Recommendation 12

HM Government Acknowledged

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 make businesses more vulnerable and susceptible to 8 Fifth Special Report of Session 2019–21 takeovers. For this reason, we have provided a great deal of support to business, have continued to monitor transactions under the existing mergers and acquisition legislation and are prepared to act where we identify a national security risk. Indeed, we have strengthened the Enterprise Act (2002) legislation to give additional protection to the supply chain that includes emerging technologies and our capability to respond to public health emergencies. We are also bringing forward new legislation in the form of the NSI Bill. It has therefore become increasingly important that the Government can effectively identify, assess and mitigate any risks from acquisitions in the most sensitive areas. As we continue to battle Covid, we want to keep foreign direct investment flowing into the UK, but we will continue to protect our national security. The MOD has actively supported the defence sector with increased government financial assistance via the Cabinet Office-led initiative to support strategically important suppliers, the Furlough Scheme, and the Supplier Interim Payments Scheme. The Department has also assisted with contract management support, continued to place orders throughout the pandemic and identified opportunities within the departmental portfolio to provide economic support to UK industry. Feedback from the Defence Suppliers Forum has confirmed that the support provided has been both well received and effective. The Government recognises that small and medium sized enterprises (SMEs) have a very important role in promoting economic growth. In addition to short-term measures initiated in response to the pandemic, the MOD is working to help SMEs gain a greater share of Defence related business. By 2022, we want at least 25% of our procurement spend to go to SMEs both directly and indirectly. To help achieve this goal, we are refreshing our dedicated SME Action Plan which reinforces our commitment to the SME Agenda, aiming to increase our overall spend with SMEs. This will be published shortly. Our SME spend has increased steadily over the last three years, from 13.1% in Financial Year (FY) 2016/17 to 19.3% in FY 2018/19.