will know that we are in the middle of a substantial transformation, enabled by the sustained growth in the defence budget that has been a feature of each of the spending reviews that have been conducted since the Government came to power. We are procuring a series of major new platforms, including future aircraft carriers—on which I made a written statement to the House yesterday—type 45 destroyers, new medium-weight armoured fighting vehicles, the A400M, Typhoon and joint combat aircraft, among others. This transformation has at its heart the delivery of truly network-enabled capabilities, linking sensors, decision-makers and shooters in a much more integrated way. We expect these platforms to have very long service lives. The future business for the defence industry in many sectors will therefore be in supporting and upgrading the platforms throughout what we believe will be their long service lives, rapidly and incrementally inserting technology to meet emerging threats, fulfilling new requirements and responding to innovative opportunities. That is what we expect of a large section of industrial effort, rather than immediately moving to the design and manufacture of the next generation. This will require rationalisation within the defence industry, particularly of over-capacity in production facilities. In some cases, sustaining the skills, technologies and industrial capabilities that we need will be challenging. Change is sometimes challenging and painful, but the one thing that would be much more painful than not changing in a changing world would be to refuse to change, and to find that redundancy and irrelevance had overtaken the product. While we may look overseas to meet some requirements, we will need to ensure that we in this country maintain military freedom of action and safeguard our national security. This degree of change and transformation—and the respect for future planning capabilities and the maintenance of our strategic safeguards—implies the need for a comprehensive strategy for how we engage with the industrial base. The defence industrial strategy, building on the 2002 defence industrial policy, articulates a strategic view of our defence requirements going forward by sector, and the principles that will underpin procurement and industrial decisions in the future. It communicates for the first time to industry and the City those skills, technologies and industrial capabilities that are assessed as being required onshore in the UK in order to sustain the armed forces’ ability to operate with an appropriate level of sovereignty. It recognises that this will be possible only if we have a healthy, profitable and internationally competitive industry capable of responding to our requirements. The defence industrial strategy also investigates how we might with industry address mismatches between planned activity and the work required to sustain desired capabilities. It will give industry and investors a much clearer idea of our priorities, allowing them to plan more assuredly for the future, which will be of benefit to the management, shareholders and workers in industry. I now turn to the impact of the analysis that we have conducted on specific sectors of the defence industry. In the maritime sector, the Government are investing in the biggest naval shipbuilding programme that the Royal Navy has seen for two generations. The highly capable expeditionary fleet that will result will offer significantly enhanced military capability, well suited to the demands of the 21st century. However, we need to recognise that the industry is currently fragmented—different companies and facilities undertake submarine build, surface ship build and support, even though the skills required often cross over. We must also face the fact that current levels of work, although huge by comparison with the recent past, will not last for ever. Once we are over the hump of the major reinvestment in new ships in about 10 years’ time—that is how far ahead we are looking at the shortest end of our horizon—it will not be affordable to sustain excess industrial capacity in the longer term. That means making plans now so that we can keep the required key skills onshore in the UK. For submarines, we are committed to maintaining onshore the ability to design, manufacture and support through life all aspects of that capability, which is so important to our national security. Cost growth in the area, however, is a real and persistent problem. We must control cost. To improve productivity, a new structure is required. As my announcement on the future carrier in a written statement to the House yesterday demonstrates, we need to sustain the ability to design and integrate complex surface ships and to support and maintain them through life. A stable and healthy programme of warships and other complex vessels will continue to be built in the UK, and that will maintain and grow the high-end skills that we need. However, we might look to outsource some lower-end manufacturing offshore. That makes sense, not least in order to avoid the boom-and-bust cycle of sustaining or creating capacity for which there is no medium or long-term demand. That is also a much better arrangement for employees, providing the basis for more security and stability to develop and enhance their skills in long-term structured and secure employment. In the air sector, the Royal Air Force is in the middle of a substantial re-equipment programme, introducing into service the Eurofighter Typhoon and looking forward to the arrival in the next decade of the joint strike fighter. Both those aircraft will last for at least 30 years. Our current plans do not, therefore, envisage the UK needing to design and build a future generation of manned fast jet aircraft beyond the current projects—that is some 30 years away. That has unavoidable consequences, in forward planning, for the medium-term shape of the aerospace industry. We need to retain, however, the high-end aerospace engineering and design capability required to support, maintain, operate and upgrade Typhoon and the joint strike fighter through life, so that they are capable of tackling new challenges as they come along and incorporating new technology and improvements to meet those challenges. That is key to operating our aircraft in the manner that we would choose. The aerospace industry has a critical role to play, and there will be substantial business opportunities for BAE Systems and other companies such as Rolls Royce and SELEX. I am pleased to announce that we have reached an agreement with Rolls Royce to provide future through-life support to the RB199 engine on the RAF’s Tornado aircraft. As the focus shifts from designing and building new manned aircraft towards supporting them through life, industry will have to make that challenging transformation. We are, however, committed—this is enshrined in the defence industrial strategy—to working with industry to manage that transformation with foresight to our mutual advantage. To that end, we intend to enter into negotiations with BAE Systems in the new year with a view to agreeing how best to work together—and with the many other key suppliers in the sector—to ensure that the key skills and capabilities that we need are sustained in a cost-effective manner. That work will be complex and arduous and will necessarily take time. It is essential, however, if we are to maintain stability in a period of transformation. This is an exciting, high technology industry with a healthy future. I am delighted to announce that we will invest in a significant technology demonstration programme for uninhabited combat aerial vehicles. That will help us to better understand the potential military benefits of uninhabited aerial vehicles—sometimes referred to as unmanned aerial vehicles, I have been instructed to say—including combat versions.