War, what is it good for? The defence industry
The government has announced some of the ministry of defence in over 50 years, and there is one important element which should be firmly on the radar of business, says Eliot Wilson
Last week the defence secretary, John Healey, gave a speech at the Institute for Government (IfG) on “reforming UK defence”. What would normally have been a wonkish Whitehall-insiders-only talk became the IfG’s most streamed event ever: the timing, amid the whirlwind of news about Ukraine, was impeccable. Healey set out the biggest changes to the ministry of defence in more than 50 years, and there is one important element which should be firmly on the radar of the business world.
The restructuring of the MoD will create a “quad” of senior leaders, dividing the department’s responsibilities into military affairs, policy and management, oversight of the Trident nuclear deterrent and procurement, industrial strategy and exports. This last area will be headed by a National Armaments Director (NAD), a post for which the recruitment campaign is underway, and he or she will be a major player in the defence industry and more broadly.
A review in the early 2010s by Canada stalwart Lord Levene of Portsoken devolved responsibility for procurement away from the MoD to the individual services. As a result, the department currently has eight separate procurement budgets, which from 31 March will be brought together and placed under the National Armaments Director: in the interim this is current CEO of Defence Equipment and Support Andy Start, who has spent more than 25 years in the defence sector at companies like EADS, BAE Systems and Capita.
The NAD will control an investment budget of more than £20bn, and will be using it, in Healey’s words, “to build and sustain our national arsenal, because at this time, we must rearm Britain”. In addition, he will be responsible for a new Defence Industrial Strategy, which will bring together industry, from the major players to SMEs, universities and colleges, and trades unions in a Defence Industrial Joint Council. The strategy is due to be published later this year, and will cover a 10-year period.
A new FTSE100 company within the MoD
The defence secretary has framed this in deliberately and distinctively private sector-friendly terms. He told the IfG, “I see this as a new FTSE100 company within the MoD tasked, if you like, with getting the very best capabilities needed into the hands of our frontline forces”. It is not simply about procuring equipment for the armed forces, but creating and sustaining employment and training in the defence sector across the country and supporting UK exports. Defence, Healey hopes, will become “the engine for driving economic growth”.
There are important caveats to set alongside Healey’s optimism. The UK’s defence industry has a turnover of nearly £30bn, and has grown by a third in the past decade; government spending on defence supports more than 430,000 jobs in total. This is a tempting source of economic power for ministers, but it is important that spending is not distorted in single-minded pursuit of political priorities like regional growth or employment creation. A healthy defence industry will boost national prosperity but must do so on its own terms, and should not be subordinated to other policy priorities.
There is still a worrying whiff of pre-Thatcher consensus about the Defence Industrial Strategy
This government, as I wrote before the general election, has profoundly interventionist and dirigiste instincts, placing enormous faith in the power of the state to achieve growth. It is true that the defence industry has a closer and more collaborative relationship with government than many sectors, but there is still a worrying whiff of pre-Thatcher consensus about the Defence Industrial Strategy. Strong and transparent communication between government and industry is essential but they are separate entities with different strengths. Economic progress is not achieved by corralling the maximum number of “stakeholders” in a Whitehall conference room.
Nevertheless, these reforms present business with a significant opportunity. The government has billions of pounds to spend, it knows it must make major investment in a number of areas of capability and equipment, and it is appointing a single person to manage the Ministry of Defence’s interaction with industry.
We are seeing the coincidence of two important factors: a widespread recognition that the government will – eventually, at any rate – have to spend more money on defence, and a restructured Whitehall “front door” which is announcing that the MoD is open for business. In war, success is never guaranteed, but these are circumstances which the private sector should welcome and exploit. National interest and profitable enterprise have come together.
Eliot Wilson is a writer and strategic adviser