A ‘feast or famine’ environment caused by delays to major armed forces reforms are leading to job losses and shut downs.
Defence and aerospace firms are struggling to handle the current economic climate amid delays to the Defence Investment Plan (DIP). The framework aims to set out the financing for major developments in the Royal Navy, Army, and RAF, over the next ten years.
Originally scheduled for the autumn of last year, the DIP has yet to be announced and it could be until June where the costs for the Strategic Defence Review are finally announced.
Samira Braund, defence director for ADS Group – a defence and aerospace trade association – said there is a real impact being felt across the industry. Speaking to the defence select committee today (March 24), she said: “Larger defence primes are not getting contracts, so these don’t flow into the supply chain.
“Some are supporting SMEs with cashflow, but some have had to exit the sector, some have outstanding payments from the Ministry of Defence (MoD), and in essence, the ecosystem is not in a great place. We’re in paralysis.”
Portsmouth and the surrounding area is home to several defence businesses of all sizes. From giants including BAE Systems and Airbus to smaller outfits like Windracers and SYOS, thousands of skilled professionals are employed in the sector.
Ms Braund warned problems will be exacerbated the longer the DIP is delayed. “We’ve welcomed the DIP with ten years worth of funding, but we’ve created a feast or famine environment.
“That has been a significant concern. Even smaller contracts have to go to the most senior level for signoff. That impacts investor confidence. All this great enabling work is being put at risk, as the perception of the MoD being a difficult customer is playing out.”
Andrew Kinniburgh, director general of Make UK Defence, said businesses are worried about the long-term ramifications – higher costs or a smaller skilled workforce. “As soon as you touch the brakes on anything linked to defence, costs rocket, time shoots out, and everything slows down,” he added.
“Our biggest worry is investment into the UK. We’re in a global race to get money from big defence companies. They have many options in Germany, Poland, the US etc. By delaying and prevaricating on the DIP, we’re telling those companies to invest somewhere else.”
He added: “We’re slowing down apprentices and recruitment of graduates. When you slow things down in defence, it can take a lot of momentum to get things going again. The US is circling the UK and offering all sorts of incentives to move abroad. If we keep delaying the DIP, we’re going to make that worse and we’re going to lose some really clever businesses.”
Fred Sugden, associate director for defence and national security at TechUK, added: “We have a digital programme member where the funding has been on hold. This puts three SMEs at risk, and if they don’t get funding soon, there will be job losses and other impacts.”
Financial concerns have been raised in the MoD. Reports suggest that major defence programmes, such as the Type 83 destroyer, could be pushed into the long grass as a cost-cutting measure. Chief of Defence Staff, Air Chief Marshal; Sir Richard Knighton, reportedly told the prime minister of a £28bn blackhole which needed to be filled.
Some contracts have been awarded, including a deal for a New Medium Helicopter – securing hundreds of jobs. Speaking to the public accounts committee yesterday (March 23), national armaments director Rupert Pearce said: “We’re not closed for business without a DIP. We’re in a period where there is an impact on our communities and defence ecosystem.
“I wouldn’t say it’s material or systemic at this stage. Smaller companies will suffer more than larger companies in this case. In the margins, there are some things we are waiting for the DIP to do, and that delay is costing people.
“We don’t like that. We want to get this DIP done, get through it, and out the other side. But everyday, we continue to do stuff and put things on contract. We’re busy in Ukraine and supporting allies in the Middle East, signing up to large and small contracts alike. We’re not closed for business. There is a credibility issue around the DIP being serially delayed. We need to recover that position.”
Committee chair Sir Geoffrey Clifton-Brown, Conservative MP for North Cotswolds, said advancements in major mine-hunting programmes were suspended until the DIP was announced – despite the need for new technology given the ongoing situation in the Strait of Hormuz.
“I wonder how many more major projects have been suspended,” he said. “It’s a really poor situation to be in isn’t it.”
Mr Pearce responded: “Yes it is. I would like the DIP to be settled as quickly as possible from my own selfish perspective of wanting to get after programmes, and attack cost. Time is money in procurement. Things aren’t getting cheaper. As a department, we have to look at the long term implications of energy prices, and supply chain disruption from this latest conflict.
He added: “It’s a challenging time for procurement. My teams have been working incredibly hard in that environment to try and contain cost, and maintain schedule.”
