Scots firms miss out on £55m-a-year UK defence spent to international contractors

Ministry of Defence has confirmed that Scotland accounts for a small proportion of its spending with small and medium sized businesses (SMEs) - classified as firms with fewer than 250 staff and an annual turnover of less than £45m.

Official records show just 2.5% of the MOD’s £1bn spending with Scottish SMEs in 2020/21 was spent in Scotland, far lower than country's 8% UK population share.

While only about £25m is spent with Scottish SMEs, some £300m is spent in the south east of England and around £220m in the south west.

The Westminster Scottish Select Committee has told the MoD that it should, with the assistance of the Scotland Office, initiate a "culture change" process within its own ranks, and in its prime contractors, that addresses perceptions of "engrained hesitancy" towards working with SMEs in Scotland.

They want an increase in the proportion of spending north of the border to 8%.

In 2014, the MOD committed to increase the number of Scottish-based regular armed forces personnel from 11,100 to 12,500 by 2020. But in 2021, according to MoD data the numbers have dropped to 10,440.

Her Majesty's Naval Base, Clyde is the navy's headquarters in Scotland and is best known as the home of Britain's nuclear weapons, in the form of nuclear submarines armed with Trident missiles.

The Royal Naval Armaments Depot at Coulport, eight miles from Faslane, is responsible for the storage, processing, maintenance and issue of key elements of the UK’s Trident missile system and the ammunitioning of all submarine weapons.

The base employs 7,000 civilian and military personnel, making it the second largest single site employer in Scotland.

The uniformed personnel at the base represents nearly 40% of the total regular forces in Scotland.

The largest prime defence contractors in Scotland are BAE Systems, with their ship-building yards in Govan and Scotstoun, and Babcock International, with their yard in Rosyth.

Other major contractors in Scotland include Leonardo, which employs nearly 2,000 people in Edinburgh designing and producing airborne radars and advanced lasers, Thales, which employs around 600 people in Govan, designing and building optronics systems for all three UK Armed Services and Boeing, which is heavily integrated into operations at RAF Lossiemouth - one of the largest and busiest fast-jet stations in the Royal Air Force.

In terms of the MOD’s major contractors, BAE spends about 5% of its total UK-wide SME spending in Scotland, amounting to £30m out of £600m, while Thales spends about 7% in Scotland.

The ADS Group, the trade association for the UK’s defence, security, aerospace, and space sector says Scottish SMEs “want to contribute to the UK defence sector in a greater way” and “want to win MOD business on merit”, because they “have the potential to do so”.

It believes that part of the reason for the disparity in Scottish SME spending is “legacy issues around the way contracts have been awarded”.

In January the Ministry of Defence released an action plan which set a target of 25% of procurement spent to go directly to SMEs across the UK in 2022.

ADS said in an analysis that the action plan presented an opportunity to change the trend but added: "We need to see its effective and timely delivery, alongside the provision of opportunities for Scottish and Northern Ireland firms to compete effectively."

Colin Borland, director of devolved nations with the Federation Of Small Businesses said: “We know that money that’s spent local stays local. So local businesses need to get the fairest crack of the whip when it comes to bidding for public contracts and sub-contract opportunities. That means smart procurement strategies and buyers who are empowered to adopt creative approaches in sourcing goods and services.”

“Public spending is a powerful weapon in the battle to boost our local economies and communities. If we get it right, we can unleash the power of major public contracts and institutions to drive local economies – generating wider economic activity and safeguarding and creating jobs."

The MoD has said Scotland has given the world some of its "best-known maritime names and remains the location of a significant proportion of the UK's shipbuilding capacity".

As a result, it says Scotland sees benefits from the Government’s shipbuilding spend and the refreshed National Shipbuilding Strategy (NSbS) that was published in March.

It said that in 2019/20, the MOD spent £3.8 billion on shipbuilding and repair, directly supporting 27,100 jobs across the UK. From this, 7,500 jobs were based across Scotland.

It said: "The strategy sets out how Government will create the conditions for success in the shipbuilding enterprise. Firstly, it provides a clear demand signal through our 30-year Cross-Government Shipbuilding Pipeline and the policy objectives that will underpin Government procurement programmes. This pipeline ranges from large warships to Border Force cutters and lighthouse vessels.

"There are opportunities for Scottish shipyards and suppliers across the pipeline, which provides industry with clarity on Government’s future requirements and confidence in industry’s orderbooks.

£This is a substantial opportunity to create a baseline of volume to encourage industry investment in facilities, infrastructure and innovation.

This will be augmented by improving access to finance and support for exports through the Home Shipbuilding Credit Guarantee Scheme (HSCGS), UK Export Finance (UKEF) and the establishment of the Maritime Capability Campaign Office (MCCO). This will encourage a greater number of commercial and export orders into Scottish yards, as well as the rest of the UK, and will reduce the reliance on Government as a customer."

The shipbuiding pipeline is seeing eight Type 26 Frigates being built by BAE Systems on the Clyde, sustaining some 1,700 jobs in Scotland; and five Type 31 frigates being built at Rosyth by Babcock, supporting around 1,250 jobs.

"These are both significant programmes and will sustain shipbuilding jobs across Scotland well into this decade," the MoD said.

"We cannot make a commitment on where subsequent parts of the pipeline will be built, however Scottish shipyards and supply chain companies will have the opportunity to benefit from programmes across the pipeline, including build programmes, conversion work and through-life support."