A more strategic Defence Industrial Strategy
The Memorandum | No. 24.2024
His Majesty’s (HM) Government has published a Statement of Intent (SOI) on defence industrial strategy and has invited responses by 28th February. In response, this Memorandum considers how the outcome might enhance the United Kingdom’s (UK) strategic advantage, and explores challenges for industrial strategy which may arise from two parallel processes: the Strategic Defence Review (SDR) and the Defence Reform currently underway at the Ministry of Defence (MOD).
Though the Labour government has named defence as one of eight priority sectors for its economy-wide industrial strategy, the defence sector is unique because there is an already-existing, statutory Defence and Security Industrial Strategy, published in 2021 (DSIS 2021).
Sir Ben Wallace, Defence Secretary (2019-2023), has claimed HM Treasury tried to ‘frustrate and ignore’ DSIS 2021, and many industry participants have been critical of its execution – but it was not something the incoming government could ignore. Indeed, in opposition, John Healey, as Shadow Secretary of State for Defence, devoted resources to critiquing DSIS 2021 and preparing the ground for its replacement – and in the SOI the government pledges to ‘build on what DSIS [20]21 got right’.
Healey’s rationale is to position the defence sector as a key contributor to Labour’s so-called ‘Mission #1’ – the achievement of the highest Gross Domestic Product (GDP) growth in the Group of Seven (G7) by 2029. That means convincing HM Treasury and a potentially sceptical centre-left electorate that – as the SOI puts it – ‘the imperatives of national security and a high-growth economy are aligned’.
With that in mind, the SOI sets six framing priorities, to:
Produce more defence equipment in the UK;
Spread it more evenly across the regions and nations;
Work through partnerships – with industry and with the defence sectors of allied countries;
Send clear signals of intent to the private sector in order to create stable investment conditions;
Focus on the technologies of the future, rather than playing catch-up in those of the present where Britain has lost position; and,
Use the UK’s defence industrial sector consciously as a source of economic deterrence.
The key difference with DSIS 2021 is that having abandoned ‘global competition by default’, the MOD will now clearly signal its preference for onshore production and intellectual property creation. We might also assume it will adopt more stable procurement partnerships, possibly along the lines of the agreement with missile producer MBDA.
It is also likely that, instead of focusing on bespoke capabilities with low production runs, the UK will aim to expand its share of less exquisite, export-oriented kit.
The imperatives behind this are obvious: boosting exports would directly boost GDP, they create mutual dependencies with allies and they build the industrial capacity to reproduce and sustain force at scale, should Britain face a peer-on-peer conflict.
Another major departure from DSIS 2021 is the creation of the Defence Industrial Joint Council (DJIC) to replace the Defence Suppliers’ Forum. This is not just a name change: the ‘relevant trade unions’ will be at the table, together with Small and Medium Enterprises (SMEs) and research providers, to broaden stakeholder engagement.
In addition, the DJIC will have ‘a key role in the development and implementation’ of the defence industrial strategy. That likely means both policy formation and execution, not just consultation and information sharing, which is perhaps the maximum the current structure has ever achieved. The structure and statutory basis of the DJIC will be critical to the whole endeavour.
To develop these principles into an executable strategy, with clear targets and metrics, is the next task for the MOD. But it is only one of three critical tasks facing the department. As the structure and posture of the British Armed Forces are refocused for a period of heightened threat, the SDR is supposed to answer the question ‘What?’; the Defence Reform process answers the question ‘How?’; and the industrial strategy piece presumably ‘What with, and how quickly?’. Achieving synergy and consistency between the three endeavours will be critical.
The prize for getting it right is substantial. One of the major frustrations with DSIS 2021 was that it replaced a mistaken but clear signal – global competition – with an unclear one. ‘Case by case’ meant that potential suppliers were none the wiser whether the next frigate, helicopter or satellite would be procured through competition or partnership. Now the answer is clear.
As a worked example of what might change, a relatively closed and conventional task, Project Grayburn – the plan to replace the British Army’s SA80 assault rifle – might be used. Following the SOI’s six principles, it might be expected that potential suppliers be required to site production/assembly in the UK, possibly in a region with low current defence investment. The procurement decision might then be taken with scalability and export potential in mind, and in pursuit of a partnership with an allied government.
Following the ‘Seize the Future’ injunction, the MOD might focus any research and development investment in the higher-end components, for example sensors or composite materials, rather than the rifle itself. Ultimately, the ability to answer the question: ‘Where do we get half a million rifles fast?’ would fulfil the deterrence principle.
The Grayburn example shows how, given the scale of the threat, the MOD should manage the defence sector as a vital national asset that can maintain resilience in the face of aggression, out-innovate a peer adversary, and absorb capital, skills and resources at speed if the threat environment worsens.
As it does so, what can the new approach add to UK strategic advantage, and how could it be quantified?
In What Is Strategic Advantage?, the Council on Geostrategy outlines four ways in which strategic advantage is generated: through ‘amplifiers, multipliers, accelerators and extenders’. In each case, the aim is to create strategic effects more potent than if the action had not been taken.
In defence industrial terms, again using Grayburn as a hypothetical example, this might translate as follows:
If a new British Army assault rifle is produced onshore, the domestic skills base is amplified, along with the resilience of the supply chain and the scalability of the army in time of crisis;
If, in addition, the project is geared to securing exports, then not only do the export earnings multiply the impact of public investment on GDP, they align the UK more closely with international partners;
If, in the process, the project becomes a textbook example of industrial collaboration (with unions, firms, skills providers and local government), that accelerates the creation of a new institutional framework;
Finally, if the project were executed in collaboration with a major partner – for example Ukraine, Australia or the United States (US) – it would extend the UK’s strategic reach.
In future, when the MOD makes a procurement decision, it should be asking: ‘What is the broad impact we want to have on Britain’s defence industrial ecosystem, its contribution to GDP, its skills base and access to capital? And how can we best leverage our investments alongside our allies and partners?’
But using public investment to generate strategic advantage is not simply a task for the MOD. When it comes to growing defence exports, it will need a cross-Whitehall effort, using diplomacy, discursive statecraft and finance. When it comes to boosting private investment in defence, it means the Department for Business and Trade and HM Treasury taking steps to reform environmental, social and governance (ESG) criteria in the financial sector.
In addition, the MOD’s new, clear attitude to signalling has to be backed with a new, clear attitude to money at HM Treasury. One of the biggest obstacles to the UK defence industry achieving its full potential is the short-term nature of financial settlements.
One solution to this would be ten-year settlements between MOD and the Treasury, combined with a requirement on prime contractors to maximise their own procurement efficiency.
In many respects, the defence industrial strategy SOI shows that the MOD is already thinking about strategic advantage. The challenge is to embed this instinct across the procurement system, in the armed forces, among SMEs and universities, and in the boardrooms of the primes.
In other words, an ‘industrial strategy cadre’ is needed across business, the trade unions, research institutions, local government and Whitehall. A few hundred people, networked across these institutions, attuned to the same principles and prepared to work collaboratively, would begin, spontaneously, to generate strategic advantage.
What is at stake in the SDR is whether the defence policy community can bring itself to use the word ‘rearmament’ and make the case for the money needed. Its final status will be critical: as an external review, will its findings be advisory or carry force.
And what is at stake in the next phase of defence industrial strategy is whether the MOD can learn to manage innovation at a wartime pace.
If the MOD gets it right, the UK can credibly back its deterrent military capabilities with economic strength in depth. Get it wrong, Britain’s deterrent messaging could begin to look hollow to its adversaries.
Paul Mason is an Associate Fellow in Defence and Resilience at the Council on Geostrategy and a journalist, author and political researcher.
This article is part of the Council on Geostrategy’s Strategic Advantage Cell.
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What do you think about this Memorandum? Why not leave a comment below?
Setting aside the fact that the phrase “industrial strategy” brings me out in hives, I’m uneasy about what I’ve interpreted (perhaps incorrectly and I’m open to persuasion) as the government’s conception of defence procurement being in the service of overall economic growth. I fear that could may lead to decision-making which uses the wrong parameters.