Recommendations & Conclusions
14 items
2
Conclusion
Foreign Involvement in the Defence Supp…
As a result of the Ministry of Defence’s approach of encouraging inward investment, foreign involvement in the UK defence supply chain is widespread, with the UK hosting a broad range of UK-based and international suppliers. This approach has brought many benefits to the UK defence industry and wider economy.
Government response. As the Committee notes, the Government’s open approach to inward investment has resulted in significant benefits to the UK economy. It provides a substantial contribution to business turnover and job creation across the UK and will be essential in delivering …
Ministry of Defence
3
Conclusion
Foreign Involvement in the Defence Supp…
If the Ministry of Defence has the level of oversight of the defence supply chain that it claims, then it is clear that it was aware of purchases by Chinese companies into the UK defence supply chain and decided that such involvement was an acceptable risk. We do not agree.
Government response. As the Committee is aware, the MOD wants to source the best solutions for our requirements. This naturally means that there is significant foreign involvement in the defence supply chain. Given the scale, depth and complexity of our defence supply …
Ministry of Defence
4
Conclusion
Foreign Involvement in the Defence Supp…
The Ministry of Defence should assess the implications of Chinese ownership of the companies listed within this report.
Government response. The Government notes the Committee’s recommendation and would like to reassure its members that the MOD (and the wider UK investment security community) has assessed - and will continue to assess - the implications of all investments into the UK …
Ministry of Defence
5
Recommendation
Foreign Involvement in the Defence Supp…
The Ministry of Defence’s open and country-agnostic approach to foreign involvement means that the defence supply chain has been open to potentially hostile foreign involvement, with reports of companies being owned and influenced by foreign Governments whose values and behaviours are at odds with our own and who are known …
Government response. The open and country-agnostic approach to foreign involvement in the defence supply chain mirrors the wider approach followed across Government, which has worked to the benefit of the UK. As the Committee is aware, the overwhelming majority of investments in …
Ministry of Defence
6
Conclusion
Foreign Involvement in the Defence Supp…
Recent reports have highlighted the purchase of second-hand Chinese equipment by the Ministry of Defence. This is deeply concerning. The purchase of equipment from China for use by the Armed Forces should not be considered a viable option by the Ministry of Defence.
Government response. The Government recognises the Committee’s concerns regarding the importance of our acquisition strategies and supply chains for defence equipment, including associated security considerations. However, it is not correct to state that the acquisition of two airframes for the E-7 Wedgetail …
Ministry of Defence
7
Conclusion
Foreign Involvement in the Defence Supp…
The relative indifference of the Ministry of Defence to the possible relocation of General Electric’s Rugby facility was concerning. We are pleased that this important industrial capacity ultimately remained in the UK. The Ministry of Defence should prioritise the maintenance of sovereign capability within the UK defence industry.
Government response. The Government is very clear that the MOD did not view the possible relocation of General Electric’s Rugby facility with indifference. As the then-Minister for Defence Procurement said in the House on 20 May 2019, the MOD worked hard to …
Ministry of Defence
8
Conclusion
Foreign Involvement in the Defence Supp…
The UK previously lacked foreign direct investment screening legislation which left the defence supply chain, alongside other sectors of the UK’s economy, vulnerable to influence from hostile foreign investors. The National Security and Investment Bill, once law, will change this situation and offer greater protection to the UK’s economy. Alongside …
Government response. The Government’s current powers to protect against hostile foreign investment come from the Enterprise Act (2002). Although this Act has been amended, it is no longer sufficiently flexible to address the current risks and changes in the way that technology …
Ministry of Defence
9
Conclusion
Foreign Involvement in the Defence Supp…
Some commentators have questioned the placement of the ‘Investment Security Unit’ within the Department for Business, Energy and Industrial Strategy, suggesting that it does not have the necessary expertise and knowledge. We are content, however, that the unit will be able to draw on experience across Whitehall. The Ministry of …
Government response. The Investment Security Unit (ISU) has been designed following wide consultation across Government, with the active engagement of Government departments including the MOD and the Agencies. The Committee is quite right to conclude that the ISU will draw upon the …
Ministry of Defence
10
Conclusion
Foreign Involvement in the Defence Supp…
Venture capitalism helps to drive innovation in defence and associated industries. However, we heard concerns that venture capitalist funding could represent an avenue for hostile foreign investors to gain entry into the UK defence supply chain. The Minister for Business and Industry told us that the National Security and Investment …
Government response. The Government agrees with the Committee that venture capitalism can have a positive impact on UK industry. The UK remains by far the leading destination in Europe for venture capital and is one of the most innovative countries in the …
Ministry of Defence
11
Conclusion
Foreign Involvement in the Defence Supp…
The new regime’s impact on foreign direct investment is, as yet, uncertain. If implemented efficiently the new regime should have little to no harmful impact on foreign direct investment to the UK defence supply chain, only preventing investment that is undesirable.
Government response. The Government agrees with the Committee’s assessment that an efficiently operated regime introduced by the NSI Bill will not have a negative impact on foreign direct investment to the UK defence supply chain or the wider economy. The Bill is …
Ministry of Defence
12
Conclusion
Foreign Involvement in the Defence Supp…
The defence industry in the UK has remained broadly resilient in the face of financial pressures resulting from the COVID-19 pandemic. Unfortunately, the same cannot be said for all businesses within the defence supply chain, particularly those that also operate in commercial aerospace and are small 32 Foreign Involvement in …
Government response. The Government shares the Committee’s assessment that UK defence industry has remained broadly resilient despite the enormous challenges posed by the pandemic. But the Committee is quite right to highlight that economic disruption caused by Covid–and the resulting financial stress–could …
Ministry of Defence
13
Conclusion
Foreign Involvement in the Defence Supp…
The Ministry of Defence and wider Government have provided substantial support to businesses in the defence supply chain. Unfortunately, we heard that this support has not always reached its intended beneficiaries or had the intended consequences. The Ministry of Defence should improve its communication strategy with small and medium sized …
Government response. The Government is grateful to the Committee for the insights it offers. As the Committee notes, we have provided substantial support to those within the defence supply chain and have publicised the opportunities available, which include funding streams from sources …
Ministry of Defence
14
Conclusion
Foreign Involvement in the Defence Supp…
The commercial aerospace industry remains financially fragile. The Ministry of Defence should already be aware of the close links between this industry and the defence supply chain and should consider what more it can do to support businesses which operate here, particularly small and medium sized enterprises.
Government response. Like the Committee, the Government is acutely aware of the current fragility of the commercial aerospace sector as a result of the Covid pandemic and agrees that a strong aerospace sector is important to this country, driving economic growth and …
Ministry of Defence
15
Recommendation
Foreign Involvement in the Defence Supp…
The COVID-19 pandemic impacted the supply chains of defence businesses as well as their finances. Global supply chains for defence represent a vulnerability, especially when these supply chains include materials from countries not closely aligned with the UK. The Ministry of Defence should set out how it is proactively supporting …
Government response. The Government thanks the Committee for its observations. We recognise the impact of the pandemic and agree that global supply chains can involve a degree of vulnerability. Our DSIS review included an assessment of the key capability areas and industry …
Ministry of Defence