Source · Select Committees · Scottish Affairs Committee
Recommendation 66
66
Accepted
Only a small proportion of MOD spending with SMEs goes to Scottish SMEs, however.
Conclusion
Only a small proportion of MOD spending with SMEs goes to Scottish SMEs, however. During our previous defence inquiry into Scotland’s military landscape, the MOD told us that Scottish SMEs accounted for just over £25 million of the MOD’s total spend. This is around 2.5 per cent of the approximate £1 billion total spent with SMEs in 2020/21. Scottish SMEs account for 6.2 per cent of all UK SMEs.105 When we put this to the Defence Secretary he accepted that the 2.5 per cent figure sounded “rather low.”106 Our previous report on the military landscape in Scotland noted that 2.5 per cent is far below the UK average for a region, and below Scotland’s population share of the UK. Witnesses we spoke to during that inquiry suggested this was because the MOD was culturally disposed towards working with contractors in the south of England with whom it had existing relationships and was slow to change. This led us to conclude that there was an “engrained hesitancy within the defence sector towards working with Scottish SMEs.”107 The UK Government in its response said it “reject[ed] the Committee’s view.”108
Government Response Summary
The MOD had a target of 25% of procurement spend going to SMEs by the end of 2022 and expects Scottish SMEs played a significant role in this. Figures for FY21/22 show £67M went directly to Scottish SMEs, representing 7% of total direct SME spend.
Government Response
Accepted
HM Government
Accepted
The MOD had a stretching but achievable target that 25% of its procurement spend going directly and indirectly to SMEs by the end of 2022, and the Department expects Scottish SMEs played a significant role in the aim to achieve this target. The figures for Financial Year 2021/22 are currently being gathered and will be published on Gov.uk in as part of the annual data on central government SME spend. Regional statistics for Financial Year 2021/22 have recently been published and confirm that £67M went directly to Scottish SMEs in that year, representing 7% of our total direct SME spend. This is in line with the Financial Year 2019/20 figure and broadly reflects the proportion of the Department’s spend with Scottish suppliers, which is around 9.5% of the MOD’s total spend with industry. It is also worth noting that direct spend only accounts for a small proportion of our overall spend with SMEs in the defence supply chain. Three quarters of the MOD’s spend with UK SMEs occurs within the supply chain of prime contractors. The true contribution of Scottish SMEs to UK defence will therefore be substantially greater than the direct spend figures alone suggest.