Defence Procurement: SMEs

The House will note that this afternoon we are without the Minister for Veterans and People, my hon. Friend the Member for Birmingham Selly Oak (Al Carns). He is halfway up Everest with a group of soldiers, raising funds for armed forces charities and raising the profile of veterans, and I am sure that the whole House wishes him well. Most of us also think, “Rather him than me.” This Government have confirmed the biggest increase in defence spending since the end of the cold war, which will boost national security and make defence the engine for growth in every part of the United Kingdom. For too long, small businesses have felt left out of defence, but no more. We are setting new targets to ensure that smaller firms benefit from that increase in defence spending. We are setting up a new support centre to guide small businesses on access to defence and, for the first time, we are making British-based businesses a priority for British taxpayers’ defence investment.

I, too, wish the Veterans Minister the best of luck as he climbs Everest, and I am sure we all agree: rather him than us. In today’s world warfare is changing dramatically. Drones costing $1,000 can destroy tanks worth $10 million, but the innovation cycle for those drones is rapid; they are designed to become obsolete within months. We need a dynamic SME sector to produce those drones, but defence SMEs are struggling to get the finance they need, with a lack of long-term contracts and a lack of guarantees. A multilateral defence bank could help to ensure that those firms get the finance they need. Will the Secretary of State please set out the discussions he is having to help to found that multilateral defence bank?

My hon. Friend is quite right about the fact that capabilities are now changing in weeks, not months or even years. He is also right about finance. That is why I went to the London stock exchange last week and closed the markets—I think it was the first time a Defence Secretary has ever done that. I wanted to signal that this Government want a new partnership with not just industry and innovators, but investors, and that means changing the way in which defence does its work.

I have met outstanding UK SMEs, such as Supacat, 4GD and many others, which contribute to the sovereign industrial base that our security depends on. However, under the last Government, the percentage of Ministry of Defence direct expenditure going to SMEs fell, from 5% to 4%. Will my right hon. Friend confirm when this Government expect to surpass that record and therefore back the innovation we need to equip our forces and support our allies?

I congratulate and thank my hon. Friend, as well as my hon. Friend the Member for Aldershot (Alex Baker), for the work that they are doing on innovative finance, which will help SMEs in future. I look forward to the publication of their Royal United Services Institute report shortly. I can confirm that SME involvement in the defence supply chain will be boosted by new spending targets that I will set in June to produce exactly the sort of result that my hon. Friend the Member for York Outer (Mr Charters) is looking for.

When I spoke at the Make UK Defence summit in Derby, I met with lots of small and medium-sized businesses in the sector. The issues that they raised with me were echoed during my visit last week to a local composites manufacturer, Pentaxia, including accessing finance to grow and complicated defence procurement processes. What is the Defence Secretary doing to engage with small and medium-sized companies to ensure that they can get a fair crack at Government defence contracts?

My hon. Friend knows better than most the challenge for small firms entering into the supply chain in defence, and she does more than most to champion their case. We want defence to do business differently, and making it easier for small firms and newer entrants to start doing their business with defence a big part of that. That is why we have announced a new SME support centre—a new front door for small firms that can then become part of the defence supply chain, unlocking new jobs and putting more money in the pockets of workers.

Earlier this year, I had the pleasure of hosting a roundtable and listening to businesses in Derby—small and medium-sized businesses in engineering and manufacturing, including the vital defence sector. With nearly 70% of Government defence spending directed towards businesses outside of London and the south-east, we know how every pound spent with UK defence businesses has the power to create jobs and employment for local people. Will the Secretary of State therefore outline how the Department will ensure that as many SMEs as possible are aware of Government procurement opportunities, so that they can deliver jobs in areas such as Derby?

My hon. Friend makes an important point. The access of SMEs to defence is very often through primes and subcontracting, rather than directly with the Ministry of Defence itself. It is the certainty of long-term relationships and long-term contracts for the primes that allow them to pass those benefits on to smaller firms. That is why it is significant that when my hon. Friend joined me at the Derby Rolls-Royce factory when I announced the eight-year £9 billion Unity contract for Rolls-Royce, 240 small firms were part of that submarine supply chain.

I do not wish to end the Defence Secretary’s glittering career here on the Floor of the House, but may I praise him as my new favourite Minister—alongside the Defence Procurement Minister—for today announcing the new £400 million investment in my Shropshire constituency for Rheinmetall to build a new gun barrel factory? I thank him and his Defence Procurement Minister for working with me, across parties and in the national interest, to ensure that the UK has the very latest and most technologically advanced Challenger 3 tank—the best in NATO.

I am grateful to the right hon. Gentleman for that question. We will always work across parties in the national interest and in the interests of defence— I hope he is wrong that doing so may ruin my career. Nevertheless, I am grateful to him for noticing the £400 million investment in its Telford factory that Rheinmetall is announcing today. That is a direct response to the UK-German defence agreement that I signed in October, and it is confirmation that this is a Government who are delivering for defence.

Somerset’s defence-related SMEs help to make the south-west the biggest region for defence after the south-east. Will the Secretary of State take a particular look at how SMEs are supporting Somerset Armed Forces Day? They are a backbone of that operation. Will he also look at the fact that Armed Forces Day is run by veterans and volunteers who sometimes do not receive funding until six months after they have held the event, and will he agree to support the biggest Armed Forces Day in the country, which is Somerset Armed Forces Day?

There may be a competition for the title of the biggest Armed Forces Day event in the country—I refer the hon. Gentleman to my hon. Friend the Member for Great Grimsby and Cleethorpes (Melanie Onn). I am not sure whether his question was about SMEs or Armed Forces Day events, but I welcome the support that his small firms are giving to Armed Forces Day. From the centre, we are making sure that we can support local Armed Forces Day events where councils and local charities are willing to organise them. We are doing so right around the country, and I know the whole House will back those events, locally and nationally.

Somerset is home to many growing defence sector SMEs, such as Needles and Pins Aerospace in Somerton, which will shortly be opening a new factory in the town. It has been a supplier of bespoke support equipment to Leonardo helicopters for many years. What support is the Minister providing to SMEs such as Needles and Pins to ensure that they can compete for defence procurement contracts?

If the hon. Lady alerts her local small firms to the commitment I have made that next month we will set a target for direct defence investment in SMEs, she will then get confirmation of our commitment to boosting this important area of our economy. She will also recognise that every 1% more of defence spending we put into SMEs is worth £250 million more for those small firms.

Given that at the moment only 4% of defence procurement goes to the SME sector, I very much welcome what the Secretary of State is saying about opening up that scope. Does he recognise, though, that part of the problem with SMEs getting defence contracts is not just the amount of money—although that is vital—but that the procurement portals and processes need to be accessible for smaller businesses with less of a back-room operation than the huge corporations? What can he say about that, particularly given that I represent a constituency in which the entire economy is SMEs?

First, the new SME support centre, which we have announced and will set up shortly, will help with exactly those sorts of challenges. Secondly, the hon. Member is right to point to that low 4% level of direct defence spending into SMEs. That was the level under the last Government, and it went down for every one of the three years before the last election.

I call the shadow Secretary of State.

On behalf of the official Opposition, we send our best wishes to the Minister for Veterans and People, the hon. Member for Birmingham Selly Oak (Al Carns), on his ascent of Everest. On defence procurement, we will all have enjoyed the Red Arrows fly-past as part of our VE Day celebrations, but the fact is that the Hawk jet needs replacing. Given that one of the publicly stated roles of the Red Arrows is “supporting British industry”, will the Secretary of State guarantee that the next jet for the Red Arrows will be designed and manufactured in the United Kingdom?

As a former procurement Minister, the shadow Secretary of State will know that the replacement of our jet trainer is long overdue. He will have heard me say earlier that, for the first time, this is a Government who will look to direct British taxpayers’ defence investment to British-based firms, British-based jobs, British-based technology and British-based innovation.