UK's plucky small defence firms go bust as Treasury dithers over delayed DIP

It is no secret that, if the UK is to survive fast encroaching global threats, the way that the MOD does business needs to change. 

Much of this was set out in the Labour Government's Strategic Defence Review, which was published – to broad acclaim – in its first year of government. 

The SDR, as readers will know, highlighted why the shift to warfighting readiness was needed and how it might be achieved.

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The Government, sensibly, accepted all of the review's recommendations and quickly moved to publish its Defence Industrial Strategy (DIS) at DSEI. 

Titled 'Making Defence an Engine for Growth', the DIS achieved a warm welcome across the sector for its vision, commitment to boost skills and galvanise procurement. So far, so good. 

The next chapter – the Defence Investment Plan – is to set out how the SDR will be funded over the next decade, or how much fuel is in the engine for growth.

In defence of Defence

Curveballs have come in thick and fast for the Defence Secretary who, in recent months, has been faced with protecting the assets of the UK and its allies as war erupted in the Middle East, alongside the steady headaches for procurement presented by Ajax.

Meanwhile, the fight for Ukraine rages on, as the UK contemplates a future without backup from the US. 

A reformed approach to procurement must balance: shoring up sovereign capability, which is complex but essential (we can't produce everything domestically); developing tech designed to be interoperable with allies; and encouraging a bolder, less risk-adverse mentality to acquisition. 

This has all (rightly) bought the Government more time to calibrate the widening spectrum of threats into an investment strategy that ensures readiness for the fight we are told is to come.

It is clear that we have a credible and experienced ministerial team that understands what we are up against and where there is vulnerability. The defence sector doesn't suffer fools and is squarely behind Healey, Pollard, and Carns.

What isn't clear is why the Treasury has not – to date – shown the same sense of urgency or pragmatism to help Britain develop the capabilities needed to defend itself "at home and abroad". 

More to the point, as the Defence Secretary has outlined, British defence manufacturers in constituencies nationwide present an opportunity to drive economic growth, jobs and skills.

"Deed not words"

But this is not new. Industry began to lose faith as delays to demand signals stretched after Easter. 

For those in the boardrooms of big businesses, with significant overheads seeking clarity and direction, this is frustrating; for several smaller firms the wait has proved terminal – at least for their ambition in the UK. Some firms with great potential have gone bust while standing by for demand signals (and a Purchase Order). 

The US, from whom we are "consciously uncoupling", is actively wooing some of our best and brightest businesses with better funding, operational incentives, appetite for risk and ability to offer scale. 

At the same time, overseas investors and international defence businesses are questioning the return on investment of doing business in the UK compared to the committed wholesale rearmament underway with our European neighbours in Germany and Poland.

There are simply much more attractive countries for companies to set up shop – Romania is another example where the buying demand is clear.

The UK defence sector is rightly proud of its pedigree heritage and ability to innovate at pace to protect the nation and its allies. To illustrate: as well as leading the way in support for Ukraine, the UK's defence and F1 engineering came together in Covid to tackle the "Ventilator Challenge". 

At the peak of the pandemic, this effort produced 402 ventilators in a day (up from 15 per week before) and the UK was the only nation to be successful in this challenge.

There are defence manufacturers in most UK constituencies and about 180,000 people employed across the sector in small family businesses, plucky startups, dependable mid-tiers and global OEMs (original equipment manufacturer).

But the question now is whether the Government machine can demonstrate the necessary joined up thinking and help industry to convert this, quickly, to outproduce and deter our opponents. 

Backing British business and £18bn extra for defence sounds like a win, but are we even in the game?