Written evidence submitted by the Ministry of Defence, relating to Defence Spending in Northern Ireland (DSN0008)


Introduction

The Ministry of Defence (MOD) works for a secure and prosperous UK with global reach and influence. We will protect our people, territories, values and interests at home and overseas, through strong armed forces and in partnership with allies, to ensure our security, support our national interests and safeguard our prosperity.

Much like the Union itself, the UK’s defence industry is a well evolved ecosystem providing huge social value across the UK as it develops world-class capabilities critical for our national defence, alongside delivering economic prosperity. The UK’s defence industry is vast and wide ranging – every corner of the UK benefits from these industries, the skills they develop or the contribution they make to prosperity, UK resilience, and operational capability.

Northern Ireland, like every part of the UK, plays an important role in the collective defence of our region and global interests, contributing to our security, sovereignty, and prosperity.

With the Integrated Review Refresh outlining the increased challenges facing the UK in the coming years, the importance of an innovative and agile defence industry has never been more important, and Northern Ireland will be crucial in this success. This is backed up by the Defence Command Paper Refresh (DCPR) and the UK’s Defence and Security Industrial Strategy (DSIS).

In January 2024, the Government published the command paper Safeguarding the Union. In it, the Government recognises the untapped resources available to the defence industry in Northern Ireland and committed to showcasing the skills, industry expertise and infrastructure that are thriving in the country. The Government will launch a review into how public and commercial awareness of Northern Ireland’s defence sector can be increased, while publishing a series of papers over the next two years (including one on defence and security) that will evidence the mutual benefits of Northern Ireland’s place in the Union and steps that will be taken forward in the coming years.

Northern Ireland Defence Enterprise

The UK has a world-leading defence and security industrial base, with a broad footprint across the UK. It underpins our national security and makes a significant contribution to the economy through jobs, skills, research and development, and exports. It also plays a crucial role in maintaining the UK’s global influence.

The defence and cyber security sectors of Northern Ireland play a vital role within this bigger picture. Through communication, surveillance and other innovative technologies, Northern Ireland produces a range of next-generation defence capabilities and equipment that are critical for the UK’s national security. Exports of these defence capabilities and equipment, particularly to Ukraine, has been recognised internationally.

A number of the MOD’s strategic suppliers have a presence in Northern Ireland, including:

In addition to these larger companies, the Northern Ireland defence sector comprises many small to medium-sized enterprises (SMEs) as well as disruptive start-ups operating predominantly in the digital manufacturing and technology sectors, such as Artemis Technologies. These companies are complimented by a growing research hub centred around Queens University Belfast. Part of the Rolls-Royce Cyber Technology Research Network, the hub in the future could help accelerate the growth of the defence industry in Northern Ireland by bringing together Primes, SMEs and disruptive start-ups together to build skills, invest in dual-use technologies and incubate pull-through technology.

From Belfast’s rich maritime expertise through to the aerospace heritage that is spread across the country, underpinned by an array of exciting new innovations across the industrial sector, Northern Ireland remains of critical importance to the Union and Defence. The MOD is steadfast in its commitment to supporting Northern Ireland’s defence sector, ensuring that the country continues to benefit from the full range of the UK’s defence capabilities and activities, and the economic benefits these bring.

 


Defence and Industry locations in Northern Ireland


  1. What factors have contributed to the historical and ongoing low levels of MOD spending with industry in Northern Ireland?

It is important to recognise that MOD expenditure is not allocated or managed on a regional basis. The MOD’s spending with industry is based on which firm can offer the best value for money in delivering the MOD’s requirements. It is for the firms themselves to decide where to locate themselves.

Notably, there are relatively few defence suppliers located in Northern Ireland (around half of the MOD’s expenditure in Northern Ireland in 2022/23 was with one supplier). This may go some way to explain why the MOD spending with industry in Northern Ireland is relatively low compared to the rest of the UK.

The data used for MOD regional expenditure with UK industry is based on MOD contract information and will fluctuate year-on-year. This is due to large value contracts starting and ending across different financial years or large one-off payments occurring. While there has been fluctuation over the last five years, overall, the MOD spending with industry in Northern Ireland has increased.

In 2022/23, total MOD expenditure with UK industry and commerce was £25 billion which, after adjusting for inflation, represents an 8% increase on the reported expenditure in 2021/22. The MOD expenditure with industry and commerce in Northern Ireland for that same period was £186 million, an increase of £31 million (20%) from 2021/22. This was mainly driven by the assembly of the Next Generation Light Anti-Tank Weapons.

MOD average expenditure per person for the UK in 2022/23 was £370. While MOD expenditure per person in Northern Ireland during this period was £100, this was an increase from £80 per person in 2021/22.

The MOD’s direct expenditure with SMEs in Northern Ireland was £2 million in 2022/23. Regional breakdowns of indirect expenditure with SMEs (i.e. the amount that the MOD’s prime contractors supply chain spend is with SMEs) are not available. But the most recent estimates from the Cabinet Office for 2021/22 show the MOD’s total indirect expenditure with SMEs was £4.2 billion.

In 2021/22, the MOD expenditure supported 600 direct jobs in Northern Ireland, an increase from 2020/21. Figures for 2022/23 will be available later this year.


  1. Could the MOD make more use of Northern Ireland’s defence industrial base and cyber security capabilities?

Every part of the UK, including Northern Ireland, can and does play a pivotal role in enhancing the UK’s defence industrial base. The MOD is keen to enhance the UK’s defence industrial capacity in areas it deems necessary but is not prescriptive in where this should take place. The only exceptions are considerations of strategic imperative and operational independence in which elements will need to be provided onshore within the UK.

The DSIS and the DCPR recognise the MOD’s role in providing transparency and assurance to see through our investment plans to give industry the confidence to plan ahead and invest accordingly. The publication of the Defence Capability Framework, the Acquisition Pipeline, several sector specific strategies and, most recently, the Science and Technology Collaboration and Engagement Strategy all marked significant progress in our commitment to foster greater transparency and give industry the confidence to plan ahead. Through our new alliance with industry, as identified in the DCPR, we continue to improve visibility of the MOD’s long-term planning processes that can help inform industry’s future plans and investment. We hope this will lead to greater investment in the defence sector across the UK, including in Northern Ireland.

Examples of defence enterprises within Northern Ireland which are currently enhancing the UK’s defence industrial capacity include Harland & Wolff and Thales:

Recognising that many of those in the defence industrial base in Northern Ireland are SMEs, the MOD is committed to making it easier for SMEs across the UK to access defence opportunities and to bid for requirements. The MOD’s SME Action Plan sets out how we are improving engagement with SMEs across the UK, focusing on procurement models that are easier to navigate, how the MOD and its major suppliers can support the whole of the defence supply chain, and understand how best to support innovation and exports for UK suppliers.

The Defence and Security Accelerator (DASA) finds and funds exploitable innovation to boost UK defence and security. DASA has 13 Innovation Partners based across the UK, including one in Northern Ireland, who seek to find the most innovative ideas from across academia and industry that have the potential to provide strategic advantage for National Security.

Since 2016, DASA has funded 14 projects in Northern Ireland totalling around £2.3 million. This includes Kinsetsu, a Northern Ireland-based SME, who have developed a resilient and scalable platform to accurately account for and locate personnel on Royal Navy ships. Funded through the DASA themed competition “Get the Ship in Shape,” Kinsetsu’s innovation has been procured by the Royal Navy for use on board HMS Queen Elizabeth and HMS Prince of Wales. Kinsetsu had not previously worked with defence, but their work with DASA helped them realise the potential of their personnel accounting and locating innovation in defence, and they now have a thriving defence-centric business.

 

  1. Are planned increases in MOD capital budgets over the period to 2027-28 likely to lead to increased MOD spending with industry in Northern Ireland?

The Government has an ambition to increase defence spending to 2.5% GDP when economic and fiscal conditions allow.

The MOD’s budget settlement runs until the end of the current Spending Review period in March 2025. The allocation of funding beyond this period will be subject to the next Spending Review.

 

  1. Why is MOD expenditure with SMEs in Northern Ireland so much lower than in other parts of the UK?

It is important to recognise that MOD expenditure is not allocated or managed on a regional basis. The MOD’s spending with industry is based on which firm can offer the best value for money in delivering the MOD’s requirements. It is for the firms themselves to decide where to locate themselves. This is equally true for SMEs as it is for large defence suppliers.

Notably, there are relatively few defence suppliers, including SMEs, located in Northern Ireland (around half of the MOD’s expenditure in Northern Ireland in 2022/23 was with one supplier). This may go some way to explain why the MOD spending with industry in Northern Ireland is relatively low compared to the rest of the UK.

The data used for MOD regional expenditure with UK industry is based on MOD contract information and will fluctuate year-on-year, and it is important to stress that these figures refer only to direct spend. Direct spend only accounts for a small proportion of our overall spend with SMEs in the defence supply chain. Across the UK, indirect spend accounts for around three-quarters of our business with smaller suppliers.

It is therefore highly likely that the overall picture in Northern Ireland is much more positive than the quoted direct spend figures suggest. The direct spend that the MOD has with smaller suppliers in Northern Ireland is, therefore, not representative of the overall contribution that SMEs based there make to defence.

Improving SME engagement is a nationwide issue and our solutions are national, rather than regional, in character, ensuring that SMEs across the UK (including in Northern Ireland) benefit from these initiatives.

 

  1. Does Northern Ireland’s workforce have the skills needed to support scale up of the defence and security industries?

Having the right mix of skills across the defence and security sectors is critical to creating and sustaining the sort of vibrant, innovative, and competitive industrial base the Government wants to have in the UK. The MOD continues to work closely with other Government departments, industry and academia to grow skills nationally, address specific defence and security needs, and attract, nurture, and develop relevant skills to meet the demands and opportunities across a strong sector.

It is generally the responsibility of industry to develop and employ the skilled workforce they need to win and deliver defence contracts. However, the DCPR identified skills as a priority area and the paper sets out what the defence sector is doing to develop and foster its workforce over the next 10 years, including addressing our most critical skills shortfalls (including digital, STEM, nuclear, space, and cyber).

The People and Skills Steering Group, which sits within the joint MOD–Industry Defence Suppliers Forum, has recently refreshed its commitment to the Defence Enterprise by agreeing to revised aims and objectives. The Forum aims to bring resilience to the Defence Enterprise by establishing a body of evidence of the skills shortages within defence and, through a campaign of policy influence, create the opportunity to reduce the shortage.

Work has commenced on supporting apprenticeships and encouraging the use of UCAS as a platform for candidates to apply for vacancies across several organisations. The Forum is also looking to gain a clear view of skills data and identify gaps and needs, working closely with the Institution of Engineering & Technology to act as an honest broker and compile a demand signal.

The MOD is also supporting skills development across major programmes and supply chains that stretch right across the UK. The National Shipbuilding Strategy Refresh, for example, takes a cross-Government approach for all nations of the UK to ensure our shipbuilding sector has the skills it needs for both the immediate and the long term. Meanwhile, in the aviation sector, the number of skilled people working on the Global Combat Air Programme is growing rapidly, with 3,000 people now working on it across the MOD and UK industry partners. Sustaining and advancing these skills is key to ensuring a cutting-edge Combat Air sector for decades to come.

The Defence Head of Profession for Engineering (who also support the Government Science and Engineering Head of Profession) has a Defence Youth Engagement Strategy that drives STEM outreach activities and the encouragement of engineering uptake in individuals aged 4 to 14. Through its STEM Steering Group, Defence and its national strategic partners (including STEM Learning, Engineering UK, Women in Science and Engineering, and Primary Engineer) are actively promoting engineering as a career field accessible to all, promoting training of teachers, and seeking to cohere outreach activity to maximise efficiency.

 

  1. How will recent changes to MOD policy on procurement and its strategic relationship with industry affect companies in Northern Ireland?

The DSIS was a step change in the MOD’s approach to industry. We now think about our defence industry as a strategic capability in its own right and consider the broader industrial impacts of our decisions. We have moved away from ‘global competition by default’ in favour of a more nuanced approach, in line with our priorities and national security requirement, but still maximising competition where appropriate.

Through the DCPR, we are building on progress made in the DSIS, learning the lessons from Ukraine and implementing these at pace. We are forming a proactive, responsive, and resilient alliance with industry, ensuring the UK has an effective Defence Enterprise and a strong national economy.

The newly announced Integrated Procurement Model will drive greater pace and agility into MOD procurements, including taking a defence-wide portfolio approach that enables better, expert informed, decision-making to prioritise effectively and achieve greater effect from the available budget. This includes UK industrial capability and exportability considerations being included in procurement evaluation criteria, where appropriate and proportionate. This will sit alongside the MOD’s current approach to social value, which aims to maximise the additional benefits – economic, environmental, and social – arising from procurements. The MOD continues to keep its application of the Social Value Model under review, including close collaboration and discussions with industry through the Defence Suppliers Forum.

The DCPR recognised that we must continue to pursue the objectives of the DSIS and go further still in the reform of our relations with industry. As part of the Integrated Procurement Model, we are forging a new alliance that involves all of Government, industry, and civil society to foster a shared sense of national endeavour. An energised industrial base working more closely with the MOD will increase our domestic resilience and our ability to absorb strategic shocks resulting from global tensions. This close partnership with industry will also result in spending more money in the UK to bolster jobs, growth, and our sovereign capability.

 

  1. Could additional government support help businesses in Northern Ireland’s defence and cyber security industries to increase exports of their products and services?

The UK scores highly in the global rankings for defence and security exports. The most recent Joint Economic Data Hub report highlighted the important contribution international business makes to supporting UK defence businesses, with just under 40% of defence turnover in the surveyed companies coming from international sources.

As outlined in the DSIS and the DCPR, we are further strengthening our position by diversifying our exports and target markets and collaborating more closely across Government and industry in the pursuit of export success. We are now taking a long-term and more active approach to the exports markets, recognising that there are significant sustainment and upgrade opportunities and that defence exports require persistent, strategic engagement, often over many years.

As set out in the DCPR, the MOD is committed to pursuing an activist approach to exports. We have established a Defence Exports Inter-Ministerial Group to drive export priorities and sustain senior engagement by drawing on ministers, senior officials, and trade envoys on key campaigns. We will work with UK Defence and Security Exports to coordinate resources across Government to support exportability considerations across the UK, including in Northern Ireland.

As part of our reforms, we are now placing a premium on exportability. From the outset, exportability of the capability in question will be assessed and, where there is potential, shared at an early stage with the Department for Business and Trade. We will require capability sponsors to factor in exportability and an assessment of market opportunities at key programmatic decision points. We will introduce a mentality of ‘procure to export’, while ensuring appropriate technology protection. Putting greater priority on exportability will not simply include our major export programmes, but encompass high-volume, low-margin capabilities, as well: ‘competing for inventory’.

As set out in Strengthening the Union, the Government will launch a review into how public and commercial awareness of Northern Ireland’s defence sector can be increased. The review will also explore how to leverage Northern Ireland’s cyber security clusters, academic centres of excellence, established R&D programmes, and the steady pipeline of highly qualified graduates in STEM to generate military and security capabilities.

 

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