Government to set out plans to support defence exports

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Defence companies will find out this week how plans to throw the government's weight behind Britain's defence exports will work in practice.

A Ministry of Defence (MoD) Green Paper to be published soon is expected to outline plans to take into account the industrial and economic implications of spending decisions, and also to consider future overseas sales opportunities when designing defence programmes. After a public consultation period, a five-year defence industrial and technology policy will be formalised in the Spring.

The implications for the industry could not be more serious. Without a shot in the arm from exports, Britain's defence industry – which employs up to 300,000 people – faces a "slow strangulation" in capability from cuts to the defence budget, senior industry figures warn.

Since the general election in May, Defence Secretary Liam Fox has talked repeatedly about stronger government support for the industry, against a backdrop of spending cuts in October's spending review that wiped 8 per cent off the total defence budget and saw the Harrier jump jet and Nimrod spy plane fleets axed.

The implications of lower defence spending affect not only headline GDP. High-tech, long lead-time defence programmes are also central to retaining Britain's industrial capability. After much speculation, the Astute nuclear-powered submarine programme survived the Strategic Defence and Security Review published shortly before the spending review. Had it been cancelled, the highly specialised skills would have been lost, spelling the end of Britain's ability to build submarines. "You can't just hire people who can build submarines," one industry source said. "You have to grow them from school."

Amid the increasingly straitened public spending climate, the government has outlined a string of measures designed to improve the commercial opportunities for defence companies.

Peter Luff, the Minister for Defence Equipment, Support and Technology, warned in a speech in London last month that "there simply isn't the money there was before".

Mr Luff painted a technicolour picture of the MoD's financial plight, with "an overheated equipment programme, a seriously overcommitted budget, and overstretched armed forces", before outlining priorities including stronger bilateral international co-operation and collaboration, support for smaller businesses in the defence supply chain, protection of industrial capabilities and full support for exports.

Sector insiders are tentatively optimistic. Since the election in May, the new government has exhibited a greater appreciation of the economic impact of defence spending decisions, insiders say. "They really get it," one highly-placed industry source said.