The new Defence Industrial Strategy (DIS) represents a step-change in the way the Ministry of Defence (MOD) will relate to the industrial base that equips and maintains the British Armed Forces. Indeed, the industrial base itself is redefined, to include universities, banks, tech firms and trade unions.
Taken together with the creation of the National Armaments Director (NAD) role, which centralises capability design and procurement across all five domains of warfare, this is a timely and comprehensive document. Once the Defence Investment Plan is decided – and this is where the toughest decisions still lie – the MOD will have the who, the what and the how when it comes to the redesign of the British Armed Forces to match the threat.
The first thing to note about the DIS is its methodology – a clear departure from that of its predecessor, the Defence and Security Industrial Strategy (DSIS), in 2021. Mariana Mazzucato, a world-leading authority on industrial strategies, believes they should contain a route, objectives and assessment metrics, and specify risks and rewards.
His Majesty’s (HM) Government has recognised that, if you are going to try to direct an industrial sector, you need levers: granular institutions which can reach into a complex system and enact change.
The new Strategy meets those criteria; the DSIS did not. It specified broad objectives, but few timescales and no success metrics. 2025’s DIS, by contrast, contains a page and a half of metrics – though all of them are calibrated to be achieved by 2035.
The second big change is that His Majesty’s (HM) Government has recognised that, if you are going to try to direct an industrial sector, you need levers: granular institutions which can reach into a complex system and enact change. These include:
Five regional defence growth deals, where regional clusters will be backed by local structures modelled on the body which has mobilised around Barrow-in-Furness;
An Office for Small Business Growth inside the MOD, modelled on the United States (US) Department of Defence’s equivalent;
Five Defence Technical Excellence Colleges, aimed at remedying the shortage of specialist Further Education (FE) places;
An Office of Defence Exports, which moves part of the Department for Business and Trade’s operation into the MOD and tasks the NAD to lead the export drive;
The creation of UK Defence Innovation as a single ‘brain’ for all the MOD’s innovation work. This is designed to end the fragmentation of innovation funding, which has led to small awards and poor pull through to commercialisation;
A Universities Defence Alliance which, although its form and objectives are not specified, matches advice in Council on Geostrategy’s Report on ‘securonomics’, which called for a voluntary alliance of universities prepared to structure science and technology research explicitly towards national security goals, matching the efforts of threats and systemic competitors; and
The Defence Industrial Joint Council, which held its first meeting in June, and includes strong representation from Small and Medium Enterprises (SMEs) and, for the first time, trade unions.
A further significant aspect of the DIS is the behavioural change mandated at the MOD itself. It sets new targets for SME direct spending – a 50% increase by 2028. Though defence SME organisations wanted more, in the form of a contract-by-contract percentage goal for work awarded to the Primes, this is a start.
The DIS divides procurement into three segments, requiring Defence Equipment and Support (DE&S) to achieve contract stage within three months for systems such as drones and software, one to three years for modular upgrades, and two to six years for major platforms. This dovetails with a separate order to begin specifying capabilities for export rather than exquisite use by the United Kingdom (UK).
The DIS is pretty unflinching when it comes to the MOD’s current failures. It acknowledges inefficient spending, lack of competition, poor export performance, a skills shortage, a slow pace of innovation, a lack of long-term partnerships and high barriers to entry – all of which, in the end, come down to the behaviour of the MOD as a customer.
Build in Britain?
In opposition, John Healey, now Secretary of State for Defence, coined the slogan ‘Build in Britain’. In government, obviously, it has become more complicated. But there is now a clear emphasis on turning defence spending and investment into growth in the UK, and the defence industrial base is clearly conceived as contributing to social cohesion, resilience and economic deterrence.
Making the new suite of institutions work together, and exerting demand signals into the UK’s industry, science and academia, will be a tough ask: it effectively demands the supply side adapt its behaviours to the demand side at a pace not seen outside wartime.
As with the DSIS, the deterrent, nuclear submarines and cryptography are specified as sovereign capabilities. But, in a departure from four years ago, the new DIS pulls combat air, shipbuilding, ground combat systems, complex weapons and munitions into a category where the MOD will seek to assure that Britain can design, produce, maintain and support such capabilities.
Obviously, the whole Defence Investment Plan lives or dies through the success of its execution. At present this devolves onto Andy Start, the interim National Armaments Director, and Luke Pollard, Minister of State for Defence Readiness and Industry in the MOD.
Making the new suite of institutions work together, and exerting demand signals into the UK’s industry, science and academia, will be a tough ask: it effectively demands the supply side adapt its behaviours to the demand side at a pace not seen outside wartime.
Probably the biggest single change proposed is the introduction of an offset scheme, whereby foreign defence suppliers will be required to create economic value in Britain to a percentage of the contract’s value. Though it is out for consultation, HM Government cites the Australian version of this practice as a model.
The change is part of a new regime when it comes to specifying contracts in general: big, modular platforms will be competitively tendered ‘only where appropriate’ – completing the change which began with the abandonment of global competition by default in 2021. Modular upgrades will be competitive, while rapid turnaround will use more off-the-shelf products.
The aim here is clearly to increase UK-based defence industry’s share of big ticket items, while boosting the access of SMEs and tech firms to the growing global defence market. Since every free and open country is aiming for exactly the same effect, matching these criteria to government-to-government collaboration – for example on AUKUS, GCAP and complex weapons – will be vital.
In the end, for economists, the aim of an industrial strategy is pretty simple: it is to move capital, labour and resources from one sector of the economy to another, usually from low value to high value. This is achieved through rules and incentives – and the incentives can be either carrots or sticks.
For the DIS, although the clear aim is to move economic activity into the new, broadly defined defence industrial base, it is unclear which sectors HM Government thinks will lose out. So, let’s be realistic: the key to success is convincing finance to switch from relatively low-risk investment strategies to the inevitably higher-risk endeavour that is defence.
It also means upskilling the young workforce and repurposing the older end of the workforce – not only into high-paid manufacturing and fabrication jobs, but motivating graduates into defence.
HM Government has clearly understood this, and taken action to achieve it, but – as all governments that attempt dirigisme find out – the real economy is ‘sticky’. Demand signals don’t always work, and sometimes, especially in periods of high global tension, you have to take more direct control than expected.
The DIS completes a suite of major changes in the UK’s national security: we’ve had the Strategic Defence Review, the National Security Strategy and Defence Reform in the span of less than twelve months. The crucial decisions on capability mix and force design will land in September, with the Defence Investment Plan. After that, it’s just a question of making it all happen!
Paul Mason is the Aneurin Bevan Adjunct 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.
To stay up to date with Britain’s World, please subscribe or pledge your support!
What do you think about this Memorandum? Why not leave a comment below?
This all sounds good from an economic industrial strategy perspective. However is it an industrial strategy for defence? The UK is a relatively small market. It is part of a broader European market. The EU and its member nations are taking similar steps and are probably well ahead. A UK industrial strategy for defence would place the elements of the industrial base located in the U.K. within a European framework. Whilst recognising highlighted such as Type 26 to Norway defence exports are usually an illusion unless backed by the Government. Of course every nation requires formally or informally some element of in country participation. Offset is usually gamed and does not lead to a permanent capability. Reference the modular upgrades that will be competed, who will act as the Design Authority and manage the Safety Case? Please not DE&S. All this would be a matter of worthy, and dare I say academic, debate if it was not so vital to the defence of Europe and our way of life in U.K. It is hardly convincing from a deterrent perspective. It is time to focus on the industrial base, which is inevitably international, as a key element of military capability and take the growth benefits as by product. It looks like we will continue on this trajectory until events force a rapid and radical change of course.
This is all well and good but the manpower dilution with experienced uniformed people leaving and the poor recruitment, not forgetting retention, is a deeper issue that has been ignored for too long. The systems and equipment has been lacking in quality and volume for too long. The defence vote in its current straight jacket will not rectify the many endemic problems - there is an increasing threat of war but still our disinterested politicians fail to invest a sufficiency of finance in national defence and security.