Peter Luff MP

Thank you Andrew [Manley, Director General Defence Commercial] for that introduction, and for facilitating today’s consultation conference on the Green Paper.

My thanks to your team for putting this event together so well.

My thanks also to the Royal Institution of Great Britain for being such warm hosts.

I was somewhat amused by the choice of lunch - salami - as we’ve been clear that ‘salami slicing’ is to be avoided at all costs…

I hope you have all found it a useful day.

When we launched our Green Paper in December, we said we would consult widely and make it as easy as possible for everyone to get involved - from large international companies to SMEs; from members of the Government to members of the public.

It is really heartening to see so many unfamiliar faces in the audience - as well as so many familiar ones. 

So what I will now say will be new to many of you and I warmly welcome your interest and engagement.

On the other hand, the rest of you have clearly not grown bored of hearing me repeat myself - a compliment of sorts!

But seriously, it is important to canvass and communicate with as wide a spectrum as possible.

This conference is, formally, a requirement of process but it is much more than that.

The level of interest in it shows how the issues we have been discussing today matter to people, and how the consequences of our decisions will have a significant impact on the British economy and society and above all on our national security.

This is your day.

Thank you for making the effort to come along.

Of course, it is a chance as Ministers to engage with you - and I’m grateful that Baroness Neville-Jones, Mark Prisk, and Gerald Howarth could join us.

It’s about understanding the challenges we all face and making real decisions that will shape our policy for the next five years.

We started with security issues - I think that’s right - and the tremendous potential that British industry has in this evolving area.

But Defence and Security are now indivisible and everyone seems to appreciate our decision to consult on them jointly.

And as Pauline made clear, science and technology are indispensible.

I was delighted when the Royal Institution of Great Britain kindly agreed to be our hosts, and they have proved to be warm ones.

The Royal Institution reminds me, in a world where the here and now seems to absorb ever greater amounts of our energy, that it’s essential that we should also keep a keen eye on the medium and long-term challenges.

Defence Science and Technology is an integral part of that, and I couldn’t possibly hope to deliver the Equipment and Support parts of my job without it - now, or in the future.

That’s why protecting the science budget was a priority issue for me in the SDSR, and in the current Planning Round 2011 process.

I was also keen that we should reflect the prominence of SMEs in our Green Paper in today’s event - I’m glad there are many here.

They are a massive lever for recovery and growth, and are at the centre of the Government’s Growth Strategy that will lead us out of recession.

But SMEs are even more than that.

They represent a hugely important source of research and innovation, as well as offering flexibility and adaptability to us in Defence.

These qualities make small businesses particularly important suppliers for Defence and Security, where it’s vital that we respond with maximum agility to varied and often rapidly-changing threats.

I think that the message has got across that we care.

The other thing I took away from Gerald’s presentation - as well his Churchillian rhetoric on Great Britain - was his prescient remark that we must place all that we are trying to do in the context of a much more volatile world than we faced in the Cold War.

The world has changed greatly in such a short space of time.

Who would have thought a decade ago that conflict today could open, not with an artillery barrage or an air campaign, but with a cyber attack, a text, or even a tweet?

On top of this, when we arrived in Government last year, we were faced with the biggest crisis in the international system for decades, and at home a budget deficit out of control.

The current Defence Ministerial team contains some of the strongest supporters of Defence you will find anywhere in this country.

So we knew we simply could not ignore the crippling effect that a weak economy has on our national security.

And we couldn’t ignore a Defence programme with a huge black hole of £38 billion over 10 years in the Defence budget.

For example, as the Public Accounts Committee reminded us all earlier this month, in the last government’s final year in office just two programmes - I repeat two programmes - reported an increase in cost of a staggering £3.3 billion.

As Liam Fox said recently, “There has been a conspiracy of optimism across the Department, involving politicians, the civil service, the military, and industry.”

All these influences - a changing world, the changing nature of conflict, and the financial pressures we inherited - forced us to take some incredibly tough decisions.

And it’s not over yet.

We never said it would be after one SDSR or the subsequent Planning Round.

We were always clear that more tough decisions lie ahead which may take years to resolve completely.

Some of you may have read this in the newspapers as though it was news.

It was not.

We’ve known about this for many months; many of you in this room have too - and it’s been spelt out on many occasions.

That’s the unavoidable context in which the Green Paper consultation is being conducted, and in which the conclusions in our eventual White Paper will have to operate, and I can’t emphasise enough how important these things are.

Turning to the Green Paper itself, let me thank all those who have contributed so far.

At my last count, our consultation website has been visited 8,125 times, and the full Green Paper has been viewed 1,487 times directly from the website.

Now, I know the nature of a deadline is that people wait for it, but we have received only 34 formal submissions to date - 18 people have provided comments to the consultation website, and 15 detailed reports received directly from a number of companies and consultants, plus one from a member of the public.

While I know that many of our stakeholders are putting the finishing touches to their responses, I would like to see a lot more people and companies take this opportunity to influence our thinking.

This is not the first - or last - consultation event.

We have already held several events including one at the excellent Centre for Defence Enterprise - it’s a real success story - looking at SMEs and S&T specifically.

We’re running other specialist events too, such as the Home Office Scientific Development branch conference in Farnborough on 22-24 March.

And also this month we are running a workshop involving economists from other Government departments, and academics, with an interest in Defence economics.

Let me remind you about the urgency of this: the formal consultation process will end three weeks tomorrow on 31 March.

We must understand your views.

Don’t trust us to know them, we might well have misunderstood them.

Just because you’ve heard things you like or dislike, don’t assume it will be policy.

If you disagree, give us the evidence for your point of view.

If you agree with us, reinforce it.

And the more specific you are, the happier I will be - we need to hear about things that you would like us to do differently, better, or not at all. 

The details matter - especially, I suppose, in SMEs.

This is ‘make your mind up time’ - or more precisely, help us to make up our minds time.

I know that the bottom line for business has to be profitability.

The bottom line for us is getting the right equipment, support, and technology at the right time, and at a reasonable cost to the taxpayer.

These two aims are obviously not the same, but these two aims are far from mutually exclusive.

We cannot allow them to be - Parliament, the media, and the public expect nothing less for our Armed Forces.

And they question - rightly so - our ability to do this when they hear about the reality of the conspiracy of optimism: massive cost increases, aborted projects, lengthy delays.

But most of what we buy is delivered on time, and to cost, as this year’s Major Projects Report acknowledged.

And our people are outstanding, and I speak from personal experience from my last nine months in the MoD.

But even the best people can’t make flawed processes produce the best outcomes.

Earlier this month, the Secretary of State announced several measures to address these obstacles.

From now on, future programmes should not be included unless there is a clear budgetary line for development, procurement, and deployment.

We have entered into a period of intense negotiation with a number of our major industrial suppliers.

We have established the Major Projects Review Board which will provide a quarterly report on our major projects, naming and shaming those that are not on time and within budget.

And the Secretary of State announced the establishment of a new Defence Suppliers Forum, that he will chair, and which will include -unlike the current NDIC - representatives of the full range of the Department’s domestic and overseas suppliers including the many thousands of SMEs that we and our prime contractors rely on.

All of this is as much for industry’s benefit as it is for the taxpayer.

But there’s still much more to resolve through our Green Paper.

Fundamentally, we need a new approach.

In Government, we need an approach to Science and Technology that is innovative and leverages wider investment to help meet our S&T requirements.

That’s why sometimes we have to admit - or rather welcome - the fact that we cannot often match the private sector’s investment.

That’s why I’m a supporter of the Niteworks partnership which helps to improve requirements, reduce risk, and enhance value for money.

We need an approach in acquisition that is ‘good enough, as fast as possible’, and capable of improvement when and where possible, not ‘perfect, eventually, if ever’ - our Urgent Operational Requirements system shows us one way of doing it differently and successfully.

And we need an approach that gives our exporters a fighting chance in a fiercely competitive global market.

That’s why we’re committed to acquisition reform and why we’re proud to back exports.

But we also need an approach that offers greater transparency, which brings greater legitimacy to our endeavours.

That’s why we have launched an independent review into the pricing mechanism - commonly called the Yellow Book - which the MoD uses for single-source, non-competitive contracts.

But it’s not an attack on profits.

And it’s not just about primes.

So the long-term prosperity of the British Defence and Security industry depends on its doing three things:

• Investing wisely and effectively in R&D - which is not just solely government’s responsibility;
• Offering the right equipment while delivering better value for money to the British taxpayer;
• And, as Gerald also said earlier, being competitive and market sensitive so that the prospects for successful exports are maximised.

Now, I recognise that this is not easy, and that industry yearns for greater clarity.

But industrial policies and strategies; decisions behind closed doors; and unrealistic promises have been tried and failed because they failed to reflect the realities of the current business environment.

Today’s reality is that there simply isn’t the money there was before.

Take alliances and partnerships with other nations.

The financial pressures facing all countries - even the US - require us to intensify our co-operation still further.

It’s been said that the challenge we face is: “share it or lose it”!

That’s why our Treaty with France last year calls for, among other things, an intensification of the work on industrial and armament co-operation.

Or take the issue which I know has caused most debate - our default position of using open competition in the global market place, and to buy off-the-shelf, or as close to it as possible, whenever we can.

We are urging our allies to do the same and our commitment to acquisition reform should make the path smoother, but I think Gerald framed the terms of that debate rather well in terms of industry having options to ensure that it’s a shelf stocked with British goods.

We are committed to making it easier for overseas companies to invest in the UK and to engage formally with the MoD on a more level basis with UK companies.

But there is a quid pro quo. 

It is difficult to justify this domestically if there’s a perception that decisions elsewhere are protectionist.

Topical examples in the US include cancelling the second JSF engine, and the saga of the Tanker aircraft competition.

And our European friends are also not immune: it’s amazing how flexible the definitions can be when we really seek to distort open competitions. 

We know there are other factors to weigh when spending nearly £20 billion across Defence each year on UK-based industry.

As the Prime Minister has emphasised, our approach is not laissez-faire.

Sometimes we in Government will indeed act to protect underpinning technologies and skills.

But we will only do so where having a domestic capability gives us the ability to protect our operational advantage and/or freedom of action - and where these are essential for national security.

All too often, the visible hand of Government - to misquote Adam Smith - has distorted the Defence market in cases where open markets should have been allowed to thrive.

Ultimately, it’s the taxpayer and the Armed Forces who suffer.

This cannot, and will not continue.

We are clear that the Defence budget should only be used for Defence purposes, and for which we can demonstrate a real need.

The question that I and Ministers like Pauline and Mark have to address - and I’d welcome your views on this in the open forum - is this: how do we foster a climate in which Defence and Security companies are resilient, and can flourish, without using the Defence budget to subsidise industry?

And in which internationally mobile organisations choose to invest in the Defence and Security of the UK?

However, the time for talking is fast drawing to a close.

We’re committed to giving industry every chance of success.

We are committed to listening to your ideas.

But you must share them and in as much detail as you can manage.

Please don’t keep them to yourselves and then carp from the sidelines if they never see the light of day.

Please don’t give us grand philosophical statements which we can’t translate into practical action.

Readers of The Sun will know light bulbs are a sensitive subject but, as Thomas Edison once said, “Nearly every man who develops an idea works it up to the point where it looks impossible, and then gets discouraged. That’s not the place to become discouraged.”

2011/03/09 - Green Paper Consultation Event (Exports)

Speech delivered by Minister for International Security Strategy at the Royal Institution of Great Britain, London on Wednesday 9 March 2011. Minister for Defence Equipment, Support and Technology - Peter Luff MP also gave a speech at the same event.

Gerald Howarth MP

Thank you Andrew [Manley, Director General Defence Commercial] for that introduction, and for inviting me to speak today, together with my great friend, Peter Luff.

When this Government came into office, the UK needed urgently to take stock of the changed international scene; to review its role in the world; and to configure its Armed Forces accordingly. With the loss of the Cold War certainties, it became essential to look to enhance existing alliances and foster new ones, in the wider interest of promoting regional stability, By helping other nations to build up their own Defence and Security capabilities, we can contribute to regional security and to help tackle threats to our own security closer to their source.

We were also clear that Government support for responsible Defence and Security exports could play a key role in the promotion of our foreign policy objectives, as part of our approach to national security.

And on top of this, in 2009 Defence and Security exports contributed almost £9 billion to our balance of trade. The Defence and Security industries employ and sustain hundreds of thousands of high tech jobs despite one of the worst recessions any of us in this room has ever experienced. And they are providing our Armed Forces with the best equipment they have ever had - and here I pay tribute to some of the decisions of the previous government such as the Light Protected Patrol Vehicle - the LPPV.

So Defence exports therefore help sustain those high end skills. And they help sustain the innovation which keeps the UK at the forefront of technology, and gives our Armed Forces the advantage over their enemies. Above all, Defence exports leverage more influence in bilateral relations with our friends and allies than any other area of trade.

So our policy is clear: helping one of Britain’s most dynamic and successful industries to export is unarguably in the British national interest, which is why the Government attaches so much importance to responsible Defence and Security exporting. 

The question is: how best can we deliver this?

And that’s why the Green Paper asked how the Government and industry can best support responsible Defence and Security exports by UK-based companies to our friends and allies.

We’ve made a good start in our first months in office, and I want to say a few words about progress so far. But I also want be candid about the challenges we face.

Before I do, let me elaborate on the principles behind Defence and Security exports.

I believe that our mission is threefold.

First, we are gathered here at the Royal Institute of Great Britain. Not ‘Timid Britain’, not some mythological ‘Fortress Britain’, but Great Britain. That’s not some abstract or nostalgic concept. As William Hague said in his first speech as Foreign Secretary, Britain must have more “global reach and influence.”

Importantly, he acknowledged that “the world has changed and if we do not change with it Britain's role is set to decline with all that means for our influence in world affairs, our national security and our economy.” So Britain will continue to be a global player and we reject the notion of “strategic shrinkage.”

Secondly, we live in a more volatile world than that which we faced during the Cold War, and we must never forget that context. In these more complex times, it’s important to have strong allies and friends. Britain has long maintained an unrivalled network of relationships. There are those one might call our immediate family - the transatlantic alliance, NATO, and the Commonwealth. And there is the extended family of nations whose people and Governments are on the side of justice, of the rule of law, and of freedom.

But for too long, many members of this family have been neglected or taken for granted. As I said a moment ago, nothing has the capacity to leverage a bilateral relationship like Defence, and it remains one of the aces in our pack on the world stage. Recent events illustrate this: in the Gulf States we have been able to influence events; in Egypt our influence was, by contrast, limited.

The lesson is clear - if you have partnerships you have influence; without partnership, your influence is limited. That’s why the SDSR stressed the importance of building strong, reliable and enduring alliances and partnerships, underpinned by a series of bilateral and multilateral arrangements. As Liam Fox said last month, “this new era is one of necessity, one of beneficial partnership between nations, not optional isolation. It is not a choice between multilateral or bilateral – the requirement is for both.” 

Thirdly, this Government did not come into power to preside over the decline and fall of Britain plc. We know that a healthy industry, including SMEs, brings wider economic benefits in terms of jobs, skills, and the balance of payments. We have the sixth largest economy in the world; we can boast some of the world’s leading authorities and institutions in the fields of science, technology, and innovation; and we have cutting-edge Defence and Security industrial sectors. And with some of the toughest strategic export controls in the world, we should be proud - as this Government is, and I personally am - to support proper Defence and Security exports.

Exportability and exports themselves are vital components of any overall strategy for growth, and for the future of the British Defence and Security industry, as much as for the protection of the United Kingdom’s influence in the world.

But the biggest risk to the nation’s future would be failure to restore the public finances to good order. British business cannot prosper while the risk of a debt crisis continues to hang over the economy. We could not ignore the biggest crisis in the international system in decades where we inherited the largest budget deficit of any major economy - at 12% of GDP - including national debt increasing at the rate of £3 billion per week.

Nor could we ignore the fact that Defence was the worst in a grim set of inheritances. Any Defence Review, at a time of scarce resources, has to address the challenge of making more effective use of what we have, and prioritise our missions, otherwise it is not ‘strategic’ at all – though it doesn’t make taking the tough decisions we had to take, like retiring the Harrier, any easier.

As Labour’s outgoing Chief Secretary to the Treasury put it in a rare display of succinct honesty: “I’m afraid there is no money. Kind regards - and good luck!”

Thanks - very kind.

All of this has implications for industry and exports. It means providing better value for money in our acquisition programmes here at home.

One important option is likely to be greater co-ordination and collaboration with those allies and partners whose security interests and military capabilities are closest to our own - and I’m sure that Peter will say more about this later.

It also means being market aware and customer-focused abroad, and earning a reputation for delivering what we promise, on time, and to budget - so industry please take note. It means collaborating on research, development, and production of high technology equipment. And increasingly means technology sharing and transfer. It means Industrial Participation.

However, these initiatives are not without challenges or risk. The bargaining over technology transfer will be intense, and we shall need to strike a balance between co-operation and selling the crown jewels.

Let me turn to the Green Paper, and the section on exports – specifically marketing overseas, and support for exports here at home by ensuring that our acquisition processes give our exporters a fighting chance.

Wherever Defence and Security exports serve wider MoD interests, they will receive the maximum support which the MoD - in co-operation with UKTI DSO - can provide - and here I’d like to pay a very warm tribute to Richard Paniguian and the fantastic support his team are providing industry. Indeed, the visits I’ve undertaken have been precisely because they offer the opportunity of strategic government to government relationships, and I have a programme of quite intense visits coming up.

On the process side, we’re committed to factoring in exportability at an early stage in our acquisition process - and we are considering exportability in the Project Start Up stage as one of the necessary criteria to be considered. 

Nowhere is this new philosophy addressed more than in our approach to our new Global Combat Ship. As we frame our requirement, we see a tremendous opportunity for establishing a partnership with other nations which have similar requirements. The benefits are self-evident - economies of scale and reduced through life costs for our own equipment, sustaining skills and high quality jobs, but, more importantly, the chance to strengthen existing alliances and develop new ones for the longer-term - a point I set out at the outset. So our aim with GCS is to develop jointly and internationally, an approach which will allow us to adapt the core capability for our own specific needs, while offering an affordable, yet flexible, mix of systems and roles which match the aspirations of others. And I’m pleased that the response so far from several countries has been encouraging, and that dialogue continues. I’ve also been encouraged by the positive response shown by the MoD at Abbey Wood and the Royal Navy.

So we now need to move ahead with exportability across a wide range of requirements, building on the progress on the GCS and also in the field of Complex Weapons.

Of course, the Green Paper is all about seeking your views. But, so far, we’ve received disappointingly little response to the questions raised in the section on exports. This is your best chance to influence our exports policy for Defence and Security for the next five years. You’ve got until 31 March to comment formally - do not miss this opportunity. Because once our White Paper is published later this year, the policy will be set in motion.

I recognise, however, that there are a number of difficult circles which we have to square. For instance, I recognise the tension between our own inventory and industry’s. It was at the UKTI DSO conference last year that the Turkish Defence Minister said to me, “If you have not got it in your own inventory, who else is going to buy it?” Clearly we have neither the ability nor the desire to buy everything which British industry produces, as good as it undoubtedly is. But HMG will lend its full support to those exports campaigns which further our national interest, even if the equipment is not in-service with the British Armed Forces.

I also recognise that some see a tension between buying off-the-shelf wherever we possibly can and an export-led growth strategy. The Secretary of State has said that he hopes the shelf will be stocked with British products, but of course not everything we need will be on British shelves. This is about better value for money, not perpetuating weakness, but exportability generally should be a useful marketing tool for British industry when making the case on an MoD programme.

And I recognise our own resources in the MoD are constrained. We are always receptive to good ideas - that’s the whole purpose of the Green Paper - and on this we’re open to the consideration of novel solutions proposed by industry that mean we can support exports even better.

So let me conclude.

20 years ago, this country, led by Margaret Thatcher, fought side by side with Kuwait and an international coalition to liberate Kuwait, and fight against the naked aggression of Saddam Hussein.

As the Prime Minister said recently, “To those who question whether it is right to take Defence companies on a visit to Kuwait, I would say that 20 years ago we risked the lives of our Service personnel to free that country. It seems to me an odd argument to say that Kuwait should not have the means of its own Defence.”

Quite so.

I know that the competition is fierce. As the Prime Minister said at the weekend, “do you think the Germans, and the French, and the Americans are all sitting at home waiting for business to fall into their lap?”

Quite so again.

But our national interest is at stake; our ability to help shape an uncertain world is at stake.

That’s why I’m not a defender of the Defence and Security industry; I’m its most passionate supporter!