18
Examination of witnesses
Oriel Petry, Phil Siveter and Jason Alderwick.
Q49 The Chair: Welcome to another evidence session of the European Affairs Committee of the House of Lords in our inquiry into the UK-EU reset. I am delighted that we have today three senior expert witnesses from the UK defence industry. It is actually extremely timely, given the Prime Minister’s announcement today of an increase in defence spending to 2.5% by 2027, as well as the stories in newspapers that discussions are going on between the UK and EU about a fund or some other arrangement that would allow British defence companies to work more effectively with their EU counterparts. I do not have any further detail on that myself, but those are both points that underpin our session.
I am pleased to welcome Oriel Petry, the head of Airbus Group UK Public Affairs, along with Phil Siveter, the CEO of Thales UK, and Jason Alderwick, director of UK government and political affairs at MBDA UK. I thank you all very much for coming.
I shall kick off by asking an opening, scene-setting question. Could you briefly describe for us the role that you see the UK playing in the current European defence-industrial system? Where does the UK have particular strengths? If there are gaps that you think that the UK has when you look out towards Europe, we would be interested to know those as well. I throw the ball to Oriel first.
Oriel Petry: It is a pleasure to be here. As some of you know, Airbus is a large business, with a market capitalisation of £130 billion built over 50 years, with the UK at its heart, and three other home nations—France, Germany and Spain. The capability that we offer here in the UK and the expertise that we have here in the UK is particularly for our military and civil aircraft in wings—wing technology of today but also tomorrow. We are the largest supplier of large aircraft to the RAF, through the A400M and the air-to-air refuelling air tanker. We are also the UK’s largest space business, with particular capability in military satellite communications—both the payload, the technical comms, but also the building of the bus. We have particular cyber competences here in the UK as well, particularly around crypt key.
Across the piece for us, the success of this business has been built up on the collaboration of UK expertise with our European partners. We see the opportunity now, as we are in a cycle where we are thinking about the next generation of capability, as one of again collaborating to build a successor to the strength of that business.
Phil Siveter: I am CEO of Thales UK, and I am delighted to be here today. As I am sure many of you know, Thales is a global technology company operating in 68 countries across the world with more than 80,000 people focused on building world-leading technology in sectors such as space, avionics, defence of course, increasingly cyber technologies, and in AI and quantum. The UK is a very strong part of Thales Group; it is the third largest region. We have about 7,000 people across 14 sites, and we are an intrinsic part of the critical national infrastructure of the UK.
We are building capabilities such as propulsion systems for the space industry and missiles in defence, in Belfast, as well as optronics and sonars. We also do a huge amount of cybersecurity, particularly in industries such as the finance sector and public sector, as well as doing the UK passports and biometric identity systems.
To share with what Oriel said, we are also very actively involved in European collaboration and working through systems like OCCAR on things like mine warfare. I am sure that that is something that we will discuss a bit more as we go on.
Jason Alderwick: Good afternoon. I am in firm agreement with my colleagues around a number of these issues. As you know, MBDA is a poster child in many respects of European integration as a defence complex weapons provider, with six core nations at the heart of it. We employ 15,000 people with a turnover last year of about €4.5 billion.
On key critical capability provision, you may well have heard of Storm Shadow, Meteor and Brimstone, which is complex weapons capability at the high end of the operational requirements of both the European capability and UK national capability and provision.
Co-operation and collaboration are really at the heart of MBDA’s DNA. As Oriel said, we are very keen to see how the UK-EU relationship and wider European relationships develop in the current context. I shall stop there.
The Chair: That was a good, crisp start. Thank you.
Q50 Baroness Suttie: Could you say something about how your relations with the EU partners and EU companies that you work with has changed since Brexit?
Jason Alderwick: First, the foundation of any collaboration has always been based on bilateral and multilateral relationships, exclusive of the wider supranational EU or NATO institutional arrangements that exist. The core framework is the bilateral, inter-governmental industry G2G relationship that underpins it.
It would be no surprise that us leaving the European Union has had an impact, if you like, on the ability for us to effectively and fully operate across our respective national companies, as we call them, within MBDA. There are activities happening at the European level that the UK and MBDA UK are not fully participating in at the moment. That said, our wider programmes and bilateral programmes are still very much on track in any development. There is no doubt that toxicity led to a slower pace of development in the complex weapons being made.
Oriel Petry: Airbus in the UK has invested more than £2 billion in the past 10 years. For us, the provision of sovereign capability that we do here in the UK, whether in military satellite communications as I mentioned or in crypt, but also in the technology of wings—where we are looking for the next generation of aircraft wings—has not been affected by Brexit. That is partly because aerospace is covered by a WTO agreement that goes back to the early 1980s and partly, of course, because the sovereign capability that we offer is in defence, which also sits outside the European Community.
The UK has continued to a country that has grown, for us, and we have seen excellent partnership with successive Governments, particularly around R&D, as I say, to develop the next level of technology. We have seen procurement from the UK Government for sovereign technologies, the latest being for two low-earth orbit satellites that offer reconnaissance intelligence and surveillance capabilities, called Oberon. So the UK is absolutely at the heart of the global strategy for the business. We think of ourselves as being global with European roots, and the UK at the moment is as integral to that vision as it was when the company was set up.
Phil Siveter: Thales as a group continues to strive to be a partner of choice for the EU. We are involved with a large range of activities as a big industry partner in a large number of countries—particularly in France, of course, but in Germany and Netherlands and beyond. We are involved in a number of activities with the EU, and at the same time we leverage the local expertise that we have in non-member states as well.
Similarly to Oriel, we are investing heavily in the UK. Just today, you may have seen that we have announced a big AI initiative around cortAIx, which will lead to 200 new jobs in the UK. We are focused on how we leverage AI across a range of industries, certainly in defence but broadly across the public sector and enterprise, and we will continue to do great work with government in partnership in those areas.
The Chair: You have not found that Brexit has been a particular obstacle to that?
Phil Siveter: Similarly, we have seen some challenges, of course—but, for Thales Group and the industry as a whole, our role is always to do as well as we can with what rules and regulations are in place at the time. I prefer to look forward to how we make the best of what is in place and continue to do so.
Q51 Lord Stirrup: Defence-industrial co-operation in Europe has been going on for a very long time. We have all sorts of things as a consequence of that, some of which you have mentioned today. We have the A400M, AMRAAM, Boxer and many others besides. These have all been produced as a consequence of bilateral or multilateral arrangements or organisations such as OCCAR, and they have all been very successful. What added value would the EU bring to this process? Why should defence co-operation be part of an EU-wide initiative, to put it that way, rather than continuing with the very helpful, successful and flexible arrangements that we have had so far? What added value would the EU bring to this?
Jason Alderwick: I am happy to start. As I said, collaborations to date have been bilateral and multilateral, but we cannot escape the reality around how the European Union has developed in the R&D, S&T and capability development space in the past few years. Effectively, it has gone from being almost a non-provider of resourcing in the R&D and S&T domain to being potentially the third-largest provider of defence R&D at the EU level. Some of that creates momentum and energy among other potential European partners, which we may not be able to fully access. It is not necessarily an either/or option, but the fact that the EU is now playing across this domain and in this area means that we have to give it some serious consideration.
Lord Stirrup: I take that point, but the three of you will know far better than us that the future of your companies is going to be driven by orders, and orders come by and large from those who are spending the money on defence—and the people who are spending the money on defence are not congruent with membership of the EU. Are your own business interests going to be furthered best by pursuing the avenues where the money is going to come from, or the institutions?
Jason Alderwick: From MBDA’s perspective, we have just done the largest export order with a European country, with Poland, with the NAREW deal. So, again, I do not think that it is a binary choice. We have to look at the wider ecosystem as it functions and be able to move seamlessly across that ecosystem.
Phil Siveter: I can only echo the point that Jason is making. We are all clear that it starts nation first, of course, building a clear and strong deterrent, and the UK has to be the number one priority. As you mentioned earlier, Mr Chairman, we welcome the Prime Minister’s announcement today about increased spending locally here in the UK. That is critically important. Of course, then the question is how we across Europe in the broadest sense leverage investment to build capability by sovereign and for exportation across Europe together for maximum effect and maximum deterrent. Therefore, in some ways it does not matter where the money is—we just need to get the money and spend it correctly and purposefully together. As industry, our job is to make sure that we deliver the capability as quickly and effectively as we can.
Oriel Petry: For us as a business, you are quite right: it is the security architecture that is there to facilitate the capability building, so we are driven by what is set out as the capability needs. That is critical for us, and it is really important at this point, particularly as we are in the cycle of coming to a new set of products, that we are clear about what it is that nations would like to procure together and in what way.
One example is that, if the European Defence Fund is looking at R&D for the next generation of mid-sized tactical cargo aircraft, there is an opportunity for the UK to offer the wing capability that I mentioned. I suppose that it would be a loss to UK growth and UK capability if we were not part of it. So there are examples where that capability drive and the expertise that we have in the UK would be fostered by the constructs that are created, but we as an industry, as my colleagues have said, will just reflect the demand that is required.
The Chair: You said that the EU is now the third-largest provider of defence R&D funds. Who are the first two?
Jason Alderwick: Of the nations within the EU, it is France and Germany, and then the EU collectively comes third. The UK would have been the 2nd largest R&D provider across the European space.
Q52 The Duke of Wellington: It would appear from events in recent weeks that the EU is likely to try to step up its defence capabilities in one way or another. I am wondering whether that slight change of emphasis or energy could make your lives in Britain more difficult in terms of selling into mainland Europe and to EU member states, with increased expenditure, over and above the difficulties that you already face, which you have clearly articulated.
Phil Siveter: It is hard to comment because the devil will be in the detail around what comes out. For Thales, as I am sure for many of us, we are pretty used to operating at the European level and then locally at a nation level, so we will continue to do it, respond accordingly and then work within the framework that is set up. I re-emphasise that what is much more important to us is understanding the clear requirement, how that is going to be purchased and how we can support it.
Oriel Petry: I agree. I suppose it goes back to what I was saying before: as an industry, we respond to the demands that are set. In defence, of course, that is very much driven by nation states or multilateral organisations. We do not necessarily have a view on how that is structured. Clearly, some of these things are shifting. Perhaps some of the stuff that was clear before, but over the past week, while we have been preparing for this session, I think the situation has changed. So for us as a business, as you would expect, we are trying to stay agile and respond to the requirements, but I re-emphasise that the need is now to be really clear about what we want to achieve. If my CEO, Guillaume Faury, were here, he would give the example of needing to have interoperability with GCAP and FCAS and to have joint access to cloud to build at what he sees as critical scale for Europe to compete at an international level.
The Chair: I am just going to put in an acronym plea.
Phil Siveter: We will try but we cannot guarantee that.
The Chair: With GCAP and FCAS you are talking about the Franco-German fast jet project as against the UK-Italian et cetera fast jet project. You guys can do it from now on because you are much better at it than I am. Did you want to add anything on that?
Phil Siveter: Just to repeat the scale point, this is really important, particularly when we think about how we are going to compete globally on things such as R&D investment. It is a global competition for driving local R&D investment across nation states, so the more we can be collaborative in ensuring that we have purposeful impact and provide a clear regulatory environment for industry to engage is the important piece. I think that we can make big progress there.
Q53 Baroness Ludford: This question is very much linked to the previous one, homing in on the specifics. How significant a challenge for your companies are the EU rules that mostly exclude non-member states from EU-funded defence industry initiatives? We were reminded in our briefing of a new year’s address by the French Minister for the Armed Forces, who particularly cited the idea that, “We don’t want our money going off to US purchases”, but maybe the UK is caught in that as well. Is that changing? Are those rules going to evolve?
Jason Alderwick: I guess it is for the Commission to determine how it evolves its third-country rules for itself. However, there is no doubt at the moment that the terms and conditions within the rules preclude effective and meaningful third-country industrial participation. From a UK standpoint, we cannot fully engage but there are a number of programmes that we would like to engage on. If we see the trajectory of the investments increasing again then there is the potential for further risk there.
Relative to scale, minimising the duplication of efforts and responding to a detailed and understood requirement are really important. Mutually assured collaboration rather than mutually assured disruption is the space that we need to move away from and towards.
The Duke of Wellington: The purpose of this inquiry is to look at the reset, as stated by the Government, of relations with the EU. Maybe one of the important objectives of the reset by the British Government would be precisely on the point you just made, that non-member states are excluded from certain defence industry activities—let us put it broadly like that. Maybe an important element of a possible reset would be to try to overcome that.
Jason Alderwick: Possibly, but I do not know if the EU would broaden its third-country terms. That is why we at MBDA have always focused on a bespoke relationship between the UK specifically and the EU, rather than the broader third-country terms themselves.
Baroness Ludford: Do either of the other two witnesses want to add anything?
Oriel Petry: We wholeheartedly agree. The UK defence industry is large. It is still larger than Germany’s and, I think, France’s, despite the spending that Germany has put forward. So, as you would expect from a business that is built from roots across the UK and Europe, we would support a new vision that allowed us to build the same kind of next-generation of businesses as we have before. That is important.
To go back to the question of scale, I am sure you have had other facts quoted, but Europe has 17 different tank models while the US has one. That is true for aircraft as well. The fragmentation that we have across Europe weakens us. Our CEO has been clear that, particularly in the area of space, Europe needs to build scale. From Airbus’s point of view, the ability to build scale rests on the countries to work together with the UK and to build shared capability for scale internationally so that we can compete as European businesses on an international scale.
Phil Siveter: I do not think I have anything to add.
Baroness Anelay of St Johns: I would like to follow up on something that Phil Siveter said early on in answering a question: “In business, one makes the best we can, whatever rules and regulations are in place at the time”. I would like to build on that, considering that there are EU regulations for us as a third country outside the EU. How significant do you think is the balance between the rules that the EU provides and the obstacles that are outside, whether they are political, regulatory or financial? In looking at that balance, I am not sure quite where the scales would go, but would it matter for you if the EU decided to change its rules on third countries?
Phil Siveter: I suppose from one perspective the answer is no, but from another the answer is absolutely yes. From a practical point of view, as I said earlier, we will follow—as someone pointed out earlier—where the money is, in order to make sure that we can meet the requirements for that money being spent and the capability being demanded by the member state or by the EU as a whole. At the same time, we would all welcome continued shared collaboration across the EU and NATO.
This is also an important point: it is increasingly important that we see increased alignment across those two things. We cannot see divergence of capability across NATO and the EU; that would be a problem. There are steps that potentially to be taken to ensure that that does not happen. The UK is already leading in Diamond, for example, which is delivering IAMD, integrated air and missile defence. That is a good example where the UK is defining best practice and world-class capability and how that could then be shared across NATO as a whole. We need to see more of that aligned with the EU as a whole.
Q54 Baroness Winterton of Doncaster: I am new to the committee so I am playing catch-up here. I want to go back to what you said at the beginning and then relate it to something further. You were asked what the effect had been of Brexit, and I want to press you a bit on that. I was not clear whether you said that, because defence procurement sits outside many of the rules, it did not make that much difference, so maybe you could say whether that is the case. Then, as the Duke of Wellington said, we are looking at a reset. Taking advantage of the fact that there is in theory a reset, what would you say would be the most useful thing in it?
Then you talked about fragmentation, but perhaps that is more to do with policy than regulations. As we said before, if the UK had greater access to the new initiatives that will perhaps arise following the Statement today, would that be of added value or do you get there without that? So that is Brexit, the reset and what has been announced today; I know you said that you needed more information, but I am trying to get at what you would like it to look like.
Phil Siveter: There is a lot in those questions and it is hard to know where to start. I can only really repeat what I said earlier about Brexit: I tend to take the position that we just need to be forward-looking in that regard. I repeat what I said: industry’s role is to make the best of the rules and regulations and the environment that is set up. That said, although I feel like I am repeating myself a bit, we continue to see the benefit of more collaboration across the EU as a whole and, of course, NATO as well. There is no question that we need to build the strongest deterrent possible—there is an accelerated need to do that in an exponential way—so any collaboration that allows us to do that, whether commercially, politically or just in terms of regulatory frameworks, would be welcomed by industry.
What we always look for is certainty. That allows us to take decisions on investment and on where we create new jobs, do innovation and spend R&D. That certainty is much more important to us. What is anathema to us is uncertainty—where there is not clarity, where there is duplication of spend or, in the worst case, divergent spend. That is where we would be most frustrated. I would focus more on clarity of intent as something that we would welcome much more strongly.
Baroness Winterton of Doncaster: I suppose I am saying that if we had medicines people in front of us, they would say, “Oh, we had a real problem with getting our medicines through the system”, but you are saying that nothing really arose that meant you would have said, “Oh dear, this is worse than before”.
Jason Alderwick: There were generalised impacts around supply chains that affected everyone, and defence would have been included in that—not necessarily just because we left the EU but we also had Covid, so there was a whole impact on the supply chain.
On the question of the development and the potential impact that these measures could have, when we left the European Union the programmes operating were spending in the order of tens of millions. That was the opportunity. Then it moved very quickly to hundreds of millions—and now it is €100 billion plus a year, and it could well be more depending on what the next MFF is and how the EU decides to orientate and prioritise its spending in this area.
Bilateral relations have been really important. After we left the European Union, some of our bilateral relationships took a hit as a consequence of that wider EU relationship. To think that you could mutually develop just bilateral relationships with Europeans and completely sideline the European Union was maybe not quite the right thing. These things tend to operate in parallel. We hear a lot about the Lancaster House reset that is under way, and we talk about the Trinity House agreement that we have just done with Germany. All those things build positive momentum around that broader European bilateral and EU relationship. If we get it right, it is positive and mutually reinforcing, and defence would benefit from that.
Q55 Baroness Ashton of Upholland: You have talked a lot about being forward-looking from an industrial point of view, which is absolutely right—it is what you have to do in your area. You have also raised the significance and importance of having certainty. You may have noticed that we have had a change of administration across the Atlantic, and there is no question that the policies towards Ukraine and Europe are changing. It is not yet clear where they will finally land, but that will have an impact, arguably, on the whole debate in the European Union and with Europe in a wider sense about the kind of co-operation that will happen. From your industry perspective, as you think about your forward planning, with a bit of crystal ball gazing, how do you see this impacting what the EU does in terms of its co-operation with non-member states—perhaps especially from this point of view with the UK?
Oriel Petry: This builds a little bit on the earlier question. From a business point of view—we have stressed it here—certainty is key. Ease of doing business is what gives us the opportunity really to focus on the innovation, collaboration and co-operation to drive the best of what we can do. Clearly, the sands are shifting. That seemed obvious to me, as I said, when I started the preparation a week ago, and things are different again today.
This is from a business like Airbus that is proudly global but proudly European and also proudly UK and European. There is that focus that we have seen, which probably even predated the Trump Administration, around the Draghi report, which said that we need to think as Europe. These are old questions, of course, as you know much better than I do, Baroness. We need to think strategically about how we pull together to build the scale so that we can compete internationally; that is the critical element here.
We would like to see an easier way for us to continue to collaborate. Clearly, national budgets mean that for large defence projects will have to continue to collaborate, not to mention the fact that we have different aspects of capability across Europe—which, by the way, is world class. Let us not underestimate how world class European capability is. We can absolutely compete, and we can compete for the next generation—but as a business we need the environment to provide the certainty, and it is quite hard for us to do the tea leaves at the moment, because clearly lots of things are changing.
I suppose that there is a real commitment from a business like ours—and, I am sure, those of the others next to me here—to rise to the challenge of a joint reset mission for what we want to achieve industrially, and how we can work together from R&D all the way to commercialisation and industrialisation.
Jason Alderwick: There is or was a centrality around Euro-Atlantic security provision which has recently come into question—there is no doubt about that. The PM spoke very eloquently today about the need to maintain that relationship. The Euro-Atlantic bridge is absolutely fundamental to UK security, but a European anchor as part of that bridge is equally important to us.
Phil Siveter: I cannot help but echo my colleagues—I have nothing to add.
Q56 Lord Whitty: Some of this has been covered earlier, and I apologise for missing your opening statements, but what impact might the development of the proposed EDIP have on the UK defence industry in terms of both its priorities and its specialisations and the technologies that it is most likely to pursue for the medium term?
The Chair: I am going to do my acronym thing again: that is the European Defence Industry Programme.
Jason Alderwick: I am happy to take that one on. Again, it is not fully agreed; we do not know the full scale and scope of how that programme will operate. None the less, what is clear is that a number of programme developments cut across many of the capabilities that the UK will seek to develop itself or bilaterally with other partners, whether that is in the combat domain, cyber, disruptive technologies or advanced manufacturing. There is a whole range of areas where you see that, if you were locked out through the third-country terms and the provisions of the current framework, because they will probably apply to EDIP as well, you would definitely start to see how the coherence was taking place across the channel, with us unable to influence and play a key role as well as offering resourcing and the critical capabilities that we have in the UK, which would bring overwhelmingly better sovereign capability to all those partners.
Lord Whitty: Does anyone have any other general comments on that?
Phil Siveter: I do not think that I have anything to add to that.
Lord Whitty: Would you see a development of those UK companies that have operations on the continent to be more favourably dealt with in their outcomes, as compared with those that are 90% or 100% based in the UK itself?
Jason Alderwick: Yes, I think so. Some really good think-tank research has been done out there recently that looks at third countries and third-country entities, how they participate and whether they are active enough or included enough in these programmes. Overwhelmingly, the evidence suggests that if you are not co-located on the European continent, you are persona non grata, for want of a better word. Industrial consortia are very painful mechanisms to get together. Partnering at a business level has to happen and does happen, but it is not easy work. Just with the sheer centre of gravity, if you are being incentivised to collaborate exclusively within your European Union bubble, why would you bring a third party in just to further add complication and maybe damage your bidding preference capability anyway? It is sort of incentivising—and arguably that was why it was formulated, to incentivise that collaboration in that kind of EU construct.
Lord Frost: As we are going quite quickly, could I ask a follow-up to that?
The Chair: Yes.
Lord Frost: We have talked a little bit about the various areas where there could be closer defence industrial collaboration of one kind or another. I do not know whether this is a slightly unfair question, but I shall ask it anyway. Would you expect such collaboration to come as a free good? Would you expect the UK to have to pay in some way to play in those arrangements? Would you expect there to be pressure on your companies to relocate into the EU or do more in the EU, if we were to get close to those arrangements in that way—or is that something that you steer clear of, and you just look at what exists and work with it?
Jason Alderwick: There is a precedent. Look at Horizon Europe, where the UK is now fully associated but there is a clawback mechanism. That is one method of entry that could apply to the UK, although I would not advocate for either position. Pay to play is quite logical from a UK perspective; it has been done before, so it seems reasonable.
There is a well-known mantra trotted out by a lot of Europeans at the moment: “EU programmes, EU money only”. You therefore have to bring resourcing, which I think the UK would, pragmatically, as it would on any other kind of multinational programme where it provides resourcing and technology into that programme. So I do not think they are insurmountable obstacles.
Oriel Petry: I agree. I think that is right. You said that collaboration is painful but necessary, and I suppose that is where we are. It is not easy to find co-operation, but clearly it is imperative on us industrially to find the collaboration that we need to drive common scale and competence. So I agree with you.
Jason Alderwick: Maybe it is not always painful.
Oriel Petry: Maybe.
Q57 Lord Frost: I will ask my allocated question, which is not completely unrelated, about the EDA, the European Defence Agency. As we all remember, we left that at the end of 2020 and there is no administrative arrangement between the UK and the EDA. If there were to be one, would it make any difference to your companies’ ability to get things done, or is it a bit too niche to make a difference?
Oriel Petry: We have submitted an opinion that we support the UK joining an administrative agreement with the EDA. It is an example, as Jason says, of certain arrangements where it is possible to join as what the EU calls a third country. We support it on the principle that, as I said, we think that co-operation across the UK and the European nations is a good thing. So that is something that we have supported and do support.
Phil Siveter: We echo that from our side as well. The UK should continue to try to find projects, perhaps through PESCO, the Permanent Structured Cooperation vehicle, as well seeking funding to build new capability. Perhaps there could be an administrative arrangement when it comes to the EDA. At the same time, we have OCCAR, and there are still opportunities to do more through that to achieve those shared collaborative outcomes.
Jason Alderwick: We would be supportive of EDA membership. You are right that it is not as prominent as, say, the newly established defence and space commission, but none the less the EDA performs some interesting coherence functions around capability monitoring, capability technology, road-map setting and the like. Being able to engage at the European level to understand the wider collaborative thinking in those areas would be quite useful, so yes, we would be supportive of that.
We also probably need a security of information agreement as well. At the moment we do not really have the ability to exchange sensitive information between UK and EU institutions effectively. Again, that is what you need to start the initial entry for discussions around a number of these programmes.
Baroness Nicholson of Winterbourne: Would you like the UK to be more involved in PESCO projects? From our perspective as British industry, would that be helpful to us or not?
Jason Alderwick: I think I mentioned that in my previous answer. The short answer is yes.
The Chair: Do you have any particular ones in mind?
Jason Alderwick: Not for comment today, but we could probably follow up with some ideas after the session if that is useful. Thinking about collaboration more broadly across the EU, areas like IAMD are obvious targets for doing more, although I know we are doing that through the NATO initiative. Then there is the question of how to deploy AI extensively, as well as RFDEW—radio frequency direct energy weapons. There are areas like that where there is more that we could do.
Baroness Nicholson of Winterbourne: Do you think partners would welcome Britain becoming more involved?
Jason Alderwick: I would say it is hard for me to comment. As I said earlier, the need for a clear and coherent deterrent for Europe has never been more imperative. To achieve that, we are going to have to collaborate, so the answer to that is surely going to be yes.
The Chair: If you have any more specifics on particular projects that you could let us have later, that would be very welcome, in the rapidly changing landscape of European security.
Jason Alderwick: Okay.
Oriel Petry: I would be supportive of the Military Mobility project. As you know, Chair, the links that you foster when you work together are strong, and that can only be positive from an individual as well as a mobility perspective. So we would support it.
Jason Alderwick: I agree with my colleagues’ comments. There are a number of PESCO-related programmes that the UK is interested in, and Military Mobility was the leading entry for UK interest. That is not really an industrial programme—it is looking at access and logistical movements across the continent—but there are other programmes where we would be interested. You did say not to use acronyms, Chair, but TWISTER is the obvious one from our perspective—that is, Timely Warning and Interception with Space-based TheatER surveillance. I will be testing you later on that.
The Chair: That is a new one to me.
Jason Alderwick: Effectively it is a hypersonic interceptor capability. As we know now, hypersonic integrated air and missile defence is a clear area of concern militarily, and the industrial competency needed in that area is a challenging business. Again, coming together to address that kind of hypersonic defensive threat set is something that we at MBDA UK would be delighted to be involved in, but at the moment we are not fully able to.
Q58 Baroness Hayter of Kentish Town: I have two questions. If we had been sitting here three years and two days ago, I wonder how different this conversation would have been. I wonder how much Ukraine is, understandably, driving this discussion, whether that is right and whether the focus we have at the moment would be right. Given Taiwan, AUKUS, China and Australia in the future, are we in danger of fighting not the last war but the current one in our thinking about this?
My second question is: with what is going on, if we have a new UK-EU security and defence agreement, should defence industrial co-operation be part of it? If so, how would you see that?
The Chair: Would anyone like to answer either or both of those questions?
Baroness Hayter of Kentish Town: I think he is telling me I should not have asked the first one.
Jason Alderwick: The first question is less an industry question and more a geopolitical one. What I can say is that we see a European war with global and international consequences spinning into areas of global geopolitical importance, whether that is the axis developing between Iran, North Korea and Russia or otherwise. My point is that these things cannot be contained; they are global in nature and require really big collaborative endeavours and national endeavours in response. Sorry, what was the second question?
Baroness Hayter of Kentish Town: If we get a new UK-EU security and defence agreement, should defence industrial co-operation be part and parcel of that? If so, how would you like to see that?
Jason Alderwick: At the last informal summit, the PM indicated that defence co-operation would form part of any sort of UK-EU defence security pact, and we would absolutely be broadly supportive of that.
Oriel Petry: I reiterate that that is the foundation of the argument that I am trying to put across here. Defence industrial co-operation is what we would like to have a clear signal on, because that would allow us to focus. The point that Phil made about making sure there is no duplication, and that we as Europe should think about what we need and wish to have within the context where we are operating, is critical. We strongly welcome the Trinity House agreement—we were glad that it mentioned capability, including drones, which are of particular interest to us, as you can imagine—and Lancaster House, which is the political framework that helps us as an industry to be able to plan future opportunity and work. Underneath that, from the industry’s point of view, it would be helpful if we had a clear joint commitment on what the countries wish to deliver bilaterally in a way that does not duplicate whatever agreements the UK reaches with the European Union as a bloc.
Jason Alderwick: I echo my colleagues on this point. To come from a different angle, there has been a lot of focus on the SDR from a national point of view, but the defence industrial strategy is also super-critical here from an industry point of view. We certainly welcome the initiative, and we are looking forward to seeing it setting the tone for the next generation of capability that is going to be required to be built in the UK. We have world-class capability here. The question is: how do we continue to lead the world in these technologies over the next decade and beyond? I am really looking forward to seeing how the defence industrial strategy sets out the tone for that.
The Chair: We have done very well for time, so thank you for being so concise. The last question is from Lord Jackson.
Q59 Lord Jackson of Peterborough: You have touched on the answer to this question in previous answers. Given that we have had some bilateral arrangements—with Romania and Estonia; a recent £600-million investment with Poland; Trinity House with Germany, which is obviously significant; and prior to that we had sub-Saharan Africa and the assistance with the French arising from Lancaster House—I suppose my fundamental question is: is a reset in defence strictly necessary, given that we are already involved at an advanced level in individual bilateral agreements with big players like Germany, Poland and France? How do you see that argument playing out? I suppose the real question is whether we need another architecture of co-ordination when we, as a big defence player and a big defence spender, are already involved quite intimately with these nations on a bilateral basis.
Jason Alderwick: There are a huge range of mechanisms and opportunities out there, bilateral and institutional. The point is probably more the need for coherence—picking, focusing and prioritising, with regard to the broader members themselves and indeed to what the UK position and orientation is to some of that activity. We talked earlier about NATO and EU collaboration and coherence and the need for that to happen. Again, I do not see it as an either/or proposition. Having the right channel to be able to work both sides of the seam is what we should be aiming for, in order to maximise UK benefit and to maximise the contribution and general benefit from our engagement across those programmes.
Phil Siveter: I cannot but agree. There is no one answer to this question. It is going to be a multifaceted answer about how we get funding in the right areas to deliver the right capability, and how we then build the collaborative partnerships that we will need to execute that. However, there is no question but that from our side those bilateral arrangements are super-important. We certainly welcome, as I know my colleagues do, the work around Lancaster House, setting a new set of capability developments with France in the coming years. They are hugely valuable, for sure.
Oriel Petry: From our point of view, it is about the outcome that we are seeking to achieve and what the best mechanisms are for that, so, like my colleagues, I do not see it as an either/or. The risk with doing everything is that you duplicate, so it is really important that we do not duplicate. We should think carefully where we are doing the joint work. You can cut that in various ways: you might say that the later stage of development sits bilaterally on certain projects but the earlier stages—building on Horizon and the R&D—sit at the European level. The main thing is that we are agreed about what we are seeking to achieve, so that we as the businesses can go away and do it.
I would like to pick up on a point that Phil made, which we have not really touched on, about the link to the UK industrial strategy. The Prime Minister’s announcement today about the increase in defence spending is really welcome, particularly his emphasis on British growth, jobs, skills and innovation. I want to highlight that we see that as absolutely complementary to the international partnerships that Airbus exemplifies. The two go together. Clearly, in an industrial strategy and in extra spending we need to think about UK capability, but within a broader piece of co-operation those two things go very well side by side, including when it comes to national-eyes-only sovereign capability. The scale issue sits alongside sovereignty. You can do scale—as we do, for instance, in military satellite communications—while at the same time delivering UK-eyes-only programmes as well as British jobs and British innovation. I just wanted to make that point.
Lord Jackson of Peterborough: You have pre-empted my next slightly cheeky question. I think you would be having an interview without coffee with your boss had you not said that. There will be £6 billion of extra spending by 2030 as a result of this announcement, and obviously you are going to say that that is a good news story, which it is. My question is: are you now actively going to be looking at strategic programmes, working with the Ministry of Defence, to make sure that that £6 billion is used properly? My second slightly cheeky question is: how much damage—I know you probably have to be a bit reticent—did the AUKUS situation do to the bilateral relationship with France? That is a very cheeky question, I know, and you may not want to answer it.
Phil Siveter: I might politely duck that one.
Lord Jackson of Peterborough: I thought you might.
The Chair: That is your right.
Phil Siveter: Obviously, after the announcement today, we will look for the SDR to give guidance about where the priority of that spend is going to be. We look forward to seeing that, and we will adjust and respond to that guidance when we get it.
To make a different point, we need to recognise that there is going to be an increasing skills demand here. An important part of the industrial strategy will be ensuring that we have the skills framework to be able to deliver the capability. There is an increasing demand for highly skilled engineers, technicians and particularly data scientists, which will become increasingly important in the defence sector over the coming years. There is no question that there is more to do, both for us as an industry and for the Government, to make sure that we have the skills in the UK to be able to execute on the ambition that the SDR will set out.
Jason Alderwick: I agree. The SDR will set out some of the detail and guidance on how we go forward. In the UK-French context, for us FC/ASW is a really critical programme that we need to take forward—that is a deep strike and anti-ship weapon initiative as well. More broadly, production capacity and resilience are national questions, and the defence industrial strategy will look to address some of those in detail. But as well as being national questions, there are international questions with our allies as well on how we ensure capability, capacity, industrial production and things like that—that is really important. As Oriel says, yes, there is a strong domestic message here, and the increased investment is brilliant, but that sits within a much wider series of engagements with allies and friends.
Q60 Lord Stirrup: I hate to put a damper on industrial excitement, but I point out that 2.5% of GDP merely closes the gap between funding and the cost of the current programme. That means, of course, that for the next two years defence will face a challenge of £5 billion a year, which will almost certainly result in cuts.
My question was similar to the first question from Lord Jackson, but from a slightly different perspective. Clearly, the urgent requirement now is to build as quickly as we can a much stronger European pillar of NATO, to be able to mount a credible deterrence with certainly a reduced commitment from the United States at the very best, as it focuses much more on the Indo-Pacific. But European NATO is not the same as the EU. You have all told us how you would prefer the UK to be part of these various EU processes and organisations—but let us suppose, because of the difficulty of third-party participation, that the UK cannot be part of those. In those circumstances, are the current arrangements—bilateral, multilateral, OCCAR and so on—sufficiently flexible to enable us to build that strong European pillar of NATO from an industrial perspective?
Oriel Petry: Well, that is an easy one to finish on. I think that is the question.
The Chair: He was hoping for an answer.
Oriel Petry: Yes, exactly—so I think that is what we need to prove, in a way, between us. I started this session by saying that in industry we need the political certainty for the security architecture that the Government want with their allies, and then we need to go and deliver on turning that into capability. Clearly, we would certainly support the continuing importance of NATO and the European pillar of NATO but, as all three of us have said, from an industrial point of view we see that as complementary rather than either/or. We follow where the policy and where the policy framework positions what we can and cannot do.
Jason Alderwick: To build on that, the first part of the question is really about more of a military operational posture. Obviously, we are industrialists—we would not comment on that. Critically, with the current arrangements as they exist and whether we could survive and continue what we are doing, of course we would—we would adapt within that framework. But ultimately it is a suboptimal framework, and we need to get to a better space. NATO is doing a lot in the industrial sphere as well, in trying to do more. It has a whole range of initiatives that we have not explored today in this committee, but there is a need to complement the initiatives that are happening in the industrial space at EU level, because we do not want that mutually assured disruption developing. That is what it is really important to look at. I shall stop there.
Phil Siveter: I will come at that from a different angle. It is important to say that, while there has been an emotive discussion about building deterrence and collaboration across Europe, there is no question but that investing in defence has an economic angle as well. Investing in defence in the UK creates jobs in the UK—highly skilled jobs in the UK—and that is a really important point. There is an economic prosperity piece for the UK nation about spending in defence and building world-class capability that we can then export for the benefit of the nation, sharing that capability across Europe and beyond with our allies. So the investment is not just about filling the gap; it is also about the economic benefit.
The Chair: Thank you very much indeed. We have covered an awful lot of ground in one hour and two minutes, and we have avoided a Vote—all very positive. Thank you so much. If anything occurs to you that you want to follow up on, we are very happy to have written submissions. I think that Mr Siveter might be able to give us a little bit more thought about certain projects. Otherwise, with our renewed thanks, I bring this public session to an end.
