Strategic Priorities Statement: Defence

Question

15:09:00

Asked by

To ask His Majesty’s Government why the Chancellor of the Exchequer did not specifically include the defence industry among the priority sectors in her Statement of Strategic Priorities to the National Wealth Fund, published on 19 March.

My Lords, consistent with the Government’s manifesto, the National Wealth Fund supports the growth and clean energy missions, prioritising investment in advanced manufacturing, digital technologies, clean energy and transport. Recognising the need to adapt to a rapidly changing world, the statement of strategic priorities set out that the National Wealth Fund will also invest in dual-use technologies which support the UK’s defence and security, and will support the wider industrial strategy, including in defence.

My Lords, the EU has apparently taken the decision to shut the UK out of its €150 billion defence fund unless we acquiesce on a new fishing agreement. Clearly, the Macron Administration and the EU seem to care more about fish than our collective defence. In addition, domestic pension funds like NEST and the People’s Pension have refused to invest in defence firms on so-called ethical grounds. Given these acute challenges, does the Minister agree that the Chancellor’s decision further weakens and undermines a crucial sector? Will he implore his ministerial colleagues to reconsider their priorities so that there is proper consistency in government?

I am grateful to the noble Lord for his question, but I am not sure he listened to the first Answer I gave. I very clearly said that the statement of strategic priorities sets out how the National Wealth Fund will invest in defence. It says very clearly that it should invest in “dual-use technologies and … support supply chain resilience across these priority sectors, to better support the UK’s defence and security”. It also says that the National Wealth Fund “should consider the role it can play in supporting the delivery of the wider Industrial Strategy, including in defence”. That wider industrial strategy absolutely achieves many of the things the noble Lord is talking about. The strategic aim of the defence industrial strategy is to make sure that the imperatives of national security and a high-growth economy are fully aligned.

My Lords, I thank the noble Lord, Lord Jackson of Peterborough, for bringing the attention of your Lordships’ House to this issue and once again encouraging me properly to research a subject. On 19 March, the Chancellor wrote to the CEO of the National Wealth Fund to communicate the Government’s strategic priorities for the fund. That latter document on three occasions explicitly identifies defence as a priority under Investment Principle 2. It also goes on to enjoin the CEO to refer, in assigning priorities, to the Government’s industrial strategy Green Paper, which in turn refers to the importance of the UK’s defence sector no fewer than 38 times. The former Conservative Business Secretary, Greg Clark, described that Green Paper as a serious and substantial document and applauded it for singling out eight sectors, including defence, as priorities. Does the Minister agree with me that it is reasonable to expect the CEO of the fund to read beyond the press release and to examine in depth the correspondence and references to which his attention has been drawn?

I am very grateful to my noble friend for his question. He far more eloquently than me set out what I was attempting to say in my previous answer. He draws attention to the importance of reading the documents that are in your Question before tabling your Question.

My Lords, has the Minister seen the recent piece in the Financial Times setting out the challenges posed to defence companies by the high level of friction within Europe-wide supply chains? This is not just a Brexit issue. Brussels has criticised the overregulation of intra-EU transfer of defence-related products. Does the Minister agree that we and our European partners need to address this issue as a matter of urgency if our defence industry is to develop the high degree of efficiency that is so necessary in the light of the serious challenges we face?

I very much agree with the noble and gallant Lord. I hope those issues will be addressed through the Prime Minister’s work with the European Union on defence and security co-operation, and in the defence industrial strategy and the wider EU reset.

My Lords, it is clearly welcome that the strategy includes defence. What support are His Majesty’s Government planning to give to small and medium-sized enterprises working in dual-use technology? Are His Majesty’s Government thinking about letting contracts in the short to medium term, so that, as we build up our defence expenditure towards 2.5%, the companies have the certainty of knowing that there will be contracts?

I am grateful to the noble Baroness for her question. The issues she raises will be addressed exactly by the defence industrial strategy. One of its key objectives, for example, is procurement—increasing its pace and opening it up to small and medium-sized enterprises, as she said. I hope that there will be more for her to hear in tomorrow’s Spring Statement.

My Lords, can the Minister confirm that any defence spending channelled through the National Wealth Fund will not be constrained by the Government’s fiscal rules, specifically the investment rule, as those investments will be scored as net financial assets under the new measure of debt introduced by the Chancellor?

I can absolutely confirm that all National Wealth Fund spending will be within the fiscal rules.

My Lords, is the Minister perplexed, like me, by the negativity coming from the Benches opposite? As well as many tens of billions of pounds in the National Wealth Fund, our Government have given billions to infected blood compensation, and next month we will get the triple lock on pensions. Those are three tremendous steps forward. Can the Minister urge the Chancellor to be just a little more upbeat tomorrow?

I will absolutely pass that on to the Chancellor.

My Lords, defence is the single most important activity of the state, and it is therefore unfortunate that many ESG funds have excluded investment in defence stocks, hitting our innovative UK companies. Does the Minister agree that the rebranded National Wealth Fund must lead the way more clearly and work with private sector funds to spur significant investment in the UK defence sector, as well as in other priority areas?

I do agree with that, because the noble Baroness described exactly what the National Wealth Fund is there to do: to work closely with the private sector to catalyse more private sector investment in industries that we consider to be priority sectors. As the rest of this Question has shown, defence is very much one of those priority sectors.2

My Lords, for the National Wealth Fund to crowd in capital at the scale envisaged, it must be empowered to deploy capital against higher levels of risk appetite and against a wide range of products and financial investments. Moreover, it will need to operate at market pace. Whatever the strengths of the Treasury, historically it has not been renowned for its risk appetite or pace. What steps does the Treasury intend to take to ensure that the National Wealth Fund is empowered to act, not only with the appropriate risk appetite but with the necessary pace, to attract private sector investment?

I am grateful to the noble Baroness for her question. I do not agree with her criticism of the Treasury, but I agree with what she said about risk appetite. That is exactly why, when the Chancellor wrote to the National Wealth Fund, she specifically said that the “economic capital limit will … be increased from £4.5 billion to £7 billion, allowing” the National Wealth Fund to “take on greater risk”, and giving greater “flexibility over its investments” to “support more projects that struggle to access private finance”.

My Lords, does the Minister welcome this Question from the Opposition? Does it not once again demonstrate the problems of Brexit? We hear every week about differences, and today they are complaining about access to aviation and defence. Is it not time that they changed their position and stopped asking questions that give us an advantage?

I am very happy to agree with my noble friend’s assessment of the damage that Brexit has done to our economy.

My Lords, many of our European partners, particularly Poland, are seeking to diversify satellite technology to overcome the reliance on certain technologies in the context of increased defence expenditure. Surely that would also be the United Kingdom’s ambition. Can the Minister confirm that, as we increase our defence expenditure—which I welcome—there is now the opportunity to work much closer with our European allies, rather than using part of that increased expenditure on Starlink, which is owned by Elon Musk?

I am very happy to say that, as the noble Lord knows, this Government plan increase defence expenditure to 2.5% by the end of the Parliament. However, it is not for me to set out today exactly how that will be spent.

The Minister referred in his first Answer to the role of Great British Energy in delivering clean energy. How will the Government achieve that if the budget for GB Energy is reduced in the forthcoming spending review?

The noble Baroness said “if”, and I do not in any way accept that. She should wait for the spending review to see what will happen.