2nd Report – Securing Scotland's future: Defence skills and jobs

Scotland remains central to the UK’s defence sector at a time when maintaining a resilient industrial base is more critical than ever. The context of increased defence spending presents a significant opportunity for Scotland. Meeting rising demand for defence capability, particularly in shipbuilding, aerospace and advanced technologies, offers the prospect of expanding the number of highly skilled, well-paid jobs in Scotland, and delivering supply chain growth for defence businesses across Scotland. Realising that opportunity demands long term investment that supports demand, skills and innovation across the supply chain. In contrast, inconsistent funding and stop-start procurement weaken sovereign capability, workforce retention and the longer-term value that the Scottish defence sector can provide. (Conclusion, Paragraph 28)

We welcome the new Prime Minister’s continued emphasis on backing British businesses through defence spending. We hope to see that rhetoric translate into contracts for firms operating in Scotland, and tangible support for Scottish SMEs, supply chains and workers. (Conclusion, Paragraph 29)

The publication of the Defence Investment Plan provides a welcome degree of clarity on the UK Government’s strategic direction, and the implications for Scotland’s defence sector. In its response to this report, the UK Government should set out how the Defence Investment Plan draws upon the strengths of Scotland’s defence sector, and specifically how the plan will maximise economic and employment opportunities for Scotland. (Recommendation, Paragraph 30)

The MOD must begin publishing data on defence expenditure with individual suppliers in Scotland to enable better and evidence-based procurement and policy decisions going forward. (Recommendation, Paragraph 31) 39 Unlocking SME potential

Only 0.078% of the MOD’s direct expenditure is with SMEs in Scotland. This is substantially lower than Scotland’s population share and is at odds with the scale and importance of Scotland’s defence manufacturing base. (Conclusion, Paragraph 43)

Prime contractors play a pivotal role in engaging SMEs in the defence sector. Given the dominance of SMEs in Scotland, this relationship is particularly important in ensuring that Scotland shares in the potential benefits of increased defence spending. However, under the current commercial model, SMEs are operating in a fluctuating defence environment with multiple barriers to operation, and face a significant amount of financial risk that can be challenging to manage. (Conclusion, Paragraph 44)

The MOD should incentivise prime contractors to take a more active role in supporting Scottish SMEs. Procurement processes should take into account the extent to which prime contractors help SMEs overcome barriers to participating in the defence sector, with a view to favouring companies that demonstrate strong support for SME growth and inclusion in defence supply chains. (Recommendation, Paragraph 45)

Scottish SMEs seeking to enter defence supply chains are also disserved by several barriers. Meeting the standards required by prime contractors is often costly and complex, with requirements varying across firms and contracts. We welcome the establishment of the Defence Office for Small Business Growth to help address these challenges. However, it is too early to assess whether the Defence Office for Small Business Growth will deliver meaningful improvements for Scotland’s defence sector. Similar initiatives have been established in the past, yet challenges facing SMEs persist. (Conclusion, Paragraph 46)

The Defence Office for Small Business Growth should publish specific targets for the uplift it expects to deliver in MOD funding for Scottish SMEs, and the measurable outcomes it will use to assess progress in improving access to defence supply chains for Scottish SMEs. Progress against these targets should be published on an annual basis. (Recommendation, Paragraph 47) Defence skills gaps

Funding for apprenticeships remains an enduring risk to the ability of the UK Government to deliver the Scottish elements of the DIP in the coming years. We welcome the UK Government’s plans for direct skills investment in the defence sector in Scotland. However, the allocation of £20 million for Wales, Scotland and Northern Ireland from a £182 million fund represents a disproportionately small share, and it is difficult to see how it can shift 40 the dial on skills shortages in Scotland. We also hope to see the Scottish Government play its part in ensuring Scotland has the skills needed to meet demand in the defence sector. (Conclusion, Paragraph 68)

The MOD should write to the Committee within six months to explain how it arrived at this £20 million figure, and how it is commensurate with the size, importance and potential of Scotland’s defence sector. It should also explain how allocating such a limited share of funding will support the expansion of skills provision to the extent necessary to address persistent shortages across Scotland’s defence industry. (Recommendation, Paragraph 69)

In its response to this report, the MOD should set out the other UK Government initiatives, outside of the £20 million fund, that the Minister said will support defence skills development in Scotland. It should explain the benefits each initiative is expected to deliver in Scotland, and provide an assessment of their likely value. (Recommendation, Paragraph 70)

The availability of a skilled workforce will be a key factor in determining whether Scotland can realise the opportunities presented by growth in the defence sector. Apprenticeships play a vital role in developing these skills and, by extension, in ensuring the UK’s national security. With expected growth in the sector driven by new international orders and increased demand, there is a growing need for skilled workers, both within defence and in other essential but competing industries, like energy and advanced manufacturing. The establishment of Defence Technical Excellence Colleges in Scotland is a welcome step in addressing these skills shortages. (Conclusion, Paragraph 78)

The UK Government must work proactively with the Scottish Government to expand apprenticeship provision for the defence industry in Scotland, given the vital role apprenticeships play in developing skilled workers and supporting the UK’s national security. For the same reasons, we hope to see the Scottish Government match the UK Government’s funding for the two proposed DTECs. However, if the Scottish Government does not agree to match funding, an important opportunity will be lost. (Recommendation, Paragraph 79)

Progress establishing DTECs in Scotland has fallen behind those in England. While it is important that both the UK and Scottish Governments are aligned on the establishment of DTECs, intergovernmental cooperation and engagement should not be a cause of delay. DTECs have the potential not only to strengthen the defence skills pipeline but also to expand access to highly skilled, well-paid apprenticeship opportunities that support communities and regional economic growth across Scotland. We hope to see both Governments work together with greater urgency to ensure that Scotland does not fall further behind in developing the skills base needed to support the UK’s defence ambitions. (Conclusion, Paragraph 80) 41

Recruiting Scotland’s talented graduates and keeping that talent in Scotland is a clear challenge for the defence industry and is particularly difficult for SMEs. We welcome the creation of the Defence Universities Alliance as a positive step to promote the uptake of defence-related careers and create closer ties between academic institutions and the defence sector. However, it is too soon to judge the programme’s success. (Conclusion, Paragraph 86)

By June 2027, the UK Government should provide the Committee with a progress update on the implementation of the DUA, including early indicators of its effectiveness in supporting Scottish graduates and institutions. The UK Government should then publish annual reports on the DUA’s performance, including data on the impact it is having on the retention of graduates in the Scottish defence sector. (Recommendation, Paragraph 87)

It is clear there will continue to be a role for international workers in Scotland’s defence sector for the foreseeable future, particularly given that demand for products from the defence sector has historically fluctuated. Current skills shortages have exacerbated this reliance as overseas recruitment is needed to meet immediate workforce needs. While international workers will remain an important part of the workforce, strengthening the domestic skills base would help ensure that future demand can increasingly be met from within the UK. (Conclusion, Paragraph 94)

We recognise calls for the importance of defence and manufacturing sector needs to be reflected in immigration policies. The UK Government should regularly review defence roles included in the temporary shortage list to ensure defence skills gaps in Scotland can be adequately filled. (Recommendation, Paragraph 95) Public perceptions of defence

The Defence Industrial Strategy called for a public conversation on the importance of defence. However, sufficient progress has not yet been made in developing this national conversation. Delivering such a conversation will be essential to supporting recruitment and retention in Scotland’s defence sector, and to building wider public understanding of it. Increased transparency regarding live threats and plans for the ‘Destination Defence’ campaign are a positive step, but more must be done to deliver this national conversation. (Conclusion, Paragraph 104)

In its response to this report, the UK Government must set out how it plans to deliver this national conversation on defence in Scotland, in order to support awareness of the wide range of roles available within the sector. Both the UK and Scottish Governments have a part to play 42 in building public understanding, reducing negativity and supporting a sector that is fundamental to the UK’s security and resilience. (Recommendation, Paragraph 105)

It is unacceptable that SMEs working to deliver the UK’s national security objectives are being denied access to financial services through so-called ‘debanking’. The UK Government should assess the impact of this practice on Scotland’s defence industry and engage with the financial services sector to end this practice, which is damaging to the UK’s national security objectives, SME growth, and the provision of highly-skilled jobs in Scotland’s defence sector. The Scotland Office should report back to the Committee within six months on the findings of this work and the actions taken in response. (Recommendation, Paragraph 106) 43