Defence, Security and Resilience Bank

Question

Asked by

To ask His Majesty’s Government what consideration they have given to joining the proposed defence, security and resilience bank.

My Lords, while we are of course interested in working with NATO allies such as Canada, we have no current plans to join the defence, security and resilience bank. Our priority is to progress the proposed multilateral defence mechanism with a core group of EU and NATO allies and partners, including Denmark, Finland, Poland and the Netherlands. This mechanism will aim to aggregate demand, drive joint procurement, accelerate defence investment and increase the availability of critical capabilities such as munitions as we step up shared defence and security commitments.

My Lords, as the Minister knows, financing rearmament is a challenge for all NATO countries, which is why I am a bit puzzled by the Government’s response. A viable defence, security and resilience bank would tick a number of important boxes: it would be multilateral; it would work with a greater number of allies; it would help project finance span election cycles; and it would cost-effectively pull in private finance. Yet last September the British Government ruled out joining the scheme, and this year when Canadian Prime Minister Mark Carney made a direct request, the British Prime Minister gave only a lukewarm response. Why is it not in the interests of this country to pursue the creation of this scheme, which could go alongside all other schemes?

I am grateful to the noble Lord for his Question. I am pleased to see that he has made a full recovery; I know he was battling a very heavy cold during our recent King’s Speech debate. I fully recognise that I am no defence expert, but I thought that the Prime Minister put this point particularly well in his recent Munich speech. He said that

“we must move forward together to create a more European NATO. As I see it, Europe is a sleeping giant … We have huge defence capabilities, yet too often this adds up to less than the sum of its parts. Fragmented industrial planning and procurement have led to gaps in some areas, and massive duplication in others. Europe has over 20 types of frigate, and 10 types of fighter jet. We have over 10 types of main battle tank, whilst the US has one. It’s wildly inefficient, and it harms our collective security”.

The noble Lord may well share that analysis and worldview. That is why the Government’s focus is, as I said, to work on the proposed multilateral defence mechanism with a core group of EU and NATO allies and partners, with the goal of establishing it by 2027.

My Lords, on a note of agreement, I agree with the Minister—I think—on his position on the defence bank, which may surprise him. He set out the importance of defence procurement. Given that there was much speculative briefing over the past few days about the Government’s defence spending commitments, is he able to update the House on the much-delayed defence investment plan, which is very important in making those commitments, particularly to the British defence industry?

As I am sure the noble Lord knows, the defence investment plan is the first zero-based review of defence spending in almost two decades. It will set out the MoD’s plans to ensure that resources are directed effectively to meet its priorities. The Government are working hard to facilitate this and to ensure that it delivers the outcomes the UK needs for defence and for taxpayers, and it will be published shortly.

My Lords, does my noble friend the Minister accept that there is a significant problem of access to finance for the defence industry, particularly for medium and small enterprises, driven partly by absurd bans on investment in our national defence by financial institutions? Given the failure, frankly, of the City and the Government to address this systemic problem, should we not at least give serious consideration to, and engage in discussions on, this initiative from the Canadian Prime Minister, Mark Carney?

I agree with much of my noble friend’s analysis, but they are two slightly separate issues. The Government have been very clear that there is nothing contradictory between ESG considerations and defence, and that no company should ever be denied access to financial services solely on the basis that they work in the defence sector. The Government are working closely with the defence sector and with financial services to identify the extent of this issue, to reduce barriers to essential banking services and to support a resilient defence industry. More widely, the proposed multilateral defence mechanism will help improve value for money and address fragmentation in the defence sector through joint procurement. It will support greater standardisation and interoperability, helping to ensure that allies’ capabilities work together more effectively. It will increase the availability of munitions and other critical capabilities when we need them most. It will support a more resilient and efficient defence industrial sector, and it will accelerate defence sector investment.

My Lords, is the idea behind this plan to meet vital public expenditure needs without upsetting the bond markets too much? Can the Minister just explain a little more how it will work?

The scale and precise focus of the mechanism remain to be determined, but the scope of those activities would include lending to sovereigns and to the sector and providing loans to supply chains and loans for capacity expansion. We anticipate that it will make a material contribution to defence spending and investment across those involved. The intention is that this mechanism will be established as an independent international financial institution underpinned by an international agreement and with sovereign countries as members in the first instance. As with other international financial institutions, paid-in capital will be expected to leverage in private sector funding by a multiple of that initial contribution.

My Lords, I am now completely bewildered. I would have thought that, with the state of the gilts market, the Government would be leaping at the opportunity to find AAA financing for their defence expenditure, and on a multilateral basis. Are we dealing with the underlying problem of a Treasury that basically says, “not invented here”, rather than looking at an opportunity that has been virtually handed to it?

No, and I do not quite understand why the noble Baroness is confused, because we are doing exactly what she says. We are setting up—or being part of—a proposed multilateral defence mechanism. I thought the noble Baroness would share a similar worldview in terms of wanting to see greater amounts of co-operation and procurement among a core group of EU allies and NATO allies and partners. What she is asking for is exactly what the Government are exploring.

My Lords, does the Minister recognise that, when we refer to the defence industry these days, we are talking not about the traditional defence companies but about industry much more widely? We have seen clear examples of this in the Ukraine war. Will he therefore ensure that whatever multilateral funding arrangements we come up with, they are used to fund an agile, innovative, high-technology industrial base across Europe that can respond rapidly to crises, rather than going into purely the established defence sector?

I am grateful to the noble and gallant Lord for what he says. I am sure I was aware of it, but probably not as aware as he is because I am nothing like the expert that he is. But, absolutely, that is exactly what the defence industrial strategy is designed to do. It outlines how the Government will support a strong, innovative defence sector to equip and protect the Armed Forces. It focuses on securing supply chains, boosting high-skilled jobs, investing in new technologies and ensuring national security, while delivering value for money and supporting economic growth. The substantial investment in the defence industrial strategy will drive R&D and innovation across the UK, including developing technologies such as AI, quantum and space capabilities.

My Lords, the recent noise around Labour’s leadership meltdown has drowned out the fact that the Government have still not announced a date for the publication of what has become the “defence invisibility plan”. Does the Minister agree that the proposed defence, security and resilience bank is a distraction from the need for NATO countries—and that includes the UK—to increase defence expenditure both significantly and quickly?