At long last, the Strategic Defence Review has been released. Soon to accompany it will be the UK Defence Industrial Strategy. This will tell us whether Rachel Reeves was serious in her aim to make the UK a ‘defence industrial superpower’.
This strategic pivot towards ramping up our defence capabilities is an welcome one. In an age of heightened geopolitical tensions, the UK needs to be war ready. However, after decades of industrial contraction, achieving superpower status will be a herculean task. Car production is down – as is chemical production. Steel is on the brink. When a country doesn’t make enough during peacetime, it’s hard to make tanks, planes and other things that go boom during war.
There is historical precedent for this. As James Holland has eruditely revealed, despite common perceptions of tactical brilliance and the motorised onslaught of Blitzkrieg, Germany’s war machine in the years before and during the Second World War was built on shaky industrial grounds. Its motor industry lagged behind those of the UK and France, and far behind that of the United States. Thus, at the outbreak of war, Germany had fewer tanks than Britain and France. And though it had limited access to natural resources, many German weapons platforms were over-engineered and expensive.
Take the MG34: a fearsome and impressive infantry weapon, it nonetheless required 100 individual parts and 150 man-hours to make, at a cost of $1,300 in 1938 ($29,695 in today’s prices). The British equivalent, the Bren, could be assembled within 50 man-hours – a ratio of three-to-one.
Then there was the resource-heavy Tiger Tank, which took 300,000 man-hours, a vast labour when compared to the American Sherman which required 48,000 and the Soviet T-34 which took 3,200. Though it outgunned its Allied counterparts, the Germans could only produce 1,347 Tigers, compared to 49,000 Shermans and 84,000 T-34s. Despite Germany’s impressive engineering capabilities, it simply couldn’t outproduce the Allies.
Scale wins wars, and nowhere is this more apparent now than in Ukraine. Both Russian and Ukrainian forces have both had to fall back on large stockpiles of Soviet-era weaponry after burning through their modern arsenals. Ukraine’s demand for artillery shells has often outstripped Western production, and the utilisation of drones in large quantities, often makeshift and inexpensive, has become a defining feature of the conflict.
However, Western defence industries prioritise technological complexity over scalability, a process begun after the end of World War Two and accelerated with the end of the Cold War.
With increasing sophistication, combat systems have become exceedingly expensive and difficult to replace. For example, the F-35 Joint Strike Fighter, while cutting edge, will cost over $2 trillion over its lifetime. The RAF has plans to order 138 F-35B variants, at a cost of $109 million per jet. At sea, should the US find itself at war with China in the Pacific, it would expend its anti-ship missiles within a week, but would take years to replenish its stockpile – owing to slow and highly specialised production lines.
Even for scalable items like drones, expanded capability requirements has the same inflationary effect: demands for high-resolution thermal imaging and automated target tracking have nearly doubled the cost the US Army’s reconnaissance quadcopter to $40,000 per unit. Not only have they become too costly, they are also too few in number: the Pentagon is only purchasing 1,000 per year – insufficient to achieve cost reductions from economies of scale. Ukraine, in comparison, maintains a fleet of 40,000 such drones.
Furthermore, the sheer expense of modern systems has corresponded with extensive consolidation of defence industries, as the financial risks involved are too great for any one company (or country) to take on its own.
Nowhere is this more apparent than British defence aviation. Some 80 years ago, the industry boasted giants such as Avro, Hawker, Gloster, De Havilland and Supermarine – producing the Lancasters, Hurricanes and Spitfires that defended the nation and went on to defeat fascism in Europe. None of these firms exist today, having steadily merged in the post-war period, incorporated into what is now BAE Systems.
The combination of sophistication and consolidation has now reduced the defence industry to an oligopolistic market of ‘prime’ contractors with minimal competition. Some 37% of the MoD contracts go to just ten companies; nearly 40% are awarded without competition. BAE Systems receives nearly 15% of contracts on its own, worth £4.56 billion in 2022-23, of which 86% were non-competitive.
The ‘primes’ have also long been rewarded in the form of cost-plus contracts, where their expenses are reimbursed with a profit margin, thereby removing any incentive to keep costs low.
This is not a phenomenon unique to Britain. The US, the world’s largest defence supplier, has suffered the same affliction – a result of post-Cold War priorities. The number of primes has diminished from 50 in the 1950s to six today.
Enlightened thinking is therefore required if the UK is to produce equipment capable of keeping its soldiers and citizens safe at sufficient volumes without courting bankruptcy. Defence contracting should shift more of the cost of research and development onto the big primes. New entrants to the market should be encouraged and fewer contracts should be awarded non-competitively.
It’s not that some of these shortcomings haven’t been recognised. The previous Conservative government stated in its refreshed 2023 Defence Command Paper that ‘as a rule, we must buy simpler platforms more quickly and design into them the capacity to upgrade at speed – and not just with the original prime contractor’.
The UK could do this relatively quickly, but this requires the Government providing demand certainty for suppliers. Its current warfighting strategy also assumes that its exquisite (but ultimately expendable) platforms have the capability of concluding a quick war before requiring a shift to mass-produced systems.
But given that major conflicts aren’t often over by Christmas, why wait? Why not start now? Moving towards simpler, scalable and more complementary systems in a more competitive market – a defence in numbers approach – may be required if the UK is to last beyond the mere weeks some of its stockpiles currently allow, should the worst come to pass.
Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.
