Foreign Involvement in the Defence Supply Chain
Defence Committee
Closed
Inquiry
Following the COVID-19 pandemic, this inquiry and planned Sub-Committee will scrutinise the vulnerabilities of the UK’s defence supply chain. Focusing on the impact on SMEs and mid-sized companies, it will: assess the current level of foreign ownership, particularly by companies with links to states which could have “ulterior motives” explore …
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8
Recommendations
6
Conclusions
1
Report
Activity timeline 2 events
27 Apr
2021
2021
14 Feb
2021
2021
Report published
Reports 1 report · click to expand
| Title | HC No. | Published | Items | Response |
|---|---|---|---|---|
| Foreign Involvement in the Defence Supply Chain | HC 699 | 14 Feb 2021 | 14 | Responded |
Recommendations & Conclusions
14 results
2
Conclusion
Acknowledged
Foreign Involvement in the Defence…
As a result of the Ministry of Defence’s approach of encouraging inward investment, foreign involvement...
As a result of the Ministry of Defence’s approach of encouraging inward investment, foreign involvement in the UK defence supply chain is widespread, with the UK hosting a broad range of UK-based and international suppliers. This approach has brought many …
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Government Response
The government agrees that its open approach to inward investment has brought significant benefits to the UK economy and defence industry, citing substantial FDI, job creation, and strengthened industrial base through multinational firms and international partnerships.
Ministry of Defence
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3
Conclusion
Accepted
Foreign Involvement in the Defence…
If the Ministry of Defence has the level of oversight of the defence supply chain...
If the Ministry of Defence has the level of oversight of the defence supply chain that it claims, then it is clear that it was aware of purchases by Chinese companies into the UK defence supply chain and decided that …
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Government Response
The government notes the committee's concern but maintains its extant risk-based approach to foreign investment in the defence supply chain is appropriate, citing detailed monitoring, scrutiny, and planned enhanced powers under the NSI Bill to protect national security.
Ministry of Defence
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4
Recommendation
Accepted
Foreign Involvement in the Defence…
The Ministry of Defence should assess the implications of Chinese ownership of the companies listed...
The Ministry of Defence should assess the implications of Chinese ownership of the companies listed within this report.
Government Response
The government notes the recommendation and reassures the Committee that the MOD has already assessed and will continue to assess the implications of Chinese ownership, actively managing the defence supply chain and monitoring mergers and acquisitions for national security risks.
Ministry of Defence
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5
Recommendation
Rejected
Foreign Involvement in the Defence…
The Ministry of Defence’s open and country-agnostic approach to foreign involvement means that the defence...
The Ministry of Defence’s open and country-agnostic approach to foreign involvement means that the defence supply chain has been open to potentially hostile foreign involvement, with reports of companies being owned and influenced by foreign Governments whose values and behaviours …
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Government Response
The government rejected the recommendation to publish a friendly list of countries for investment, stating it prefers a country-agnostic, risk-based approach, strengthened by the NSI Bill, to scrutinize all foreign acquisitions on a case-by-case basis due to potential circumvention.
Ministry of Defence
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6
Recommendation
Rejected
Foreign Involvement in the Defence…
Recent reports have highlighted the purchase of second-hand Chinese equipment by the Ministry of Defence.
Recent reports have highlighted the purchase of second-hand Chinese equipment by the Ministry of Defence. This is deeply concerning. The purchase of equipment from China for use by the Armed Forces should not be considered a viable option by the …
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Government Response
The government refutes the claim of purchasing second-hand Chinese equipment, clarifying that the E-7 Wedgetail airframes were US-manufactured Boeing aircraft sourced through Canada and will undergo comprehensive overhaul and stringent security checks.
Ministry of Defence
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7
Recommendation
Deferred
Foreign Involvement in the Defence…
The relative indifference of the Ministry of Defence to the possible relocation of General Electric’s...
The relative indifference of the Ministry of Defence to the possible relocation of General Electric’s Rugby facility was concerning. We are pleased that this important industrial capacity ultimately remained in the UK. The Ministry of Defence should prioritise the maintenance …
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Government Response
The government refutes the perception of indifference regarding the GE Rugby facility, stating the MOD worked hard to retain it. It addresses the recommendation to prioritise sovereign capability by confirming that the ongoing Defence and Security Industrial Strategy (DSIS) review is considering a strategic approach to maintain the right industrial base, including clarity on onshore needs.
Ministry of Defence
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8
Conclusion
Acknowledged
Foreign Involvement in the Defence…
The UK previously lacked foreign direct investment screening legislation which left the defence supply chain,...
The UK previously lacked foreign direct investment screening legislation which left the defence supply chain, alongside other sectors of the UK’s economy, vulnerable to influence from hostile foreign investors. The National Security and Investment Bill, once law, will change this …
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Government Response
The government welcomes the committee's support for the National Security and Investment (NSI) Bill, affirming that it will introduce new powers to modernise the investment screening regime, ensure national security, and enable scrutiny of deals of any type or size.
Ministry of Defence
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9
Recommendation
Accepted
Foreign Involvement in the Defence…
Some commentators have questioned the placement of the ‘Investment Security Unit’ within the Department for...
Some commentators have questioned the placement of the ‘Investment Security Unit’ within the Department for Business, Energy and Industrial Strategy, suggesting that it does not have the necessary expertise and knowledge. We are content, however, that the unit will be …
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Government Response
The government confirms that the Investment Security Unit (ISU) was designed with active engagement from the MOD and other departments, and the MOD will continue to play a pivotal role in its establishment and future assessments, drawing on expertise across Whitehall.
Ministry of Defence
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10
Conclusion
Accepted
Foreign Involvement in the Defence…
Venture capitalism helps to drive innovation in defence and associated industries.
Venture capitalism helps to drive innovation in defence and associated industries. However, we heard concerns that venture capitalist funding could represent an avenue for hostile foreign investors to gain entry into the UK defence supply chain. The Minister for Business …
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Government Response
The government agrees with the committee's concern regarding hostile foreign investment via venture capitalism and explains how the new National Security and Investment regime will address this by requiring ownership declarations, introducing sanctions for false information, and covering risks for small, start-up companies.
Ministry of Defence
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11
Conclusion
Accepted
Foreign Involvement in the Defence…
The new regime’s impact on foreign direct investment is, as yet, uncertain.
The new regime’s impact on foreign direct investment is, as yet, uncertain. If implemented efficiently the new regime should have little to no harmful impact on foreign direct investment to the UK defence supply chain, only preventing investment that is …
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Government Response
The government agrees with the committee's assessment that the NSI Bill's regime will not negatively impact FDI and is creating an Investment Security Unit, a digital platform, and a dedicated team to ensure efficient and timely processing of notifications.
Ministry of Defence
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12
Conclusion
Accepted
Foreign Involvement in the Defence…
The defence industry in the UK has remained broadly resilient in the face of financial...
The defence industry in the UK has remained broadly resilient in the face of financial pressures resulting from the COVID-19 pandemic. Unfortunately, the same cannot be said for all businesses within the defence supply chain, particularly those that also operate …
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Government Response
The government shares the committee's assessment regarding the vulnerability of some defence supply chain businesses and notes actions taken, including strengthening the Enterprise Act, bringing forward the NSI Bill, and continuing economic support to industry. Furthermore, the MOD aims for at least 25% of procurement spend to go to SMEs by 2022 and will publish a refreshed SME Action Plan shortly.
Ministry of Defence
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13
Recommendation
Accepted
Foreign Involvement in the Defence…
The Ministry of Defence and wider Government have provided substantial support to businesses in the...
The Ministry of Defence and wider Government have provided substantial support to businesses in the defence supply chain. Unfortunately, we heard that this support has not always reached its intended beneficiaries or had the intended consequences. The Ministry of Defence …
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Government Response
The government accepts the recommendation, committing to enhance communications to SMEs, which is featured in the MOD's SME Action Plan, and has established a new SME Working Group with a refreshed SME Action Plan due for publication later this year.
Ministry of Defence
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14
Recommendation
Accepted
Foreign Involvement in the Defence…
The commercial aerospace industry remains financially fragile.
The commercial aerospace industry remains financially fragile. The Ministry of Defence should already be aware of the close links between this industry and the defence supply chain and should consider what more it can do to support businesses which operate …
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Government Response
The government is acutely aware of the aerospace industry's fragility and its links to the defence supply chain, stating it has already provided significant support through schemes like Furlough and interim payments, and will make a strategic investment of over £2 billion in the Future Combat Air System (FCAS) over the next four years.
Ministry of Defence
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15
Recommendation
Accepted
Foreign Involvement in the Defence…
The COVID-19 pandemic impacted the supply chains of defence businesses as well as their finances.
The COVID-19 pandemic impacted the supply chains of defence businesses as well as their finances. Global supply chains for defence represent a vulnerability, especially when these supply chains include materials from countries not closely aligned with the UK. The Ministry …
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Government Response
The government acknowledges supply chain vulnerabilities and is proactively supporting domestic alternatives by mapping critical supply chains, exploring opportunities for UK companies, supporting new UK-based suppliers, piloting a new industrial participation policy, and engaging in international cooperation initiatives like NTIB.
Ministry of Defence
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