Steel tariffs are pushing up costs for defence

The increase in UK steel tariffs is adding to the Ministry of Defence’s own costs, Minister for Defence Readiness and Industry Luke Pollard has confirmed to MPs, in an exchange in which a select committee member noted it is the only cost pressure on the defence budget the government has imposed on itself.

John Glen MP asked what had been built into the Defence Investment Plan’s costings to account for the tariff rise, which took effect on 1 July, raising the rate from 25 to 50 per cent.

“We heard from Make UK in evidence that this would have a real impact in terms of costs,” Glen said, noting he had written to the department on the subject.

Pollard replied: “We’re broadly baking our expectation of cost increase into the budgets. We’re liaising directly with DBT around the concerns that industry have raised with us, but also what is our projected steel usage. As a whole we’re not a huge steel user within Defence, but we have particular steel requirements for certain platforms,” citing the specialist steels needed for submarine reactor builds as one example.

Asked directly whether the department would face higher costs as a result of the tariffs, Pollard said: “I mean, quite potentially, yes, given the fact we buy steel on the open market.” He said the Treasury had specifically added extra contingency to the plan to help cope with such pressures, alongside exchange rate movements on equipment bought from abroad and spikes in demand for critical minerals, allowing the department to absorb some volatility without adjusting its overall programme.

Glen noted that steel stood apart from other inflationary pressures facing the defence budget, “I think it’s the only one where the government itself has imposed this cost increase on itself,” he said, before turning to the shipbuilding pipeline, where Pollard said the department had settled on a steady drumbeat of production rather than delaying or accelerating output, citing the Norway Type 26 export deal, which extends Clyde production by an extra decade, as evidence the approach was working.