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This is the third in a series of Open Briefings to the Strategic Defence Review (SDR) from the Council on Geostrategy. Our aim is to analyse ten key questions facing the Defence Review Team, from the vantage point of how the United Kingdom’s (UK) adversaries and strategic competitors see us (an approach known as Opposing Forces, or ‘OPFOR’). We will avoid euphemisms and address the challenges head-on. After holding an expert seminar, we will formally submit the briefings at the end of September. Our contributions are deliberately candid – and we invite comment and challenge from all quarters. This third Open Briefing appraises Britain’s national powerbase:
The UK's defence industry is a cutting-edge, high-technology sector which is critical to British national security. A robust domestic defence industrial base with the capacity and expertise to deliver these capabilities is vital for preserving the UK's freedom of action in an increasingly volatile and unpredictable world. Without this, Britain risks compromising its ability to respond effectively to emerging threats and challenges. The UK’s strength comes not through the size of its military, but through its technological sophistication.
However, the British defence technology and industrial base faces challenges, both in terms of mass, such as the ability to produce high volumes of ammunition, and at the cutting edge, such as the ability to develop critical future technologies:
The maritime defence industry is a key British strength. Multiple shipyards are building advanced warships – such as the Type 26 frigate at Govan, the Type 31 frigate at Rosyth, and the Astute and Dreadnought class submarines in Barrow. For the first time in many years, the maritime defence industry has a problem of lack of capacity rather than lack of orders. The UK remains constrained in how many vessels it can produce at speed;
The aviation defence industry is another British strength. The UK was the only Tier 1 partner in the F-35 Lightning II Joint Combat Aircraft programme and was a leading member of the Typhoon fighter programme. British expertise in this field is wide ranging from Martin Baker ejection seats to Rolls Royce jet engines. Britain is also heavily involved in developing low cost drones, particularly for Ukraine, where the UK is the leader of the Drone Capability Coalition;
Britain’s ability to produce equipment for land warfare has somewhat atrophied. In the early Cold War, Britain built (and exported) thousands of Centurion tanks. Today, the UK is facing struggles to upgrade 148 of its existing Challenger 2 tanks. Britain even lost the ability to produce its own barrels for tanks and artillery, but this capability is now being regenerated. Part of the problem is the UK struggles on land warfare exports compared to Germany or the US, which dominate the market;
Britain has some promising leads in terms of future military technologies – from directed energy weapons to quantum positioning – but it cannot afford to do everything. Spreading itself too thin in developing cutting-edge technologies remains a risk. Leaning into strengths and leveraging the expertise of allies to cover weaknesses will provide the most cost effective approach – for example the AUKUS partnership with Australia and the US and Global Combat Air Programme (GCAP) with Japan and Italy;
Since the end of the Cold War, Britain’s defence industry has had to deal with a ‘feast and famine’ approach, whereby industry gears up to deliver a large order and then shuts things down once the order is completed or due to a lack of follow up demand signal. This can lead to a loss of skills, expertise, and facilities, which then have to be rebuilt in the future at great cost.
Several of these problems result from structural problems within the British economy. On the face of it, Britain is, by international standards, an innovative and dynamic economy with a strong scientific heritage and higher education sector, a thriving technological base, and a leading-edge, high-technology defence industry:
The UK ranks first in the world in the Future Possibilities Index, which measures the capacity of countries to leverage possibilities for their future economic growth and societal wellbeing. It also ranks fourth in the world in the Global Innovation Index – an annual ranking of countries by their capacity for, and success in, innovation;
Britain’s aerospace, defence, security and space sector contributed £38.2 billion to the UK economy in 2022/2023, employing around 427,500 people;
The UK is the world’s seventh largest defence exporter, but over the last decade Britain’s share of global defence exports has fallen by 14%.
However, UK public investment is well below the Group of Seven (G7) average, and it has been as a proportion of gross domestic product (GDP) almost consistently since 1990. Business investment is also lower in Britain than in any other G7 country. The UK’s real defence spending has been in decline, which has eroded the credibility of the armed forces and led to fears Britain may be left increasingly reliant on its allies.
The UK, is one of the most unequal and overly-centralised countries in the Organisation for Economic Co-operation and Development (OECD), with deep spatial inequalities and regional productivity divergence. In addition, UK living standards have lagged behind most peer nations since 2010:
His Majesty's (HM) Government has committed to investment in the security sector and the development of regional defence clusters. It has done so in order to invigorate the country’s defence industrial base by facilitating industry, academia and government sharing ideas, promoting collaboration and identifying routes to market through exploitation and commercialisation;
Barrow-in-Furness, for example, is central to Britain’s defence nuclear enterprise. However, it is deeply deprived, poorly connected to the rest of the country, has the highest percentage of people aged 65 and over living alone with no central heating, and many young people who leave the town for university do not return. Investment in housing and infrastructure around defence sector clusters is needed to attract more people to live and work in them.
Britain lacks a long-term strategic vision for industrial strategy. There has been significant policy churn in the UK’s industrial strategy and attempts to address regional inequalities. Constant policy rehashing is not good for productivity or investor confidence.
UK universities are on the brink. Universities are a fundamental part of Britain’s defence industry, providing critical R&D and training scientists, technicians and engineers. However, many are facing severe financial issues, even closure. In addition, British universities collaborate with a wide range of countries on basic scientific research, such as on AI and quantum. Such areas are often dual use, and may help unfriendly nations – such as the People’s Republic of China (PRC) – gain crucial knowledge and capabilities which may have military application. Universities have yet to find a way to draw the best talent while protecting strategic research from falling into hostile hands.
The UK has reverted to being a net importer of electricity in 2023 after being a net exporter in 2022, with its import dependency being 40%. Over 90% of Britain’s energy imports are oil and gas, primarily from the United States (US) and Norway, respectively. UK production of oil, natural gas, and nuclear power fell from 2022 to 2023, while the increase in energy production from other sources was comparatively small.
These structural challenges have become a key concern for the UK’s defence industry. Some primary causes of bottlenecks, both for industrial capacity and R&D, range from workforce, to supply chain and materials, and access to finance:
The defence industry is facing shortages of skilled workers in many areas. The changing nature of the labour market has contributed to the challenge; for many young people, the defence sector is simply not an attractive field to work in. These sentiments will need to be overcome. For AUKUS, for example, this challenge is particularly acute in areas such as nuclear, quantum, cybersecurity, and artificial intelligence;
More broadly, the UK risks becoming an unattractive environment for the world’s best and brightest researchers. Britain’s visa system is one of the most expensive in the world, and the upfront costs of visas are substantially higher in the UK compared to other research intensive countries;
Public opinion on defence also has an impact on investment habits and therefore access to finance. Access to money is crucial for defence firms small and large for building capacity and R&D. With an increase in so-called Environmental, Social and Governance (ESG) informed investment decisions, this has become increasingly difficult;
In addition, access to cheap electricity and key resources and components will be vital, especially those critical to future capabilities (resources such as uranium, silica, nickel, cobalt, and titanium) and in high demand both with allies and adversaries.
Recommendations to the Strategic Defence Review:
HM Government should generate a long-term plan for British science and technology skills and talent, including defence applications. This includes reform of its visa arrangements to improve the movement of workers between allied countries, particularly those who are partners on minilateral initiatives such as AUKUS and GCAP.
HM Government should view R&D spending as foundational to UK security and prosperity, and ring fence it. At the same time, Britain should increase investment in defence to at least 2.5% of GDP with immediate effect. Investment is needed to recapitalise the UK’s defence industrial capacity, which has been allowed to atrophy since the end of the Cold War.
In addition, HM Government should find ways of increasing the private finance available to the defence sector, and for UK R&D more broadly. Lessons can be drawn from the way in which NATO’s Defence Innovation Accelerator for the North Atlantic (DIANA) or the European Union’s Defence Equity Facility have been implemented.
HM Government’s defence industrial strategy should focus on key sovereign capabilities which the UK cannot risk relying on others for, and where British technology and industrial expertise can add most value. This specialisation approach does not necessarily mean a sudden increase in defence imports, although in some cases these can provide a cost effective solution. For significant orders licence producing foreign designs in the UK can and should be pursued. The approach taken with the Boxer fighting vehicle provides a good example of this.
Procurement should continue to be reformed to ensure waste in defence spending is minimised. Companies should be incentivised, such as through tax incentives, to support British small and medium enterprises in procurement, where doing so would help establish UK capabilities in critical areas. And, rather than allow orders to end, low rate production should continue or be switched to adjacent industries (although this will incur costs) until new contracts are placed to keep defence production alive.
Dr Mann Virdee is a Senior Research Fellow in Science, Technology, and Economics at the Council on Geostrategy and leads the Caudwell Strong Britain project.
William Freer is Research Fellow in National Security at the Council on Geostrategy, where he works on strategic advantage and maritime affairs.
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