The overhaul envisages an end to the building of manned fighter aircraft in Britain, a reduction in the number of surface warship yards, big cuts in missile capacity and the rationalisation of BAE Systems' Royal Ordnance division, the main munitions supplier to the armed forces.
In addition, Britain could end up buying more helicopters abroad and rely on overseas companies to help meet part of its requirement for armoured fighting vehicles.
On the plus side, a big expansion of the UK's capability to develop and build unmanned aerial combat vehicles is planned and increased prominence will be given to being self-sufficient in chemical, biological, radiological and nuclear protection and counter-terrorist technology.
The blueprint for the next 15 to 30 years is set out in the Government's long-awaited Defence Industrial Strategy, presented yesterday to the Commons by John Reid, the Secretary of State for Defence. Mr Reid conceded it would involve "pain" for certain parts of the defence industry and regions of the UK dependent on traditional military hardware such as fighter jets. "Change is painful but survival also requires change," he told a briefing.
The biggest change will be an end to the design and production of manned fighter aircraft for the Royal Air Force once the Eurofighter Typhoon and the Joint Combat Aircraft reach the end of their lives in 30 years. "This threatens the continued viability of existing UK design, development and manufacturing capability to support MoD's needs," is the review's stark conclusion. The effects will be felt hardest in the North-west where BAE Systems employs about 9,500 staff at Warton, Samlesbury and Woodford - the main production sites for the Eurofighter Typhoon, Nimrod, Hawk and Joint Combat Aircraft.
Lord Drayson, the Defence Procurement minister, insisted, however, that the review was not about cutting back Britain's 40,000-strong defence industry workforce and claimed it would result in "zero job losses" as production switched to new equipment such as unmanned or "uninhabited" combat aircraft. Mike Turner, the chief executive of BAE Systems, which has a UK defence workforce of 35,000 also played down the prospect of big job cuts in the near term.
Mr Reid announced that "tens of millions" of pounds were being pumped into a technology demonstrator programme to develop UAVs (unmanned aerial vehicles). BAE, which will be the main beneficiary of the new funding, has been conducting secret trials with UAVs for some time and this year flew its HERTI-1A unmanned aircraft on a test flight from Campbeltown airfield in Scotland.
Mr Turner said BAE could now look to the future with "considerable confidence" as a result of the review and the Ministry of Defence's agreement to end fixed-price equipment contracts, which had pushed its UK programmes division into heavy losses. "Without those two things, it is very difficult to see how BAE Systems could have stayed in this country," he said. "Now we are here to stay. We have good land, sea, and air businesses and a defence industrial review which gives clarity on the way ahead."
The 146-page document published yesterday by Mr Reid makes it clear that while the UK will continue to have a warship building industry, it must consolidate under a single ownership to reduce excess capacity and improve cost efficiency. In return for guaranteeing the industry long-term contracts on the new Type 45 destroyer and future aircraft carrier programmes, the MoD wants to see a reduction in the number of yards. It would not be drawn, however, on how many of the UK's six big naval yards were surplus to requirements.
The review makes it clear that Britain will continue to retain a nuclear submarine capability, but is more ambiguous on whether the hulls of Royal Navy warships still need to be built in the UK. In its Defence Industrial Policy statement published only three years ago, the MoD stated that fabrication and assembly of hulls should remain in the UK. But in a briefing note issued yesterday it said such a policy "may have been appropriate then but is no longer clearly viable".
BAE now provides 95 per cent of the Army's armoured fighting vehicles, after the takeover of Alvis and GKN's Warrior division. The MoD intends to sign a new partnering agreement with BAE to cover the servicing and maintenance of the 5,000 vehicles currently in use. But referring to the new FRES (future rapid effects system) medium-weight troop carrier, Mr Reid told the Commons the most likely solution was collaboration with international companies led by a UK-based systems integrator.
The MoD is also working on a partnership agreement with the MoD's main provider of helicopters, Agusta Westland, which has been selected to supply the new Lynx battlefield reconnaissance and maritime combat helicopter. However, beyond that Mr Reid said Britain would "continue to look to the vibrant and competitive global marketplace to satisfy our future helicopter requirements".
As far as munitions are concerned, BAE, which accounts for 80 per cent of the MoD's requirements, will continue to be the main supplier. But Mr Turner said as part of a new partnering agreement which is being negotiated with the MoD there was likely to be more rationalisation of its Royal Ordnance division.
Amicus, the engineering union which represents large numbers of defence workers, said it welcomed the new strategy but voiced concern about "the scale of the reduction in spending and the possible impact on jobs".
Intellect, the trade association for the UK hi-tech industry, also welcomed the announcement. Its defence director, Graham Attrill, said: "For military capability to be delivered in a more coherent and efficient manner it is vital that industry and the MoD have a complete understanding of future defence capability requirements, the principles that will underpin future procurements, and how to plug any future gaps in industry's capacity and capability to deliver."
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