28
Examination of witnesses
Wes Streeting, Rupert Pearce and Ben White.
Q98 The Chair: Good morning and welcome to the Industry and Regulators Committee. My name is Dianne Hayter, the Chair. I will introduce my colleagues later on. This is being broadcast and a Hansard report will be made. You will have a chance to check that in case there is anything that we have misunderstood from what you have said. Could you introduce yourself, Secretary of State, and your colleagues? Then we will go straight into questions, if we may.
Wes Streeting: I am the Secretary of State for Defence.
Rupert Pearce: I am the national armaments director.
Ben White: I am the director for the defence industrial strategy.
The Chair: Can I thank all three of you for your time today? We know how busy you are. The armaments director has been in position for a year now; other people are more recent in their job. We appreciate very much you coming here. We are not looking for, as I am sure you have been advised, the quantum of defence expenditure. We are looking at what the SDR suggested 16 months ago now as a new relationship between government and industry.
I am not sure, Secretary of State, whether you had a chance to see the Bayeux Tapestry. If you had, you would have seen panel 32, which is William ordering the felling of trees, the building of boats and the gathering of arms. I do not know whether nobody told Harold or whether they did not respond, but there are some similarities now with how we respond to threats, which you yourself, I think in Liverpool, said are the most dangerous you have known in your lifetime.
We are focused on the relationship between government and industry. In the light of what we are hearing—that there may be a delay, maybe for a year, until knowing what the expenditure is going to be—we are interested in how you provide the sort of environment where defence companies can respond to the demands of the current threat under the SDR.
Wes Streeting: Good morning. Thank you, Chair, for inviting me to appear before your committee and for the focus on this particular area, which is extremely important. My overall priority, which is an easy one to set and much harder to deliver, is to make sure that we are ready to deter and, if necessary, defeat those who would do us harm. That means strengthening our capability, our defence industrial base and our alliances.
The industrial piece sits across all those things, providing the capabilities we need and working with allies to develop those capabilities where we can. In an environment where NATO asks us to be ready to potentially fight and win a war, we need to make sure that we have not just the defence industrial base that we need now to meet our requirements, but also a wider industrial base that we would need in warfighting to sustain our warfighting machine and see us to victory. That is the context in which we see this.
There is a big opportunity, as we do those things, to support the key planks of the Prime Minister’s overarching political agenda, which is to re-industrialise our country, backing Britain by buying British and providing opportunities, particularly for the next generation and those million or so young people who find themselves not in education, employment or training. Fundamentally, we have to keep our eyes on our core business of defence, but there is also an opportunity for the Ministry of Defence to be both a ministry for growth and a ministry of opportunity. We want to make sure that we are supporting the Government’s wider objectives.
Thinking about that central challenge of the money and to what degree we have certainty, people can judge this Government, or the Labour Governments we have had since the general election, on their record so far. When we came in, defence spending was 2.3% of GDP. By next year it is set to be 2.7%, so we are well on our way to the 3% and 3.5% milestones, with 3.5% by 2035 being our NATO commitment.
In a way, the debate about defence spending and what we will see at the Budget and the spending review is a helpful one for me, as Defence Secretary going into Budget and SR negotiations. I am never going to complain about people saying that my department needs more money. I wholeheartedly agree with that and I think the Chancellor agrees with that. It is also important because it helps the public to hear the case over and over again of why investing more in defence in the current threat environment is important, because the public support is there, but we should not take it for granted.
There is, though, an overstatement of uncertainty. We know, for example, that, at the Budget, the Chancellor will provide the £4.7 billion shortfall that arose out of the DIP negotiations undertaken by my predecessors. I pay particular tribute to Dan Jarvis for the heavy lifting he did to get the DIP over the line. We also know that, at next year’s spending review, whenever the spending review is, the Chancellor intends to set out the pathway to 3.5%, and we can make some educated guesses in the meantime.
There is plenty for us to go at now in terms of the money we already have. There is a degree of certainty about an upward trajectory, which I think industry welcomes and the department is working on the basis of. One thing that is very different in this role compared to my last one is that, when I was the Health Secretary, I was under pressure all the time to demonstrate value for money, harder efficiency and productivity improvement, and to get my department to balance its books. The challenge at health was, “Isn’t your answer, Labour, just throwing more money at the NHS?” The only challenge I now get as Defence Secretary is, “Why won’t you throw more money at defence?” That is important. We need to spend more, but I also have responsibility to my colleagues across government and to the taxpayer to make sure that that money is well spent.
The Chair: That is an interesting phrase. I think you said that there is an overemphasis on uncertainty. We have met a lot of people in the industry who are feeling that uncertainty, but perhaps I could ask Lord Udny-Lister to take that forward.
Q99 Lord Udny-Lister: My question is about confidence and the signals you are going to give to industry. I suppose it starts off with, “When will the defence and investment strategy be published?” Can you give us an indication of a date? Even without that date, can you tell us that it will give the signals to industry that will enable it to tool up, prepare and have confidence to invest money in developing products and services for the defence industry? It is the signalling that I am particularly interested in.
Wes Streeting: We are now a year on from the publication of the defence industrial strategy and it covers the delivery across regional growth, industrial resilience, skills, SME access, innovation, procurement reform and partnership with industry and allies. There was £773 million worth of funding attached to it, including £250 million for five defence growth deals, which are having a real impact, and £182 million for defence skills programmes. There is a lot there in terms of clarity and direction.
We will have just shy of £300 billion spent over the next four years. There are clear demand signals within that. We have the defence investment summit coming up before the end of this year. That is a great opportunity for this country to demonstrate the extent to which we are investing more and open for business, and, more than that, open for a real partnership with industry. This cannot just be a classic transactional relationship. Indeed, we have come in for some criticism over the years for being too transactional.
This is about making sure that we are clear with the order book, as we will be, about investable opportunities. It is also important that we are not just going out to tender with commissions for particular projects or platforms but going out, in the spirit of the integrated force design model we are working to, with our requirements over the next decade and working with industry from design right through to procurement and then delivery. Industry partners can help us to determine what it is that we need, whether those are exquisite offers, designed specifically to meet our needs, or right through the spectrum to off-the-shelf.
To your question, I do not want to sound complacent. I appreciate that there is more we can be doing. There is more clarity to come, but I do not think that we are in a bad place in terms of the money that is available and the demand signal that has been sent out, through the defence investment strategy and the defence investment plan. Through the mechanisms we have set up, such as the Defence Industrial Joint Council, there is a genuine commitment at every level of the department, ministerial and official, to work in partnership with industry in order to meet our requirements and build a stronger defence industrial base for the country.
The Chair: Do we have a date for the summit?
Wes Streeting: Off the top of my head, I cannot remember what I am doing next week at the moment.
Rupert Pearce: It is 1 December.
Wes Streeting: It is 1 December.
The Chair: Thank you very much. I think you heard it here first, in that case.
Rupert Pearce: To provide further comfort on the delivery, the defence investment plan was clearly higher level. It looked across 10 years, with more detail in the first and less in the second five. There is a real sense of long-term direction in terms of our military strategy. We clearly did not want to provide too much public detail about exactly what we are doing every week, every month, every quarter, because a lot of it is highly classified. We are now turning that defence investment plan into a delivery plan with industry.
We have already started to share the fruits of our work in a much more detailed, granular way, looking over the next six quarters and beyond. Industry is leaning in and engaging with us. It is very much a collaborative exercise, which is what this is all about, turning from a transactional relationship to one that is a true relationship, with industry bringing good ideas, investment and the capabilities to us to help us move out of the gate quickly. That is where we are today. That will start to be shared more broadly as we go forward. We are actively moving out on the ambitions of the DIP right now.
Q100 Baroness Carberry of Muswell Hill: Good morning. Perhaps I could pick up on your answer there, Mr Pearce, about the delivery plan and focus in on some of the procurement processes that we have heard a lot about during this inquiry. In particular, we have heard over and over again anxieties about pace and speed of contract processes. In some cases we have heard about it taking six or seven years even to get to contract. Is the delivery plan addressing this and how is that particular issue going to be dealt with, so that we can speed up processes that, at the moment, do not appear to be commensurate with the threats of modern warfare?
Rupert Pearce: I completely agree with your concern and accept that something has to change within defence, and fast. It is very much part of what we are looking to support and achieve through the rolling out of the DIP, but it is being dealt with partly through other means. Inherent in the defence industrial strategy is working with industry to speed up and simplify our procurement processes. Indeed, it is called out in the SDR as something fundamental that has to shift.
The requirement for that to change has only got greater. The SDR, remember, assumed that we had 10 years to deliver this transformation. By the autumn of last year, the prognosis was that we had only five years. We have to accomplish a lot more change at the front end of this programme to result in capabilities arriving in time.
We are doing a lot here. If I look forward, we need to procure in more ambitious and well-calibrated ways. We have a tendency to over‑procure and to design for the exquisite, as opposed to the good enough. In some areas we want to be exquisite still, because it is a key capability to overcome our adversary. In other areas, good enough is, by definition, good enough and that is what we need to procure for.
We also need to think about ways in which we develop our capabilities in increments. We need to be more modular in the way we design capabilities so that we can have a baseline capability and then spiral develop from that over time, managing the risk inherent in long-term procurements in cleverer ways. That has become especially true given the amount that we are now procuring in software, not hardware. So many more things we are buying now are systems, or systems of systems, and we need to think about the implications for that as well.
That is why the two most profound things changing inside defence are that, as the Secretary of State just said, we are moving to an integrated force model, so we start to look across all of our domains and front-line commands to procure for them, and, at the same time, instead of being given requirements by the front-line commands, we are now given problem sets. That gives us the design authority in my group to think about how we solve those problems. At one stroke, we get much more room for manoeuvre in terms of how we procure and we are able to work with industry, innovators and our allies to think about how we can design the solution. The pace of that solution has become one of the key value criteria in the way we procure. The whole mindset and philosophy of procurement is changing.
I will then pivot very quickly to talk about some of the very practical things we are doing. We are trying to simplify our procurement and take layers out of it. We are trying to engage much earlier with industry in inviting it in to figure out how we can solve these problems. Above all, we are trying to stratify our procurement. Yes, those big platforms require a lot more planning and design, but why take the same approach for everything? If we stratify our procurement and develop proper commercial pathways for different types of procurement, we can really shorten things dramatically.
We have done that in terms of procurement for Ukraine and the story of Commercial X. Commercial X has made over 1,000 procurements in the last three years and its average pace from genesis to contract is 50 days. That is the kind of thing we need to be looking at. We need to take that model, amplify it, deepen it, resource it properly and do more like that. There are a lot of good green shoots going on. We are looking to take our big platforms down from an average of the six years you called out to two. We are looking to take our systems down from three years average to one and everything else to three months. We have metrics to track that and the team are working very hard to get there.
Wes Streeting: I can say, because I have not been around long enough to take personal credit for it, that, on major platforms, that has already come down from six years to just under five years since the publication of the SDR. There is definitely more to go at, but it shows that words are being matched by action, which I found reassuring in my early weeks in office.
Baroness Carberry of Muswell Hill: All that is very reassuring. Thank you. Can we look forward to a report in due course on how successful you have been in speeding up procurement in all the different segments?
Rupert Pearce: Absolutely, yes. I am a devotee of, “You can’t manage what you can’t measure”. We need the measurements and ambitious targets, and then we track ourselves against them. This is very much the way we report on the objectives of the SDR. A nice thing about the SDR and the defence industrial strategy for me is that they come with hard metrics of performance. We can build a lot more into our reporting, which we would be very happy to bring back to you.
Wes Streeting: A love of targets is another big difference between this department and my last one.
The Chair: It is a big culture change you are ahead of.
Rupert Pearce: The cultural change is almost the biggest shift. Naturally, in the environment in which we have been living for the last 20 or 30 years, there is very strong risk aversion. There is a focus on inputs, not outcomes, and a love of process, sometimes for the sake of process. It is a comfort blanket. It is a place of psychological safety. It is entirely understandable and normal.
If we are going to accomplish change in my group—national armaments—we have to find new places of psychological safety that are commensurate with what we face, which is the need for speed, the need to deliver transformation in our armed forces, the need to dramatically strengthen and deepen the capabilities of our supply base so it becomes a national strategic asset, and the need to innovate at pace. We could build great capabilities but if they are out of date in six months we have achieved nothing. Those things require a change of mindset.
The key for us as leaders is to create a working environment where people feel inspired and empowered to behave differently. We know we can achieve that because, when we lifted the system from them to support Ukraine, because Ukraine was willing to take more risk, we operated at an incredible pace. That is something we are phenomenally proud about. The people have the capabilities to do this. We have to provide a system in which they can flourish.
The Chair: Sometimes you need some political cover.
Q101 Lord Camoys: I was very keen to ask about the lessons from things such as Commercial X. Witnesses to our inquiry have identified both Commercial X and Taskforce Kindred as examples where contracts have been placed quickly by the MoD and innovation has been encouraged. Minister, given that the MoD has shown it can do this—we talked about culture—how can you change the culture? How do you go about that so that the MoD is more willing to move quickly, to accept greater risk, and to move away from process and more into delivering outcomes? How do you actually go about that?
Wes Streeting: As the Chair just alluded to, part of it is about providing not just political direction but political cover for a willingness to hold risk. Part of it is accepting this environment, where the nature of warfare is changing at a pace we have simply not seen before, if you think about where the war in Ukraine is today versus where it was at the start and the way in which the Ukrainians are innovating at a rate of knots. You have to be prepared to fail and to fail faster, to learn and then move on and adapt.
I am afraid that, in our world, “failure” is not a word we are comfortable with. Failure is often used to drive political embarrassment, Urgent Questions and parliamentary scrutiny, and sometimes with good reason. We do not aspire to fail, but, in a world in which our success relies on us being able to not just out-produce but out-innovate our enemies, part of a culture of innovation is accepting that, for every great idea you have, there are plenty of failures and setbacks you have to go through in order to arrive at that ultimate success.
Being comfortable with that as Ministers is important. We have a particular asset in the Minister for Defence Readiness and Industry, Luke Pollard, who absolutely gets this and has been a driving force and a champion for the defence reform that was put through by John Healey. The NAD group gives the MoD an institutional set-up and framework that is the best chance of dealing with those problems that the Ministry of Defence has been plagued with over the years around procurement, value for money and productivity.
Part of the challenge is making sure that we take everyone with us. The other opportunity we have is a very forward-leaning, modernising set of defence chiefs. They are absolutely critical for driving the culture change that Rupert mentioned. In a world in which you are handing over problem sets rather than issuing requirements and trying to do that across the armed forces, that is a big shift and not one that everyone will be comfortable with. Sometimes, in this phase, it will involve saying to people, “We didn’t ask you for the specific requirement. We asked you for the problem”. That is a shift in culture behaviour. Initially people might encounter that as bureaucracy. Actually, it is the path to bulldozing the bureaucracy, waste and efficiency duplication that is holding us back.
The Chair: I would like to bring in Baroness Harding. I do not know whether you know, but she had to do some of this culture change when she was driving the vaccine initiative at the time of covid.
Wes Streeting: I remember very well.
Q102 Baroness Harding of Winscombe: To be fair, I was testing, not vaccines, but it was the same thing. When we started this inquiry, I think I actually said in the committee that I thought I knew literally nothing about defence procurement. With each session, I feel like I am going back six years to covid procurement. It feels to me that there are an awful lot of parallels.
I wanted to press you a bit more. I completely understand and agree about this important shift in culture. Secretary of State, you have talked clearly about what you are doing within the department. I wanted to push you on whether, to achieve this culture shift in the MoD, you need greater political direction and air cover from the very top of the office, from the centre of government. What do you need from the Prime Minister to create that shift in the country to allow the MoD to get some stuff wrong and spend some money not wisely in order to shift the culture to innovate as you are describing? What do you need from the top of the office?
Wes Streeting: With this Prime Minister, I am struck by his willingness to run into really big, hard things. We have seen that domestically with social care. We are seeing it internationally on AI and the way in which he is going about that, trying to do so through multilateralism, which has slightly gone out of fashion in the world, to put it mildly. His level of intellectual curiosity about things is a strength, and communication is one of his superpowers. In terms of helping the country to understand and to walk through some of this, I do not think we could ask for a better champion who instinctively understands where defence fits in his overall vision for re-industrialisation and spreading opportunity, as well as growth, across the country.
The other big asset we have is the Chancellor. The Treasury as an institution is one I have come to know and love in my previous experience in government. For reasons I understand on the fiscal side of the Treasury’s responsibility, with an abundance of caution and learning from examples of waste, inefficiency and white elephants that government has seen over the years, it can ironically sometimes lend itself to thinking that more regulation, process, scrutiny and sign-off is the answer. It can slow us down and work against growth, value for money and productivity certainly.
Building a high-trust environment with the Treasury is really important. That helps with the Chancellor because he has done my job before. That can be a double-edged sword when people know the department well and can see through flannel. That is a good thing.
My impression is that the DIP process, difficult though it was for everyone involved, means that the Treasury and the Ministry of Defence are working from the same number sets, the same set of assumptions, the same agreed plans and the same understanding of the challenges. Therefore that is a good ground for us to speed things up. That is not an event; that is a process. We are going to have to continue. Just as the Treasury challenges us on value for money, doing what we say we will and delivering to time and to budget, we will also have to do a bit of upward management to the Treasury to make sure that we are operating in a high-trust as well as a high-performance environment.
Baroness Harding of Winscombe: I do not doubt our Prime Minister’s communication skills at all, as you set out. This is not a party political point. It was quite striking that defence was not mentioned in his party conference speech. Do you need him to make a big strategic statement in order to help give your officials more air cover to change the way they work, take more risks and innovate, as you describe?
Wes Streeting: In defence of the conference speech, it was about the vision for the condition of Britain. It was a vision for the kind of Britain we want to be here at home. There is no doubt in my mind that he understands and is concerned about the threat environment that we are operating in, is concerned about the risks that we and our allies are carrying, and is engaged internationally. The fact that he did two and a half hours in the Commons yesterday with an international update the first day back should provide reassurance that he is focused appropriately on both foreign and domestic, and the links between the two.
What is the prize for us as a Government? We want the public to understand the threat environment. We want to build national resilience and we need the country to play its part. We want people to be alert, but not alarmed. We also want people to see security as the essential precondition for hope and opportunity. The reason why the Prime Minister is uniquely placed to do this is that you need someone who is able to tell that compelling story and can marry hope and opportunity on one hand with the backdrop of threat, uncertainty and risk on the other.
We have to bridge those two. We cannot afford to be just about hope and opportunity, without also focusing on risks and insecurity. I think that you will see, in the coming weeks and months, the Prime Minister bridging those two things, particularly as he is engaged in international fora as well. That is a good opportunity for him to get that message across.
Rupert Pearce: Baroness Harding, if it gives you comfort, I feel that I very much do have air cover for the change programme that the national armaments group is engaged in and I am leading. I find the Ministers enormously supportive of the process of change and actually asking how they can do more to support. There are a whole series of decisions around how we orchestrate our procurement, because we have to move at pace, and I see a lot of support for that.
It is grounded in the SDR. The SDR calls out this necessity for change and doing things differently, including the cultural shift. The defence industrial strategy articulates that, and so does the defence investment plan. Once the DFIS—the defence, finance and investment strategy—comes out, it will talk about another piece, which is about making sure that no UK defence company struggles for growth because of lack of access to capital. We want the UK to be the best place in Europe, if not the world, for a defence company to establish itself. I see enormous passion throughout the ministerial group and among the quad to do that. Yes, I see that air cover.
Look at my background. I am not a defence careerist. I am not a civil servant. I come out of industry. I ran a space services company and I was a venture capitalist. That is a very strong statement of intent about the nature of the kinds of behaviour we need to start to infuse in our procurement engine.
Q103 Lord Best: My questions are all about the SMEs—the small and medium-sized enterprises. We have heard a lot from them. It is not only that they bring innovation, new ideas, entrepreneurial spirit and all that, but the large defence contractors depend upon them to scale up and do a lot more, and they face incredible barriers. I know you set aside £2.5 billion between now and 2028 for the SMEs, but here are some examples of things that they face: a brand-new start-up being asked for three years of audited accounts, a procurement document that managed to pass the 1,000 pages mark for an SME to deal with, security clearances that take more than six months for the individuals concerned.
Can I put some specifics that you might like to react to and see whether you are able to comply with these ideas? Could we have a single front door, so that there is somewhere for SMEs to go where they know their queries and issues are going to be discussed directly? It may be that the Defence Office for Small Business Growth gets expanded and does that job. Could we have a single standard contract for smaller SMEs, instead of these incredibly lengthy and difficult contracts? Could we have payment terms that do not wait until delivery before you get your money, requiring these SMEs to borrow to pay the staff, with banks very reluctant to lend when there is only a single purchaser? These are all difficult issues. Can we get to the specifics and help the SMEs to flourish?
Wes Streeting: That is a great challenge. There is no doubt in my mind about the fact that we need to do much more to support SMEs to engage in opportunities that will come through the defence investment plan. We do not start from a bad place, but we do not start from a place that I think any of us would be happy or comfortable with. There is a lot more to go at.
Instinctively, I think the Defence Office for Small Business Growth is and should be the front door. It was established back in January this year, so it is still nascent. There is an opportunity, and actually a responsibility on us, as well as looking at what we can do to remove barriers in defence processes and drive up SME spend, to continually engage with the SME sector to see how that is working, as we are still in the early stages. The website, the contact centre and the guidance services are specifically designed to improve access and reduce confusion. The proof of the pudding will be in the eating: how do SMEs feel that that is going? How easy do they find it to engage?
Similarly, I absolutely take your challenge on payment terms in terms of making sure that we pay readily and on time for work that is being undertaken, but also recognising that, if we are dealing with our primes and, for all sorts of reasons we are all familiar with, a well-laid timescale does not quite go to plan, there is a big difference between a BAE or a Leonardo adjusting and reprofiling, and an SME, which is standing up the workforce and getting ready to do the work, being told, “We’re not going to be with you for another three months”.
Making sure that we are agile, responsive and supportive, and recognising the support that will be required where those sorts of things happen, goes back to what I said earlier about being a good partner. That is not just about being a strategic partner in terms of setting our overall strategy and thinking about procurement. It is also about how we work effectively on contract design and delivery.
In terms of the single standard contract, it is of course instinctively appealing to me, but I am a politician and I like simplicity. I will turn to Rupert to talk through how in practice that is doable.
Rupert Pearce: I am going to bounce that on to Ben in a second, having said that, because he is in charge of it. You are looking for facts. We deal with over 12,000 SMEs today. We do £5 billion a year of business with SMEs today, albeit only 25% of that number is direct, so a lot of them come through the primes. I want to change that. The extra £2.5 billion target by the middle of 2028 is actually growing our business by 50% with SMEs, so it is a very big ambition. That, in itself, has to drive a change of behaviour.
You have obviously seen and read the SME action plan. That is a holistic plan looking across all the things you are talking about: making access to capital easier and addressing payment terms, both direct and indirect. Actually, we pay SMEs very quickly. Sometimes what happens is that it goes into the primes and then the primes pay them slowly. That is what we have to address by setting expectations of standards with primes, without which they will cease to be primes.
We are looking to standardise contracts wherever we can and get rid of longevity. We now have a single front door, but we are not set up for 12,000 companies to come through that door at once. Somehow we have to digitalise that engagement as well, probably working through ecosystems and communities that bring SMEs to us.
I will hand off to Ben to talk about some of the granularity, because there are a lot of facts here that are moving in the right direction, When I meet with SMEs—and I would call out particularly the recent SME round table at Farnborough, which I attended with Min DRI—I see a complete change of tone now. There is much more trust, transparency and engagement. SMEs are coming up with ideas. We are taking those ideas and running with them.
For example, one reason why SMEs struggle to engage on the larger programmes is that they are very large and often require a lot of skillsets they do not have. They might be able to deal with one piece of the procurement, so they are forced to sit behind the primes that put together the front piece. If we procure in more modular ways, we give SMEs a chance to bid direct with us for the module. Better still, why do we not have a dating agency for SMEs to come together and collaborate in coalitions that can bid against a prime? Those are things I warmly encourage and endorse and we are looking to get after, but you cannot get there without the dialogue changing and without creating forums for SMEs to meet you and talk about their specific issues. Then we can start to fix them.
Ben White: The Defence Office for Small Business Growth is the front door. It started only in January, as the Secretary of State said. At the moment it is concentrating on those cross-cutting issues that we have identified affect all SMEs. That is the most powerful and impactful thing it can do immediately. As we scale it up, it will be able to receive more of these requests and deal with companies.
Dealing with 12,000 companies is a challenge, so we are still working through how we provide a level of service that is proportionate and achievable. A standard contract is a really good suggestion. One of our accelerated commercial pathways is specifically for SMEs, trying to make it easy for SMEs to work with us, taking all the best practice that we have and applying it, removing any barriers that we find along the way and that becoming a standardised approach for how to contract with SMEs. It does slightly depend on what type of product or service they offer as to which contracting route we would choose, but that exists now. It has been launched.
On payment terms—I hope you will find this comforting—we pay 94.6% of our contracts within five days and 99.9% within 30 days. In terms of making sure that they have access to funding and smoothing that financing situation for SMEs, we are definitely playing our part.
Rupert Pearce: The final area I will allude to, which is a fertile area for SMEs, is innovation. Remember that, on one side, we have procurement of the solutions we know we want to adopt, but, as a separate exercise, we are also fostering a lot of innovation, including early-stage innovation. UK Defence Innovation has £400 million a year to put into mid-stage TRL—technology readiness level—opportunities. It is constantly horizon scanning for new ideas and capabilities. This is a very fertile area for SMEs to jump on board. The money we have now allows us to bring their technology forward without it costing them an arm and a leg, and without them having to bet the company on getting a contract at the end of it.
If you look at a competition we ran recently called Project Brakestop, which is looking for a mid-range cruise missile, we deliberately created an environment for lots of innovation by not over-specifying what we needed, leaving room for manoeuvre for companies to come up with clever ideas or different ways of solving the problem. Over 20—I think 24—companies applied, only one of them a defence prime, so there were lots of SMEs. Most of them we had never heard of. One was a Formula 1 engineering company. Go figure. When you think about it, a missile is not so different from a Formula 1 car.
Every single one of those companies got funded to the next level and went away having learned something and, I hope, wanting to come back and have another go, even though they did not win. We got down to five. Next phase we got down to three. Within six months, we had three functioning cruise missiles at very low cost that did what they said on the tin. Two of those companies were brand new SME suppliers, so it is a really exciting way to foster innovation in the UK.
The Secretary of State talked about failure. Did we fail with those 20 companies we decided not to procure from? I do not think so. We all learned a lot. They learned a lot. They will be back. It is a really exciting way to foster innovation. The key was to put those SMEs in contact with front-line commands and their rapid capability offices, so we can rapidly prototype and iterate with people who really know what the problem is and live that problem on the battlefield. We can then get to minimum viable product and product-market fit, making that entity far more fundable because it has a development customer alongside it.
These are the kinds of models that I find incredibly exciting for rapidly growing SME communities in the UK and their technology, without them having to bet the farm or put themselves at risk. What emerges is a company that then scales super fast, with us waiting to deliver the contract and the venture capitalists very eager to come in and fund those kinds of companies because of where we have taken them.
Lord Best: That was reassuring. Many thanks.
Q104 Lord Barber of Ainsdale: Good morning. We have talked a lot this morning about developing a new relationship between the MoD and the defence industry, so more of a partnership relationship and less a narrow transactional way of doing business. Are there risks in that, in terms of what some might call potentially a more cosy relationship? Earlier this year, the National Audit Office produced a report that pointed to what the Public Accounts Committee estimated could be as much as £1.5 billion worth of fraud. What are the safeguards that can be put in place to guard against those risks as the relationship is changed in the way that we have all talked about seeing as desirable?
Wes Streeting: This is a risk we need to be alive to. It is not just a risk of cosiness or, worse still, fraud and corruption. It is also how you get the balance right between competition and the innovation and value for money that competition inspires, and, at the same time, taking into account social and economic value, the benefits of backing Britain by buying British, and the fact that sometimes there will be potential tensions between those two things.
This is why, in setting out the intent to buy British, we also have to be prepared, in some cases, to defend going to open competition or UK competition. We sometimes, as I encountered in my first few months in this office, need to be willing to look colleagues in the eye, who are rightly banging the drum for their constituency interests, or look industrial partners in the eye and say, “I hear your case for a direct award, but in this particular instance we judge it not to be of benefit”, and be prepared to field the occasional brickbat if work is going elsewhere. We have a really good track record in MoD of spending in Britain, but also spending outside London and the south-east, so we have a good story to tell.
In that spirit of going out with problem sets rather than specific requirements, it is about encouraging industry to work together. That in itself helps to drive innovation and competitiveness. It is about working with trade union partners, who also have a important stake in this and recognise some of the direct choices and trade-offs that we face.
We are going to have to keep a sharp eye on this. As we set out the framework around buying British and publish the new guidelines around measuring social value, we need to make sure that we have a degree of independent and impartial rules and frameworks that can help us steer through those choices and trade-offs, so we are not leaving too much to individual discretion. That is where some of the risk comes in. There have to be checks and balances.
Rupert Pearce: I can assure you that there is no cosiness at all. It does not stop it being a businesslike relationship. There is no cosiness. Cosiness to me means that we wave things through; we accept mediocrity; we wait for them to catch up. That is absolutely not the case. If you want to be a successful partner of defence going forward, you are going to have to be really good. You are going to have to be on your mettle. You are going to have to invest in skills, jobs, young people and apprenticeships.
With the benefit that comes from us leaning into a relationship-based approach to wanting our supply chain to be strong, vibrant and capable comes a responsibility for industry to step up to our expectations of it. I will never use the term “cosy” when I am talking about my relationship with industrial partners. I would not expect them to say the same back. They want us to have a sharper edge, to move at pace and to have more consistent behaviours that allow them to invest. I am trying to change national armaments to do that. In return, from them I want professionalism, a commitment to productivity and a commitment to excellence. We talked about primes. I want them to prove to me that they are fostering their SME communities in the right way. Otherwise, they have no business being a prime, for example. It is a very businesslike relationship, with shared goals.
We cannot get away from two things. The first is that a strong and vibrant defence industrial base in this country is an absolutely essential prerequisite of our deterrence and ability to fight and win. It is really vital.
We cannot get away from something I totally agree with. It is one of the reasons I took this job. If we are going to be spending 2.5%, let alone 3.5%, of GDP on defence, we are honour‑bound to do that in a way that delivers jobs, growth and capabilities into this economy and grows the great British companies of tomorrow. Of course we need to do that, but, in seeking those two objectives, the last thing we are going to let slip is standards.
Ben White: We have been given very specific fraud targets by the Treasury and we are organising around that to meet that challenge. Part of that is around bid rigging. We are working very closely with the Competition and Markets Authority, which has been incredibly helpful in supporting defence.
I will talk about the Defence Industrial Joint Council briefly. That is our mechanism to build this strategic partnership. There are 21 members of that. It is primes, mid-tier, SMEs, academia, trade associations and trade unions, so it is not one group favoured over another. Where we work very closely with the primes, it is specifically to manage risk, performance, productivity and resilience, and not preferred bidder status or helping them with business development.
That is all about engagement with the defence sector. We are very open to business with adjacent sectors as well. We know that we have to have serious conversations with the automotive industry, for example, and we have begun that process.
Lord Barber of Ainsdale: The Public Accounts Committee, I think, made a recommendation that consideration should be given to putting a clear plan in place to recover funds that have been lost to fraud and economic crime, and a proposal too that a senior individual should be appointed at two-star level, predominantly focused on this issue of safeguarding against economic crime and fraud. Is that a proposal that is still under consideration?
Rupert Pearce: It is being actioned.
Ben White: In response to all those directions a fraud strategy is being put together by the department and will be published in due course.
The Chair: The PAC will be pleased that its report is being implemented. That will be good news.
Q105 Lord Fuller: Our national defence is predicated on certain critical raw materials, not all of which are sourced from our allies, certain unique production processes, which are not always located at home, and certain robust supply chains, which are not always controlled here within the UK. Have the Government and your department mapped all these critical vulnerabilities? What can you share about the mitigations you have in place to address these single points of failure?
Wes Streeting: You are absolutely right to identify this risk. The defence supply chain capability programme is embedding resilience across planning, acquisition and decision-making, and trying to improve our visibility of end-to-end supply chains. We are addressing strategic dependencies through critical minerals analysis and supply chain mapping, as you described, and looking at this not just in terms of our own sovereign capability, but particularly surfacing this conversation with our NATO allies as well. I think that we are all concerned about the same supply chain resilience around critical minerals, semiconductors, batteries, energetics and our overall industrial capacity. If you think, across our alliance, we have considerable breadth and depth, but there are still challenges.
The defence industry warning, advisory and reporting point gives us a single point of engagement for reporting and managing security incidents. This is something we are suitably concerned about and focused on, not just domestically, but also with our NATO partners.
Rupert Pearce: To amplify that a little, we are in the vanguard of looking at our supply chain several layers down. We have built a digital twin of our supply chain, which we continue to evolve, and infused that with real-time data from our suppliers. We are beginning to get a level of common visibility that allows us, both systemically and on a case-by-case basis, to get after those areas of fragility.
Where you have a systemic problem, that might be something government looks to fix. Where you see fragility in a particular supply chain, you might go after the prime or group of SMEs. Without the visibility, it is difficult to do that. We are really investing in the digital side to help us do this better. It takes you to all sorts of strange places. It is the old, “For want of a nail, the battle was lost”. Your supply chain is only as strong as its weakest link. We have to take this very seriously, because resilience and staying power is everything in terms of our deterrence and our ability to fight and to win. This is a very key thing.
Critical minerals is just one vector for that. We look at the 28 critical minerals that we have identified as critical to defence, and we are looking at each of them in terms of our supply, the consistency of that supply, the quality and our ability to control it. Fortunately, this is an area where we are not alone. We can work with our allies. Countries such as Australia and Canada I would call out as having particular strengths in critical minerals, and of course the United States. We are not bad, actually, but we need to look at this holistically with our allies and work together to ensure that we have mutual resilience.
We ourselves have some interesting critical minerals. You probably saw that the National Wealth Fund recently made an investment in an asset called Tungsten West. That was about to disappear from the UK and we stopped that. We turned it around and now we are investors in it. We are making commitments towards offtake of tungsten, which is clearly an absolutely critical mineral in terms of the defence sector. It is a journey, but we have made some very important first steps towards a much more muscular supply chain strategy.
Lord Fuller: I am pleased that you used the word “offtake” there. It is the first time, I think, in this inquiry we have heard that. That is most encouraging, because it gives that sense of some pipeline, which small businesses, or large businesses, are interested in. We are an industry committee and the Secretary of State has mentioned strategic dependencies. Are there any ways in which we can help the conversation, or do you feel you have it all in hand?
Wes Streeting: One thing that I am concerned about always is the tendency to siloed working. It is endemic in the British state. The longer I spend in government, the more I understand why that is the case, because often coherence can mean slowing down, and people just want to crack on. We need to make sure that we cohere more effectively, but also do not lose momentum.
To that challenge, and building on Rupert’s point, there is a risk that silo thinking leads the Ministry of Defence, and the conversation we are having around our defence industrial base, to think solely in terms of precisely that: our defence industry. In a warfighting context, we should not be neutral or agnostic about the current and medium-term strengths of our steel industry, automotives and a whole number of other parts of our industrial base, which we would normally think of as not being defence-related, but, in a war context, would be both relevant and needed, in terms of switching into supporting our productive capacity and sustaining a war effort.
That is the great thing about this inquiry. The role that your committee and the Commons BIST Committee can play is to look right across our industrial base, and right across industry, and think about this in terms of sovereign capability, in the way that we conventionally do, but I would really like people to be thinking about sovereign capability in a warfighting context. If you make warfighting the strategic objective and focus, it inspires a whole different set of choices.
This broadens out to the wider global economic context at the moment. On the one hand, you have a whole bunch of NATO allies that are absolutely focused on spending more and working more effectively together, because we can see the threat environment. That is not to say it is all perfect or easy, but there is absolute agreement on that in a defence warfighting context. If you switch into the economic lens, you have “Made in Europe” and “America First”. If we are not careful, healthy competition starts to look like self-defeating rivalry.
I keep coming back to this point. I say this internally in the department. I am saying it much more frequently publicly as well. NATO tells us that we ought to be ready to fight and win a war by 2030, not because we want one and not because we are saying it is definitely going to happen, but we can see a scenario in which that becomes more plausible and likely than we would and should be comfortable with. If we accept that premise, that has to reflect through all the choices we make and the way we behave. Here in the UK and across the NATO alliance, we are taking that seriously to slightly different degrees in different contexts. I would like all of us to think really seriously about that challenge and apply it, not just in terms of what the Ministry of Defence is doing, but in how we are thinking about industrial strategy across the board.
The Chair: If our transport does not go, everything else stops.
Wes Streeting: I used to think about this. A good innovation under the previous Government was the NSC for resilience, which I attended as the Health Secretary. It was great because it played a whole number of domestic departments that would not normally attend the National Security Council into that conversation about resilience. It is really valuable. I used to think a lot about the challenges in the NHS today set against what we would do if there was a major disaster and how the NHS would cope. We should be thinking about that across health, education and logistics in particular. You can see the challenge.
The Chair: As I am sure your colleagues back in the office know, the House of Lords is doing a short-term inquiry on resilience, which must be reporting fairly soon. I am sure they will have spoken to your people about that.
Rupert Pearce: Wider society is definitely an issue for us. It is very important that wider society is resilient because, if you look at the lessons from Ukraine, we know that war does not just happen on the front line. Our adversaries will reach into and try to degrade our society. Look at attacks on our GPS system, for example. Exquisite timing is woven through so many of our critical national infrastructure systems. We have to look at that as well.
We are quite unusual, in that we war-game with industry. We do industry war games that look at the changing role of industry from the onset of war through the logistics of getting our capabilities on to the battlefield and then supporting them. That has thrown up some really interesting areas that we need to get after to strengthen our interworking with industry.
The Chair: You can see what has happened in the supermarkets. They are losing all their stock. If you know Lord Robertson, he keeps asking us whether we have water, wind-up radios and wind-up torches at home. The message is clear.
Q106 Baroness Carberry of Muswell Hill: If you will forgive me, Secretary of State, I want to move away from the big-picture account that you gave of the state of the world and what we are facing, and go back to the phrase that you have used a few times, “Buy British”.
Nobody can argue against boosting sovereign capability, our own capacity and employment. In light of the replies to Lord Fuller’s question about critical supplies, could you give us a sense of how practically the department is going to go about finding the balance between boosting UK companies via procurement, particularly down the supply chain, and looking to companies elsewhere, from which we can, frankly, procure more timely and superior supplies, components and equipment? How practically is that balance going to be struck?
Wes Streeting: Ultimately, this comes down to questions of judgment. In any procurement, we have to balance a whole range of considerations. You mentioned timeliness. We also have to balance value for money, effectiveness, social impact, economic impact and the opportunity costs that arise from different choices.
It is not a choice between military capability and British industry. Back to the previous conversation that we were having around resilience, I see buying British not as a protectionist stance but as a means of broadening and deepening our defence industrial base, which is going to be critical for warfighting.
I do not think there is necessarily a tension between buying British and working in partnership with allies. With programmes such as GCAP, there is plenty of work to go around. Even if every NATO member could afford to double its defence spending tomorrow, we would not be able to spend it because every country is facing similar challenges in terms of the breadth and depth of its defence industrial base.
It is about building overall UK sovereign capability and national resilience while also thinking about that same challenge at a NATO level. How do we make sure that our allies across the alliance are strong and that their defence industrial base will be able to sustain the warfighting machine? The danger, especially with integrated supply chains, as we have, is that we think, “Let’s not worry too much about it because we buy from Germany and they’re all right”.
It is like the aeroplane analogy. We saw this during the pandemic quite literally with masks. You put your own oxygen mask on before helping others. We should be under no illusions that, if we were in a warfighting scenario, that is exactly how our NATO allies would behave. They would be thinking about themselves first, perfectly legitimately, and then thinking about others alongside that, but as a slightly second-order issue. That is the way in which we have to think about this strategically.
Q107 Baroness Harding of Winscombe: This is probably for Mr Pearce because it is a quite specific procurement and supply chain question. The Government have set out an intention to enable always-on procurement or an always-on pipeline of munitions, including via a set of new munitions factories. This is another covid PTSD moment for me because I am deeply worried that, as a country, we have not remembered that we need to have always-on vaccine production and always-on diagnostics. That is because it is really quite hard to maintain always-on in peacetime.
I want to explore how you are setting up that capability. What types of contract are you offering those factories? How are you going to enable it to be viable for them and for their supply chains to be genuinely always on?
Rupert Pearce: Baroness, you have hit the nail on the head. It is not easy. You have to be quite selective about it. I would add another concern in defence, which is that many of the models for the delivery of munitions capabilities are changing.
Look at drones, for example, which is one of the things that we would like to be able to procure on an always-on basis. If you look at what is happening on the battlefield, the competitiveness of a drone changes about every four to six weeks. There are measures and countermeasures. Twenty kilometres back from the front-line in Ukraine, there are a lot of software engineers engaged forward in supporting the efficacy of a munition. That is a completely different model that we are not used to. I cannot go out there and buy 5 million drones, put them in a factory and hope that they will be competitive a year from now.
The whole way that we procure and stockpile is subject to change. We have to evolve with these new models, which involve a lot of pacy innovation within a capability, and pull industry into a new relationship with defence. That has to be built into the way we procure always-on as well. It is a huge challenge.
Put another way, I might want to buy 10,000 drones of a particular type a year for my own purposes, for training and operational purposes, but I want to know that my partner can 10x or 100x production at the flick of a switch when I find myself on a glidepath to war. These are huge challenges that industry and defence have to solve together.
To some extent, my life is made easier because, as you know, we are very proud to support Ukraine. We provide over £3 billion worth of support to Ukraine a year, much of it in the form of the provision of armaments. In the short term, an always-on capability is easier for me to procure because I am able to procure for my own operational need and I procure for Ukraine.
Look at this amazing success story of Thales in Belfast with LMM, the medium-range missile that is proving itself to be a really capable missile and a kinetic effect on the battlefield. Most notably, it is able to support Ukraine in going after the new jet-powered Shaheds and protecting the citizens of Ukraine’s cities. That is something where we have taken up production by orders of magnitude, and the nature of the requirements and the purchasing from the Middle East and from Ukraine now is sufficient that we do not have to worry too much about always-on. There is just a big draw of capacity there.
We supplement that with an always-on capability that is our daily bread, if you like, for training purposes. That is where we are going to go. We have half a dozen weapons capabilities, including CAMM, ASRAAM, LLM and NLAW, where we have got to always-on relationships. We are buying in modest amounts, supplemented in each case by demand from Ukraine. That is the best that we can do for the moment.
Q108 Baroness Valentine: As you have probably gathered, there were some technical glitches getting me online. I see that I am now huge on camera, so apologies for that. My question relates to government defence growth deals. Those are to support infrastructure, workforce and industrial development for the defence sector in some areas. I wanted to ask two related questions.
First, what are the plans for areas with important defence industries but without those defence growth deals? Connected to that, how will the Government ensure that regional and local defence industries have sufficient skilled staff?
Wes Streeting: Thank you very much for that question, Baroness Valentine. In terms of what we are doing so far, we should not see the five growth deals that we have at the moment as the summit of our ambition. They have worked and are working well to bring together a whole range of partners in places to build on existing defence industrial strengths with a view to deepening what they can do. We are seeing that happen already.
In terms of defence skills, we have the money for the five defence technical excellence colleges in England, which are helping to improve the quality of teaching and the offer, specifically for defence skills, but those have broader application across other parts of industry. They definitely offer a real advantage in terms of industry partnerships, work placement opportunities and future career progression. I would like to see more of those.
It is deeply frustrating, to put it mildly, that we have the funding available to support two defence excellence technical colleges in Scotland, but the myopic politics of the Scottish Government means that it is not being spent. The money is there and the opportunities could be there for people, young people in particular, in Scotland. To the SNP, its separatist agenda is more important than providing skills, jobs and opportunities to the people of Scotland. That is intolerable.
That is why the Scottish Secretary has announced that, if the Scottish Government continue to drag their heels, we are just going to spend the money and create that provision without them. If they want to have a constitutional row about that, I think the people of Scotland would prefer us to focus on opportunities for young people in particular in Scotland rather than the usual constitutional obsessions of the SNP.
There is lots to go at and lots that is being done. Beyond those areas, to your challenge, that do not yet have defence growth deals, we are thinking all the time about what more we can do, even from a really good starting point on defence expenditure outside London and the south-east, to spread opportunity and growth in every postcode, to coin a phrase.
The one area where Luke Pollard, at ministerial level, and the MoD generally are most exercised is the north-east of England. We have a really great story to tell overall in terms of where defence expenditure goes, but, if I look at where our money is currently going, MoD expenditure per person is £70 in the north-east of England compared to £1,130 in the south-west. If I look at the number of direct jobs supported by MoD expenditure, it is 900 in the north-east and 36,700 in the south-west of England.
Even in the MoD, where we have a really good story to tell about driving industry, growth, jobs and opportunities across the length and breadth of the United Kingdom of Great Britain and Northern Ireland, we have an Achilles heel in the north-east, where we have big employment challenges as well. I am keen to lean in and do more where we can.
Baroness Valentine: Can I just follow up on the skills question? You were talking there about the south-west. We heard from Plymouth, but it seemed to me that the skills that you will require in Plymouth eventually are way beyond anything that is likely to come locally, both immediately locally and in the wider region. How do you join those two things up?
Wes Streeting: There are a few ways of doing that. To build on the point I was just making around the north-east, one is to support new growth and new opportunities across the country as well as building on existing successes.
Secondly, we need to make mobility in our country easier. One thing that is constraining UK growth at the moment is that people cannot access the jobs and opportunities where they are. That comes from a combination of housing pressure and transport costs. There are just so many constraints on the labour market. If we can start going hard at those mobility challenges, we will be in a much stronger place.
Since you cited Plymouth, Luke would not forgive me if I did not mention Team Plymouth in particular. One of the strengths of that approach—there is more to do, and more for my department to do—is that you have the right partners around the table to look at housing supply, the skills offer, the transport links and the way in which Plymouth can pull in people from across the region.
Finally, as we meet those skills challenges, we really have to be much more muscular about growing our own. The Home Secretary regularly complains about the extent to which Cabinet Ministers come to her asking for visas to get skilled workers into the country. I regret to confess to the committee that I have barely been in this job for three months and I have already been at it myself, in terms of the skills shortages that we have had in Scotland. That was necessary and right to fill an immediate skills gap that presented a real delivery challenge for us as a country, but it is not acceptable at a time when we have 1 million young people in this country who are not in education or employment.
A big part of what we are doing in terms of defence skills should be growing our own, not just backing British industry but also backing British talent, recognising that we are not the only ones in this race. I used to think about this a lot in the health context. It is all very well taking a short-termist view that we can just pull the immigration lever and import some workers from elsewhere, be very grateful to them for being here and the contribution that they make, and it will save us some money because we do not have to bother training people and we are just taking someone else’s skilled workers. In a global environment in which the competition for these types of skills and this type of labour is becoming fiercer, we should not assume that we can continue to pull the immigration lever and, I would also argue, nor should we morally.
Rupert Pearce: I agree with everything that the Secretary of State just said, but I would add one further thing. We are looking to publish a defence jobs plan shortly. I will ask Ben to talk about that in more detail, but that is the nexus between government, industry and, of course, trade unions to get ahead of these plans for growth. If we are to be successful, we need to have the right skilled people in the right place at the right time. This is something that we are looking at holistically across government, trade unions and industry.
Ben White: We are just agreeing with No. 10 and BIST when we can publish our defence jobs plan. It should be coming out imminently.
The other thing that I would like to mention is that, underneath the skills work and the growth deals work, we also have regional defence and security clusters all around the country. Those work very closely with our UK defence innovation teams. They also play a role in local communities, identifying and feeding back to us what skills are missing and how we need to feed into things such as the defence technical excellence colleges to plug those skills gaps. That has all gone into our jobs plan and that should be coming out soon.
Rupert Pearce: We will be reporting on this mix annually. You have probably seen our regional plans that have come out. We have nearly 500,000 jobs in the defence industry in the UK and 25,000 apprenticeships. Some 70% of that is outside London and the south-east. As the Secretary of State said, we have had a good start, but we now have to calibrate that to our ambitions as well.
Baroness Valentine: Can I just push a little bit on the quantity that we are talking about here? It does seem to me that, realistically, if you are going to gear up within the sort of timescales we are talking about, you are going to have to pull every lever that there is. You think that you are going to train people up into these jobs to satisfy the numbers that you are talking about. Does the jobs plan suggest that that is possible?
Wes Streeting: Yes. The heart of the defence jobs plan is exactly addressing that demand for an additional, just to put it in context, 53,000 workers in priority occupations by 2035 and supporting around 50,000 opportunities for young people annually by 2035. There is a big requirement and therefore a big ambition. It is going to require sustained focus. That means we have to be realistic about where we are versus where we need to be, and the bridge between those two things.
The Chair: You had some figures in front of you. Being Welsh, did you have Wales there as well as the north-east?
Wes Streeting: I most certainly do. I gave you, first of all, expenditure per person with UK industry. In Wales, the figure is £340 and the number of direct jobs supported is 4,900. It is nowhere near as bad as where we are in the north-east of England, but there is certainly more that we could be doing.
Northern Ireland, for very obvious and visible reasons, is well known for its defence industry. The numbers there, on a per capita basis, do not look nearly as impressive as those striking images that we often see as ships come alongside. It is £140 per person in Northern Ireland and 1,000 jobs supported.
It comes back to my point, really. There is a really good story to tell. With the Prime Minister’s emphasis on growth in every postcode, there are lots of government departments that would love to have this starting point, but the MoD would be the first to say that there is absolutely no room for complacency. We want to make sure that we are genuinely spreading opportunity across the country at a time when we are investing more in defence.
Q109 Lord Camoys: Western intelligence agencies have warned that Russia is stepping up efforts to target Europe’s defence industry, including its senior executives. A Russian plot to assassinate Armin Papperger, chief executive of Rheinmetall, was uncovered in 2024. Just in September, a man was charged in connection with alleged plans to sabotage drone manufacturing sites in Swindon. Keeping defence capacity available depends on defence companies being protected from physical attacks and cyberattacks.
Secretary of State, can you assure the committee that the Government are able to give defence businesses, large and small, the guidance, support and protection that they need in order to keep themselves safe and their operations secure? Without revealing anything sensitive, can you let us know what you are doing to address the unique threats that defence companies are currently facing?
Wes Streeting: Yes. Recognising, as you do, the classification challenges of open discussion in this particular forum, this is something we are very concerned about. My problem with the term “hybrid threats” is that it does not accurately convey to the public just how serious the threats that we are talking about are. This is sabotage, targeted assassination and what is in effect state-backed terrorism in some cases. We should see it in that context.
Of course, this is something that concerns industry. With the attributions that have been made against Russia in particular by some of our friends in Europe, we can see a pattern emerging of targeting those companies that have played a particular role in supporting our friends in Ukraine.
With that in mind, we have been providing appropriate classified briefings to senior security-cleared industry personnel to inform them of the threat environment and to help identify risks and vulnerabilities, map those and set out what they can do to deter, defend and mitigate those risks. This is an evolving environment. It comes back to the theme that has run throughout this committee, encouragingly, which is that this has to be part of the whole national security and resilience picture. It is not just about government and conventional defence. This is now a challenge for all of us.
Q110 The Chair: I have a few supplementary questions, and my colleagues might also. You have a very hard stop.
Wes Streeting: That is because I foolishly agreed to do the House of Commons Defence Committee on the same day as your committee, which can only be described as masochistic.
The Chair: We also want you to be able, at the end, to say whether there is anything that you would like to leave in front of us. There are a few questions.
One is about regulation. We have heard that some of the regulation is a bit out of date. It was probably apocryphal, but we heard about some autonomous marine vehicles having to have a lifejacket on board.
Wes Streeting: It does not surprise me. This is the British state that we are talking about.
The Chair: How are we dealing with all these different regulations that might slow things down?
Wes Streeting: A large part of our focus is about taking back control, sovereign capability and improving democratic accountability and our ability to respond as politicians when the public complain, rather than hide behind regulators and say that it is some unelected quango’s fault.
There is a big drive across government on deregulation and improving how, as a state, we become much more agile, innovative, flexible and responsive, which is really important not only on the growth and opportunity side of the Government’s ledger but on the defence and security side. The Chancellor has recommitted to reducing the administrative burden of regulation on business by 25% by the end of the Parliament. We are still routinely receiving reports of regulatory frictions, which led to the Regulatory Innovation Office adopting defence technology as a focus area.
You can understand why, in a defence context, you do not just take off all the regulatory oversight and constraints, because we are talking about lethal capability, but, at the same time, throughout our Armed Forces and our industry, people are champing at the bit to push the frontier of innovation.
There is still more to do. I met one Royal Marine who was developing underwater drone technology. He was testing it in a pond in his back garden because the regulatory hurdles to test in other environments were too high. He just took the risk himself and did it at home. I applaud his ingenuity, drive for innovation and entrepreneurial spirit, but there should be the same can-do approach in his workplace.
Lots has been done. The Government have the right intention, ambition and spirit, but there is still more to do and more to go at. In the spirit of industrial partnership that we keep coming back to, this has to be a two-way conversation. Where industry tells us that pointless regulation is getting in the way, where our Armed Forces tell us that regulatory handcuffs are getting in the way, and where we agree that they are pointless and not serving their purpose, or the risk calculus is in the wrong place and we are not getting the balance right, we are really keen to act.
Rupert Pearce: I see a lot of support from government towards that and from regulators as well, which is very encouraging. I would probably call out test and evaluation as an area where we can do more. It is very expensive for SMEs to take their wares off to Canada or somewhere to do the testing. I am thinking particularly about areas such as maritime autonomy or even aviation autonomy, where we can do more. We talked about somebody doing something in their pond at home. The MCA is working with defence to lighten the load and allow us to do more in our coastal waters to test out defence autonomy. It is a journey, but things are getting better, and there is now very much a constructive relationship with regulators.
Ben White: As part of the defence industrial strategy, we have committed to running a series of regulatory sprints. We started with autonomous systems. That has reported now. It was commissioned in February and reported in May. That work is now being implemented by the Uncrewed Systems Centre and the single services, which are in particular looking at things such as software assurance.
The really big opportunity here is the regulating for growth Bill because it contains sandboxing arrangements, which would mean that you could do testing. If you placed it in an area of operation and put a box around it, the regulations that meant lifejackets had to be in place would be lifted.
The Chair: There are two things. There is the regulation and there are the testing facilities. You have particularly mentioned SMEs. They need access to that. I gather that there are difficulties around not being able to turn off GPS and things like that, which are problematic. You are on it, are you?
Rupert Pearce: We are on that. As Ben has eloquently said, the Defence Industrial Joint Council is where industry to defence come together to look at these issues. This is where the practicalities of these working groups are so powerful. In a vacuum, we are not going to get to half of the practical problems that industry faces, but, if we bring industry to the table, we are in a much better position to do that.
The Chair: I have a small question. A couple of times you have mentioned sovereignty and buying British. I understand from some companies that they are not absolutely certain about what you mean by a British company. I do not know whether some definition is awaited. Does it mean that the company is headquartered or owned here, that the manufacturing happens here, or that the IP belongs here? Is there a definition or are you coming up with one?
Rupert Pearce: There is a definition and it is being evolved in conjunction with industry. Another DIJC joint initiative is to define sovereignty or, in essence, to define Britishness. It is focused more on the location of IP, jobs, skills and growth potential as opposed to pure ownership. It is more practical. How do British people benefit from a business? It may matter less who owns it ultimately, if they have a job in a town where they have great prospects. Ben, do you want to add a little bit on that?
Ben White: We have been running consultations with hundreds of companies in the UK, facilitated by ADS and Make UK, under the auspices of the Defence Industrial Joint Council in order to make sure that the definition that comes out has the intended consequences. The current legal definition of a British company is that it has an address in the UK. That is not sufficient for our purposes.
Wes Streeting: We are a bit more ambitious than that. From my perspective, politically, what I really care about and what I am really getting at when I say “Back Britain by buying British” is whether the jobs, growth and opportunities are felt by people here in Britain whose taxes are paying for this. That is the thing that I care about more than anything else in terms of how we define buying British. There are other important equities, but for me those are the most important ones, where we have a lot to go at.
That is about honouring the moral opportunity and obligation that we have to provide jobs, opportunities and growth for our people, but, for me, it is also about not being remotely complacent about taxpayer support for increased defence spending. It is high at the moment. Long may that continue. It is necessary. People can see the unstable and uncertain world that we are in, but I do not take it for granted. The more that people see the money that they are putting into defence as taxpayers being translated into not just capability but jobs and opportunities, the better.
Finally, as I know from my previous life as the Health and Social Care Secretary, it makes life much easier with the Treasury if you are a ministry for growth and not just a ministry demanding more.
The Chair: It is resilience as well.
Wes Streeting: Yes, you are absolutely right.
The Chair: Now that you know what we are asking about and the follow-up to the SDR, is there anything that we have not asked you on which you would like to leave us a closing statement?
Wes Streeting: I will say a few final things. I made this point throughout the session, but we have to see the defence industrial base here in Britain and the collective defence industrial base of NATO members as a key part of warfighting and winning, not just as providing the means to others in a transactional sense. It is about the broad industrial base and the productive capacity that we have to win. It is about out-innovating and out-producing our enemies. There is a danger if that is not seen as being as absolutely integral to the defence of the realm as the Army, the Navy, the Air Force and so on. That is the first thing that I would say.
The second thing that I would say is that we have an absolutely outstanding Minister in this area, Luke Pollard. In terms of appearing before your committee and responding to evidence, he would relish the opportunity. Since I am new in post and the Chair was persistent, I have gladly accepted your invitation to come this morning. Min DRI would also have relished the opportunity and would be very happy to appear in future.
The Chair: Thank you. I am glad you did give way to a little bit of persuasion. It is important. I know he is very good on the detail, but hearing your tone is also extraordinarily important to us.
Can I thank you and your two colleagues? This is the final oral session before we write our report, which will land on your desk before too long. Thank you very much for that. That ends this session of the committee.
