Rt. Hon. Philip Dunne, MP, former UK minister for defence procurement and co-chair of the UK Defence Growth Partnership, discusses role of defense in Britain’s economy, building the workforce of the future to ensure competitiveness, defense industrial strategy and Brexit with Defense & Aerospace Report Editor Vago Muradian at the 2019 DSEI conference and tradeshow in London. Our coverage was sponsored by L3Harris and Leonardo DRS, in partnership with DSEI organizer Clarion Events and working with the UK Department of International Trade’s Defence & Security Organisation to bring you the best of British defense and security.
Vago Muradian: Welcome to the Defense and Aerospace Report. I’m Vago Muradian here at the Excel Center in London to cover this 20th anniversary edition of DSEI. In fact we’re not just on the Excel Center, but we’re aboard HMS Medway, the newest ship in the Royal Navy, at this point having been commissioned just a couple of months ago. Our coverage here is sponsored by L3Harris, Leonardo DRS, and we’re partnered with Clarion Events, the organizer of this great exhibition as so many other great events around the world. And we’re working with the UK Department of International Trade, Defence and Security Organization to bring you the very best of British defense here.
It’s our honor to be talking to the Right Honorable Member from Ludlow, the Conservative Member from Ludlow, Philip Dunne, former Minister for Defence Procurement. Sir, it’s always an honor and pleasure to talk to you.
Rt. Hon. Philip Dunne: It’s great to see you, Vago, and particularly great to be here on HMS Medway. As you say, not only the most recent capital vessel in the Royal Navy, but I’m proud to say the vessel on which I cut steel when I was in post in the Ministry of Defence, and it’s just been commissioned two or three months in. It’s great to be on the ship.
Mr. Muradian: I was going to say that you have a special history with this ship so it’s particularly great. It was a very sophisticated, computerized machine you used to do that, right? Wasn’t that a highly sophisticated process?
Rt. Hon. Dunne: I’m proud to say that British technology has moved beyond the hammer and chisel, and it was, I pressed a computer button and a program automatically cut the piece of steel out of a welding bay. Fantastic.
Mr. Muradian: It is, by the way, fantastic and it’s actually leading technology that’s on this ship.
Even though you’re not in post right now, you are working diligently on a whole series of initiatives to make Britain more competitive for the future. The Defence Growth Partnership is one of those initiatives. ADS, the Association of British Defence Companies was also one of your co-conspirators in this.
You and I spoke last year at the Royal International Air Tattoo at RIAT where you gave us sort of a preview and some really stunning statistics which I think bear repeating at this point about how important the aerospace and defense industry is to Britain.
Rt. Hon. Dunne: I was asked by the then Secretary of State to do a review into the contribution that defense makes to the prosperity of the UK. We did the first through comprehensive analysis, bringing the MoD, the armed forces and the defense industry which supports them together, and we established that there are now over half a million individuals employed within the defense sector as broadly described in the UK. That’s 1 in 65 jobs in the UK is defense dependent; and about 25,000, just over 25,000 apprentices every year coming forward to become the employees of the future.
So it is a very important footprint and it’s great to be here at DSEI, the biggest defense exhibition that we have in the UK to make that point, bring it across to people. We’ve been earlier, and you came, I was pleased to the Defence Growth Partnership Skills event where we’re talking about trying to identify the skills requirements for the future at an increasingly competitive time for British jobs. We have record low unemployment in the UK at the moment. So what are the defense requirements for the future? Let’s map them, let’s identify the skills gaps that we have, and help to develop opportunities to get people into those jobs in the future.
Mr. Muradian: 3.8 percent is the unemployment rate, which is very, very low. The lowest in many, many decades. We have that in the United States as well. That’s driving wages up, obviously. But it’s also an insatiable demand for skill. That’s coming up, for example, in the Type 31 contract where there’s concern that Babcock, even though it’s an extraordinary engineering company, whether some of the skills required to build the Type 31 would in any way reduce the engineering talent going to the nuclear side of the equation which is so important as the Astute attack submarines are still in-build, and the Dreadnought Class, the new ballistic missile subs, are in development.
Talk to us about the kind of skills. You’re saying that you’re studying that, but you already have an idea of what it is that’s necessary. Anne-Marie Trevelyan, your successor in the post, currently holding the Min. DP job, also was talking about that. What are some of the specific skill sets where you’re going to have to put focus and investment in?
Rt. Hon. Dunne: Well, you mentioned Babcock, who of course was one of the lead contractors in the Alliance that bought the aircraft carrier. They’re still completing HMS Prince of Wales in Rosyth at the moment. There are more capital projects for the Royal Navy — we’re standing on one of them at the moment — in train in the next coming years and there have been for many years. And that’s a great tribute to recapitalization of the Royal Navy under this government.
So in response to your question about skills gaps, it’s very clear that the users have been in a digitalized environment for some time. Industry is in a digitalized environment now. But we’ve got a lot of existing employees within industry and frankly within the armed forces who have not got the digital skills given their generation. They haven’t been brought up playing with computer games. They’ve got to be digitally enabled. And new generations coming through may have innate capabilities in those areas, they’ve got to be trained to cope with the kind of military requirements that they will have. So digitalization is a huge part of this role.
But also so is a lot of mechanical and other engineering disciplines. We have a huge demand across the economy in the UK for engineering skills. We’ve got a big challenge in meeting that demand. So defense has to up its game if it’s going to attract young people of today and tomorrow to look for those roles. I think it can do so, and we’re looking to put in place a proper structure to enable British industry, British armed forces, British MoD civil servants to acquire those skills and to be able to make them portable across the piece.
Mr. Muradian: There is a tendency, though, of governments to want to invest, for example, in things like ships and aircraft and things like that. But sometimes on that skills and the education and the training, some of that investment has been wanting.
How do you make sure that that investment is something that’s key, is up front, and gets delivered on on a sustained basis? Because if we did that, we would have those skills over the long term, whereas in the UK sometimes there’s been a very short-term focus on this stuff. Exports, you know, we talked to Mark Goldsack, the Director of the Defence and Security Organization. Nineteen billion pounds in defense and security exports. But that’s on the backs of decades of investment that was made.
How do you make sure, and is this something that’s understood by Members, that this is something really important to invest in over for a long period?
Rt. Hon. Dunne: I think you’re right to look at the duration of spending commitments from government and within industry. Part of my report was trying to encourage industry and government to co-invest so that there’s a clear confluence of interest, both in the capability development and in skills development. So it is important that they work together.
From the government’s point of view, we have in this country this system of spending reviews. We had one last week which was only one year because the government will likely go into a general election within the next year. So it was a more short-term measure. I would expect next year or when there’s a new government there will be a new spending review which will last the Parliament, and that will provide some security of tenure, if you like, some visibility to defense spending for the next Parliament.
We have that in the UK within our equipment plan, our capital program, planning envelope and environment. That lasts ten years and it’s a rolling ten years. We need to get a bit more fidelity within the annual revenue spending. I think that skills is a big part of that.
Industry doesn’t just think in terms of one, two, three, four, five years. They think much longer term than that. And industry, I’m pleased to say, are showing some real enthusiasm for this program to work with government to identify what skills needs we have.
Mr. Muradian: Two more questions, because you’ve been very generous with your time.
First, yes, there is more money in the budget, but that money in the budget is being consumed by the devaluation of the pound and to top off pensions. So whether it’s the F-35, the P-8 Poseidon, all of these systems were bought with an exchange rate estimate of around 1.55. At this point when the pound starts to get to 1.21, 1.19, 1.18, you’re spending the equivalent of, I mean the cost of the F-35 and everything else goes up by 20-some-odd percent, right? On a program that the prices have been trending down on.
How realistic is it that there will be sustained spending increases that are actually going to end up moving the needle? Because there is a concern that if there is additional problems on Brexit, it drives the pound even lower which means effectively that Britain is spending a lot of money and not getting as much capability at the end of the day.
Rt. Hon. Dunne: Well, currencies go up and down. I remember when the pound was $1.10. You know, we’ve been here before, and there’s hedging strategies put in place by the department on a routine basis. So I think you’re right in the immediate short term, but F-35 commitments go on for years and years and years. So I wouldn’t anticipate this is a sea-change. We’re dealing with a currency dip at the moment as a result of uncertainties around Brexit. Once Brexit is resolved, as I hope it will be in the coming weeks, we’ll find that that might reverse.
I think the more important thing is where do we go as a nation in deciding how much we want to commit of government resource to defense and security? There was an increase in the spending round last week by the new Prime Minister, which was very welcome. I would hope and will work towards over coming weeks and months looking to increase defense spending as a proportion of government spending for the next spending review, and I hope to play my part in delivering that.
Mr. Muradian: You are a very thoughtful Member. It’s I think an interesting time in British politics, I think we can agree. How do you think this is going to play out? How is Brexit going to ultimately go? Because there is a lot of concern, obviously, in Europe, including in the United States, including among friends of the United Kingdom about how this is all going to play out. How do you think this is all going to play out at the end of the day?
Rt. Hon. Dunne: That’s the big multi-million-dollar question. I’m really pleased you asked me that on camera, Vago.
The reality is, that we have a Prime Minister who is determined to deliver Brexit, to honor the result of the referendum from three and a quarter years ago. The country I think is fed up of the indecision. We need t get that behind us.
I believe that he’s sincere in seeking to do a deal in mid-October at the EU Council. I’m hoping that that will happen. If it doesn’t happen, we’re going to find ourselves leaving in some other mechanism. Parliament is trying to frustrate that at the moment, which fuels the uncertainty and has recently provided some of the tools to the EU to determine we’ve lost some of our negotiating position by votes in Parliament last week and a new Act coming in this week which just adds to the uncertainty. But I hope that provides some further impetus to the government to get a deal done, and for the EU governments to recognize that it’s in all of our interests, the whole of Europe, the whole of world trade would be eased if we can find a facilitation for a deal in the next few weeks.
Mr. Muradian: You’re very generous with your time. One last question.
There is a concern by some that this whole Brexit process, because depending on how it goes you’re just negotiating the way out. So you either crash out with sparks and timbers falling and things on fire; or you’re starting the clock to actually negotiate the unwinding. During that course there’s going to be expectations, right? From anything from 100 billion pounds down to tens of billions of pounds in terms of what has to be paid to the European Union. A lot of individual things have got to be negotiated. And there’s a concern that while Britain says we want to put NATO at the center of defense, it is at the center of British defense, I think that a lot of the EU things, I understand from the standpoint of those who want to criticize it, but having discussed this with the highest level of European officials, they want to be better NATO partners. So part of what the EDA is doing is to try to get European, EU members sharper on their defense game. And so many EU military leaders have said that they lament the fact that highly qualified British officers will be leaving some of their staffs.
But at the end of the day there’s a concern that this process will be so bruising that it actually will affect the NATO alliance and affect how some of your closest friends, allies and partners regard the UK.
Is there a concern about this process and how it could actually damage the very institution and organization that everybody wants to protect?
Rt. Hon. Dunne: Well, obviously uncertainty breeds concern. Until we establish the future relationship that uncertainty will remain. But whether we leave with a deal on, as you rightly say, the exit; or whether we leave without a deal; the future relationship has got to be negotiated. So there will be a future trading relationship with or without a deal, and that will take some time.
One of the things that I worry about with the UK leaving the EU is that this move, you mentioned the EDA. The EDA and the EDF is a clear attempt to set up a parallel structure to NATO. I think that poses fundamental questions for NATO and potentially for the U.S. and their role in relation to NATO and the EU. The UK was a bulwark stopping a separate development of a parallel structure which I think is frankly one of the main reasons why now that they’re going ahead with that we can’t go back into the EU.
But you asked me in relation to UK defense, where does leaving the EU leave us? I think NATO remains at the core of our defense shield in Europe. It will continue to do so. So I think what the EU do to the side is for them. We will see NATO as the place at the heart of our relationship, as well as the existing substantial number of bilateral and multilateral relations that we have with our European partners. Those will all continue in the military sphere.
Mr. Muradian: The Right Honorable Philip Dunne, the Conservative Member from Ludlow. A good friend and also former Minister of Defence Procurement. Sir, thanks very much. Thank you for your time. Best of luck. I think everybody has their fingers crossed that this ends up in a proper way. Best of luck to you. Thank you.
Rt. Hon. Dunne: Thank you, Vago.