MoD will no longer favour UK companies

The Ministry of Defence will no longer give UK companies priority over their foreign competitors when buying equipment and weapons for the armed forces.

The only exceptions will be cases where buying British is essential to maintaining national security, Peter Luff, the defence procurement minister, said in an interview. He made clear the MoD would not consider wider employment or industrial economic factors when it assessed whether a piece of equipment offered value for money.

But Mr Luff said he did not believe British companies had anything to fear from the policy change. He said the government would focus on helping small and medium sized companies provide the “fresh thinking and innovation” they brought to the industry and supporting British defence companies’ exports.

“One of the drivers of international success for British defence companies must be their competitiveness and if you shield them from international competition you actually undermine their ability to compete,” Mr Luff said.

The shift towards open competition and buying equipment “off the shelf” and then modifying it if needed will be the key message in the defence white paper Mr Luff is expected to present to MPs today.

He wants the MoD to become a ”more intelligent customer” better able to make its own decisions about which technology to develop and buy.

It is why the minister is to announce that he intends to maintain investment in science and technology at a minimum of 1.2 per cent of the defence budget. At present, however, that puts the investment at about £400m, far below where it had been in previous years when government coffers were flush. In 1997 investment in science and technology made up 2.6 per cent of the defence budget.

Mr Luff said the industry had warned him not to cut the budget further. “Technology is the key to the future of defence,” he said. Making the proper use of technology, acquiring the right technology, developing the right technology is the way that defence equipment can meet the challenges of the future.”

Alberto de Benedictis, head of Italy’s Finmeccanica in the UK, welcomed the idea of more competition, but warned that buying off the shelf and then modifying equipment did not necessarily mean more open competition or lower costs. “Off the shelf doesn’t necessarily mean ‘value for money’. There is a misnomer there that has to be clarified. If you are buying equipment others are already using but have to modify it to a great extent, is that really ‘off the shelf’?”

More than knowing how the MoD would procure its equipment, defence companies wanted to know what it would procure, Mr de Benedictis said, adding when the UK military bought and used a piece of equipment it made that product far more attractive to foreign buyers.

The government’s new line is likely to trigger a row with the Labour opposition, which has argued that ministers should favour British manufacturers to help domestic industry.

Jim Murphy, the shadow defence secretary, said on Tuesday: “The defence industry makes a vital contribution to our economy, contributing to our export wealth and national income.

“The level of support provided for the UK defence industry, which is now more important than ever, will test this government’s commitment to promoting advanced manufacturing and high skill jobs. “

Mr Murphy also warned that buying off-the-shelf from foreign companies would make it more difficult to maintain and repair that equipment at short notice. He said: “ Equipment should not be procured if it cannot be upgraded within the UK. This would protect jobs, skills and intellectual property, and prevent against our upgrades being ‘put to the back of the queue’ by overseas governments.”

Additional reporting by Kiran Stacey