Since 2010 – the year this administration came into power – we’ve watched defence exports rise steadily year-on-year… with some impressive successes.
Like the £2.5 billion contract between BAE Systems and the Sultanate of Oman for 12 Typhoon and 8 Hawk 128 aircraft. And, AgustaWestland’s £350 million contract to supply AW159 helicopters to the Republic of Korea and a £1 billion plus contract to supply 16 AW101 helicopters to Norway.
The list goes on…but my starting point is, that when it comes to worldwide exports – the UK continues to be a leading player, a market to be considered by any ally or partner nation looking to upgrade military capability. All-in-all our share of the global defence export market is estimated to be worth around 22%, (£9.8 billion), allowing us to maintain our position as the second largest exporter of new defence products and services, behind only the US.
Not bad considering the US defence budget is ten times ours …and no mean feat in a fiercely competitive market…fuelled by shrinking defence budgets and exponential technological advance.
The importance of exports…
So you’re doing well. But, in this game, it doesn’t pay to be complacent. To survive and thrive we must keep moving forward. Which is why, as safe a pair of hands as UKTI DSO is….we must all pull together to build on success, to succeed. And the MOD has been busy over the past 4 years doing just that.
First-things-first – we got our house in order. When this government came into office in 2010, we were dogged by:
-- a £38 billion black hole in the defence budget
-- an overheated equipment programme
-- and an inefficient procurement system
So we made tough and unsentimental decisions about the future of some iconic capabilities. We restructured our forces making them more flexible and agile.
We devolved budgets to the single services, ensuring those at the coalface took responsibility, and accountability, for delivering military capability across their domains.
We 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.
And lastly, we transformed our infrastructure and equipment organisations…injecting them with much-needed private sector expertise.
…Ensuring we became a more intelligent customer; able to get high-quality equipment and services at best value for the taxpayer.
In short, we transformed the MOD into a leaner and more efficient machine – able to equip our armed forces with the kit they need…when they need it.
Thanks to all this hard work, for the first time in a generation, we were able to publish a fully-funded Defence Equipment Plan. And just last month, we presented the third consecutive iteration of that plan to Parliament…
A realistic and affordable roadmap, setting out in detail how we intend to spend around £163 billion on new equipment and equipment support over the next decade. Coupled with National Security Through Technology, it gives industry the clarity you need to plan and budget for MOD investment and to invest in the right areas, protecting both our security and the invaluable contribution the UK Defence Industry makes to our national economy.
Beyond MOD: What else?
But whilst a match-fit MOD is a precursor to a healthy and globally competitive UK Defence Industry that alone is not enough. So we haven’t just spent the last 4 years navel-gazing. We’ve been working on several initiatives to bolster the UK’s position as a world-leader in defence exports.
Firstly: Investing in Innovation
Firstly, we’re doing our bit to help Britain stay ahead of the technological curve. And maintain its track record for world-beating innovation, by investing where it matters: protecting S&T spend at 1.2% of the defence budget and providing financial support for research into novel high-risk, high-potential-benefit innovations through our Centre for Defence Enterprise.
But that’s small fry compared to what industry can do. So we’re encouraging defence primes to open up their supply chains…smoothing the path for the SMEs that provide the niche capability, the groundbreaking ideas and the enterprise that gives us the edge. I look forward to the Defence Solutions Centre and boosted DSO with high quality secondees from industry.
Through our Defence and Security Industrial Engagement Policy (DSIEP) we’re extolling the benefits of investing in the UK to overseas domiciled primes. Promoting the UK as a key location to engage in research and development investment and technology transfer… and encouraging them to extend opportunities for UK companies to become part of their supply chains.
We believe it is in their interests to do so, since the UK has the broadest and deepest defence and security supply chain in Europe with as many companies engaged in defence as Germany, France, Italy and Spain combined.
And, we want it to stay that way, which is at the heart of this government’s Defence Growth Partnership – described by Dominic earlier – which is bringing the best brains in industry and government together…
So we can foster the UK supply chain and create a UK centre of excellence recognised as such by defence customers and other defence supply chains around the world.
Crucially, we’re casting our net well beyond our shores, too – continuing to work with our international partners, pooling our resources, using the mechanisms we have in place to share everything from nascent ideas to deep technical data, ensuring we exploit innovation as widely as possible.
We’re seeing it with Anglo-French cooperation on the development of unmanned combat air systems. And we’re seeing it on a multinational scale with the Meteor missile. Two programmes at the forefront of technology, but that are just the tip of an iceberg.
Secondly: Reforming our relationship with industry
But there is a quid pro quo to all this. Industry must meet us half way if we’re to realise our national potential. Which brings me to the second, and most radical, step we’re taking to boost the UK’s defence exports: reforming our relationship with industry. In the past, defence contractors looked upon the MOD as a benevolent cash cow that would fund R&D and then development cost overruns.
The initial Carrier contract was a classic example of chaotic and frankly shocking contracting allowed by the previous administration…where 90p in every pound of cost overruns was borne by the taxpayer. Under our stewardship the Carrier has become a watershed. Because, working with industry, we have established a new mechanism to share pain and gain equally above a realistic threshold. This collaborative approach represents our preferred way forward, through aligning our interests more closely.
I want to see industry taking the initiative to adopt this approach more widely. Not just to identify, understand and manage risk but also to bear and share risk in a spirit of partnership as we look to develop capabilities for a broader defence (and sometimes adjacent civilian) customer base. The good news is this is starting to happen.
But our ask of industry goes beyond just risk. In the past the MOD contracted for highly bespoke products, often at great expense. We received cutting-edge equipment but its niche specification often proved its Achilles heel on the generic market. So – as laid out in our White Paper – we’re demanding that defence contractors build exportability into their thinking from the outset. Actively considering export potential from the beginning of the MOD acquisition cycle alongside the UK’s own sovereign requirements.
Making greater use of modularity and open systems. And developing and procuring equipment with partners where it makes sense to do so. This requires a mind-shift by both MOD and industry. We need to work together to assess the UK’s own requirements in the full context of the global market appetite, and this can only work if the opportunities and risks that come with developing ‘export-ready’ capability are borne on both sides.
I want to help us achieve this. The MOD has already mandated considering export potential as part of our formal approvals process. And to make this process robust, we’ve been developing a framework to bring confidence and consistency to the process of determining exportability, helping procurement teams provide the necessary evidence to approving authorities, to show that exportability has been thoroughly considered and, where appropriate, acted upon.
The result will be a department that can better articulate the benefits that we ourselves draw from your export success. Reduced procurement costs, enhancements to our own capability, and as a pillar of our international defence engagement strategy. Some of you will have been consulted on this already. And we’re now ready to move on to live pilots…with a number of projects being used to test and refine this process in a real-world setting.
Thirdly: Championing Exports in person
But that’s all just one end of the lengthy defence industrial spectrum. Once our world-class capability has been conceived, designed and manufactured…we have to sell it. So thirdly, this government, in stark contrast to our immediate predecessor, has not been embarrassed to champion UK defence exports - far from it. Ministers from the Prime Minister down have been creative in supporting your efforts for defence to play its part in the economic growth recovery of this country, by promoting defence exports.
I am proud to have played my part in this the past 2 and a half years… Last year I travelled to the USA (3 times), Doha and Paris (twice), Kuala Lumpur, Berlin, Abu Dhabi, Brussels and Oslo to do just that. And I am not finished yet. Before the election, I plan to lead delegations to IDEX in Abu Dhabi and LIMA, in Malaysia. And I am by no means alone within the MOD ministerial team. The Secretary of State returned this morning from a long weekend in Korea and Australia.
My colleague, Lord Astor, supported defence exports for the past 7 years, in his role as Under Secretary of State for Defence and will be leading the delegation to Air India in Bangalore this month, forging particularly constructive relationships in the Middle-East.
We have, of course, also been active on home turf, at the increasingly well supported events like Farnborough, DSEi and RIAT. But – when it comes to marketing – nothing packs a punch as well as our very own armed forces who play their part wherever they can, undertaking defence engagement. And it is good to see so many uniformed members of the Export Support Group here today.
Demonstrating kit and capabilities at international air shows and exhibitions. And showing why – when it comes to defence capability – UK industry stands front and centre on the world stage. So we have done our best and I can assure this audience if or I would say when re-elected on the 7th of May we shall continue to work tirelessly in the interests of UK defence, and for the greater good of UK PLC to drive defence and security exports. And we’ve achieved a lot in the past nearly-5 years.
But the next 5 will present their own challenges, with continued austerity and the proliferation of global threats. Not to mention another SDSR and Spending Review looming large on the horizon. But we shouldn’t be unduly concerned.
On the contrary, we should take heart from the knowledge that as we enter the final 3 months of this Parliament, those of us who have had the privilege of helping lead the defence of the realm can look back with some pride that having balanced the defence budget and established an equipment plan which gives confidence to our armed forces and industry alike.
Where we inherited chaos now there is competence; where there were cost over-runs now there are cost savings; and where ministers were embarrassed to even mention defence exports now we promote them with pride. Government and industry, have together laid strong foundations on which to build a bigger and better future for Defence and Security Exports. Together, we’ve risen to the challenge and shown: the resilience, the ambition, and the innovative flair. That is this country’s trademark. And that makes “Made in Britain” a badge of pride across the world.