Competition is the essence of enterprise and free market capitalism. For an economic model that relies on casual interactions between buyers and sellers and seeks to deliver goods and services to everyone at a price they are willing to pay, genuine competition among vendors on the basis of a level playing field is absolutely essential. It is the responsible duty of governments of all persuasions to make sure that there is adequate competition in the marketplace.



Consider, for a moment, the market in defence equipment in the UK.



It is precisely because the UK government has been getting appallingly poor value for money for the billions it spends on buying defence goods and services, that it has opened up its defence equipment market to all and sundry.



The government now believes that there is room to accommodate additional participants in the UK defence equipment market, both at prime contractor level and right down the extended supply chain – a stark contrast from the narrative that has been perpetuated endlessly by vested interests. This view, confirmed by the government’s own words expressed in the Defence Industrial Policy published in December 2017, says (on page 28):



“The MOD and wider government are committed to increasing inward defence investment. We are already home to many multinational defence companies, and encourage these companies to grow their investment in the UK and new suppliers to base themselves here.”



But of course, the real reason why the government is inviting offshore entities to stake a claim in the domestic market is to sharpen competition, which has been woefully lacking over the last several decades – largely, because it has been dominated by just a handful of players, the Select Few, who have monopolised all the major big-ticket acquisition programmes – and as a consequence, become seriously uncompetitive. In so doing, this government has abandoned the tried-and-failed policy of talking and cajoling, to try to convince indigenous defence contractors to become more competitive.



Enhancing the competitiveness of existing players, so that they begin the task of boosting the economy by exporting to countries beyond the EU is the need of the hour, as the UK heads towards its Brexit destiny on 31 January 2020.



Not only will new entrants bring much needed Foreign Direct Investment, but they can also ‘reach back’ to their home bases for the latest technology, top talent and highly desirable off-the-shelf products.



Additionally, foreign companies will have little choice but to employ British nationals as locally-engaged staff, to assemble their project performance teams assigned to bid for MoD defence procurement programmes – thereby increasing regional employment. But the greatest benefit to be derived from inviting these outsiders is simply because they are so much more productive. Indeed, the Office for National Statistics has found that British businesses with foreign owners are up to three times as productive, as those with only UK investors.



This government’s refreshing approach to enhancing competition is a far cry from days of the past which were marked by state-sponsored protectionism and favouritism.



Consider the case of the Terms of Business Agreement on naval shipbuilding, signed by the Gordon Brown government with BAE Systems during the dying days of the 2005-10 Parliament, which left the incoming administration no room for manoeuvre at all, as it set about undertaking a comprehensive Strategic Defence & Security Review – the first in 12 years. In fact, this agreement was signed in secret, in 2009, precisely because it locked the government into an appallingly poor 15-year contract laced with a punitive get-out clause which, if made public at the time, would have attracted criticism and negative publicity in the press and media during the run-up to the 2010 general election, potentially swinging the result in favour of the other party.



The existence of the TOBA was only revealed to Parliament in 2011 by the Cameron-led coalition government, when it was confronted with the undeniable truth that MoD finances were in pretty bad shape and needed to be declared openly, to garner public support for deep cuts in the defence budget that ensued.



It is an open secret that even the most fiscally prudent people in government are prone to softening their hard-line stance just before a general election, when they are up for re-election, which makes them more likely to open-up the public purse. Equally, defence contractors are aware of this weakness in top politicians and will take full advantage, by surreptitiously intensifying their lobbying efforts in cahoots with labour trade unions, to apply political pressure spliced with threats of massive lay-offs, timed to coincide with the electoral cycle, to relieve politicians of taxpayers’ money and maximise their take – which is exactly what happened with this TOBA.



So, instead of exposing defence equipment manufacturers to the full rigours of the free market, that is to say, not shielding them from “feeling the heat” of competitive market forces, the Brown government chose to engage in protectionism and favouritism by handing out uncontested, long-term shipbuilding contracts worth about £3,450 million on a preferential basis* – with virtually no checks and controls, or even guarantees which has come to haunt this government. In so doing, future governments have been denied freedom of manoeuvre in the management of public finances.



It is only right that this government deploys all the policy levers available to it to increase competitiveness in the defence equipment market.

@JagPatel3



* Fully examined in written submission to the Public Accounts Committee, Inquiry into Defence Equipment Plan 2017-27, HC 880, Session 2017-19, Written evidence from Jag Patel, published 13 March 2018, PDF file (294 kB): http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/public-accounts-committee/defence-equipment-plan-201727/written/79612.pdf