Scottish Government policy freezing defence funding

Scotland’s defence industry is losing access to research and development funding as a result of Scottish Government policy linked to the conflict in Gaza, with a senior industry figure telling the Scottish Affairs Committee that around GBP 22 million of Scottish Enterprise funding since 2007 has been frozen and that there is no clear route to restoring it.

Mark Stead, Senior Vice President for Radar and Advanced Targeting at Leonardo, told the committee on Wednesday that the funding moratorium was creating a gap between Scotland and the rest of the UK in access to defence R&D support, saying that “there is a difference south of the border and north of the border in access to that kind of funding.”

Stead said Leonardo’s Edinburgh business had historically received around £22 million through Scottish Enterprise since 2007, generating significant leverage, adding that “we typically add about £4.50 for every £1 invested with us from Scottish Enterprise, so the leverage of that Government investment is really significant, in terms of what we bring and the private sector investment over and above that.” He said that R&D investment led directly to new products, new exports, new jobs and the sustainment of existing ones.

Asked whether the policy might be lifted, Stead said implementation guidance for the moratorium had now been made available but that the off-ramp remained unclear, telling the committee that “it is subject to review on a periodic basis, but as of right now it is not clear what the off-ramp will be.”

The R&D funding freeze is not the only area where the committee heard about divergence between Scottish Government policy and the needs of the defence industry. Stead also described being blocked from advertising on Edinburgh trams a year ago, saying the council removed the advertising because Leonardo was part of the defence industry, and said the company had experienced five or six blockade protests where “the police will prioritise keeping the peace over enabling the opening for 3,000 people to go to work to support critical operations right now.” He said the industry had “lost the recipe” on national resilience and that the time to change that was now.

The committee also heard that the apprenticeship levy, while UK-wide, operates differently in Scotland in that employers cannot access it directly as they can in England, with Barnett consequentials controlled by the Scottish Government which does not routinely allocate them back into the defence industry. Stead said that morally the levy should “return directly that value back to growing the next wave of those skills” and that it “should be honoured through whatever mechanisms necessary.”

When asked directly by Conservative MP Angus MacDonald whether the Scottish Government was hostile to the defence sector, Babcock’s Chief Corporate Affairs Officer John Howie said the relationship had improved following the change in leadership at Holyrood and that common ground had been found around skills and economic impact, saying “if you don’t get too hung up on some of the ideologies, we can all accept that generating lots of highly skilled jobs that impact on the economy has to be in everyone’s best interests.”

But he added that the two potential Defence Technical Excellence Colleges planned for Scotland, one in the east and one in the west, remained on hold pending Scottish Government match funding and elections at Holyrood, while five equivalent colleges had already been announced for England and one for Wales, saying “I guess we all just keep our fingers crossed that once the Scottish Government elections are out of the way, something can be fixed between Westminster and Holyrood.”

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