The UK government (HMG) has released its Green Paper on "Building our Industrial Strategy". The purpose of this article is to review the 132 page document from the perspective of the Aerospace, Defence and Security sector.
The Green Paper sets out 10 "Pillars" on which the strategy will be based and these cross-cut the sectoral divide: many if not most will apply to our sector. The Green Paper is not a strategy as such: it is a consultation document on a proposed strategy and sector participants are encouraged to comment - in particular on the 38 questions for consultation set out at the end of the document (pages 127 to 129).
The Green Paper pulls together many already announced proposals, adds a few new ones and sets potential direction for HMG strategy in this area over the next 5 to 10 years. Key themes (many of which repeat existing HMG policy) include developing regions outside of London and the South-East, improving productivity across the UK and encouragement of STEM subjects and apprenticeships.
There is some "new" money announced (although this was in fact first announced in the Autumn Statement): an additional £4.7bn on R&D over the next five years, but given the ambition to have this running at £2bn by 2020/21 this suggests that much of it will be "back ended" and it remains to be seen whether this will make up for any EU-origin grant funding that may be lost during this period as a result of Brexit.
Relevant announcements and themes for the sector include:
"Sector Deals" - rather than pick winners, HMG encourages sector participants to come together to make proposals on how they would like HMG to facilitate growth; this is "not about additional funding" but instead about directing deregulation and using HMG as an accelerator/intermediary - early work on these under key individuals is highlighted, including in the nuclear sector under Lord Hutton; our sector is singled out as a model for this - highlighting it as a success might be seen as a suggestion that further development in this area is less likely, but the sector should not see it as a closed-door as the Green Paper makes much of further potential growth in the sector.
Tax - in addition to the further funding referred to above (and elsewhere in the Green Paper) HMG signposts the likelihood of further R&D tax changes to encourage investment and growth.
Intellectual Property - the Green Paper highlights an ambition to use our intellectual property system to encourage further R&D; the detail on this is limited, but there is reference to "new registries" to facilitate licence deals and an intent to roll out template B2B model agreements.
Key technologies - as ever, DARPA is held out as a model for the encouragement of specific technology development projects: "Eight Great Technologies" are identified including battery and smart grid technology (which receive repeated reference in the Green Paper), robotics/artificial intelligence (within which unmanned vehicles are included), satellite and other space technology and advanced manufacturing processes and materials. It is not yet clear exactly what the consequences are of this list, but clients with existing businesses or ambitions in these areas are likely to see prioritisation of HMG support (including using the levers referred to elsewhere in the Green Paper).
Finance - reference is made to a new pipeline of PF2 projects (particularly in the areas of digital rail signalling and cyber protection for critical national infrastructure) and extension of the UK Guarantees Scheme until 2026 (both heralded in the Autumn Statement), and encouragement of investment in fixed capital (robotics is an area which is singled out - the consequences are not fully identified but expect this to be reflected in amendments to the tax system), a desire to back regional venture capital and an investigation of dual class share listings (to encourage founders of growth companies with the potential for IPO).
Procurement - given the scale of cross government procurement this is clearly an area where levers might be pulled to give effect to the strategy when it is finalised; the Green Paper identifies in particular:
- encouraging innovation in small businesses through procurement (both changing the focus of certain procurements and, potentially, their terms - for example there is a reference to encouraging the ownership of IP by suppliers to improve a willingness to invest, in some tension with changes to the IP DEFCONs)
- an extension of the "balanced scorecard" (which seeks to take into account social and economic factors) into all major construction, infrastructure and capital investment procurements by HMG over £10m
- an intent for the Crown Commercial Service to simplify its tender documentation and processes
The proposed strategy appears consistent with existing obligations under procurement and state aid rules and what is notable by its absence is guidance on what freedom the government perceives that Brexit will give it in the field of procurement law and how it intends to use that freedom - presumably because the Prime Minister would perceive this as giving away her negotiating strategy.
- the Green Paper notes that consultation on the Defence Industrial Policy referred to in SDSR 2015 is out for discussion and that this will be reported on shortly
- there is a reiteration of HMG's focus on non-traditional defence suppliers and SMEs (but little detail in this Green Paper on how they will be prioritised)
- HMG notes that it will respond to Sir John Parker's report by announcing a National Shipbuilding Strategy in early 2017 (the Green Paper restates the report's recommendations on multiple yards for the General Purpose Light Frigate and exportability)
- HMG notes the £800m Defence Innovation Initiative announced in September 2016 and the IRIS unit, as well as a Defence and Security Accelerator
- one guide for the future is an explicit intent to improve UK multi-supplier bids overseas - for government to act both as a coordinator and an advocate - in part perhaps in response to certain high-profile campaigns in the last few years
In summary, the majority of the Green Paper reiterates existing policies and announcements for our sector, but the "new money" is welcome and there will be opportunities to be had particularly in the areas of the "Eight Great Technologies". It is what the Green Paper does not announce that is perhaps most interesting: the "Sector Deals" are very much a challenge to industry to come forward with proposals (rather than a HMG led initiative) and we will have to wait until later in the Brexit negotiations to understand better how the procurement and state aid landscape might change. Please see the following link for our review of Brexit's potential impact on state aid and procurement:
Responses to the consultation questions must be received by 17 April 2017.