Even in a room full of generals from around the world decked in military braid, the arrival of the prime minister causes a stir. At the Farnborough international airshow this week, knots of advisers and armed police surrounded Keir Starmer as he walked through the stalls, occasionally allowing a favoured chief executive or a nervous apprentice into the inner circle.
A few words with the prime minister will always be valuable for bosses of big business. But at this year’s version of the biennial aviation and weapons show, defence companies in particular were hanging on his words for any hints of the intentions of the first Labour prime minister since 2010.
Labour was out in force at the airshow, with a record number of cabinet ministers attending only a couple of weeks after they were appointed. Starmer tried to flatter executives, telling them that “some of your fingerprints are on our plan” for economic growth.
Yet beyond the warm words, the new government has a host of questions to answer on what the future of UK defence policy will look like – and whether more of the billions it plans to spend on weapons can be used as a tool to spur Labour’s goal of boosting economic growth.
Defence bosses are hoping for those answers to come quickly. Labour is carrying out a strategic defence review, due to be completed in the first half of next year, in which all large industrial contracts will be closely scrutinised, according to a party source.
The review will no doubt consider how best to maintain an effective UK military capability and boost manufacturing employment. However, the defence sector also presents ethical dilemmas, most obviously with growing calls for a ban on UK arms exports to Israel, amid the huge civilian death toll in Gaza.
Tufan Erginbilgiç, the chief executive of Rolls-Royce, told reporters at the show that he was “not sure it is helpful” to have a delay of at least six months before big decisions are made. Another manufacturing boss said that the defence secretary, John Healey, has insisted the review will not slow down big programmes that have already started.
Fighter jets and exports
Rolls-Royce supplies engines for the UK’s jet fighters, including the Typhoon and some F35s that make up the bulk of British air power. But it is also a key partner in the Tempest fighter jet programme, alongside the British manufacturer BAE Systems, Japan’s Mitsubishi Heavy Industries, and Italy’s Leonardo. The three countries are planning to deliver the first of the sixth generation of fighter jets by 2035 – half the time it took to develop Typhoon.
Tempest has made it to concept stage, but some senior defence industry figures believe it should not proceed in its current form. France, Germany and Spain are making a rival fighter, the Future Combat Air System (FCAS). Before the show, Michael Schoellhorn, the boss of Airbus’s defence business, said it did not normally make sense for Europe to make two separate fighters rather than sharing development costs with close allies. Airbus works on FCAS, but it has also previously asked to join the Tempest programme, according to a senior defence industry source.
Starmer did not fully commit to building Tempest – a stance that could well help in later negotiations over costs. However, he told bosses at the show that Tempest, also known as the Global Combat Air Programme (GCAP), is “an important programme” and was making “significant progress”.
The business secretary, Jonathan Reynolds, was warmer, telling reporters the government was “very strongly committed to it” and “see it as essential for the future, not just in terms of our defence needs, but obviously our industrial needs”.
Erginbilgiç said he believed the UK would continue with Tempest, which he said was about “defence capability and not relying on others”. But he also stressed the possible benefit to UK GDP growth, including potential exports of the Tempest fighter. Saudi Arabia has already asked to buy into GCAP, and other military allies in Europe and the Middle East might be interested.
“There is a big economic growth angle in this, right?” said Erginbilgiç . “Because right now, I have 1,000 people working on GCAP, and I’m not at peak yet.” Thousands more jobs would be scattered through the supply chain.
Exports feed straight into higher GDP, so would be attractive for a government committed to growth. Yet exporting Tempest to Saudi Arabia could prove politically tricky for a Labour government.
BAE has a relationship with the Saudi government that stretches back decades and encompasses al-Yamamah, the UK’s biggest ever arms deal. The company employs more than 5,000 staff in the country to provide technical assistance, training and service the Saudi air force’s Typhoon fighter jets. However, the al-Yamamah deal was dogged by allegations of corruption.
More recently, the former Conservative government resisted pressure to halt arms sales to Saudi Arabia, over the use of UK-supplied weapons by a Saudi-led military coalition against civilians in Yemen.
Germany has blocked sales of Typhoon fighter to the Saudis, to the chagrin of executives including Erginbilgiç and the Airbus chief executive, Guillaume Faury. Germany introduced the ban after the murder of the journalist Jamal Khashoggi in the Saudi consulate in Istanbul in 2018, but other countries have proven more willing to ignore past human rights abuses. The UK under the Conservatives was a key champion of Saudi Arabia joining GCAP. It is unclear whether that will change under Labour.
British bias
Before taking office, Starmer’s Labour had spent years persuading voters that it had changed since the leadership of Jeremy Corbyn, a longtime critic of military action and industry making money from products that kill people. By contrast, Starmer became the first Labour leader in at least 30 years – and probably much longer – to visit BAE Systems’ nuclear submarine factory in Barrow-in-Furness, Cumbria, and ministers have made great efforts to court the defence industry.
The reputation of the defence industry has benefited from Russia’s invasion of Ukraine. The return of major conflict to Europe has prompted a reappraisal by governments, and reportedly also some investors who had previously avoided weapons manufacturers on ethical grounds.
Despite complaints of straitened finances, the government has promised to increase the UK’s defence budget to 2.5% of GDP, but it has not said exactly when it will hit that target.
However, ministers have made it clear that they want defence spending to benefit the UK more, such as by favouring British companies for defence procurement, and increasing the weight given to businesses that provide British jobs when assessing bids.
That is “music to my ears”, said the boss of one major defence manufacturer. “Industrial strategy under the last government had become a dirty word.”
UK-based manufacturers hoping to win new business are unsurprisingly thrilled by the prospect of British factories being favoured for future contracts. One of those contracts is a plan to buy a new medium-sized helicopter. It is a three-way battle between Leonardo, which owns the former AgustaWestland factory in Yeovil, Airbus and the US manufacturer Lockheed Martin.
Adam Clarke, the managing director of Leonardo Helicopters UK, said Labour’s promises to favour British businesses was “absolutely the right message”. Leonardo is the only one of those three that builds helicopters from scratch in the UK.
“As a taxpayer, we should be looking at social value and the economic benefit to the UK,” he said.
Diane Shaw, a former Ministry of Defence official who is now a partner at the consultancy AlixPartners, said businesses could be persuaded to invest in the UK if the government had a clear industrial strategy.
“I think they’ll have to make some hard decisions, but we have a great base of engineering capability that could be exploited – if they start to push and develop that industrial strategy,” she said.
Yet at some point the Labour government may have to choose between benefiting Britain’s manufacturers, or getting the best value for money. The government got an early crash course in that tension when it last week decided not to offer financial support to the struggling Harland & Wolff shipyard in Belfast. The decision by the business secretary raises questions over the yard’s survival, and its ability to fulfil a £1.6bn warship contract. Yet Reynolds said he was confident that Royal Navy warships would continue to be built in Belfast.
If the budgets of building fighter jets, tanks or ships rise – as they tend to do – then the government could face more politically tricky decisions with direct implications on UK jobs. As one British defence industry boss at the show warned: “It can’t be ‘British at any cost’.”