Author: Nicholas Watt
*This article was written in a personal capacity and does not necessarily reflect ED policy
The previous edition of Commentary referred to the importance of the UK’s defence industry. This edition will re-visit this topic, mindful of the current world situation and what other countries are doing to develop and protect their own defence industries. It should not be assumed by the new UK government that warm words about resetting relationships with our friends and neighbours removes the element of competition between allies that has characterised our ‘friendly’ relations for many years.
Howard Wheeldon was a vocal supporter of British industry, something the revived Commentary will endeavour to emulate. In particular, we need to be aware of the risk that while the MOD is conducting its Strategic Defence Review, events are moving on – at pace. There is a risk that the SDR may be answering a question that is already out of date.
There is now an obvious and urgent need for a revitalised ‘European Pillar’. The outbreak of war in Ukraine is the driver of renewed and heightened operational co-operation with our European allies. Almost as much as the prospect of another Trump presidency. The UK and our European allies will need to prove that we are looking after our own backyard by raising the level of our defence expenditure. Moreover we need a credible deterrent capability, which requires renewed efforts in the defence manufacturing field, as well as the rapidly evolving world of MilTech.
Whilst the UK remains in the vanguard of support for Ukraine, our EU partners are pursuing their own agenda. In order to strengthen its European Defence and Technological Industrial Base (EDTIB), the EU has created various instruments, such as the European Defence Fund, the European Peace Facility, the Permanent Structured Cooperation in 2017, and the European defence industry reinforcement through common procurement act (EDIRPA) and the Cyber Defence Strategy in 2022.
The effect of Brexit has been to exclude the UK from participation in these developments. The new UK government may wish to renew its efforts to develop the provisions of the Political Declaration which is
part of the 2020 Withdrawal Agreement: “The future relationship should benefit from research and industrial cooperation between the Parties’ entities in specific European collaborative projects to facilitate interoperability and to promote joint effectiveness of Armed Forces. In this regard, while both Parties should preserve their respective strategic autonomy and freedom of action underpinned by their respective robust domestic defence industrial bases, the Parties agree to enable to the extent possible under the conditions of Union law:
the United Kingdom’s collaboration in relevant existing and future projects of the European Defence Agency (EDA) through an Administrative Arrangement;
the participation of eligible United Kingdom entities in collaborative defence projects bringing together Union entities supported by the European Defence Fund (EDF); and
the United Kingdom’s collaboration in projects in the framework of Permanent Structured Cooperation (PESCO), where invited to participate on an exceptional basis by the Council of the European Union in PESCO format.”
Subsequent developments, notably the recent Draghi report have sought to reinforce the EU’s efforts to achieve strategic autonomy. The Report, published in September 2024, aims to increase the EU’s competitiveness, but also addresses the need for EU Member States to pool their defence manufacturing and acquisition programmes, to reduce dependency on the US in particular: “Peace is the first and foremost objective of Europe. But physical security threats are rising and we must prepare. The EU is collectively the world’s second largest military spender, but it is not reflected in the strength of our defence industrial capacity…… The defence industry is too fragmented, hindering its ability to produce at scale, and it suffers from a lack of standardisation and interoperability of equipment, weakening Europe’s ability to act as a cohesive power. For example, twelve different types of battle tanks are operated in Europe, whereas the US produces only one.”
A policy paper published in October 2024 by the European Peoples Party, the largest group in the newly re-elected European Parliament echoes the sentiments of the Draghi Report, by renewing calls for a European Single Market for defence. It reminds its audience that EU member States still acquire 78% of their military equipment from non EU sources. Also published in October 2024, a report by the London based International Institute for Strategic Studies (IISS), draws attention to the effect that the European defence Fund (EDF) might have on access for ‘third country’ entities in EDF projects.
In the light of the changed strategic environment following the Russian invasion of Ukraine in 2022, it would make perfect sense for the UK and the EU to co-operate more closely, 23 members of the EU are also members of the NATO Alliance. Matters to be considered would include research and development efforts to identify future technologies, as well as harmonising future capability requirements. However, attention needs to be paid to such matters as the preservation of Intellectual Property (IP) and export licensing. Any negotiations would need to safeguard UK industry from ‘non-tariff’ barriers imposed by EU regulations, or export restrictions. As we have seen from events in Ukraine, a credible deterrence is cheaper than the cost of re-construction following a major war. Whatever the outcome of the war in Ukraine, Russia will remain a belligerent neighbour. The UK and the EU should recognise their shared interest in ensuring that Europe remains free.
Defence manufacturers will continue to invest and develop new capabilities as the strategic environment evolves. The advent of drones and counter drone technology has altered the calculation of government, but does not remove the necessity for the basic tools of warfare, particularly artillery. A consolidation of suppliers within Europe has long been discussed. Governments, however, like to keep jobs and technology under their control. The Draghi report refers to the difference between the US which operates one type of battle tank, while EU Member States operate 12. This is not a new idea, but it has come back to haunt policy makers, thanks to events in Ukraine. Pressure on governments, including the UK, to ensure that taxpayers’ money is well spent may give this idea new impetus. Defence manufacturers may need to consider the benefits of more joint ventures on a project by project basis, to pool the costs of the R & D necessary to develop new capabilities and technologies such as A I.
There was a large scale consolidation of defence manufacturers following the end of the Cold War. It is unlikely that the number of major prime contractors will diminish, but we may see the upsurge of new MilTech based prime contractors. In the same way, there may be a re-shuffling of second tier contractors, as they adjust to the advent of new technology. This matter will be explored further in a subsequent Commentary, but the UK government must not bargain away the strength of the defence manufacturing sector for the sake of a catchy political deal with our EU neighbours.
The new government has made a good start by signing a defence co-operation agreement with Germany, the Trinity House Agreement, in October. Part of this agreement will see the UK and Germany co-operate on future unmanned combat air vehicles (UCAV) as well as exploring and developing new maritime unscrewed air systems (UAS) capability. As with the Lancaster House Treaty with France, this is a bilateral arrangement. It does not change the EU’s overall strategy aimed at achieving strategic autonomy.
Equally, the UK government should beware of putting all of its eggs into the US basket. If a future US administration, in the name of supporting jobs imposes tariffs, this could adversely affect both UK prime contractors and the wider supply chain. Those with long memories may remember the Skybolt episode, when the UK government undertook to buy a stand-off nuclear capability from the US. The US government cancelled the project, due to cost and technical problems, leaving the UK in the lurch. This
resulted in the subsequent Nassau agreement where MacMillan and Kennedy agreed that the UK would be given US Polaris missiles for its nuclear capability. We must hope that the AUKUS alliance does not
unravel under similar cost pressures.
In the same vein the Tempest / GCAP programme must be sustained, to ensure that the UK has a credible next generation combat air capability, as well as safeguarding jobs and export opportunities. GCAP and AUKUS are both good examples of why the defence sector has been recognised by the new UK government as drivers of its growth agenda. The sector was mentioned in the green paper released on October 24 th as one of eight growth driving sectors. The UK Defence Solutions Centre (UKDSC) maintains a Joint Economic Data Hub (JEDHub) which policy makers can use to understand the value of the defence sector to the UK economy. The most recent statistics, released earlier in 2024, show that
the UK defence sector employs over 417,000 people. This message needs to permeate into both the Treasury, as well as into the Business Department, as the next spending review is being considered.
The UK government must recognise that any conversations with our friends and neighbours about future co-operation in the defence and security domain should be conducted from a position of strength. The UK has long held a wider world view than many of our European neighbours. The days of a foreign policy based on boosterism alone are past, but there is no doubt the UK has cards to play internationally. Our network of alliances gives us an entrée into many overseas markets, and defence co-operation reinforces our security, as the efforts to support Ukraine have shown. There is goodwill for the UK world-wide, and this must not be traded away in the name of short term gain.