Foreign Involvement in the Defence Supply Chain

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.

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.

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.

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.

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.

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.

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.

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.

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.