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Introduction

Good Afternoon.

It鈥檚 a pleasure to be here today to take part in a timely discussion鈥�

鈥s we prepare to run the triple gauntlet of a comprehensive spending review followed by a Strategic Defence and Security Review, and as you may have a noticed, both preceded by a General Election 75 days from today, or as I prefer to think of it polling stations open 1,736 hours from now.

Challenging times鈥equire change

But looking beyond the horizon of domestic UK politics for a moment, to say these are challenging times is something of a British understatement.

The world is dangerous鈥nd getting more so.

As a nation our appetite for taking risks with our security remains low.

While our national ambition for global influence remains resolute.

At the same time, budgets are being squeezed and traditional military advantage is being undermined by disruptive technology and hybrid warfare.

So if we鈥檙e to survive and thrive in this new international dynamic we need to think differently.

I鈥檒l explain what I mean, shortly.

But before I do, I must emphasise that while creating and sustaining armed forces fit for the 21st century will not be plain sailing鈥or any nation鈥�

In the UK, the prevailing wind is behind us.

Defence Transformation

Thanks to 5 years of defence reform, we鈥檙e on the right trajectory.

We鈥檝e filled the black hole in the defence budget and balanced the books.

For the third consecutive year, we鈥檝e published an affordable equipment plan, worth 拢163 billion over 10 years, with substantial headroom and flexibility built in鈥�

We鈥檝e rethought our approach to defence acquisition, redefining it along the principles of value for money and open procurement.

鈥nd spelling it out in black and white in our 2012 white paper: 鈥楴ational security through technology鈥�.

We鈥檝e also got a grip on our big ticket procurement projects.

And you don鈥檛 just have to take my word for it.

We have in this country a National Audit Office admired around the world for its fearsome independence from the government of the day. Consequently its pronouncements on departmental performance, especially its report on major procurement projects, are eagerly anticipated by the Ministry of Defence each year.

So to illustrate how far we have transformed defence acquisition, you can do no better than look at the position we inherited from the NAO鈥檚 report on 2009, where the top 15 defence projects were a staggering 拢4.5 billion over budget in year and 336 months overdue.

Contrast this with last month鈥檚 NAO 鈥楳ajor projects report鈥� which confirmed the top 11 defence projects are 拢397 million under budget and in aggregate only 14 months over time.

A much leaner machine

And we have also got to grips with the formidable administrative machinery of the Ministry of Defence, where I see our transformation as an exemplar of this government鈥檚 approach to public service reform.

Head Office is smaller, more focused and more strategic. By the end of next month there will be 25,000 fewer civil servants supporting our armed forces, 2 times the proportionate head count reduction of the frontline.

Budgets have been devolved to the front line commands鈥ith the men and women at the coalface taking responsibility for spending decisions.

And, when it comes to our corporate services, we鈥檝e injected some re-invigorating private sector expertise鈥nly last Thursday I announced the preferred bidder for outsourcing the logistics, services and commodities activity to bring defence鈥檚 antiquated inventory management and logistics into the 21st century.

Our Head Office now adopts a more commercial approach鈥nsuring we are a more intelligent customer; better able to get high-quality equipment and services at best value for the taxpayer.

Equipment coming on stream

Over the past year alone we鈥檝e made a steady stream of investments in next generation kit and delivered new capability into service.

This includes:

On land, the biggest armoured fighting vehicle order for the British Army in a generation, a 拢3.5 billion contract for 589 fully digitalised Scout specialist vehicles鈥�

At sea, the floating up of the Royal Navy鈥檚 flagship Queen Elizabeth Carrier, followed by confirmation it will be joined in service by our second operational aircraft carrier.

And only last Friday, the Prime Minister announced an 拢859 million contract for long lead items for the first 3 of our next generation Type 26 frigates.

Beneath the oceans, the launch of HMS Artful, the third of seven Astute class hunter-killer submarines.

In the air, the arrival of the Royal Air Force鈥檚 first A400M Atlas transport aircraft, which this month I helped christen the City of Bristol to reflect the contribution that city is making and will make to this programme for years to come.

And last July the Prime Minister announced an extra 拢800 million of investment in intelligence and surveillance assets for our emerging cyber domain.

The contrast with the previous administration鈥檚 legacy couldn鈥檛 be starker:

where there was a 拢38 billion budget black hole, now there is a balanced budget; where there were cost overruns, now there are cost savings; where equipment deliveries were years late, now they are either on time or a few months behind,

in short, where there was chaos, now there is competence.

But we鈥檙e not complacent.

Which is why we鈥檙e continually working to perpetuate the transformative and progressive culture that has carried us this far.

More specifically鈥s I said earlier鈥e鈥檙e ensuring that from first to last鈥� everyone in UK defence thinks differently.

More innovatively.

More imaginatively

And more internationally.

And I鈥檇 like to touch on how we鈥檙e doing that when it comes to defence procurement.

First: thinking more innovatively

Firstly, thinking more innovatively鈥n imperative if we鈥檙e to prepare for the world as it will be鈥ot as we hope it will be.

Because it鈥檚 innovation that delivers the military productivity so key to realising successful military outcomes in a climate of continuing budget pressure.

What鈥檚 more, it鈥檚 innovation that underpins national prosperity鈥riving productivity and helping us move towards an export led recovery.

And the wheel turns, neatly, full circle when you consider that a strong economy is the wellspring of strategic strength.

With such high stakes, and a return to a more contingent posture following drawdown from Afghanistan, the MOD is focusing our efforts to unlock innovation wherever we can.

So we鈥檙e protecting our S&T spend鈥nsuring it remains at least 1.2% of the defence budget鈥�

鈥nd we鈥檙e investing an increasing amount of that on research into game-changing 鈥渄isruptive鈥� capability鈥�

This year it was around 拢40 million.

Next year, we hope to increase that to 拢60 million.

Meanwhile, our Centre for Defence Enterprise develops novel high risk, high potential benefit innovations on everything from complex weapons to sensor navigation and guidance.

At a showcase earlier this month I saw for myself some of this new research effort into analysing social media trends to identify potential threats of tomorrow.

But investing in innovation is only the start鈥�

We must weave it into the very DNA of defence procurement.

Which is why we鈥檙e increasing opportunities for SMEs 鈥here entrepreneurs and scientists provide the niche capability and groundbreaking ideas that give us the edge.

And we鈥檙e doing that by making our procurement procedures more transparent, simpler and faster鈥�

鈥苍驳补驳颈苍驳 SMEs through a dedicated forum, which I chair鈥�

鈥nd setting ourselves challenging targets through an SME action plan.

And beyond the confines of MOD, we鈥檙e working with defence primes鈥ncouraging them to open up their supply chains鈥�

鈥ot just to those in the defence business but to SMEs from across the spectrum鈥rom computer gaming to motorsports.

Because military technology is no longer the main driver of civilian sector advances鈥t鈥檚 increasingly the other way around.

And we鈥檙e doing this鈥mongst other ways鈥ia the Defence Growth Partnership鈥�

鈥ringing together the best brains in industry, government and academia鈥�

鈥ostering a collaborative environment to ensure the UK defence industry becomes more innovative, sustainable and competitive.

Things are moving fast.

The DGP鈥檚 Centre for Maritime Intelligence Systems in Portsmouth is up and running鈥 UK Centre of Excellence, to become a test bed for new systems and technology that can be sold around the world.

And it鈥檚 soon to be followed by the Defence Solutions Centre in Farnborough, which I have high hopes will also become an international centre of excellence for defence innovation.

So we鈥檙e doing our best鈥ut we are also asking industry to step up to the mark.

Which is why we are looking to recalibrate our relationship.

Whereas, in the past, defence contractors looked upon the MOD as a benevolent cash cow that would fund its R&D, and then also pay for any development cost overruns鈥�

Under our stewardship鈥orking with industry鈥e鈥檝e established a new mechanism to share pain and gain equally above a realistic threshold by aligning our interests more closely.

I want to see industry adopt this partnership approach more widely.

Not just identifying and managing risk and opportunity but also bearing and sharing it, in a spirit of partnership as we develop capabilities for a broader defence (and sometimes adjacent civilian) customer base.

But our ask goes beyond risk.

We鈥檙e now demanding that 鈥榚xportability鈥� is actively considered from the very beginning of the acquisition cycle鈥︹€�

鈥ecause developing bespoke capability just for the UK attracts a cost premium that is not always justifiable, or affordable.鈥ㄢ€�

This will require industry and government to work together to assess our own requirements in the full context of the global export market鈥�

鈥haring both the opportunities and risks that come from developing 鈥榚xport ready鈥� capability.

But done properly the potential benefits are tangible:

First, the MOD gets the best kit for the best price.

Second, industry will reap the rewards of a virtuous circle of innovation, exportability and productivity.

And third, UK PLC will benefit from greater security and prosperity.

Which brings me on to my second point.

Second: thinking more imaginatively

Because鈥ust as we cannot defend our security interests from Fortress Britain, neither can we advance our prosperity solely from within our shores.

Which is why, when it comes to building a strong UK defence industrial base capable of exploiting innovation to its greatest effect鈥e must be increasingly imaginative in the way we champion foreign investment on the one hand and exports on the other.

So, through our Defence and Security Industrial Engagement Policy鈥e鈥檙e encouraging overseas primes to extend opportunities for UK innovators to become part of their supply chains.

The UK defence industry is rightly proud of its place as the broadest and deepest supply chain outside the US. We have more companies engaged in defence and security than France, Germany and Italy combined.

But we are also using wider government initiatives鈥�

鈥ike reducing corporation tax to one of the lowest rates in the 贰鲍鈥檚 big 5 economies鈥�

鈥ax reliefs for R&D and exploiting patents.

鈥nd deregulation

鈥o ensure the UK remains the number one choice in Europe for foreign direct investment.

Our success is manifest.

As just one example, more than 30% of Saab鈥檚 Gripen multi-role fighter aircraft is supplied by British industry.

And when it comes to banging the drum for UK defence exports, we鈥檝e worked hard too.

Through the DGP we鈥檝e been strengthening the roles and capabilities of 鲍碍罢滨鈥檚 Defence and Security Organisation.

While, from the Prime Minister down, ministers have taken every opportunity to promote UK defence products across the world.

Far from being embarrassed, as frankly many in the previous administration were, supporting the British defence industry is something we鈥檙e proud to do鈥� as I was leading the UK delegation of 80 British companies at IDEX in Abu Dhabi yesterday.

This is not least because we know we have the most robust and comprehensive export licensing process anywhere.

And when it comes to success, the figures speak for themselves:

Year on year growth in defence exports鈥�

And a 22% share of the global defence market鈥aking us the second largest exporter of new defence products and services, behind the US.

No less crucial are the diplomatic returns we get from engaging with other countries鈥�

鈥eturns that make exports a pillar of our international defence engagement strategy鈥nd, ultimately, our national security.

Thirdly: Thinking more internationally.

Which brings me to my third point: thinking more internationally.

Because in this increasingly interconnected world, if we鈥檙e to stay ahead of the game鈥�

From first to last, we must pool our resources more widely, a key tenet of our white paper.

It means collaborating on science and technology, as we do with 18 nations, including, of course, the US鈥�

鈥ith whom we have around 100 joint research and development arrangements currently underway.

And with whom I hope we can explore the potential for more joint working under their third offset strategy.

It means developing and procuring capability together鈥�

鈥ultilaterally as with the A400M鈥�

Or bilaterally鈥s we鈥檝e done with the French on the FASGW missile system or with US on the Common Missile Compartment.

Sometimes, it鈥檒l mean working as equal partners, sometimes it鈥檒l mean differing levels of national commitment, and sometimes it鈥檒l simply mean agreeing to buy off each other鈥檚 shelf鈥s we鈥檙e exploring with the US when it comes to Scout and Striker.

Each approach presents pros and cons.

But whichever one we take鈥 believe it鈥檚 inevitable and desirable that UK capability programmes will become increasingly international.

And, if I鈥檓 right, it鈥檒l be vital to work hand in glove with our allies and partner nations to make this shift in a coordinated and intelligent fashion鈥�

鈥nsuring we can align acquisition, access each other鈥檚 markets鈥nd see capability collaboration for what it really is: a force multiplier and a pooling of the market; not a mechanism for eroding national sovereignty, competition or profit.

What鈥檚 more, by adopting common equipment platforms, interfaces and standards, our armed forces will be better able to interoperate with our allies鈥�

Making collaborations more than just the sum of their parts when meeting the onslaught of emerging and rapidly evolving threats.

Conclusion

So as we approach the next SDSR鈥�

鈥espite the challenging targets the MOD has had for the last 5 years鈥�

鈥efence can enter the process from a position of much greater strength than the doomsayers suggest鈥�

鈥 strength that is the legacy of 5 years of imagination, innovation and internationalism鈥�

鈥ffset by a regime of realism, efficiency and prudence.

UK defence is in a far, far better place today than we were 5 years ago.

I firmly believe that whoever holds the reins of power鈥�

And of course now 20 minutes closer to the polls opening, I am increasingly positive about the prospects that this will be the party I have the honour to be part of鈥�.

But whoever has the rare privilege of joining the ministerial team in the Ministry of Defence, I am sure that if they continue on the course we have set鈥�

As a nation, working closely in concert with our international allies, we will find opportunity in adversity鈥�

To deliver security through defence鈥�

鈥o secure the future for Britain.