Battle lines drawn over MoD spending; With pressure mounting to cut back on wasteful defence spending programmes, a beefed up Northern Defence Industries is helping SMEs flex their military muscle on Teesside.

"IF you read the media, you would think we are going to stop defence spending in the UK tomorrow.

"Right now the defence budget is in excess of pounds 30bn. If you take away all the ring fenced items, we spend roughly pounds 16bn every year on new development and development support. Even if they bring that down to pounds 14bn, that's still an awful lot of money," says Robin Fox, head of the cluster group Northern Defence Industries whose response to threatened public sector spending constraints has been to go on the offensive.

Last year, the powerful UK trade bodies the Association of Police and Public Security Suppliers (APPSS), the Defence Manufacturers' Association, and the Society of British Aerospace Companies (SBAC) announced a merger that resulted this month in the launch of a new trade force - ADS (AeroSpace, Defence and Security) -to promote the interests of some of the biggest names in the business.

The move came about partly as a result of massive consolidation across the European and the US defence industry sector - a trend slowed only temporarily by the brakes of recession, according to analysts IHS Jane's Defence.

Northern Defence Industries countered with a tactical move of its own, joining forces with the not-for-profit organisation Farnborough Aerospace Consortium this autumn, trebling its membership and geographical influence overnight. Meanwhile, it also set about building alliances with parallel sector organisations, including most recently the North-east's NOF Energy on the basis that much of the technology and skills used in the oil, gas and nuclear sectors are just as handy when it comes to equipping our troops on the front line.

From being a small, fairly anonymous regional trade body, NDI has suddenly become a very big blip on the UK Government's radar.

HMG has not only actively encouraged the organisation to expand - NDI forecasts it will directly generate pounds 2m in defence and aerospace orders for North-east firms next year - but it has also recognised its expertise in supply chain management by commissioning it to carry out an initial investigation into the military mandarins' famously opaque procurement processes.

The last great bastion of old boy networking in Whitehall, the Ministry of Defence's most successful campaign of recent years has been in protecting its own enormous budget - the fourth biggest in Government - while its procedures have been largely impenetrable to reform.

A recent departmental review by former defence special advisor Bernard Gray found the average defence programme was five years late into service and pounds 300m over budget - a result of what Robin Fox would describe as the "potato store" syndrome, a typical scenario in which many unnecessary hours and several hundred thousand pounds were spent making small changes to the spud racks of a naval warship designed overseas just so they fell into line with the MoD's exacting Defence Standards.

With financial pressures now forcing both Labour and the Conservatives to look at performing the politically dangerous manoeuvre of reducing MoD spending without compromising troop safety or Britain's influence on it th co n the world stage, Robin Fox believes NDI and s member companies are in a position to lead he one military assault everyone is agreed on -ost-cutting.

Many of the firms within NDI's now 600 to 00-strong community of SMEs, such as Whitby-based SyntheSys, are - like most small ompanies - very good at coming up with money-saving solutions.

70 Wco mmsk of ef th be co ef SyntheSys, which keeps its own overheads to a minimum by running a global network of highly killed, home-based IT specialists, says just one f its tactical data link tools developed to improve fficiencies in standards management could save he MoD millions of pounds a year. Robin Fox elieves it's smaller scale companies like this that ould prove to be the secret weapon in cost ffective defence procurement. But industry needs politicians to decide first on he framework for spending and the future echnology development that flows from it. A strategic defence review (SDR) -promised for ext year by Labour, and supported by the Tory eadership -is an urgent requirement, says Mr ox.

th te ne le Fo wb "We need something that gives us a firm view of what our [the UK's] role in the world is going to e. The SDR needs to be based on a foreign olicy which says what is our position, what are we trying to achieve in the world, what means do we need to achieve it, and where do the armed orces fit into that.

e po wwfo "Do we want to stay as a major player in world olitics? Do we want to maintain a seat on the UN Security Council? If we do, we have to maintain an army, not a defence force. That means it doesn't fall below the magic figure of po Umm 100,000 uniformed staff, and we need to maintain nuclear capability.

"We probably need projectile power - hence the reason for two aircraft carriers. We therefore need well-equipped destroyers and pretty good subs. These are big issues."

And the answers to all of them have a direct impact on local companies, as already seen in the see-saw decision making process over the successor to Trident, the Typhoon Eurofighter jet, and the aircraft carriers HMS Queen Elizabeth and HMS Prince of Wales, which, although now in train are still years off completion after almost a decade of promises.

The uncertainty over the scope and even continuation of projects to which firms have already committed considerable time and money is unsettling for suppliers including Tees Valley's Darchem, McGill Services and others.

The Tories have threatened to pare 25% off the MoD budget should they be elected, while Labour, still licking its wounds over defeated cuts in Territorial Army training, has accepted that the MoD is promising way more than there is money to deliver.

Mr Fox - a senior TA man himself, who was responsible for setting up the logistics behind Camp Bastion earlier this year - believes such cutbacks, which would almost certainly hit the pounds 5bn carriers project and Typhoon, would be ill judged and largely irrelevant.

"It's a false argument that you can save money by cutting the carriers because all the major expenditure has been committed.," he says.

"You would be spending as much on penalties as you would save. They are already placing orders on the big ticket items on the successor to Trident. That has to be done now to get the run-in for companies such as Sheffield Forge Masters, one of the few facilities in the UK with the melt capacity to cast the enormous cases for the tubes and pressure holds for a big sub."

But then the history of defence spending is littered with the unfulfilled ambitions of countless defence chiefs - largely because the long lead in times and fast-changing nature of modern warfare makes weaponry redundant before it's even rolled off the production line - or, in the case of the Future Rapid Effects System Utility Vehicle, the design board.

"We are prisoners of short-term history," says Mr Fox.

"We always prepared for the last war, not the next one."

And yet Britain remains the second biggest manufacturer of defence equipment after the United States, selling more than pounds 5bn overseas.

Deep cuts in defence spending would do more than unsettle our allies, it would seriously injure the UK manufacturing sector, argues Fox.

"Cutting back on defence spending has implications for exports because it reduces capacity. Once we have decided what we are going to spend money on we need to make the decisions quite quickly," he urges.

"The Government could protect a lot of our economy by making decisions on our defence programme and releasing money. That would generate business in the supply network. Importantly, it would generate activity in companies that have got the key engineering and manufacturing skills we need to maintain in the UK. This country has had its engineering and manufacturing base salami sliced over a number of years and we cannot afford to let it go any further.

"Defence isn't the answer to all the ills of this country, but it's one of the elements that we are very good at and gives us a good export return while keeping people in high end manufacturing."

Spend, spend, spend? THREE of the key spending programmes for which cash has already been committed: * BAE Systems is among those in the running for the recently green-lighted Future Rapid Effects System Specialist Vehicle programme, contracts for which are due to be awarded early in 2010. Winning the project off American owned rival General Dynamics could be critical for BAE, which faces serious over capacity at UK sites if it loses the bid. "I think there is further consolidation on the armoured fighting vehicle front to come," says NDI's Robin Fox. "And I believe there are other facilities in the UK that have yet to be rationalised and potentially closed." The SV project is worth an initial pounds 2bn.

* The first steel was cut earlier this year for what the MoD described as the "cornerstone" of Britain's ability to project military power world wide. The 65-tonne aircraft carriers HMS Queen Elizabeth and HMS Prince of Wales, worth pounds 5bn in total, are due to bring several million pounds worth of supply contracts to Teesside - but the carriers could yet suffer cutbacks. Last month it emerged that one of them could be downgraded from a warship to a commando ship for ferrying troops, saving around pounds 600m and a further pounds 7bn on the jets that would no longer be needed for the carrier. Today, Tyneside shipbuilders A&P Tyne announced that it would be constructing the mid-sections and other steel work for the carriers, worth pounds 55m.

* Last month, BAE Systems won a pounds 400m contract as part of a four-nation consortium to build the new Eurofighter supersonic jets for the UK, Germany, Italy and Spain. The contract for the jet design, which will be unveiled at the Dubai Airshow next week, will run for the next five and a half years and comes as a welcome boost for BAE, which has already laid off staff in the North-east.

CAPTION(S):

ACTIVE SERVICE: Robin Fox, MD, Northern Defence Industries READY FOR ACTION: Soldiers from 1st Batta alion, Grenadier Guards on patrol near Basharan in Afghanistan