Weapons makers fear for spending strategy

Weapons makers fear for spending strategy

By James Boxell, Defence -Industries Correspondent

Published: October 5 2006 03:00 | Last updated: October 5 2006 03:00

Financial Times

An attempt to revolutionise the way the government spends its £16bn-a-year weapons budget could be derailed by funding cuts, institutional resistance at the Ministry of Defence and the departure of the new policy's chief architect, arms manufacturers have warned.

In a survey carried out by the Royal United Services Institute, the military think-tank, UK weapons makers lauded the defence industrial strategy - designed to give companies greater clarity on future defence spending - as "clearly born of a business mindset".

But the survey, sponsored by Qinetiq, the defence technology group, highlighted "major issues" that could cause the strategy to fail.

Chief among those were worries that the weapons spending plan was "clearly overheated" and unafford-able, a problem that could not be solved by the policy. MoD cuts in next year's comprehensive spending review could also make the new approach irrelevant.

The survey polled the views of executives at defence companies such as BAE Systems, Thales, Finmeccanica and Rolls-Royce.

Some executives are worried that at least one large weapons project will need to be cut to make the MoD's equipment plan for expeditionary warfare affordable.

Talk has centred on two new aircraft carriers, estimated to cost £3.6bn-£3.8bn, a £14bn project to create a fleet of armoured vehicles, and future orders of nuclear-powered submarines.

Lord Drayson, weapons procurement minister and former biotechnology entrepreneur, is the driving force behind the strategy, which was also designed to encourage partnership between the MoD and industry. But the survey found companies concerned that its implementation depended on his continued involvement and could suffer when he left the post.

Lord Drayson has taken steps to ensure the success of his plan, such as appointing the MoD's first commercial director and merging the department's logistics and procurement arms.

There are concerns that the merger will prove distracting and that many MoD officials lack commercial skills or are resistant to the changes. Because of the previous government policy of open international competition in most weapons buying, procurement officials have had an often adversarial relationship with industry, notably with BAE.

Other worries included how the MoD could sensibly guarantee long-term funding for partnering deals that might last 25 years. Companies also said the government needed to recognise that keeping "sovereign ability" to build certain weapons would "imply paying a premium to retain industrial capability onshore".

They called for more research funding. Much future spending will go on upgrading existing jets, armoured vehicles and warships, but only £600m a year goes on technology research.

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