International Relations and Defence Committee

Wednesday 17th June 2026

(began 3 months, 1 week ago)

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11:04
None Portrait Speaker 1
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Implementing clear recommendations from industry on how we're we're doing that. And I totally agree with Rupert. It's, you know, culture is a key point here. And taking proportionate risk. The complementary program to segmentation is accelerating commercial pathways. We've launched six pathways to help our commercial and procurement teams apply the, you know, the correct approach, whether that's spiral. Pathways for small and medium sized enterprises, data or digital or design to cost. And actually we're doing nine in total.

There's two more one for innovation and one for infrastructure that will be live this month with a final one on national security to come. And so the and so the focus is now scaling those up. But just to give you some, uh, some tangible examples and some perspectives. So 300 of our live procurements are, are using and have declared use of a pathway. And if I look at the statistics just for May, over 70% of the procurements are using a pathway.

And these are the types of approaches that are going to drive this acceleration into our standard practice. And if I bring that to life with just a couple of procurement examples, um, things like the dragon fire, uh, directed energy weapon, um, you know, that, that, that had a commercial team that was really sort of challenging around requirements using a real agile approach, working very early with industry in terms of harnessing their expertise. And we anticipate delivering the capability five years earlier than originally originally planned, as well as supporting, um, 600 jobs.

And the first deployment of that capability should be on a type 45 from next year. And the contract was let in, was letting you know from beginning to end in five months. And what's really important about that is it's really good for the warfighter. You know, that is a technology that's low cost per shot, precision.
11:06
None Portrait Speaker 2
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£10 a shot.
11:06
11:07
None Portrait Speaker 2
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I think this is all really encouraging. And actually speaking to your point about how do you engineer change commercial X is a great example. It's a skunkworks. It was something that was just established and told rules don't apply. See what happens. We said, okay, sign up digital contracts, um, £50 million max. How bad can it be just to see what would happen?And you heard how successful they've been. Well, my natural reaction to that is great.

What if we do it at 100 million?What if we extend it into other areas that are where we can deploy this kind of model?And it's one of the ways that you can engender change at pace, instead of trying to change the whole organisation, find little pieces of the organisation you can free up to to show how things can change and then build momentum from that. So it's one of many ways we're trying to get after change. And you're right, innovation is another big opportunity for that.

Um, you know, I think we can all be intensely proud of Britain's, uh, R&D and S and T base in the UK. And there's so much more we can do with defence for that. And I'm, I'm confident that our mod's ongoing investment in um S and t R&D and innovation will be ring fenced in the dip. Uh, it's a very, very important objective. Got my fingers and toes tightly crossed on that obviously. But what we can do with that is pull through innovation to, to support capabilities development in areas where we're really strong in AI, quantum being good examples, autonomy, a communications space.

Many of the areas where we're looking to make profound change for the, for, for our armed forces, we can do through the power of British innovation. And at the same time create world leading British companies that can win on the global on the global stage, either because we're able to export them to many other nations through the auspices of Avril, or because their technology is dual use. And we're just the defence customer and we maybe get them in the game and then they grow in all sorts into all sorts of other market segments as well.

It's a it's a very exciting potential for win win.
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11:11
None Portrait Speaker 2
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Of course. Um I would say that we're broadly in good shape. Um the first thing to say about our response to the SDR is that we've set up proper programme management of the objectives and the desired outcomes. So there is a, you know, a strong well resourced infrastructure to support the delivery of the of the different objectives under the SDR. I think there are 60 plus recommendations. It turns into about 160 actions. Actually. I should let you do the maths, Jim, because you're running the whole show for the NAD group.

Um and if we look at what we should have delivered through the back end of 2020, 2025 and into the sort of April, May 2026, we are, by and large on track. Completed, I think 15 of 17 actions for the NAD group. The two actions that are not completed are not completed because they're dip dependent and the dip has slid to the right. So I'm actually quite heartened. I'm heartened by the transparency we've brought to the process and the rigour with classic red amber green charts.

We look at that in the NAD group. We then report up to the mod X co X co reports up to the Defence Board. So from the top to the bottom, if you like, in governance terms this is this is looked after in a structural way. So we're up and running. I mean the NAD group itself is a good example of that. We've published a defence industry strategy industrial strategy. We've published a defence housing strategy.

There's item after item after item in the SDR that we've actually got on with. Um, so it's not a sea of red, but in terms of the chart at all, it's by and large in good shape.
11:13
11:13
11:14
None Portrait Speaker 2
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Well, thank you again. Great question. Um, I as an outsider coming into mod and seeing this process, um, what has struck me is that until the dip, the only messaging to industry were annual equipment plans. That's a one year focus. No, no one in industry invests against a one year perspective. You're not going to, you know, invest in plant machinery capabilities, innovation on that signal. That's a very tactical signal. Now, once you're into a long term procurement, great.

Terrific. You can you can then do that on the back of a ten year commitment and a procurement contract to, to deliver that. So the feast and famine, I suspect, is, is, is about only having a one year signal. And that may be a good signal or a bad signal, depending on the year, depending on the resources we have, what we're trying to pivot now to is a dip that gives ten year demand signals that projects our whole strategy down to the level of material and capabilities requirements that allows industry to transform the way they do business with us to, to be able to rely on those long term signals to, to invest in their own capabilities.

Otherwise, they're condemned to only invest in capabilities. When we come with a contract, which is not good for either side, we want people to invest in their capabilities and then bring them to us. And for them to do that, they need those long term signals. So the delay in the dip is delaying the onset of that new relationship, which I think will be great for everybody, great for industry, great for government, great to spend taxpayers money more efficiently and more effectively. Um, so, you know, that's the delay, but even inside the dip, the thing we struggle with is it's all very well to say this is what our ten years look like.

We don't get ten years funding. We, we have to manage our money year by year by year. And if we get to the end of the year and we haven't spent it, it doesn't roll over. We deal with annularity in terms of our budgets. So there's still a structural fix. there that needs to be addressed. But I still would still say with a dip, we're in a much stronger position. And so I hope it will be out within weeks.

Um, I don't control that process obviously. But the trade space is, has narrowed appreciably over the last few months. So I'm, I really hope we can get the dip out before Ankara and then be in a much stronger position to transform the relationship with industry. As you said.
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11:19
11:20
None Portrait Speaker 6
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Thank you. Thank you.
11:20
None Portrait Speaker 3
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Laura Diamond.
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11:21
None Portrait Speaker 2
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Thank you for your question. I'm I'm I'm. Old fashioned in this respect. I don't believe you can manage what you can't measure. So we're going to get after this properly. I need as as as essentially CEO of the NAD group. I need to be able to measure. And then I can start to manage performance. So do we have those measurements in place to my satisfaction?Not yet, but we're working on it.

And we should be willing and obviously to share those measurements with you. They need to be objective. They need to be solid. They need to be relevant. We need smart metrics to be able to say, are we succeeding or are we not?And then we I'm very happy to share those with you and all other stakeholders in this job of change and delivery. We're not there yet. We are moving the NAD group to an OKR performance approach.

So instead of managing inputs into things, we're going to manage success by reference to outputs. That's much more important to me. This is a delivery capability. We need to be judged by whether we delivered or not, not how hard we worked or what happened to divert us. Doesn't matter. We have to deliver. So looking at KPIs through that lens, I hope will play a part, some part in changing culture and driving more accountability through my organisation as well.

Um, that process has been set up. I've used it many times in the past for high growth companies and even very large and complicated companies. It works, but it usually takes a year or more to bed in, um, before people realise that OKRs drive the right kind of conversations about for this to be true, for this outcome to be true, what has to happen and then track back. And then you discover the floor and then you fix it. So there's work to be done there.

I do want a lot more rigour around how we benchmark the performance in our programmes. Um, that's not straightforward. A job of work that's ongoing. Um I, the early signs I've seen, I mean. The word on the street is we're profligate with our money. We waste a lot of money, we're inefficient and we're ineffective. And I think you can get to that quickly. When you look at how many of our large programmes are troubled.

But these are incredibly large, very complex, multi-year programmes that can run for up to 20 years. You look at a type 26 programme, for example. You know, these look like Z'2 type events. They are supremely hard to manage through. We've got 2500 programmes in flight right now. You can't judge all of those programs through the lens of just our small number of very large programmes. What I was very interested in doing is I went I went to the benchmark for mega projects, um, which is.

The Freiburg, uh, data set. And interestingly, against a benchmark of when I looked at our top 60 major projects. So just the major projects, which is the hardest ones. The, the Freiburg benchmark data set for delivery on budget. Under 50% for the industry for industry wide, we are at 68%. Um, if you add budget on time. Believe it or not, the industry is at 8.5%. Oof, we're at 45%. And if you go time budget and delivering the benefits, in other words, all the three major things time.

Price and requirements. Industry is at half a percent for mega projects. We're at 43%. This is not a failing procurement organization. Can we do more?Yes. AM I happy with it?No. We're going to get better. We're going to move faster. We're going to be more agile. We're going to go shopping a lot more. Not developing. We're going to buy good enough because we have to move at pace.

The whole philosophy, the architecture of procurement, it's all changing. We are going to be a more impactful procurement agency, but we're not really bad at what we do today. We have tremendous people working extremely hard, often in cases when they're under-resourced against the level of ambition. Because of the DLC mismatch mix. But we and so the foundations are there for us to, to, to get a lot better. Um, so I'm, I'm actually very proud of the organization that I serve and I feel we've got some really good people whose potential can be, can be liberated.
11:28
11:29
11:29
None Portrait Speaker 6
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Thank you, thank you.
11:29
None Portrait Speaker 3
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So. LaThank you.
11:29
11:29
None Portrait Speaker 1
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Of responsibility.
11:30
None Portrait Speaker 2
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For defense exports within your office. And should I say that I'm the UK's trade envoy for Azerbaijan and Central Asia?Uh, these of course, are countries that were former Soviet bloc countries. And so when I was appointed in January of last year, it was flagged up to me that I should stay away from the question of defence exports. As the year continued on, the message that started coming through was a little bit different. No, actually, if there's any chance of doing something on the export side, that would be really helpful.

But interestingly, when I went to Azerbaijan in the later part of last year, the previous week, my colleague Lord Coker had been there the week before, but there was no collaboration, no briefing the two directions D, b t to Ministry of Defence, Ministry of Defence to DBT. And so what I'm wanting to clarify is whether there is. Because it hasn't been mentioned at all, whether there is on the export front, any kind of collaboration with D T and it's a two way issue because you mentioned the question of critical minerals.

That region is one of the key regions in the world for critical minerals, and the Chinese are gobbling them up. The Russians already had a hold of them. Most of the other European nations and the Americans are already in there. So collaboration with D, B, T and of course, our embassies would be really important. But I'm not hearing very much about that either in terms of us selling our exports or in terms of some of the input that we need for some of the things you want.
11:31
None Portrait Speaker 6
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Thank you for your question. And I will hand off to Avril after setting the scene a little bit. But you're absolutely right. And in terms of my experience over the last nine months in post, I've seen the absolute imperative for us to, if we're going to succeed in our exports and our international alliances, we have to unite the diplomacy, the military side and the commercial side. And often they are interacting with each other in real time. I very much saw that in terms of Task Force Sabre, which was the NAD groups and the response to the Middle East crisis in terms of how you get.

Create the right climate with our precious allies in the Middle East to support them. You have a diplomatic initiative, then you have a military initiative, then you bring the commercial alongside, but then you have to bring the diplomats back and so on. So we have to work together, and we have to create these Tiger teams that are, that are sharing information, that are coordinated in the Middle East. We did that. We reached across government to cohere this interaction. That's vital.

And if we do that, we play at a different level. Um, interestingly, the role of the NAD group then becomes one of orchestrating all of that. And we're becoming more muscular in doing that, particularly with industry. So we don't just fling industry willy nilly as an opportunity. We work, we orchestrate that. And sometimes we stand in front of them and we work in a government to government relationship to broker our industrial capabilities into the country in a trusted way.

We're getting a lot better at these things quickly, and that's showing up in our our win ratios are going up, but it's a journey. Um, and, but it's a journey that does need to bring in all of government.
11:33
None Portrait Speaker 8
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Avril um, thank you. Thank you Rupert and thank you very much for your question. I think it's worth reflecting where we came from over the past couple of years or so. So my organization as it currently stands is made up of a number of different elements, some of which have come from other parts of government. For example, the Defence and Security Exports team who were in DBT and came across as of July last year with the actual physical move of the international network and the actual individuals into the Ministry of Defence over the past sort of 3 or 4 months.

So now I have those individuals in my department with a really clear reach back into D, B, T and wider government. My international teams, I have people who are embedded in all of the different, uh, embassies around the world working either a trade commissioner level or actually where we have significant defence interests actually embedded inside the embassies. And I've been, um, very relaxed about how each individual embassy and ambassador uses those particular individuals. So in some of them, they're inside the defence sections because that works best for that particular nation.

In other parts, the ambassador tasked them directly. And for me, it's not about necessarily saying from London, this is the best way of doing this. Each of the ambassador knows their particular countries best, and I'm really happy for them to use those assets as they see fit. Um, and then within the Ministry of Defence, previously we had, um, our capability collaboration teams, they were disaggregated across the department. We had a number of individuals that were doing international relationships, but through a capability lens, they were in different parts of the department and all of those individual teams now are coalesced under me.

So for the first time, we're able to operate end to end and reach out in a collaborative way across government using the DBT teams. And as Rupert says, the links that we have naturally into, for example, the Cabinet Office and the Fcdo, I think the key thing is, is that we now recognise that exports and collaboration are not necessarily two different things. Um, we used to treat an export as a kind of very shrink wrap thing that you sold over here. And then collaboration was a completely different discussion that happened over there.

And, and in reality with our allies, it's a, it's a continuum and it's a continuum where they want to talk about co-development, co-creation, and co manufacture, as well as sometimes just buying off the shelf. And they also look to us as well so that we get an understanding, as you mentioned, as Azerbaijan, they have a huge amount of critical minerals. But as we look across our international allies, we have significant, um, depth and resources in terms of, uh, manufacturing capability and supply chain resilience. And we hadn't really ever brought those things together.

Um, as a, as a narrative that would enable us to go to international allies and not only just talk about what they could take from us, but actually what could we do across the entire continuum for our own own armed forces?So we're trying to bring that together. And I think Azerbaijan is a really good example, as is what we did in the Middle East. But Azerbaijan, you'll be very pleased to hear Lord Coca has raised that with me personally. Uh, I attended a meeting with him.

And one of the things that I have done is I've agreed to find funding from inside my trade show budget to take some SMEs and UK companies to Baku for the, um for their trade fair, which will be in September. So we're actually now moving in a much more responsive way to where we see allies reaching out to us, wanting to have those relationships.
11:36
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11:37
None Portrait Speaker 6
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Let me thank you. Let me just deal with that first, first item quickly. I agree with you. It is a balance. Um, and it's facile to say that historically we've been win lose because it's our job to drive value for money in procurement for our taxpayers. And there are many mechanisms for us to do that. It is also an article of faith of the SDR, the strategic defence review, that our supply chain is a military capability is a strategic asset for defence and therefore must be strong.

So if we engage in win lose, if we boil everything down to the lowest common denominator and crush the margins of our supply chain, actually we introduce fragility into our supply chain. And when we need them to be strong, they're not. When we need businesses to. Be set up in the UK because it's the best place to locate a defence business. Um, if uh, if we get the balance wrong between putting in properly, setting them to, to task, but also ensuring that they are strong and can move and, and are warfighting ready, then um, they will set up elsewhere and we'll lose, we'll lose our sovereign supply chain base, which is important to us.

So it is, it is a balance. I think we're trying to reset the balance a little bit more towards encouraging innovation, encouraging agility, encouraging, encouraging industry to take on more risk in areas where they are better placed to manage that risk. And our mindset to date has largely been to eliminate risk in procurement. And that sounds great, but it can mean our procurements can take longer. It means we are. Can cost more, and sometimes that risk comes back on us anyway because of supply chain partner who fails.

Uh, that failure ultimately puts the problem back in our lap as well. So it's about getting that balance right. Um, inviting a strong and innovative supply chain to lean in to do more, um, making it less win, lose sharing risk, perhaps a bit more, but never losing sight of the fact that we have to deliver value for money for, for our taxpayers.
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11:41
None Portrait Speaker 6
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Well. A lot of. A lot of the bird has flown on GCap because we've advanced things for several years, actually. Ideally, you should jump in here and provide more detail around this, but but I think. I think we will be deploying through the. The government collaboration. We will be providing more of the design work, um, through. That plans and portfolios. I'm going to have to come back to this group and say how, how much room for manoeuvre do we still have on GCap in terms of getting that done?I hope we still have a lot of influence over that.

I don't know as a short answer, but over time, I hope that our design agency will do more of the foundational work that has been left to later in the past, and we will be doing things far fewer things that are exquisite or overengineered. Or if we do, we have to good reason for it. And we spiral, develop our way to it. And we and we take a more modular approach to procurement. There's a lot more we can do through the professionalisation of that early phase of planning in procurement.

And, um, the. Portfolio approach is the other side of this, which hopefully will route our decision making in more of a systemic and strategic approach. There are examples across the world of people procuring, you know, assets without munitions and bits of systems without other bits of the systems. Um, I think we can get better at thinking systemically the portfolio approach will is a strategic lens for the NAD group and military strategic headquarters to look at our capabilities at that strategic level, to look at what we've got and ask, is it still fit for purpose?Is it still going to last as long as we need to look at our programmes across all of the programmes, it could be digital programmes, infrastructure programs, equipment programmes that need to be brought together to deliver new capabilities.

Are they cohering?Are they in lockstep?Is are the pieces missing?Will they come on stream at a time that that that steps us from old to new and then steps back and says, but what are our adversaries doing?Is this all still fit for purpose?What's happening in the technology market?Is that disruptive?What are we doing about that?We haven't got that lens today to have those conversations. Once we start having them.

And our first quarterly portfolio review happens this afternoon, we will get better at thinking ahead and the procurement process I hope will get will get better on the back of that as well.
11:44
11:44
None Portrait Speaker 2
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Yes.
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11:45
None Portrait Speaker 6
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I agree, thank you for your question. Um, I would say that as we look across NATO and the world generally with people stepping up their defence spending in these uncertain times, often alongside that comes a desire for two things. The first to feed that expenditure into your own economy, to drive jobs, growth and skills, particularly as what defence is buying more and more is what other elements of the economy are buying. AI, quantum computing space, etc. dual use capabilities. But also there's a there's a there's a big focus on sovereignty as well, by which I mean not economic sovereignty, but military sovereignty.

If we buy this from this country, will, will we still have will it be available?Will it be switched off?Will I be able to get support to maintain the operational ability of that capability?These are really, really difficult issues to grapple with in terms of procurement and operations set alongside that. Is NATO and the desire for us to move more quickly, to be interoperable, to fight together, to support together?Look at the hybrid Navy concept. That's so exciting that the First sea Lord is is leading in NATO with that's about.

Multinational crewing training. It's about being able to share each other's port infrastructure. It's about being able to aggregate munitions and roll them onto and off multinational fleets of ships. And if you look at what we've done with type 26 in Norway, for example, it's incredibly exciting in terms of galvanising Atlantic Bastion and Baltic bastion to push back Russian incursion into our seas. That is a wonderful example of interoperability. Interchangeability. We actually freed up slots in our type 26 procurement for Norway to because they're going to be literally alongside us, and I hope that they will invest in the unmanned vessels that will sail around the manned vessels as well.

So we we get stronger together, but there is not enough of that kind of thing going on in NATO today, either more broadly or more deeply, um, we have a. Lot of activities with other nations. We have Trinity House for Germany, we have Lancaster House with France, we have Luna House with Norway, and the list goes on. We obviously work very, very closely with our brethren across the pond as well. But if you look across NATO. If we're really going to galvanize the power of 32 nations, particularly in areas where which are data centric, where you get the platform economics of the data of 32 nations, plus Ukraine, probably.

Then we need to step change this and do a lot more. Lord Grocott, um, the UK is committed to that. I am committed to working with my national nads in NATO to and in the Jef to figure out how we can do more together. We can buy more together. We can bring costs down, we can drive resilience through our material, um, and maybe use some of the emerging multilateral, multilateral financial institutions to support that as well. So maybe we can come back and report on how, how that's going in the months and years to come.

Avril, would you like to add anything to that, NATO wise?
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11:50
None Portrait Speaker 11
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Yes. Thank you. It's slightly followed on from Lamont's question. Um, as you want to strengthen and deepen the domestic supply chain base, can I ask you a little bit about the tendering system?Because an awful lot of companies who either are not engaged in defence or would like to be, but not sure, are pretty fearful of engagement with any government procurement, to be honest. Um, competitive tendering is very expensive for the Tenderers and for a lot of them actually that that kills it.

You put in a tender, you spend a lot of money and then you don't get the contract. So, um, if you, if you look at the different way that Japan procures, which is culturally different, I accept that, but I can remember a briefing from Nissan that says as a matter of policy, they do not do competitive tendering. They have a supply chain and they work with them organically together to try and ensure that they get the best outcomes. It takes a little longer, but they get the quality and the price by negotiation both ways.

Cuts across, of course. Norman Lamont, Lord Lamont saying that, you know, you've got to get value for money, but you already said in the reply that actually too much competition can lead to less value for money. So just how would you encourage new entrants to be confident that they can engage with you?And how flexible can you afford to be?You said you're going to do more shopping, but it's a stage beyond shopping. In other words, it's kind of going to companies that have a capacity, but you want to help their capacity and get them to help your capacity.

It's kind of a different dynamic, and it shouldn't just be about money. So it is about an organic relationship. Is that something you feel you can develop?
11:52
None Portrait Speaker 6
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The answer is yes. Let me just frame this. It's a great question. And I'm going to hand off to Jim, who is literally, you know, he's doing this. I would say that we are passionate about making it easier for smaller companies to do business with Mod directly or indirectly. Indirectly. We're working with our primes to make sure they really, genuinely nurture our smaller companies, setting high standards of behaviour for that relationship directly. We're through our innovation channels and through our new procurement pathways.

We're trying to make it much easier and faster and cheaper for companies to do business with us. I don't find it acceptable that a company has to. A smaller company has to bet the farm on winning a relationship with Mod. Um, and if they fail, they they go out of business. That's just completely unacceptable. It's just wrong. Morally wrong. Apart from anything else, it's also going to force companies not to come near us until they get bigger.

Um, and we want their technology, we want their capabilities apart from anything else. They tend to be among a fleet footed, most agile companies. We want those kind of behaviours in our supply chain because it encourages others to behave that way. Um, through force of competition. So we're going to do everything we can to make that easy. I that does not mean you can't compete. You can't compete them. It just means that competitions have to be well run and much quicker and much lower cost for people in terms of compliance and absolute cost.

So we ran a, we ran a competition recently for a novel low cost cruise missile called project break stop. Um, we deliberately wanted to seek innovation so we didn't over specify. We threw a few ideas out there into the ether. Back came 25 companies, 24 of which we didn't know. One of them was a Formula One company. If you think about it, you know, the Formula One cars are missiles with wheels. And, um, they were one of the winners in six months.

We had three companies on the firing range. Incredible success. Um, every single step, two things were important to me. One, the companies got funded, so there was no cash flow implications for them in engaging with us. We funded them through step, step, step. As the 25 went to seven, went to three. I also wanted to make sure that companies that dealt with us walked away even when they were losers. Feeling better about Mod, having learned something, gained something, developed something, feeling good.

We help them. Even if they didn't win that contract. We want them to come back and have another go, or we want them to be successful elsewhere. So that's our mindset. I don't think you have to compete everything to, to, to, to show value for money. We have dramatically increased and enhanced our sole source capabilities in areas where we need to move quickly, particularly around innovation. If people come to us with something that's really innovative, then just competing that furiously is, is also very difficult because why would they come with a good idea if they thought we were just going to compete it out?That's that's really challenging.

So we need to be able to deal with people where we can show value and show something unusual. Then we need to be very, very quickly free of, free of a, of a competition as the only way of showing value for money.
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12:00
None Portrait Speaker 6
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Big question. Um, I mean, it is a balance. The single most important thing that my group has to do over the next five years is deliver the capabilities needed for our warfighters to deter and if necessary, to fight and to win alongside NATO and as part of NATO. And so fundamentally, issues of. By British come secondary to that. If we if we face a hard choice between giving the right tools to our warfighter or buying British. We give the right tools to our warfighter.

They are the men and women putting our lives at risk. They are the ones protecting our company, our country, and the peace from a very dangerous aggressor. So that's really easy in a sense, gets harder when it isn't quite so black and white. And obviously inside the dip formation, we're thinking really, really hard about time versus the industrial strategy component of the SDR, because the SDR is an exercise in industrial strategy and saying we have to be ready and transformed, but we also have to have a really strong supply chain support us.

And we also want to use the largesse of government to do this, to grow the UK economy, to innovate, to create new British unicorns and global companies. And I intensely agree with all of that. But those things come into conflict with each other from time to time. We're working through that in the dip, and one of the. Ways of looking at that is to say, well, um, in a lot of areas we've got ready made us capabilities. Well, to what extent do we use those as a bridge to the longer term?Because this isn't all just about 2030.

It's also, you know, you might have an interim solution into 2030 and then project something more British, more European into the 2030s. Then you've got the whole issue of, um. Working with our allies. Um, if I take Trinity, I am the SRO for Trinity House, which means I'm working with Germany around, uh, military procurement and materiel together. Well, that has to be win win. It can't. The answer can't be, well, we'll use German money and, and to create UK businesses.

That's not a win win. It's about creating joint programs where German industry benefits. And we benefit. So that isn't just about U.K. sovereign outcomes at all. It's about a fair arriving at a fair solution. We've talked about NATO interoperability. That's about making sure that we create centres of excellence across NATO, where we can be mutually reliant and we can have more resilience, distributed resilience, economic resilience and industrial resilience as well. So all these issues, you know, come to play, um, Ukraine.

Is a really a really good example. I mean, I'd just like to point out, I'll hand off to Anneli to give you more detail, but I'd like to point out that we've gone from nowhere, uh, as a, as a, as a country on drones, number four in the world for drone production and for drone innovation. And Ukraine has been the fulcrum for that. So I think we are in a very strong position as a company, as a country in terms of our drone manufacturing innovation.

Just last week, we opened a new drone centre designed to be a system of systems centre, and I have ambitions for that to lead in NATO in terms of, uh, taking every effector and every sensor and every decider and hanging it off a system of systems. We need to be able to do that in NATO to really liberate the power of 32 in NATO and learn the lessons from Ukraine and adopt that into, into what we're doing in autonomous systems land, sea, air and space, by the way. So I'm optimistic about that.

But you're right, it means we have to leaven issues of sovereignty and building great businesses in the UK with this international component. Last thing to say before I hand off to Anna Lee, talk about drones. Um, I'm a strong believer that that strategy is about deciding what you don't do as much as what you do do. And in terms of our defence industrial strategy, we've got to pick a relatively small number of areas where we want Britain to be world leading. We can't be world leading in everything.

Um, so we've got to decide where we pick winners, where we build clusters of capabilities and where we invest for success and not try and do everything, but then answer the question of, okay, so where else do we go for these things?Those can be where we collaborate.
12:05
None Portrait Speaker 13
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Thanks, Rupert. Um, I was up at RAF Warton last week and Bay systems are very, very proud of their 15% and the 22 billion that they bring to the economy and their 20,000 jobs. Um, so sovereignty means different things, doesn't it?Um, so speaking of Ukraine, and you mentioned the sheer quantity of drones, clearly that Ukraine have now, we don't need a standing army of drones. Um, we need the ability to be able to innovate at pace and to be able to have the systems and the training systems set up to be able to do that.

So right from the start of the campaign, we'd obviously touched on, um, the stuff that my team do to support Ukraine, and you'd have heard of Task Force Kindred. So we procure about 95% of what task force kindred delivers into Ukraine. And alongside that, there's a task force called Task Force Hirst. And that's very much about UK Ukrainian defence, industrial cooperation. And that's super important because it became quite apparent right from the start that, um, you know, and with our colleagues speaking to our colleagues in Ukraine that they are concerned that we need to be ready to fight the next war, and they have the means and wherewithal to be able to help us do that.

Um, and therefore, it's not just about one way technology to them. It is a very much a two way street. So some of the things we've done with that, um, barrel production, very simple, not particularly technologically advanced. Um, but we have started producing barrels at Sheffield Forgemaster for Ukraine. And then on the back of that, a UK contract quickly followed. Super important for both of us. Um specifically for drones. Um Rupert mentioned the uncrewed system Center of Excellence at Swindon that was opened last week.

And also um we've obviously got the brain which is the centre of excellence and the dusk, the uncrewed system centre, which is the, the largest um facility in Europe to be able to fly those sort of drones and practice. It's about a hub and it's about bringing industry together. The other thing we've done is we've recently opened a UK business hub in Ukraine with um and Avril's team. Um, and that's really, really important. That's about having UK businesses on the ground and a place to work from a place to collaborate.

And really important for those SMEs that we spoke about before that can't afford to have their own offices with the security and everything that's involved with that. Um, some really important things that might on, on, on the surface appear not so cool. One was a project called Lyra. Lyra is really, really important and probably not one that makes the news. And that's a government to government framework about bringing exporting Ukrainian technology back to the UK. Under Ukrainian law, they cannot exploit technology back to the UK in time or export it anywhere in time of war, which you'd understand.

But we're the only nation in the world that has that government to government agreement, which allows them to export technology for us to be able to work on it and then send it back into Ukraine, which has been sort of super helpful. So lots going on here in the UK on uncrewed systems, lots going on in Ukraine. And the most important thing is it's not just about equipment, it's across all the defence lines of development. It is about training, it's about personnel, it's about doctrine.

It's how we use them across the whole force and how we make that architecture work together. So lots of exciting stuff. Still lots of work to do. Um, but we're absolutely working on it.
12:08
12:09
None Portrait Speaker 1
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In the.
12:09
12:10
12:11
12:13
None Portrait Speaker 6
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Okay. Um, I am. Confident that the digital targeting web, by which we mean not just the outcome, but the, you know, the AI or the ML outcome, but the, um, the. Foundations of the digital targeting web are a digital backbone, um, a proper data strategy, the ability to move data around through global communications networks. And across which you run decision making and you interrogate data through AI and you deliver you, you fuse the sensor information in the millisecond with the effector that you use to respond with the manned platform that makes the decision.

I'm confident that we can make that sufficiently sovereign, um, to have control, but also to drive tremendous innovation in the UK through our outstanding British companies in this area. I mean, Britain leads is a, is a space power in terms of its capabilities in space. We are leading communications power. We are also leading in areas like AI, quantum machine learning and software and gaming. You know, those things all fuse together to create a digital targeting web worthy of its name. And I find when I have discussions with our NATO allies that we are leading here and they are wanting to come in and cohere around us, which is tremendously exciting.

Again, it depends on your definition of sovereign. We'll be able to get all of that from companies only located in the UK. No. Um, but we will ensure that all the key pivot points of control and operationalization are in the UK. The orchestration has to be ours in the UK. That's the piece I've always worried about in setting up systems. Um, I liken it to the, you know, those lovely bits of cardboard you get when you order lots of coffee and you can put six coffees in a piece of cardboard.

We need to own the orchestration cardboard so we can pull in and pull it, put back applications, solutions, capabilities and keep them rolling forward and keep competing them to make sure that every element of our modular system is the best it can be. We don't want to end up in a monolithic or controlled environment, which will be looking very carefully at financial challenge. I think there is enormous appetite for private capital to invest in defence. Um, you've got long term signals that there's going to be capabilities needed that governments are investing hand over fist.

The market in, in, in European defence alone is going to grow by 300 billion in the next five years. And then another 300 billion in years, 5 to 10. That's investable. So there's growth. And as long term predictability in terms of what people want to buy. So it's a great environment in which to bring private capital. I think people should appreciate that defence is a good investment just in terms of the returns that can be generated.

Now, uh, and the nature of what is being sold. So there are good margins to be made by businesses large and small. That makes defence investable. Um, once we can blow away some of the myths around defence, I also think that the financial community is on a journey to believe that investing in defence is morally acceptable as well. I mean, a lot of ESG rules used to prohibit investment in defence. But now, you know, we're in a different world.

People are realizing you can't take peace for granted. You leave a vacuum. Some very unfortunate figures can fill it. And so we're seeing a change of heart there as well, which is really welcome to understand the business of defence is not to fight, it's to deter. We don't want to use these missiles, but we have to have them in order to, to, to hold the peace. And I think that's better appreciated and understood now. Um, so that's all good.

And we are working very hard as part of our defence industrial strategy to create a better environment and a better communication relationship with the financial community. So we've set up the defence, uh, investment. Um industry advisory group, uh, that is a forum for the City of London to work with us. Uh, so they understand us better and we understand them better. Um, we are launching a defence finance and investment strategy shortly after the dip that will, the tagline of which will be making defence investable, which is talking about a whole series of policy objectives and steps we'll take to create an environment in which our supply chain and our programs are more investable.

So, for example, dealing with the debunking of of the defence industry, particularly for smaller companies. And then finally, we will be launching a Defence investment summit in the autumn in which I hope we will be able to make a whole series of exciting announcements about bringing private capital to the business of defence. And we'll be able to announce a number of strategic relationships and important partners stepping forward as our strategic partners to help make that happen. When the dust settles and all of that, I hope our supply chain has much better, more predictable access to capital to grow.

Um, and that we have, more relationships with financial partners in terms of advancing our programs at pace as well, and that we've created a virtuous cycle on the back of the ten year dip to, to, to, to leverage the power of the City of London. And when I go around Europe talking about, um, Investability, the rest of Europe is very envious and keen to leverage off the City of London. It's an incredible asset. We need to use it.
12:18
12:18
None Portrait Speaker 1
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Thank you, chairman.
12:18
12:19
None Portrait Speaker 6
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Okay. Thank you very much. You're right. We set up UK defence innovation as the latest stage innovation arm. So it's going to pick up um innovative ideas and businesses that sort of technology readiness level sort of mid mid-range through to ready to buy. And its job is to find these businesses and then help mature them. Working with the front line commands. I'm a big believer in exposing innovation to the real customer. So I want to use we've got some amazing organizations within the frontline Command's Navy X rap Stone for the Army Air Force Rapid Capabilities Group in the Air Force.

And we've got the same in Special Forces that, if you like, are engaged in throwing jelly at the wall and seeing what sticks. But from a uniform mentality. In other words, something is golden for an innovator, which is a real customer doing solving real problems with your technology. I want UK die to work so closely with those organisations to bring capital and capabilities to those organisations. So we become a. Development customer, advancing technology to minimum viable product and ensuring product market fit.

Which are the two things if you can tick. First of all, then we can buy it even better than that. Venture capitalists love it. And I have found when you stick. UK venture capitalists and companies in the room together, the magic happens. We ran a Dragon's Den contest for ten of our most promising young companies. Recently. Minimum capital requirement they need was five, the maximum of 60, we thought. We might not fill the room.

150 venture capital companies turned up. Every single company got funded. We turned another hundred venture capitalists away. There is appetite here. If we can cohere it in the right way. These are the kind of early things that UK Dai have done. Um, they ran the competition I talked about recently that a moment ago that gave us our, our crews are low cost cruise missile. There are a number of other programs, uh, where they've, they've stood up, they have 400 million a year ring fenced.

I hope that will survive the dip process. It's really important that it does. That's think of that as a £2 billion, mod focused venture fund. It's really exciting in terms of what it can do. They've done a lot of work in how they reach companies they don't know exist. That's hard. But we have some very good ideas on that. I would call out HMG, CC, the intelligence community's vehicle as having done great work to do that, and we're going to shamelessly follow them to access clusters that get our problem sets into communities that then come back, and then we get to know.

So yeah, I think there's a lot of good work going on there. Um, and with the money, with the money ring fenced, I think we have the ability to do some really good, really good things.
12:23
12:23
12:24
None Portrait Speaker 2
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Thank you.
This debate has concluded
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