The Council on Geostrategy’s latest Britain’s World article by Paul Mason analyses the UK’s Defence Industrial Strategy, looking at what it includes and how it can be delivered.  

The UK’s new Defence Industrial Strategy (DIS) represents a step-change in the way the Ministry of Defence (MoD) will relate to the industrial base that equips and maintains the UK Armed Forces. Indeed, the industrial base itself is redefined to include universities, banks, tech firms, and trade unions. 

Taken together with the creation of the National Armaments Director (NAD) role, which centralises capability design and procurement across all five domains of warfare, this is a timely and comprehensive document. Once the Defence Investment Plan is decided – and this is where the toughest decisions still lie – the MoD will have the who, the what, and the how when it comes to the redesign of the UK Armed Forces to match the threat. 

The first thing to note about the DIS is its methodology which is a clear departure from that of its predecessor, the Defence and Security Industrial Strategy (DSIS), in 2021. Mariana Mazzucato, a world-leading authority on industrial strategies, believes they should contain a route, objectives, and assessment metrics, as well as specify risks and rewards. 

The new strategy meets those criteria; the DSIS did not. It specified broad objectives but few timescales and no success metrics. This year’s DIS, by contrast, contains a page and a half of metrics, though all of them are calibrated to be achieved by 2035. 

The second big change is that the UK Government has recognised that, if you are going to try to direct an industrial sector, you need levers: granular institutions which can reach into a complex system and enact change. These include: 

• Five regional defence growth deals, where regional clusters will be backed by local structures modelled on the body which has mobilised around Barrow-in-Furness; 

• An Office for Small Business Growth inside the MoD, modelled on the US Department of War’s equivalent; 

• Five defence technical excellence colleges, aimed at remedying the shortage of specialist further education places; 

• An Office of Defence Exports, which moves part of the Department for Business and Trade’s operation into the MoD and tasks the NAD to lead the export drive; 

• The creation of UK Defence Innovation as a single ‘brain’ for all the MoD’s innovation work. This is designed to end the fragmentation of innovation funding, which has led to small awards and poor pull through to commercialisation; 

• A Universities Defence Alliance which, although its form and objectives are not specified, matches advice in Council on Geostrategy’s Report on ‘securonomics’, which called for a voluntary alliance of universities prepared to structure science and technology research explicitly towards national security goals, matching the efforts of threats and systemic competitors; and 

• The Defence Industrial Joint Council, which held its first meeting in June, and includes strong representation from small and medium-sized enterprises (SMEs) and, for the first time, trade unions. 

A further significant aspect of the DIS is the behavioural change mandated at the MoD itself. It sets new targets for SME direct spending – a 50% increase by 2028. Though defence SME organisations wanted more, in the form of a contract-by-contract percentage goal for work awarded to the primes, this is a start. 

The DIS divides procurement into three segments, requiring Defence Equipment and Support to achieve contract stage within three months for systems such as drones and software, one to three years for modular upgrades, and two to six years for major platforms. This dovetails with a separate order to begin specifying capabilities for export rather than exquisite use by the UK. 

The DIS is pretty unflinching when it comes to the MoD’s current failures. It acknowledges inefficient spending, lack of competition, poor export performance, a skills shortage, a slow pace of innovation, a lack of long-term partnerships, and high barriers to entry – all of which, in the end, come down to the behaviour of the MoD as a customer. 

Build in Britain? 

In opposition, now-Secretary of State for Defence John Healey coined the slogan ‘Build in Britain’. In government, obviously, it has become more complicated. But there is now a clear emphasis on turning defence spending and investment into growth in the UK, and the defence industrial base is clearly conceived of as contributing to social cohesion, resilience, and economic deterrence. 

Similar to the DSIS, the deterrent, nuclear submarines and cryptography are specified as sovereign capabilities. But, in a departure from four years ago, the new DIS pulls combat air, shipbuilding, ground combat systems, complex weapons, and munitions into a category where the MoD will seek to assure that the UK can design, produce, maintain, and support such capabilities. 

Obviously, the whole Defence Investment Plan lives or dies through the success of its execution. At present this responsibility lies with the new NAD, Rupert Pearce, and Luke Pollard, the UK’s Minister for Defence Readiness and Industry. 

Making the new suite of institutions work together, and exerting demand signals into the UK’s industry, science, and academia, will be a tough ask It effectively demands the supply side adapt its behaviours to the demand side at a pace not seen outside wartime. 

Probably the biggest single change proposed is the introduction of an offset scheme, whereby foreign defence suppliers will be required to create economic value in the UK to a percentage of the contract’s value. Though it is out for consultation, the UK Government cites the Australian version of this practice as a model. 

The change is part of a new regime when it comes to specifying contracts in general: big, modular platforms will be competitively tendered ‘only where appropriate’, completing the change which began with the abandonment of global competition by default in 2021. Modular upgrades will be competitive, while rapid turnaround will use more off-the-shelf products.  

The aim here is clearly to increase the UK-based defence industry’s share of big-ticket items, while boosting the access of SMEs and tech firms to the growing global defence market. Since every free and open country is aiming for exactly the same effect, matching these criteria to government-to-government collaboration – for example on AUKUS, GCAP, and complex weapons – will be vital. 

In the end, for economists, the aim of an industrial strategy is pretty simple: it is to move capital, labour, and resources from one sector of the economy to another, usually from low value to high value. This is achieved through rules and incentives – and the incentives can be either carrots or sticks. 

For the DIS, although the clear aim is to move economic activity into the new, broadly defined defence industrial base, it is unclear which sectors the UK Government thinks will lose out. So, being realistic: the key to success is convincing finance to switch from relatively low-risk investment strategies to the inevitably higher-risk endeavour that is defence. 

It also means upskilling the young workforce and repurposing the older end of the workforce into high-paid manufacturing and fabrication jobs, as well as motivating graduates into defence. 

The UK Government has clearly understood this, and taken action to achieve it, but – as all governments that attempt dirigisme find out – the real economy is ‘sticky’. Demand signals don’t always work and sometimes, especially in periods of high global tension, you have to take more direct control than expected. 

The DIS completes a suite of major changes in the UK’s national security: we’ve had the Strategic Defence Review, the National Security Strategy, and Defence Reform in the span of less than twelve months. The crucial decisions on capability mix and force design will land when the Defence Investment Plan is published. After that, it’s just a question of making it all happen!