Source · Select Committees · Scottish Affairs Committee
Recommendation 4
4
Accepted
Paragraph: 32
We welcome the MOD’s high level of spending with Scottish industry (around 10% of total...
Conclusion
We welcome the MOD’s high level of spending with Scottish industry (around 10% of total spending with industry) but are concerned that this spending is very heavily skewed towards major international prime contractors rather than SMEs. This is illustrated by the fact that only 2.5% of the MOD’s spending with UK SMEs goes to Scottish businesses. While this figure is higher than the MOD’s spending with SMEs in the North West of England, Wales and Northern Ireland, it is far lower than both the UK average and Scotland’s population share of the UK. Scottish SMEs have the skills and ambition to match any other part of the UK yet are losing out. While the MOD’s SME Action Plan is timely and relevant, it is unlikely to tackle engrained hesitancy within the defence sector towards working with Scottish SMEs.
Government Response Summary
The MOD recognises the skills offered by Scottish SMEs but rejects the view that there is an engrained hesitancy within the defence sector towards working with them, and outlines various initiatives to support SMEs.
Paragraph Reference:
32
Government Response
Accepted
HM Government
Accepted
MOD notes the Committee’s view and recognises the skills and ambition offered by Scottish SMEs. MOD considers the contribution from SMEs to our supply chain to be very important. However, we reject the Committee’s view that there is an “engrained hesitancy” within the defence sector towards working with Scottish SMEs. Scotland is very much at the forefront of defending the UK from growing threats on land, air, and sea; and the Government is supporting Scottish business and building skills to keep the UK safe, secure, and prosperous. MOD’s commitment to the Defence industry in Scotland is absolute, reflected by a rising Defence budget which supports business, jobs, and skills UK-wide. The Defence footprint is nationwide and in every one of the UK’s regions1 we are making a positive difference, with Scotland receiving the fourth highest proportion of the total UK MOD expenditure in 2021/22. The huge majority, three-quarters by value, of opportunities for SMEs in UK defence sit within the supply chain. The direct spend that the department has with smaller suppliers in Scotland is therefore not representative of the overall contribution that SMEs make to defence. It is for that reason that we are working closely with our major contractors to make sure that SMEs are supported throughout the defence supply-chain and that they have improved visibility and access to sub-contracting opportunities. Ensuring that we have robust data from our major contractors on how and to what extent they deploy SMEs, is a priority for us. Improving SME engagement is a nation-wide issue and we are taking a national, rather than regional approach. The following are examples of how MOD are engaging SMEs across the UK: • MOD’s SME Action Plan is very firmly aimed at improving access to Defence contracts. The underpinning SME Working Group has given SMEs, including those based in Scotland, their own voice in the Defence Suppliers Forum (DSF) and provides a clear platform for engagement with MOD on SME issues and on the delivery of the Action Plan’s commitments. 1 Scotland, Wales and Northern Ireland statistics are collated in regional expenditure analysis as regions. • The Defence and Security Industrial Strategy (DSIS) outlined multiple initiatives, on top of the SME Action Plan, that were designed to continue to directly or indirectly support SMEs. For example, we have launched the Defence Technology Exploitation Programme (DTEP), a UK wide initiative which is designed to help SME suppliers join Defence supply chains. • From June of 2021 the MOD extended the application of the Cabinet Office Social Value Model from procurements under the Public Contract Regulations to include Defence & Security Public Contract Regulations, so that social value policy outcomes relating to SMEs (where relevant & proportionate) form part of award criteria for competed procurements. • Through the Joint Economic Data Hub (JEDHub) we are growing our understanding of the defence sector’s contribution to the UK economy. The JEDHub Annual Economic Report showed the important contribution Scotland made to defence sector jobs in the UK. Through the JEDHub we will continue to grow our understanding of the contribution made by the UK defence sector to the economy, including in Scotland. • MOD will continue to collaborate with industry stakeholders to share experiences of contracting with MOD and discuss barriers to opportunities.