Defence Procurement: Small and Medium-sized Enterprises

I beg to move,

That this House has considered SME participation in defence procurement.

It is a pleasure to serve under your chairmanship, Mr Stringer. I recognise that procurement is not usually a topic that gets pulses racing, but the threats posed to the UK and our allies certainly should. Central to our ability to rise to these challenges is using the defence industrial strategy to unleash the inventiveness, ingenuity and creativity of British industry.

I will cover three things: our need to respond to the changing face of warfare; adopting a proactive entrepreneurial approach to acquiring the defence supplies we need; and the practical steps we can take to place small and medium-sized enterprises innovation in the service of our national defence.

I turn first to our need to respond to the changing face of warfare. Technology has been rapidly altering the nature of warfare at a pace rarely witnessed before. We see this most clearly in Ukraine, where drone technology has rewritten the rules of modern conflict. Putin’s illegal invasion of Ukraine and the resulting war have shown us the incredible speed at which military technology is advancing. Reconnaissance drones paint detailed maps of occupied territory, helping to guide unmanned attack drones in strikes on Russian vehicles and equipment. The role of this technology is now so important that a dedicated branch of the Ukrainian military has been established to deploy it. Here at home, I have seen first hand the RAF’s latest unmanned air systems as part of an armed forces parliamentary scheme visit.

Drones, artificial intelligence and rapidly evolving satellite technology are being used to redefine all aspects of conflict, from the battlefield to the information war, to who controls space. Amid those significant and growing global threats, it is vital that Britain is at the forefront of developments to ensure that we can defend not only ourselves, but our allies and interests across the globe.

I congratulate my hon. Friend on securing today’s debate on SME participation in defence procurement. Having run my own start-up construction business in bonnie Scotland many years ago, I can appreciate full well that small and medium-sized enterprises are not given their due and rightful importance by Government structures, and more generally. The Government’s own Green Paper notes there is a need

“to address issues that inhibit or prevent growth in the defence sector”.

Does my hon. Friend agree that defence contract opportunities must be made more accessible to SMEs in order for us to support their growth and continue innovation?

I thank my hon. Friend for his intervention. He is absolutely right: across the economy with the Government’s growth mission, defence must be a crucial sector, but as he has said, too often SMEs are shut out by bureaucratic processes, which I will be keen to talk more about.

I commend the hon. Gentleman for bringing this topic forward. He is absolutely right to recognise the importance of SMEs and what they can do. In Northern Ireland, Thales invented and produced the NLAW— the next-generation light anti-tank weapon—which slowed down the Russian advance; Thales is also at the forefront of cybersecurity, and all those things are very important. Does the hon. Gentleman agree that, when it comes to supporting all SMEs across the United Kingdom—those 434,000 jobs—Northern Ireland must be an integral part of that? I know that is what the hon. Gentleman and the Minister think, and it really is the way forward.

Order. This debate is for an hour and is well-subscribed, so I ask hon. Members to be brief in their interventions.

I thank the hon. Member for his intervention. He is absolutely right that the commitment of Ministers and the defence industrial strategy to sovereign supply must include all parts of our United Kingdom, including the excellent capabilities in Northern Ireland.

Being war-ready for conflicts we cannot predict that will use technology that has not yet been invented, means giving our military the agility and capability to adapt to this changing landscape. Changing the way in which we think about defence procurement is central to this. My second point is around adopting a proactive, entrepreneurial approach to acquiring the defence supplies we need.

I thank the hon. Gentleman for giving way and for securing this important debate.

Universal Quantum is an SME based in Haywards Heath, in my constituency, which builds utility scale quantum computers. It already works in partnership with leading organisations and investors in the field. Does the hon. Gentleman agree the Ministry of Defence should ensure emerging technologies, such as quantum computing, that are being spearheaded by SMEs like Universal Quantum are part of its procurement strategy?

I thank the hon. Member for her intervention. I agree. As she rightly says, warfare is developing very quickly and high-tech solutions, of the excellent type she described in her constituency, must absolutely be part of that.

When I talk to innovative SMEs at the Durham University spinout science park in my constituency, it is clear we need to think differently about defence procurement. NETPark in Sedgefield is home to more than 40 cutting-edge firms, many of which supply major defence companies and our allies across the globe. They include Kromek, which invented new ways of detecting radiation and biological weaponry; Filtronic, which manufactures satellite components; and Graphene Composites, which produces ultra-light ballistic shields. Their experiences suggest that we need to do more to remain globally competitive. As other hon. Members have rightly said, too often small businesses can feel that UK defence procurement focuses on process at the expense of outcomes and can stifle bottom-up inventiveness with top-down bureaucracy.

Our allies show us how we might do this differently. The United States Defence Department takes a broader approach to encouraging and funding military innovation. SMEs are encouraged to approach the Government directly with ideas for new products or with potential technologies they are developing and to showcase tech solutions to problems that may not have even been considered yet by officials. In turn the US Defence Department and its research agency, the Defence Advanced Research Projects Agency, proactively seek out innovative small companies that offer new ideas and technologies that contribute to tackling future military challenges.

I am grateful to my hon. Friend for securing today’s debate. Is he suggesting that the Ministry of Defence needs to completely change its culture and processes in the way it liaises with these important and innovative companies? Certainly that appears to be the issue in my constituency, where there are many very innovative SMEs.

I thank my hon. Friend for his intervention. I absolutely agree. In my previous life in the housing and the charity sector, I have interacted with Government procurement across Departments. There is a challenge with culture across Whitehall, as my hon. Friend says, of often struggling to deal with the realities of innovative and agile small firms.

The approach I described means the US spends around a quarter of its entire military budget directly with SMEs, much higher than the comparable figure for the UK. The UK Defence and Security Accelerator does good work in directly using SMEs to fill technology gaps. However Northern Defence Industries, representing more than 300 companies, has called on the MOD to do more to facilitate open call competition. That would allow SMEs to showcase their defence products directly to Government, without having to wait for specific procurement projects and tenders to be opened.

I strongly welcome the intention of Defence Ministers to use the defence industrial strategy to drive engagement with non-traditional contractors, including SMEs. We have a real opportunity to change the way Government think about procurement and a real chance to grow the culture, to which my hon. Friend the Member for Reading Central (Matt Rodda) referred, that gives us the wartime pace of innovation that we need. Just as Churchill’s groundbreaking military technology labs did during the second world war, let us use the resources of the British state to harness the inventiveness and ingenuity offered by our world-leading science and tech companies.

Turning finally to the practical steps we can take to place SME innovation in the service of our national defence, one of the key things we could look at is the reliance across Government on the prime contractor model. In practice this means that the Ministry of Defence often uses large contractors to work with SMEs further down the supply chain rather than engaging with them directly. For some years it has been common across Government, under all parties, to shift to working with smaller pools of larger suppliers. That has some obvious benefits, such as reducing the number of contracts that officials need to manage, transferring financial risk and outsourcing much day-to-day contract management, but there is also evidence that the approach can have its downsides, particularly in squeezing out smaller, innovative suppliers. When I worked in the charity sector, strengthening the prime contractor approach in delivering the Work programme led to a number of innovative charities with a real track record of getting people into jobs being unable to work with Government in the future.

My hon. Friend is making an excellent speech. To simplify the point he is making, we should all remember that from small acorns great oaks grow, and even big companies in my constituency such as Rolls-Royce and BAE Systems will have started at some point as an SME. What he is suggesting today would help those SMEs that we all have in our constituencies maybe one day to grow into those grand great oaks.

My hon. Friend makes a really important point. Considering that we have shop-bought drones making such a difference in Ukraine and that technology is being used in all sorts of ways, my hon. Friend is absolutely right that we need to hunt out and support the small, innovative businesses doing very different and distinctive work in constituencies around the country.

It has been a privilege to set out some of the challenges faced by our innovative SMEs and how the defence industrial strategy can address them. I look forward to welcoming the Minister to my constituency soon for a business roundtable to discuss these issues in more detail. I strongly welcome the Government’s putting growth at the heart of the new defence industrial strategy. The defence sector supports one in 60 jobs in the UK, the majority of which are outside London, so this is a real and tangible way of spreading growth, skills and opportunity to all corners of our country. More than that, if we can improve the way we work with SMEs, it will allow us to build an ironclad, sovereign supply of vital defence equipment. Not only will that provide jobs and drive growth but it will protect us from global shocks in the supply chain.

Warfare is changing, and we must change with it. Global production is threatened, so we must ensure sovereign supply. As the threat grows, so must our defence manufacturing base. I look forward to working with Defence Ministers on this important strategy and to further contributions from hon. Members of all parties in this debate.

I remind Members that they should bob if they wish to speak in the debate. We will start with a three-minute time limit on speeches.

It is an honour to serve under your chairship, Mr Stringer, and I pay tribute to the hon. Member for Newton Aycliffe and Spennymoor (Alan Strickland), who has done us all a great service in securing this debate. I want to use my limited time to draw attention to some fantastic SMEs, including one in particular that is based near Honiton in the south-west.

The south-west has an absolutely fantastic defence industry, which is powering up the region and making for some fantastic industrial developments. The Ministry of Defence employs about 33,000 people directly in the south-west, but of course there is also a huge, integrated supply chain that supports many more jobs besides. It is surely the aim of the new Government to have a more innovative and resilient supply chain.

Supacat has been producing vehicles in Dunkeswell in Devon for more than 40 years and is at the forefront of designing and supplying cutting-edge tactical military vehicles. Its high-mobility transporter vehicles have been used by British forces in Afghanistan and on UN deployments in Mali. More than 95% of its supply chain comes from UK-based SMEs, 85% of which are in the south-west. It currently has a contract with Defence Equipment and Support; the Ministry of Defence is buying 70 Jackals and 53 Coyotes, as the Minister will know.

In the past, there has sometimes been an instinct to buy off the shelf and from overseas, which would be a huge mistake in relation to the procurement of vehicles for the impending short-range air defence—SHORAD—programme. That instinct to look overseas in the first instance weakens investment, reduces long-term job security and, ultimately, puts future domestic procurement at risk. Supacat has more than 150 skilled workers in Devon, but its future depends on orders that will be delivered beyond November 2025.

The Defence Secretary intends the new defence industrial strategy to boost world-class production and manufacturing, and I understand that supporting UK exports will be key to that. It is incumbent on us to buy from fantastic companies such as Supacat, if we then look to countries such as Saudi Arabia, Czechia and Ireland to buy the Jackal, as they have done. To conclude, there are some fantastic SMEs, including Supacat at Dunkeswell, and I commend to that company the House.