I call to order today’s Defence Committee evidence session on the UK’s contribution to European security. It is wonderful to have with us three prominent individuals within the defence industry to give evidence. First of all, welcome to Kevin Craven, chief executive of ADS. We also have with us Julian David, CEO of techUK, and Andrew Kinniburgh, director general of Make UK Defence. A warm welcome to all of your good selves. Without further ado, let us get on to the questions. Some of us will know the answer to this, but, in your view, what role does the defence industry play in the UK’s deterrence posture?

It has a huge deterrent effect. You could argue that it is almost as important as having the armed forces, having a really strong back room in terms of the defence supply chain. In the UK, it is absolutely key. We are not yet on a war footing in the UK with the defence supply chain. We need to move quickly to try to get there, where we have spare capacity and surge capacity in the supply chain. It has a huge deterrent effect and we need to move much more quickly to establish that surge capability within the primes and within the mid-tiers and SMEs.

I will give a bit of background about techUK, because it may not have the obvious “defence” in its title. We have 1,100 member companies, about 700 of which are SMEs. We are the voice of the tech industry in the UK. Why that matters is because defence is increasingly about digital technology and its deployment within existing weapon systems and platforms, as well as in new forms of warfare, so electronic warfare, cybersecurity, etc. The UK is very well placed in respect of that, because we have a very significant and well-regarded technology industry. It is a $1 trillion industry. We have the third largest capability in AI, which we are now seeing become pervasive about the battle space as well as in national defence and security. The idea that we have that capability and that it can be deployed in defence is really significant. In terms of what we do, we are members of the Defence Suppliers Forum, as was, and represent a lot of SMEs and tech companies there. We have very strong relationships across the MoD, particularly with Strategic Command and Defence Digital. We are very pleased to work with colleagues from other associations in bringing that capacity to the use of the UK’s defence.

I am with Jens Stoltenberg, who said, “Without industry, there is no defence, no deterrence and no security”, and that, broadly, remains very true and relevant today. The UK has 164,000 jobs directly in defence, and probably three times that number indirectly. We are one of the largest defence industries in Europe, and that capability and capacity is critical to Europe, albeit that, at the moment, we have a number of political differences that make it difficult to use that in a coherent way.

I want to build on what you just said there, Mr Craven. There has been considerable criticism of European Governments not being able to step up to the plate. In fact, Dr Watling of RUSI intimated that it “should be a matter of embarrassment in Europe today that while many defence enterprises have expanded their capacity to produce shells over the last 18 months, order books at Europe’s defence companies are far from full”. It is eminently clear to many of us that Governments in Europe are not making full use of that industrial base. I wanted to ask your good self whether British taxpayers, or taxpayers more generally, are getting value for money from the defence industrial base. I say that because the NATO chief of the military council suggested that industry could do more to speed up production. In his words, “They need to work faster”. It should be a “wake-up call to industry”. “They are still in an old mentality in which earning money was the big issue”. Is it the case that the Government or the British taxpayer are not getting value for their pound because things are not being produced quickly or cheaply enough?

It is a good challenge, and a many-faceted one. We are certainly very wedded to the large primes in the UK. While there is absolutely no question that they are world class, they tend to be quite expensive and cumbersome. MoD exacerbates that effect by providing exquisite and very detailed requirements, which everybody then needs to turn themselves inside out in order to fulfil. We have very good, but very big and expensive, companies. We are not making nearly enough use of the supply chain, which, as Kevin rightly said, is very sophisticated. We are probably second in the world in terms of our sophisticated defence supply chain. Yesterday’s announcement at No. 10 about setting up this SME hub and pushing hard on setting hard targets for MoD and the primes to use SMEs and mid-tiers much more will, most certainly, drive down costs and improve speed. The challenge to the MoD is, “You must get better at providing a problem statement, not an exquisite requirement. Your contract does not need to be 1,000 pages long”. We have an SME called Filtronic, which has an eight-page contract from SpaceX. Its MoD contract for exactly the same equipment is 90 pages long. For SMEs, that just kills them. We need a change of attitude from the MoD, which we are seeing now, but we need to see that really percolating through the contracts and commercial, with problem statements rather than exquisite requirements, and much more use of SMEs and mid-tiers.

Mr David, is the British taxpayer getting value for money from the defence industry?

There is a real challenge in the way that the whole thing works. We would sum this up by saying that three things need to change. We need to spend more quickly, and that is a clear thing. These days, the time from design to usage of anything in a weapons or battlefield environment is weeks, and the British procurement process is years, at least. That needs to change, for larger as well as for smaller and more replaceable units. They need to spend differently. At the moment, there needs to be a shift away from a hardware-centric approach of specifying a project to make something that lasts for 20 years, towards making something that might last for 20 years but designing it with a software-centric approach. This is the idea that you are able to adapt to requirements by changing the software and by adding things to the platform, if it is a big platform, or by shipping out replaceable stuff and shipping in the latest version, within a software environment. We need to make sure that we have more capacity. Our members are very keen to do more in this space. Many of them already work with larger companies. The supply chain of larger companies has an awful lot of smaller companies in it, but, if you want to do something as a single, independent SME, everything in the way that things are done makes it difficult, as Andrew has said. In particular, take something as simple as security clearances.

We will be coming on to that later.

I will stop there, then.

I agree with your comment that the MoD needs to change how it is operating, but we also need to get better at innovating.

I will make two points. First, on the point about European Governments, including the UK, the peace dividend over the last 30 years has meant that spend on defence has reduced by approximately half to two-thirds. The underinvestment for that time is one of the reasons why we are struggling today. The value for money point is directly connected. I would say that “probably not sufficient value for money” is the right answer. The reasons for that are complex and difficult. They include the political system, the procurement system and the capability of the companies supplying into the system, which are all intimately intertwined when you have a monopsony customer. It is a difficult balance to get right, and the stop-start nature of our procurement means that we are struggling to produce in the most efficient and effective way.

I agree with you that we need to increase our efficiency. I must declare an interest. Having started and run my own small business, I agree that SMEs are not getting their rightful share of proceedings and the obstacles are too great.

Mr Kinniburgh, you used the phrase, “We are not yet on a war footing”, and we have approached some of the things that might change, were we to be on a war footing. I am just keen to explore the extent to which you have told Ministers that you want to be put on a war footing and whether they understand the implications of that. In particular, all three of you have made the point that the MoD needs to get out of the way a bit more, and that it is a question of what the MoD is going to do less of, not more of.

We are not on a war footing. Some aspects of the defence supply chain are, but they are few and far between. Because MoD is very prime-focused and tends to focus in on a single supplier for many things, including what you would consider fairly basic stuff, such as ammunition, where there is a single provider, the problem is that you just do not have the diversity of supply. Your surge is only one factory, which has a finite capability. When you go to the war footing, you have only one place to go, and that is a huge challenge. We wrote to the MoD at the beginning of the Ukraine conflict. We ran a little session with our SME and mid-tier members, and we put together a shopping list of what we thought Ukraine might need as it went forward in the conflict. That did not get a response at all from the MoD. We have certainly moved forward from there, but we have many members. MSI Defence makes naval guns and 30 mm and 40 mm cannons. It could be making those now. It could have been making them for the last three years with orders from the MoD, but there are no orders. As much as we want to support our Ukraine colleagues, you cannot make it for nothing. Another company, GW Martin, on the south coast, makes 30 mm and 40 mm ammunition. Again, there are very few orders for Ukraine or, indeed, for the UK. That capacity is there. That factory is relatively quiet, and yet there are no orders. It is deeply frustrating as you go down through the supply chain, because there just is not that activity. I am not having a go at the MoD or the primes.

Have a go at them as much as you want.

That is why we are here. Don’t worry, Mr Kinniburgh. That is precisely what we are here to do. The significance of the work of the Defence Committee has enhanced significantly, but, if we are not discussing this in this forum, and if people are not stepping up to the plate, we will fail our country.

I am like the rest of the Committee, in that we are very happy to take on the MoD and deal with its shortcomings. But, if you will forgive me, it seems to be all the MoD’s fault. What is it that you could do better? We have heard about the primes being a bit cumbersome, etc, but what is it that you could be doing better? It is not just about the MoD, is it?

Interestingly, we are, technically, on a pre-war footing. A shift is required if we are to improve production capability and capacity, but it is a big step. The appointment of the national armaments director, who could have the dimensions of a War Minister—a Lord Beaverbrook—is an important step in terms of moving forward. In terms of what we are doing, one thing that I would point to is that we, as industry, are now embedded in the planned force testing process and the industry war gamings, which I am very pleased to say we have been supportive of and helped to bring about. That is industry being involved in the early force development and capability development processes inside the MoD. Those requirements are better informed and better costed, and will produce better outcomes in terms of more value for money for taxpayers. That early engagement of industry within the walls of the MoD is really important. Is the MoD solely at fault? No, absolutely not. It takes two to tango. In this case, it takes three or four to tango, frankly, but the system as a whole has to work better together in order that the end production capability is working as efficiently as possible. It is a tough question to answer adequately.

How do we compare to our allies and partners in terms of the depth and scale of our defence industry? How important is that industry to the UK as a whole?

If you look at the broader definition of “defence”, which is really important, I would make the comment that, in some of these areas, such as cyber or attacking vital communications connections, there is already what you could call enemy action happening. It is really important that we understand that and take the right approach to making ourselves much more cyber secure, looking across the whole of national security. We are extremely well placed in terms of our ability to bring to bear the skills and capability in that modern context. I have just referenced the fact that there are over a million people employed by the tech industry across the UK. All of those civilian skills have a bearing on this and can be brought to bear. To come to the “but”, it does take two to tango, as Kevin said, and I do believe that we have got into a behaviour pattern that specifies exquisite solutions for a problem defined now, with some idea that it might last longer, instead of us taking things that we know work and can see work elsewhere, where we could build capacity to do them in the UK and deploy them much more rapidly. Certainly, as far as new, modern warfare goes, we are as well placed as anybody.

The UK represents around 20% of Europe’s total defence industrial capability in this space. We are the only country to have put our nuclear deterrent at the service of NATO in the event of a conflict, so we have a really important role to play, which is challenging, given the political nature of where we are at the moment. I would point to some of the other countries where we could learn something. In particular, Germany’s industrial military complex is very integrated and probably produces more efficiency in some ways. We are all aware of the integrated nature of France’s export campaigns. That is important because one-third of what we do is exported to the rest of the world. That allows us to produce more affordable kit for the UK and also builds allies and relationships around the world. There are some things that we can learn. I would also point to the Nordics and their whole‑of‑society type of defence mindset, which is something that we have perhaps neglected here in the UK. It has been a long time since we have talked about civil defence and societal resilience. I remember the previous Deputy Prime Minister being ridiculed for wind-up radios and things, but there is a point beneath all of that that is important.

If I may, just picking up on Kevin’s point about the Nordics, Norway is quite a good example. It is a much smaller nation, with a smaller military, but it imports about 70% or 80% of its defence equipment. It has a very forward-leaning and legally binding offset policy, so that, for every pound that it spends with an overseas contractor, another pound must be spent in the Norwegian economy. In our defence industrial strategy for Make UK Defence, we have certainly asked for that for the UK. We think that it should be something that we consider. In parallel, we need to have a much more-UK focused attitude towards defence equipment. What I was going to say was reflecting not so much on overseas companies but on the UK and our ability to attract foreign direct investment. If you look at the number of companies that continue to invest in the UK, we have seen some big Israeli companies, such as Elbit and Rafael, investing quite heavily recently. Saab has just opened a big campus in Fareham, which is a huge and very impressive complex. We then have others that are more established, such as Leonardo and Thales. To go back to your previous point, Mr Twigg, I am certainly not blaming MoD for all of this, but the evidence would point to the fact that the UK defence supply chain is very sophisticated. We are a well-regulated and reliable partner, if I am allowed to use that word in these slightly scary times, and are seen as a fairly safe place to invest, along with that sophistication. If we can bring the tech through as well, we are in a strong position.

On the tech in particular, what world-leading capabilities do we have in our defence sector in the UK?

I go back to MSI Defence Systems, which is a world leader in counter-drone technology. It is absolutely top drawer. It is a very strong and incredibly capable business. It exports something like 70% of its work, but orders from the UK are few and far between. There are many companies in our supply chain, but I do not want to hog the microphone.

To add the tech dimension to that, you see many innovative companies here, which are widely used elsewhere in conjunction with defence spend, but also with security spend. If you look at the national capability here of GCHQ and other agencies, they are ranked alongside the US, and you have seen that demonstrated in wars. We also saw the UK bring AI into the joint expeditionary force and track a Russian shadow fleet. Harnessing those technologies is going to be really important for the future. They are all here. I would just say that, in terms of how to do this better, there really is a problem for new companies and tech companies. Prior to the Defence Industrial Joint Council, the Defence Suppliers Forum managed to count more than 80 frameworks in use across the MoD. We would contend that many of them were trying to buy similar capabilities, but with a slight difference, because it comes from a different requirement. There was an absence of the kind of forward-looking statement to industry that says, “We want to build capacity for this, so please invest here”, either incoming companies or UK-based companies, “because there will be a requirement for that and we want to have that capacity here in the UK”.

Just adding to that, defence exports are around £9.5 billion to £10 billion. Security exports, which include cyber and AI-type services, are also around £10 billion. Those are numbers that are not widely known, but they are really important. Of the defence number, around 70% is combat air, so that is quite clearly seen by the global marketplace as a world-leading capability. In Ukraine, they are looking at some of our drone and AI technologies. Those are being proven on the battlefield as we speak. We have a very innovative and sophisticated supply chain. I have 1,300 SME members, and there are some world-leading ones in that.

One thing that has not come out is how you envisage relationships with the MoD. Looking at its procurement document, it speaks of strategic partnerships and lists all the big primes, which, clearly, one of you represents. What does “strategic partnership” mean? I do not know, and I would like to.

The strategic partnering programme, which is an MoD supplier management programme, has 19 strategic suppliers, all of which are primes by that definition. They get a senior responsible officer and commercial officer dedicated to them, and are designed to help better manage those partners supplying the MoD. It is an improvement on the past. Is it working as well as it could do? Probably not, no, but it is a step. To give some numbers in terms of the challenge on the SME front, the MoD’s direct procurement with SMEs is 4%. Another 20-odd per cent goes via the primes, but 75% of the current spend is with those 19 strategic suppliers. Managing them is where quite a lot of effort is spent, and one could argue how well that goes.

If you look at tech, there are strategic suppliers across the MoD and the broader national security and defence environment. Again, they tend to be larger and more established companies. There is a reason why that makes sense, in that it provides value, because, in some cases, you need that scale. Where the difficulty comes is building a relationship, if you are a newer or smaller supplier, directly with the MoD. The announcement of the SME hub is a really good step, as long as it becomes a proper place of co-ordination and a doorway into procurement, as opposed to just another grouping initiative and somewhere else that SMEs have to find a way to navigate to. I do think that the opportunity is there. For smaller companies, if you say, “These are the areas where we want to establish reliable, long-term partnerships”, you will get them starting to invest and trying to build relationships, but you have to fix things. Chair, you mentioned security clearances. It is an obvious one, but it really is difficult for small and new companies. Effectively, you have to be in a project before you can be admitted for security clearance, but you cannot get to know about the project if you do not have it.

Would you say that the strategic partnerships are a structural opposition to SMEs? Should there be a separate strategic partnership for SMEs?

No, I do not see that. We need both. My colleagues have referenced the fact that you need large, capable suppliers, which have a relationship such that they know what is going to be required for the future and can create the capacity and make the investment. These investments take a long time. They exist and are good. What I am saying is that we are not doing enough to bring in new types of partners, smaller partners, and partners particularly in the area of tech, but also in other areas, as referenced. I do not see it as an either/or.

I am afraid that I do. I see it as a barrier. There are lots of very well-meaning people in the primes. There are some excellent people. They have some really high-quality individuals. The system is partly to blame, and it is certainly not all the MoD, as we discussed earlier. The problem with the strategic supplier programme and the Defence Suppliers Forum—God rest its soul, it is now gone and, frankly, we are delighted to see the back of it—is that it is so dominated by the primes. For every cupboard that you open in MoD, five primes pop their heads out. That is not to have a go at the primes, because they do a very good job under tricky circumstances, but you cannot reach the parts of the supply chain that you need to. For instance, the carriers cannot sail without a tiny company based in Southampton that makes the paste that goes in the paint that makes the landing pad on the carriers heatproof enough to allow an F-35 to land. That tiny company employs about seven people. It is not identified as a key supplier. We talked about naval guns earlier on. If you look at naval davits, which are cranes for delivering small boats into the sea, there is a company called Welin Lambie in Dudley. It is a fantastic, world-leading company. They are on every US navy capital ship, including the big nuclear carriers. They are on every US coastguard cutter. They are on zero UK Royal Navy ships, because we go to Italy, to France or to Norway for our things. The problem is that, if you concentrate everything into the top 19 strategic suppliers, you tend to drive the behaviours of a bit of vested interest. These companies are also under huge pressure to deliver, so they do not always have the resources to go and look out into the UK supply chain. Some of them may not be aware of these companies, because they simply do not have the bandwidth. The reason we are excited about this Defence Industrial Joint Council and this SME hub that was launched yesterday is that, hopefully, it can percolate those relationships right down through the supply chain, and we will no longer have that slight vested interest or everything being seen through a prime lens, which is not always healthy.

Coming back to what you just said, it would be interesting to know how many primes buy out SMEs. I do not know if there are any figures on how many SMEs get bought out to bring them into the prime industry, where they might lose those innovative ideas. The world has been moving quickly over the last couple of weeks and, especially here in the United Kingdom with our European partners, over the last few days. The Government have announced a new defence innovation body to be moving, in their words, at fast pace to drive reform in defence and to use defence as an engine of economic growth. Julian, you were saying that you are the tech voice in industry and that it is a $3 trillion business.

$1 trillion.

Right, okay. I am just wondering about innovation within procurement and industry. What do we need and what would you like to see come out of this new unit to create an effective and functioning innovation ecosystem within our defence industry in the United Kingdom?

We would like to see it become the front door to and the co-ordinator of what is going on. We have examples of different parts of the defence environment—the MoD—still looking for the same capability in different places. With the opportunity to co-ordinate that across the defence and security space, and to find solutions that smaller companies can bid to, but which are then able to be replicated, you get the benefit of a small player with a new idea, a newcomer to the industry, and the scale to do it. One of the reasons why primes are so important elsewhere is because of scale. If that happened—and you will notice that I am saying “if that happened”—we would have a real opportunity to energise new players coming into the market and to get new solutions. The second thing that it needs to do is to define things in the here and now. You have seen this in many battlefields around the world. It is a sad thing to see, but the amount of time that you have between identifying a requirement and deploying it is really short, and then it does not last. It has to be changed, either upgraded, as I have said, through making it software-centric, or replaced. We need to get more used to the idea of churning things within a strategic set of requirements. If we do that and start to act as a single buyer and to think about operational standards and interoperability—I have more to say on that in the context of international connections—we have a real chance to transform the supplier base.

I can take a stab at your numbers point, Ian. At the moment, the thing to look at is that there are around 40 primes or near primes in the UK, and something like 8,000 or 9,000 direct SMEs below them. In between, in the mid tiers, there are very few companies, because, as soon as they grow to a certain size, they get acquired. That is partially because they are being acquired by American venture capital funds or PE funds, which get a premium advantage in buying newer stocks. The short answer is that there is a real dearth of opportunity for those SMEs to grow to the scale to create real competitors. That is a structural challenge that we need to get to. In terms of how we do it better, the Defence Innovation Unit is a good thing. We really need to understand how that is going to be effected and planned. It needs a very clear scope of work and a very clear plan. We need to understand the interfaces with other bodies such as the Defence and Security Accelerator—DASA—and Dstl. One of the challenges that my colleagues have referred to is the number of points of entry into the MoD. There are something like 80 points of contact for innovation alone, so we need to condense those into a sensible, manageable amount. Just on the SME point and going back to the numbers, 20% of the MoD’s spend goes through primes to SMEs. Incentivising the primes to do more of that, to treat the SMEs better and to work with them more closely would be a massive accelerator in terms of how we do that. Of the MoD’s spend, 4% goes to SMEs. That is with 2,500 to 3,000 commercial officers in existence already, managing the existing number of contracts, so the resources to face off against 8,000-odd SMEs are really going to be quite limited, and we have to be clever about using them. I agree absolutely that our SMEs are fantastic and highly valuable to the UK, and should be engines for growth. How do we get them to maximise their outputs as well? One big lever would be using the primes to accelerate that.

We would certainly welcome a single portal for innovation. I can give an example of a company that has an innovative solution for Ukraine. It went to DASA. It then got sent to Dstl, which said, “No, not us. Go to NavyX”. It went to NavyX, which said, “No, not us, Tech Bridge”, which is another Navy innovation unit. It went to the Navy, and back to DASA. It did not get anywhere. It took a year for it to go around, because there are no front doors for these organisations. I am exaggerating for effect, but that is the problem. There are no front doors for many of these organisations, so a single unit would be very welcome, as would less reliance on retired senior officers. If there is no front door, you rely on your retired air vice-marshal to give his old pal from Cranwell a ring, knock on the door, and go and have a coffee. I am being slightly facetious, but it is hugely important. If I may just slightly disagree with Kevin on the numbers, the latest MoD figures are 6.8% direct with SMEs and 15% with primes. It has dropped by nearly 5%, so it is a declining picture at the moment. I am not suggesting that that is going to carry on, but we are down to 20% of MoD’s defence spending on SMEs, rather than 25%, which was the original target. We would like to see a much more aggressive target for both the MoD and the primes going forward.

I will give you a live scenario here. I have been contacted by a defence company within my area that is quite concerned by some of the procurements that are coming out of MoD for an SME. It employs about 60 people. It is concerned that it is bidding for contracts, and the MoD is saying, “Eight companies have gone for this contract, and seven have made it through to the next round”. It is now expected to do its own testing, which is going to cost somewhere around £300,000. A small SME that previously bid for these contracts, where the MoD would pay for the testing as part of the contract, is now having to fork out for this. How can we alter things, so that it is better for these SMEs? For a small business, £300,000 is quite a lot of mortgages to pay, and the MoD needs to get better at it. With your expertise and knowledge, what would you be recommending for companies like that? Your members must come across this all the time.

I would use the phrase “horses for courses”. There is a generic approach to procurement that gets deployed across everything and to every company. If you have 60 people, how many of them do you want in your legal and financial evaluation, and in your response to tenders? It is impossible. The testing point is hugely important. If you are going to bring innovation in from, necessarily, small companies, and things that are not yet necessarily demonstrated widely, you have to take responsibility for helping find the solution. The other thing is these contract lengths. The bidding lengths are just ridiculous. If you are an SME, you work off cash flow and you cannot spend a year bidding for something, let alone two years, in the expectation that you might win it one out of eight times. The worst thing is to come second, because you have gone all the way through this process and spent all the money, but you have nothing. We do not have a great track record of helping those sorts of companies then export that somewhere else. That is something that we could definitely learn from other countries, particularly the Americans, but also the French and others. They are much more active in promoting their smaller companies when they talk about deals and exhibitions elsewhere. There is a whole bunch of things that need to change, I am afraid.

Testing and evaluation is something that could be improved in terms of combined centres. There are multiple testing and evaluation centres across the MoD and the armed forces. There is probably something there, but there are alternatives. We have been running trade missions into Ukraine. We had 40 companies there two weeks ago. Their testing and evaluation processes are available, and we have had one company start that process already. The cost of doing that is significantly below the number that you have quoted. There are possibilities as well in terms of not just thinking about the MoD as a single way through the front door.

If I may make a bid, they should join a trade association, because part of our job is to help these companies to navigate through this very complicated system that we have today. The key thing for me would be to question where they sit in the supply chain. Are they absolutely certain that they are bidding into MoD, should they be bidding into BAE, or should they be further down the supply chain and really working on a Saab or a Thales at a subsystem level? Understanding where you sit in the supply chain is hugely important as well, but we are all here to help, if any of them would like to come and see us.

What are the greatest challenges to the UK defence industry in terms of resilience and security of supply, particularly in relation to materials and people? Has that got worse or better in the last two or three years?

One thing that I would like to introduce into this is digital skills, which are increasingly going to be a huge part of any defence deployment or defence capability that we have. That is really not being addressed in the current MoD and broader British defence forces environment. It is not being addressed in terms of the reserve either. There needs to be a big focus on that. It was very interesting to hear the Prime Minister talk yesterday about the importance of apprentices in what they are planning to do with the new announcement on missiles. That really applies to all sorts of tech, from comms through to battlefield information, logistics, space—every part of defence.

He said in the announcement that the significant increase in missiles is going to be a very big challenge for the industry, because you just do not have the people.

He said that they were going to focus on bringing more apprentices in, which will build that capacity.

But in terms of what was said about the increase in missiles?

It is not happening in tech, and certainly not at the scale that it needs to. It could, because, as I have said many times, we have a huge tech industry and a lot of tech capability. If you look into the MoD, you do not see that matching capacity. You see it in other areas of security, but not in the MoD.

I assume that there are other areas where you have challenges on security of supply and resilience.

I would certainly echo the skills point. The workforce and skills shortages are combining to a point where both the defence and aerospace industry cannot fulfil the demand that they have, so that is absolutely a barrier to growth. There is also challenge around critical minerals, etc.

Just so that we are clear, we get that there has been a challenge, but how significant is that in terms of being able to grow quickly? What are we talking about—a year, two or three? What does it mean on the ground in practical terms? That is what we are after.

To increase the workforce by 10% probably requires a minimum of two or three years to get to that level. It is a real barrier and a real problem for all of us. The missiles point is going to require a tripling of production in Belfast, where those missiles are being manufactured. They are probably going to have to run extra shifts rather than increase the size and capacity of the factory, although I understand that that is an option as well.

In every member survey that we have done for probably the last 10 years in Make UK and Make UK Defence, skills are the top issue. Not to labour the point, but, if I may illustrate a couple of issues, Make UK has a large apprentice training college in Aston, in Birmingham. We have about 300 to 400 apprentices running every year. We have about 2,000 in the workforce who we assess over the three and four-year apprenticeships. It costs us £35,000 to train one of those apprentices. The apprentice levy will allow us to receive only £27,000, so we lose money on every single apprentice. We are a not-for-profit and a reasonably large organisation, so we take the hit. Some of our members that are sending apprentices will also help to pay for that, but it is a huge structural problem. Our other issue is that we are in an arms race—the wrong word—for engineers. These bright engineers are coming out of Southampton, Bristol and other places, and the streets in the City are paved with gold. We need to be very clear that we re-establish manufacturing and defence. As Kevin said, we need to rediscover that pride in this sector, and what an attractive and fascinating world it is. It is also well paid, perhaps not to fintech standards, but it is pretty good and endlessly interesting.

We were all discussing the fact that there is now a broader consensus that defence is both important and valuable, and something worth while. Historically, people went in to participate in the defence industry, either directly with the MoD or with suppliers. They now have other options, such as green energy or health. In terms of finance, we still have a position where the SMEs that we want to grow do not have the same enthusiasm from the financial services sector to fund their growth plans as other sectors do. The tonal shift from the Government is really welcome on that, and we need to do more of that. We have a specific idea for bringing degree apprenticeships focused on “defence first”. You might know the expression “teach first”. What about “defence first”?

Before I come to the issue of security clearances, you have not really said anything about materials. What is your assessment of the availability of materials that we need to grow this defence industry at the speed required? We already know and it has been reported in the press, but, from your perspective, what is the key challenge in terms of materials?

Again, looking at the tech part of defence, the importance of the hardware components is really strong, so getting the right semiconductors, or chips, and having a supply of them. A forward-looking view of what you are going to need is essential here. We all remember the point in time when car manufacturers had to stop production because they could not get chips. They had viewed the market as declining and did not do forward ordering. Meanwhile, the phone and computer sector was buying all of this stuff up. Concentration of supply there is also an issue, particularly where most of it happens, which is, as you know, just off the coast of China. There really does need to be a focus on the basics of tech in order for us to be able to put it into all the weapons systems that we want to develop. I would also look at telecommunications and space. There is a good space sector in the UK, but does it have the focus from the defence and security point of view that is needed? If it does not, we are going to potentially have problems in the future in trying to co-ordinate a total defence profile.

If I take it from a manufacturing perspective, Make UK is the voice of British manufacturing and has about 23,000 members overall across the UK, in every sector. The supply of raw materials is not such a huge issue as it was immediately post covid, but there are still inflationary pressures, as well as difficulty in sourcing the right things. The UK needs to get better at using things such as UK-made steel where it can. The Defence Infrastructure Organisation, for instance—the bit that builds the buildings and facilities for UK MoD—has no policy to buy UK steel. Basically, it spot buys steel on the open market, which, going back to the resilience issue, is a huge thing. If you do not use it, you lose it, as we know.

You touched on security clearance earlier. How easy is it to get, and what problems is it causing if it is not easy? Has it got worse?

It has been enduring. Credit to colleagues in trade associations who try to help with that. There are several fundamental issues. One is the amount of time that it takes. If you are looking at a short procurement time and you have a new solution, which may be somewhere else, but you do not have clearances here, you have to get those clearances. There is still this concept: “If you are not already engaged with us, we do not have a way to give you a fast path to security clearance”. There is also the problem of security clearances in Government. We very much see the whole of national security and defence as a single area. As I said, you could argue that, in some parts of national security—cyber security, etc—it is very definitely almost a war footing. There are enemy actions taking place. You cannot get a single security clearance that covers you across the Home Office and the Ministry of Defence, for example. If there is a solution that is going to be deployed for public safety and national security, which would involve those, as well as perhaps the Foreign Office, you have to go one by one to get the clearances.

To help our members, we took the decision two or three years ago to build our own security clearance unit. We have gone from managing roughly 200 or 300 security clearances a year to over 7,000 now. We are the fifth largest private supplier of security clearances into MoD and the other agencies. That is really taking some of the process work away from the MoD and doing it ourselves, so there are some answers to it. It can be done, but there is no question that it is a problem.

Is it a serious problem or a moderate problem?

The length of time to get one is a serious problem.

It is hampering our efforts to rearm. Is that right?

Yes, indirectly.

It is a big problem for innovation, if you think about it, and it reinforces the idea of working with companies that you are already working with, because they have people who have the clearances.

If I may take a slightly different tack, we have been working with a not-for-profit called the Fair Chance Business Alliance, which is all about people with a criminal record. At the moment, they are automatically disbarred from having security clearance and, therefore, cannot play a part in the defence industry. We are desperately short of people, and there are 9 million people in the UK with a criminal record. It is a huge number. If you take something like the welding world, we have 7,000 vacancies for welders. We are working with BAE Systems, the Fair Chance Business Alliance, the MoD and others on a scheme to see if we can train some cat D prisoners in prison in basic welding skills and find them jobs as apprentices in the big defence companies. They then leave prison straight into a very well-paid job. If you are a nuclear-rated welder, you can be on £70,000 or £80,000 a year, not on day one, obviously. What we need to get over is having a criminal record. Can we somehow get some dispensation, depending on the particular offence, so that we can bring those 9 million people into play? It seems crazy not to be able to do that today.

Kevin, you mentioned critical minerals, and then we drifted past it. Which critical mineral supply chains for defence do you see as critical vulnerabilities for the UK and Europe?

I sit on the DBT’s critical minerals group. For the UK, there are probably about 15 critical minerals that we consider important to us, and there is a subset of those for defence as well. Andrew is right, in that the two global crises—covid and then the Ukraine war—created a massive disruption in those supply chains, and we all realised how vulnerable those critical mineral supplies were. It has got better. It is not necessarily a factor in production, but if, for example, China, which is the global leader in about 13 of the 15, chose to clamp down on its control of both the refining and the mining of those critical minerals, it would be a serious problem and we would see the results here almost immediately.

Mr Craven, if you could write to the Committee formally with a list of those, that would be most helpful, just for the record.

I am happy to do that.

For probably the last six or seven years, realistically, the trend towards ESG principles being used in investment has meant that defence has probably not been considered favourably by investment managers. The changes in taxonomy and EU legislation, etc, have accelerated that. Fortunately, the war in Ukraine has reversed some of that sentiment, but we still have a number of issues, particularly for our SMEs, which are struggling with access to finance. That is not just investment, but cash flow support. In some cases, it is personal bank accounts. It is landlords refusing to rent to defence-focused companies. There is a litany of these things that are around. It is an improving situation, because politicians such as yourselves, as well as certain investors, have changed their approach in considering it, but we are still challenged, particularly at the smaller end of the spectrum.

I would add that the nature of defence development tends to be long-term. Often, if you are an innovator, there is not a big market yet, so you need patient capital to develop this stuff. That applies pretty much across the sector and into the broader cybersecurity space. Our members universally tell us that they often end up going to the US, and maybe other places, to get investment. There used to be a lot of connection with China, which is a distinct issue from a security point of view. We need to change the way that these funds are looked at. It is very interesting that some of the government-hosted funds—and I was really interested to see the latest announcement—are now saying that defence is a very valid and important area for us to invest in. We talked earlier about the problem of mid-sized UK companies growing before they end up getting taken over. If their primary sources of funding when they are in the early stages are from the US, the likelihood that they will eventually end up there is quite high.

We surveyed our members at Christmastime in readiness for a roundtable with the Business Secretary. The result that we got back was that 11% of our members had experienced problems with financial services, broadly speaking. They include being debanked, being unable to get insurance, as Kevin said, rent difficulties—all sorts of things like that. If you extrapolate that across the whole of the defence industry, you are probably heading for about 1,000 companies, which is a very significant number. What we are all struggling with and have all looked at, collectively and separately, is that there does not seem to be—forgive the analogy—a smoking gun. There is no one obvious thing that has led to this situation. Part of the problem is the longevity of contracts. Going back to Mr Roome in terms of your test and evaluation, if your constituency company had a 10-year contract, maybe that £300,000 would become a feasible investment. A lot of the banks are looking at that longevity and the lumpiness of the defence market as it is today, which, hopefully, will get solved when the defence industrial strategy kicks in and looks at certainty and surety of contracts. The banks are hesitant, partly because we are defence, but partly because we do not have those long-term contracts. We asked another of our members, which is in the automotive industry within Make UK. It had 90 companies within its supply chain that had been debanked in the last year; they just had their banking withdrawn. There is an element of shaky balance sheets and weak P&L, as well as all the other things, but it is multifactorial.

There are other issues that affect small companies. The HMRC investigation into tax credits, for example, picked up problems, but it also, for about a year, stopped legitimate funds being used or companies being able to say, “We definitely have that money and do not have to pay it back”. At that point, if you are a very early-stage company, your other investors say, “Do you or don’t you have that money?” so at least you get a hiatus. That happens in every area of the investment cycle. To Andrew’s earlier point about where you should be putting a company, nobody, until recently, has been looking at defence in the UK as a surefire place to build an innovative, new set of solutions, whereas they do look at that for some of our other industries, such as finance, health and green tech. Again, recent announcements and the change of dialogue could really be helpful here, but it does need real focus and turbocharging, and we do need to understand and stop blockages.

Yes. We should say that a number of members are a little reluctant to step into the public limelight. The example of Nigel Farage being debanked is writ large in their minds in terms of losing their only access to finance in the middle of their own cash flow crisis. In terms of numbers, we surveyed about 5,000 companies, of which 200-odd had a problem with issues around access to finance. A particular one was where the principal was refused a personal bank account. In actual fact, his personal bank account was taken away from him, because of the connection with a defence company. That extended to a short-term loan that it had, which was not extended. Ultimately, it ended up almost going bust because of that lack of finance. That is repeated quite consistently. I do think that there are solutions. There are some structural things that we can do. For example, in the roundtables that we held with the Investment Association and TheCityUK, we covered the NDA clauses in MoD contracts, which prevent those companies sharing some of the details of those contracts in order to gain finance, and it is really important to do that. There are a few things. One is political leadership on this: calling upon these institutions to pay more attention to it, MoD thinking about how it contracts, and the trade associations supporting their members in trying to navigate some of these application systems and processes, which are pretty onerous. One of the results of covid was that the banks have taken people out of the loop and are now using algorithms and systems to process applications. If you are in special circumstances, such as if you are a defence company, you get an automatic cross against you. There are things that we can do, but it takes a collective effort from all of us to make it happen.

One thing would be just to change the way that the dialogue is happening. In tech, you have probably all spotted that we have a habit of taking any other industry, shortening its name, and sticking “tech” on the end, so you get fintech, biotech, green tech, clean tech and so on. At techUK, we have started defence tech, which may get shortened. The idea there is to say, “This is a legitimate sector for innovators and new companies to come and participate in. There will be markets for what you are producing”, because that is very important for the investors. It is really about trying to change that dialogue, so that it is no longer a hidden secret that you are working with the MoD, but something to be proud of.

May I just give another very quick example, although not of a company? There is a growing concern from our members who are involved in the internal combustion engine sector. You are not going to move a tank using batteries anytime soon. If you are, you probably have six tanks behind it, full of batteries, to try to move it even a few metres. Certainly, the heavy armoured military vehicles will remain internal combustion-driven for quite a few years moving forward. MoD is testing diesel hybrid-type battery power for utility vehicles, but that is not going to happen for armoured vehicles. We are hearing from the banks that, if you have any kind of alliance with the internal combustion engine, they are holding their hands up and going, “Whoa, we are not happy about that. We cannot see a future in that”. We need to be very careful in defence not to get painted with the same brush as the civilian automotive market, which is electrifying at breakneck speed. We simply cannot do that in the defence industry, so perhaps we need the banking industry to say, “If you are in defence and it is internal combustion, perhaps there is a caveat that enables you to continue to be banked”.

Visibility and presence are the biggest things, particularly for the SMEs and newer companies. We do not really see a co-ordinated approach to bring those kinds of companies into discussions that we have with overseas markets. I am not sure that there is even a clear pattern within DBT about which markets we want to promote these to. Clearly, there are issues about the kind of country that we want to export defence materials to, and equally dual-use materials, but there are many that we are very happy to do that with, and we are not as present and visible with our SME base and our innovators as we could be. Kevin, there is more capability in the larger companies, some of which they do themselves, don’t they?

They do. In defence, customers are primarily Governments. A government-to-government framework is the starting point for most levels of procurement. I agree with Julian’s point around the awareness and visibility of UK companies. In recent years, the support for smaller companies exhibiting at trade fairs and on trade missions has fallen away, which has created a problem. There are still possibilities around that, but I would also point to some challenges, such as processes on export control licences. At the moment, while the Export Control Joint Unit is working quite well, some of the Departments that it interfaces with, so FCDO, MoD, Home Office, etc, in their advisory on whether to grant those licences, do not have, for example, a KPI for how quickly they need to respond. We need to improve processes and visibility, and to give a bit more support to our smaller firms around how we do that. We need to resource the government-to-government frameworks, which is a real challenge for us at the moment, and people such as the French are a long way ahead of us.

We also need to address things such as the European Defence Agency, which has a mission to co-ordinate procurement across EU countries. Being able to participate in that is really significant for all sizes of UK defence companies. If we take the DIANA initiative in NATO, it always seems as if we are slightly outside these international initiatives, rather than, as we think we could be, in a leading role with them.

If I may, we need to take a step back from there. We need to start buying from the UK. The UK MoD needs to prioritise buying British and buying from the UK, because that is step one in export primary school. The first question that any overseas buyer will ask is, “Are you being used in the home market?” If you are not, it makes it doubly difficult then to go forward and win that work. We are an incredibly capable exporter in the UK. We surveyed our members, and 50% of the SMEs in our membership export. Half of them are exporting. Of that 50%, 75% are exporting to the EU, which surprised us quite a bit. They are big exporters to the EU, so we are part of that European supply chain, but we give very little support to our exporters. UK Defence and Security Exports—UK DSE—which is part of DBT, does a pretty good job under very trying circumstances, i.e. a tiny and shrinking budget. If you look at Australia, when it rocks up to the Air & Space Power Association in Washington, there is a huge Australia stand the size of this room, with a moving display above it saying “Australia” and barista coffee. They have probably 30 SMEs on that stand. It is free for Australian SMEs to exhibit at that show in Washington. “Get yourselves there. Bring your kit. We will do everything else”. We look at that jealously from the UK. We simply do not have anything like that. We used to have a small support programme for companies, and that has gone as well, so there is very little support for SMEs. We have to buy British. Kevin mentioned the Export Control Joint Unit as well. We are seeing some real problems in the dual-use world. One of our members is Oxford Instruments, which makes a lot of scientific instruments. It is getting trapped in that hinterland of dual use, and there is just a blanket no for a lot of its work. It is one of the leading companies in the world in what it does, but everything is being refused because it is being sold to China, in many cases—in fact in all cases—not for military use, but it is getting caught in the system. There needs to be some work on that to help our exporters.

Thank you, gentlemen, for coming in. I am sorry that I joined late. You talked earlier about bright engineers and degree apprenticeships. I should declare an interest, because I am very much involved with our New Model Institute for Technology and Engineering in Hereford. There is a route, which is a three-year accelerated master’s, that gets you into that space much more quickly and with tremendous support from companies. I would just flag that as an alternative, because that is a route for the country as well as for Herefordshire. Related to that is reserves and how you build more capacity. I also want to think about people who might come back into service as reserves, but also those who might come through perhaps technical universities or other university OTCs into the reserves and then potentially into officer training or, indeed, as an enlisted serviceperson. Could you just talk a bit about how that fits into the picture from a defence industrial standpoint?

As a former junior under-officer in the City of Edinburgh Universities Officers’ Training Corps—I peaked very early in my military career—the reserves are hugely important. Going back to this wartime footing, we do not have reserves in industry who are ready to go. They are ready to go militarily, but we do not have industrial capacity reserves either. It is hugely important. One of the companies that I mentioned earlier—MSI Systems—has 40 veterans and reserves out of a workforce of 200. It has drone operators who have just come out of the Royal Marines and are operating drones for the testing of its artillery, but they are ready and waiting to come back in. Admiral Phil Hally has been working on the zigzag career idea, where you move seamlessly in and out, from military to industry, perhaps to the civil service, and back into the military. We would like to see that develop much more aggressively and give us that much bigger pool of resource.

You raised at least three interesting points there. One is that we are shockingly bad at this compared, for example, to the Americans or, indeed, the French, who can just run in and out of the administrative, political, defence and commercial world with, it seems, much greater ease. Secondly, the example that you have chosen is a quasi-military business, which is drawing on people who have come out of service. Is there not a much wider issue, which is the use of and support for reserves across the whole of our industry, including the financial sector and other places like that, where we could have those people? The third point that comes out of what you were saying is that, historically, it was always the case that there was an awareness of potential dual use in industry as regards defence. That has dropped out of the picture in the last 30 years, and even more so, oddly enough, in America. Chrysler used to make tanks but does not any more, I do not think. What can we do on those three, just as a little provocation, perhaps, for you, Julian?

A number of things are important here, one of which is that we have to have the concept of being a producer of digital talent with an interest in defence and the broader defence space. There are plenty of examples around the world of taking people in and training them. We used to do this. Back in the day, the Royal Signals was a great source of talent for the burgeoning early tech and telecommunications industry. We just do not paint those pictures of, “You will get trained here”, and the way to do it is, absolutely, degree apprenticeships, with flexibility and concentration around them. Why not have particular universities? One thing that struck me many years ago was seeing that there were particular universities that have a very large cohort of nurses. There does not seem to be any approach like that near a place—Hereford is an interesting case in point—where there is strong defence capability. Why not have that as a place where people can learn and earn, and get a view of defence, so you just build the capacity? There are other countries that do this particularly effectively. People want to do this because they see this as a way to get their training and their experience—

Their career pathways, if you like.

—that is broader, because it is an industry standard set of qualifications that they can then take, if they want, into fintech or whatever, but we now know they have a defence mindset. We should know who they are. All of a sudden, we have a much broader community to talk to about being in the reserves. Secondly, we need to make it much more interesting and attractive for people in companies to participate in a reserve workforce. That is a bigger and more challenging question, because of everything that we have talked about, which is the perception that defence is not a great thing. It is clearly wrong.

We like it in Herefordshire.

It is changing in tech. There were a lot of tech companies where people said, “We are not going to work on defence-oriented activities”. That has changed. It has particularly changed in America, and in two ways. The existing tech companies are now embracing working in defence, but also people from those companies are setting up defence-oriented companies, many of which are coming into the UK to try to help with our defence here. I would say that that is the bigger challenge.

Your societal point is an important one. I was in Helsinki a couple of weeks ago at a defence exhibition, and its comprehensive security and defence concept, total defence in society, is amazing. I asked my taxi driver whether he had done his reserve service. He had done six months working in a medical capacity as a hospital porter or something. He said that it was life-changing for him. I genuinely believe that we have to do something about it. We started a few years ago with the National Citizen Service concept, which was a two-week experience for young students. It was a nod to it, but it just does not encompass what we need. Defence has 25,000 reserves. It is not in a great state. To mobilise them in the event of war would be a very difficult thing to make a useful difference to us. We have to think about it more, and the idea of it working across society is a good thing.

As a supplementary to those really helpful contributions from all of you, there is a problem of scale and just a raw shortage of numbers. Is there also a problem of skills and capabilities that we would like to be reaching into in terms of reserves?

Yes, very much so. The industry reserve that Andrew referred to is in that line. As I said earlier, we are consistently very short on technical and engineering skills and workforce, so building that workforce over time, through either apprentices or graduate entry, or taking people mid-career, is desperately important. There are real jobs here. They pay 40% more than the national average. We have multi-generational job families in places such as Barrow, or in Herefordshire, where it is embedded in the system and in society. It is really important.

I am going to ask a contact battle question, if I may. America has said that it is no longer going to be supporting Ukraine with military support. In terms of UK sovereign capabilities, where are we not able to fulfil any of the roles currently being fulfilled by the Americans? The obvious ones are Patriot, ATACMS and HIMARS, but is there anything else that we do not have nationally that we could not bring up to scale in order to fill that gap?

I would go with communications and information, surveillance and reconnaissance capability. Everybody talks about Starlink, but it is a broader problem than that. That really does need thinking about, even at the level of GPS. Again, there was the famous incident where a previous Defence Secretary’s aircraft was no longer able to connect to the GPS, which is essential for safe operation, so that is a really strong area. It is interesting, because we do have a lot of defence and telecoms capability, but I am not sure that we have understood just how significant being able to manage that independently may turn out to be.

The one that I would highlight is electronic warfare. We have a great capability in the UK, and we have not used it. We have outsourced it. We have bought from America and from other nations. That is a sovereign capability that we still have, but we are not buying it from the UK. As you understand better than anyone, sovereign capability equals freedom of action. The risk that we have at the moment is that the whole fast jet fleet in the UK is potentially unable to operate independently of other nations, because we have outsourced our electronic warfare.

I would say mass. Munitions is probably the biggest critical area. When the Ukraine war started, we commissioned one factory for 155 mm ammo. The Americans opened six factories at the same time. That is a real problem. An immediate, life-threatening and existential problem for Ukraine is ammunitions. Just in terms of the size of it, the whole of Europe is roughly equivalent to the US support. Essentially, that means, if all of us in Europe were able to do it together, doubling our defence outputs in terms of supplying Ukraine. It is a big ask.

That is enlightening and somewhat worrying.

One additional comment on that is that there is still going to be a need to co-ordinate and collaborate with international partners. It is important, with respect to having freedom of action, for us to ensure that whatever we are using on an international basis has interoperability standards set, so there can be multiple sources of doing that. At the moment, there are too many silos of, “The only place where you can get that all the way down throughout the supply chain is this one source”. If that source says no, you are stuck, but, if you had more standards in this space, particularly across the tech space, you could chop and change, and interchange things.

We did have the NATO standard. At the end of the cold war, the only two things that were common across all NATO members were diesel and 105 mm ammunition. That was at the end of the cold war, so “good luck” is what I would say to that. You all put in your submissions to the defence industrial strategy by last Friday’s deadline. Without wishing you to regurgitate what I am sure is wonderful prose, can you pick just one thing that you want to see out of the defence industrial strategy?

The one that I would have picked before yesterday was a small business office within the MoD. We have that with the SME hub, so we need to see that implemented now. To back that up, we need hard, regulated percentage spend on SMEs for the MoD and the primes, and no wriggling out of it. That SME hub needs to make sure that it polices the supply chain and holds the MoD and the primes to account in that percentage spend. We want to see much more like the DoD model, where it is 25% of DoD spend direct with SMEs. For the primes, 30% of their spend must be with SMEs. That would be my ask.

Of all the things that we have said, the most important is to spend differently. We are going to spend a lot more money, but we do need to spend it differently. I have used the expression “horses for courses”. We have to understand, in a general view of the capability that we need, how you procure some of those things differently. There is also this idea of moving away from a project or asset-based acquisition into a long-term capability, thinking about processes. We call it software-centric. Think about how you can adapt and change things. Lastly, stop specifying to the nth degree what you think you are going to need in 20 years’ time.

I would ask for just one thing, which is effective implementation. A few years ago, DSIS had some very sensible suggestions, the majority of which were not implemented. An industrial strategy that we carry out and follow with rigour would be game‑changing, frankly.

That is probably where this Committee can play a role.

It absolutely can.

Mr David touched upon this earlier, but we want to now look at UK defence partnerships with allies further beyond.

Julian, your discussion about the defence industrial strategy and the need to combine reserves with STEM is pretty much speaking to my industrial strategy submission. I will send it to all three of you, and I look forward to you championing it, because that is literally what I wrote. We just heard from Mr Jopp how NATO has struggled in the past to cohere and aggregate capacity. We have seen that NATO’s defence production action plan “promises urgent and meaningful action to aggregate demand, address supply chain challenges and increase standardisation and interoperability, primarily in munitions and weapons”. Further, the NATO industrial capacity expansion pledge “commits allies to growing defence industrial capacity and production, reducing barriers between allies, greater co-ordination on industrial planning, and increasing multinational procurement”. We have heard that at the end of the cold war we only really had two areas that were effectively standardised. With that all in mind, what is NATO’s role in the UK defence industrial base?

Could I take that first and give you an example? To my simple mind, it is easier to give an example of how NATO could play an incredibly powerful role. At the moment fast jet training is in crisis in the UK and probably more broadly across Europe. The UK MoD alone is spending £50 million a year on outsourcing fast jet pilot training, which beggars belief. We are sending dozens of pilots over to the US, Italy and other places to train our fast jet pilots because there is no availability for Hawk jets at RAF Valley. We are in crisis in the UK; so are many other countries in Europe. They are all thinking, “What are we going to do?” We get all the arguments from the RAF and others. “Synthetic training will do it. That will be fine. Just hop out of your turboprop aircraft and here are your F-35 keys. Off you go. Crack on”. I am being slightly facetious again, but that would be a classic example of where NATO could generate incredible cost savings and economies of scale. There is a company in the UK called Aeralis. It has redesigned the whole concept of a fast jet or advanced jet trainer. It is a UK-based business with UK design and manufacture. That is the kind of thing where NATO could say, “Right, we are going to provide a NATO-wide resource for fast jet training. We are going to use the same jet right across it”. The UK can step up from an industrial perspective, with the MoD’s backing. Then we can establish an entire fleet of fast jet trainers that can be used across NATO. The RAF does not need to own them; nor does any other country. They can simply contract for availability. There is no big capital expenditure; there are no worries about maintenance, repair and overhaul, which is the big challenge at the moment with Hawk. For me, NATO could really play a huge part in something like that, a big enabler that could fix today’s fast jet pilot challenge quite quickly, within three or four years.

That perhaps speaks to the colossal mistake we made with Hawk, our failure to look forward into GCAP and understand that there was a gap there, and how we have ceded leadership. Julian, would you like to add anything?

NATO has shown itself to be hugely important. There is more collaboration within NATO than is perhaps visible across the whole piece. There are individual country alliances. The collaboration between the UK and the US has been outstanding. We need a challenging approach that says this problem must be addressed in terms of us actively working together, whether that be in something specialised such as fast jet training or in setting interoperability standards more broadly. Ammunition is an obvious one, but there are so many other places where you can have standards. We may have to embrace the concept of willing partners, which the Prime Minister talked about. If NATO operates on collaboration and co-operation at the pace of the slowest participant, we are going to repeat what has happened up until now. If we take the very encouraging words coming out of the new German Chancellor and the things that President Macron is saying, we could say, “Let’s work with them”. Let us work with Poland; let us work with people who understand the scale of this. Then we can try to get to a point where we are not just doing a different version of each of these things within the country but thinking about this on a more co-ordinated basis. That also means bringing in the European Defence Agency, not letting it go a different path but emphasising the point that you need a broader-than-EU approach to this. You need to bring in countries around the periphery. Do not give up on it. One of the surest ways to produce the outcome we do not want is to talk as if it is the case. I am sure President Macron is wondering about that, given the statements he made a few years ago.

You mentioned DPAP. There are three elements to DPAP: aggregating demand, addressing defence industrial challenges and increasing interoperability. Julian mentioned it, but aggregating demand is an interesting one. It costs billions and trillions of pounds and dollars to produce some of these platforms that we are talking about in defence. Single nations find it increasingly difficult to fund those. Co-operation on producing major platforms is probably a sensible way forward. There is a good example available with combat air, for example. We have Global Combat Air; the French and Europeans have FCAS. For things such as loyal wingman drones, munitions and propulsion systems, there is a possibility for multiple countries to act together and procure together through NATO to produce a better result for all of us. We have done that in the past; we can do it again in the future. For me, we need to accelerate the defence and security pact with Europe. In a sense, the NATO question is a subset of that, particularly given the circumstances that we are seeing today.

If I could just explore that a bit further, ideally you want your defence industrial planning to match the geopolitics of what is going on. I understand you guys cannot comment on the geopolitics, but let us just take as an assumption that one of the paths in the future might be that the Europeans, in which I include the UK, do collective defence on their own without the Americans. One of the key enablers of that would be a unified defence industrial base across Europe. I wonder whether I could ask you all to hypothesise what that might look like. Julian, you spoke about interoperability. I do not want to put words in your mouth, but you have almost spoken about an open architecture that you could plug and play stuff into. Is it through current structures? Is it a new structure? Is it an adjunct to the treaty organisation that provides that collective defence? Riff, guys. What should it look like?

I am not sure you can go from where we are to unified very easily, but you could do a lot more on co-ordination. There are also bilateral and trilateral opportunities that address a large part of the capacity of NATO and of any European capability. Those things can be built. They can be built around a frank understanding that for an awful lot of defence forces there is not the capacity for this to happen just in one country. If you look at our aircraft carriers, for example, it is much better for those to be part of an international approach so you can have other ships and all the other things that you might want. If you are going to do that across NATO, I would start by doing it with the obvious people. To some extent, we have seen that, obviously with the Americans, but with the French as well. We have some of these ideas. If we take the concepts that say, “We are going to need this kind of thing”, can we, as three, four or five countries within the NATO umbrella, agree to co-ordinate what we do there? Unified is a little way away.

I agree it is a little way away. On the other hand, if we look at aerospace, there are very integrated supply chains across the UK and the EU. It is entirely possible to have that. We do in civil aircraft structures, so we can do so in defence as well. Some really powerful examples of it exist in a small way, such as the Trinity House agreement or, in Asia-Pacific, AUKUS. We have been working with our fellow trade associations in Europe. We have had a year-long programme with GFAS in terms of suggesting some possibilities to work on for the forthcoming Lancaster House 15th anniversary agreement. There are a couple of programmes. Interestingly enough, the jet trainer programme that Andrew referred to was one of those suggestions. We are doing the same thing with BDLI in Germany. We need to build industrial bridges and political bridges between the countries. This Committee could interact with its counterparts in Europe. Building a mindset and an understanding will assist with allowing us into EU defence programmes, such as EDIS and EDIP. We are effectively barred from all of these things. That is not a great starting place. We probably have to address that to move forward to a slightly more unified future.

I am hearing that a series of minilateral relationships will build us to where we want to get to. It is a bit of a nonsense that every single European country has a different rifle, tank or infantry fighting vehicle. Inefficient is the politest way I can put it. In a multipolar world, Europe needs to build unified military power to stop itself being coerced. In order to build unified military power, you need to have one rifle. That is a fundamental keystone of that. What you said politely was, “That is a bit pie in the sky, Mike”, but needs must.

I am sorry it came across that way.

No, it is absolutely fine. Needs must. What would that look like?

This is one of the things on which I would slightly disagree with Andrew. In order to do this, you have to have a broader mindset than “buy British”. You have to think about capacity in the UK that is both indigenous and involves partner countries and their industries investing here. If we take a simple slogan, that is basically where we have been. We may buy British, but they certainly buy French, buy German, etc. The basic thing that has to be confronted is whether you can get trust and co-operation to the level of saying, “We are either each going to participate in building something that we all use or we are going to trust what you produce and we are going to use that across as many interested and willing partners as possible”. You do always need freedom of action preserved there. Some of the agreements that we have done in the past have meant that another country’s Government have been able to say, “You can’t use that for this”. We need to have freedom of action. We also need to have—I am sorry to come back to it again—the option of interoperable stuff. If the supply of spare parts or maintenance capability for that thing only comes from one place, that is not good.

Hence standardised kit.

Yes.

To your training idea, everyone would be training on the same equipment. If Italy needed 100 vehicles, we could just take them from anyone.

Yes.

I am going to make myself unpopular here, but it probably takes an act of political will from one of the three biggest countries in Europe, including us, to make the determination that we will either share or use someone else’s kit because someone has to go first. Take 155 mm shells, which we have talked about. At the start of the Ukraine war, there were 13 variants around Europe. That is ludicrous. It was the same as main battle tanks. There are only three now, apparently. It has reduced. There is a trend and an understanding that we can move forward. That goes to the standards point and to the interoperability point in a less complex way. It is political will, because nobody wants to say, “I am using French rifles”.

There is a moment for political actors to seize. Everybody is getting the idea that they have to spend a lot more and they have to get more capability. They are not going to be able to do that with their own resources in the short term. Everybody talks about the fact that the European economy—the EU plus adjacent countries—is much bigger than the Russian one, but the Russians have a single focus and a single approach to this. If you take that approach into 28, 29 or 30 countries—

It is 500 million Europeans asking 300 million Americans to defend them from 140 million Russians. It is nonsense.

If I may, I will give you a bad example, which is the global combat aircraft programme—the GCAP. It is a good programme, but why are we competing with France and Germany to build a sixth-generation European jet? It is madness. We need to look at that as an example of where it is absolutely blindingly obvious, to my perhaps naïve eyes, that we should collaborate. We need to bring together those three major powers in European defence and work together, along with Italy and others. That is an example of where we should be collaborating. I agree with you, Julian. Yes, buy British, but it needs to be in a sensible way. We cannot all make all things. That is what has tended to happen before. Every country says, “I want to build the armoured vehicle”; “I want to build the rifle”.

You almost need a Soviet Union-style agreement where you say, “You guys are going to build the tractors. You guys are going to build the light utility vehicles”, for example.

Yes, to some extent. If you look at the German armoured vehicle programmes that the UK is now running, you could almost say that we are beginning to move towards that. We have effectively outsourced our design and development of armoured vehicles to Germany. Where is the quid pro quo? That would be the important bit. A good example is MBDA, the missile maker. It has research and development and production facilities in multiple European countries. It would probably say it is not perfect, but it is a really good model where you have specialisms in each country and capabilities to build in each country. It is a much more co-ordinated view of that European landscape than many programmes.

I would use the example of the US rather than the Soviet Union. The US is a federal system and the states compete for these things, particularly for government contracts. They manage that in a way that still lends itself to them having unified equipment.

That is a much better analogy. Thank you very much.

You are welcome.

I have one final question on something you said about access to EU defence structures. Okay, fine, but if we are going to do much closer procurement, joint procurement, unified procurement, whatever it is, there is a problem if we are outside the single market. By your figures, we constitute 22% of the European defence market. If we have stuff that is flagged as military or part of those defence supply chains, you surely need to have porosity in the single market so that stuff can move quickly. In a crisis, you do not want to be filling in paperwork to move stuff across borders. Would you each briefly like to comment on how we bridge this gap in terms of defence procurement, where the biggest defence market sits outside the EU single market?

Can I tackle that first? There is a good example of where we have done that without having to have that geopolitical joint-ery, if you like. That is a horrible word, isn’t it? That example is AUKUS, between Australia, UK and the US. We are seeing all sorts of things. On the movement of people, you can have a visa, which will allow people on the AUKUS programme to move freely between the three countries. We have dispensation for export licences. We have dispensation for technology agreements and technology transfers. That is quite a good example of how three quite different nations, to some extent, in terms of their procurement, their geopolitics and the rest, can operate together. It has taken a hell of a lot of work. The MoD and other Government Departments have worked incredibly hard, along with the trade associations, which have been intimately involved in it as well. That would be a good example of where we do not have a single market, but we have created special dispensations in the areas we need them to let things move fairly freely. It is not quite running at full tilt yet, but hopefully, if it survives President Trump, it will be a good example of where we might be able to build that relationship.

We do need that in Europe. That is effectively what you are saying. It is an essential precursor.

Yes.

Would anyone else like to add to that?

As a trade association, it is not my job to determine the democratic will of the British people. That is something I will leave to you. What is clear is that there are imperatives that, as you say, need to be addressed. There is an opportunity to build those links better and to address that. Again, I repeat the point about the new German Chancellor to be. Straightaway in his acceptance speech he said, “We must build a closer relationship with the UK as well as France”. The answer to that is, “Then sort these things out”. We need professional skills recognition, movement of people and much faster and smoother supply chains. The Horizon research and development collaboration is something where the UK is back in. There are a number of areas where we could do a much better job. We could start by building on the things that are being said by major economies in the EU.

That is helpful.

I would point to the Lancaster House treaty with the French in 2010. Complex weapons came out of that. MBDA is working on that in multiple countries, as mentioned. There is also a nuclear element to that conversation. We work and do testing in combination with France in a French facility. We do tank barrels with Rheinmetall and so on and so forth. It is entirely possible. We just have to scale that up to convince wider European partners that this is the only way forward, given that we are genuinely looking at existential threats for some of our European partners.

At the moment, the UK engages with its European partners through OCCAR. How does this compare with the benefits and costs of engaging with the European defence fund?

I do not know the answer to that. I am very happy to come back to the Committee with some detail on that, if I may, rather than speculate.

That would be very helpful. I want to make a request of you after the other two individuals have responded.

My answer is the same as Kevin’s, I am afraid. I simply do not know. The only experience we have had with OCCAR is the Boxer programme, the mechanised infantry vehicle programme, which has had some benefits and some disbenefits. If you look at the supply chain, the engineering drawings and technical documents were all in German when they came out of OCCAR. Every single UK SME that bid for work received the technical documentation in the German language and all had to translate. That was not OCCAR’s fault, but that is just a little example.

I am mindful of time. We will leave it. Airbus will have a response for you, Kevin.

Thank you.

That is an area of great interest to it. What about the engagement and interaction with the European defence fund, then?

It is a must-have, frankly. We represent a significant part of Europe’s defence industrial capacity. They want us. Their industrialists want us. They want our capabilities as well. We just have to find the political means to build a defence and industrial security pact.

I would echo that comment.

Thank you very much. On the issues around OCCAR, it would be very good if we could get written submissions. Would you be willing to share your submissions to the defence industrial strategy with the Committee as well? Please write to us, if you could. That way, we can delve further into what should and should not be done. It has been an enthralling and very informative session. No doubt it will help to further inform public opinion and debate, especially within the House. Thank you very much, Mr Craven, Mr David and Mr Kinniburgh, for taking time out of your valuable diaries to give evidence formally at today’s hearing session on the UK’s contribution to European security.