Business and Independence: Defence Industry

Published: 7 January 2014
Author: Brad MacKay

Brad McKay reflects on the implications of Scottish independence for three major industries, the energy, oil, and gas sector, financial services, and defence. In the third of four part series, Brad discusses implications of independence on the defence industry. 

The white paper commits to exploring different possibilities for the defence industry and suggests that building R&D capabilities in this area could form part of Scotland’s industrial capabilities. It also suggests that budget allocations towards defence procurement would remain more or less the same as current levels. What the white paper does not explore is the nature of the products and services trading in the current defence industry, and whether a much smaller Scottish military would be procuring products and services, many of which are high-tech and designed for big-ticket military equipment such as aircraft and ships, currently being produced in Scotland. A vote for independence would almost certainly result in firms relying on defence procurement from, particularly, the UK government, to revaluate their business strategies and, if necessary, explore whether business activity would need to be migrated south if that is where procurement is taking place, rather than face, for instance, tendering processes laid down by EU procurement law. Procurement of frigates by an independent Scottish Government, to be built on the Clyde, would have to be cost-effective to keep shipyards open, although BAE Systems has expressed their preference for continuing to build ships on the Clyde. With some 12,600 people employed in the defence industry (by some estimates), many of which in highly skilled jobs, and extensive supply chains throughout Scotland, this has implications for the future sustainability of the industry in Scotland, and what shape it might take in the future. Opportunities to increase exports, or diversify into civilian products, such as renewables on the Clyde, may exist for specific firms, but whether such a transition could sustain businesses in the short-term heavily reliant on defence contracts is questionable. And even with substantial capability in ship-building on the Clyde for example, whether the UK government would want, or be politically able to continue to build ships in a foreign nation is uncertain at best.

Small counties, such as Israel, have demonstrated that they can develop and maintain significant defence industries. Defense industries also support related industries, be they in aerospace, engineering or microelectronics, and the science base needed for research and development. But whether Scotland, with a much smaller military, potentially a much smaller market for their goods and services, and possibly with little appetite for promoting such an industry can maintain a competitive advantage remains a major uncertainty.  

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