Royal Aeronautical Society T: +44 (0)20 7670 4300 No.4 Hamilton Place F: +44 (0)20 7670 4309 London W1J 7BQ E: [email protected] United Kingdom www.aerosociety.com

Rt Hon George Osborne MP Chancellor of the Exchequer HM Treasury 1 Horse Guards Road London SW1A 2HQ

5 June 2015

Dear Mr Osborne

Submission to Budget July 2015

Please find enclosed a submission to the July Budget on behalf of the Royal Aeronautical Society. We welcome the opportunity to input into HM Treasury’s policy-making process and would be happy to discuss the contents of our submission in more detail if required.

About the Royal Aeronautical Society (RAeS)

The RAeS is the world's only professional body dedicated to the entire aerospace community. Established in 1866 to further the art, science and engineering of aeronautics, the Society has been at the forefront of developments in aerospace ever since.

We seek to i) promote the highest possible standards in aerospace disciplines; ii) provide specialist information and act as a central forum for the exchange of ideas; and iii) play a leading role in influencing opinion on aerospace matters. The RAeS is also working with the Government and industry leaders within the Aerospace Growth Partnership.

Yours sincerely

Simon Whalley Head of Policy and Public Affairs

Royal Aeronautical Society T: +44 (0)20 7670 4300 No.4 Hamilton Place F: +44 (0)20 7670 4309 London W1J 7BQ E: [email protected] United Kingdom www.aerosociety.com

Executive summary:

Aerospace has a central role to play in contributing to the success of the UK’s long-term economic recovery, in providing ongoing, vital national security, and in responding constructively to the continuing pressure for reduced environmental impacts. We believe that aerospace also provides one of the key industrial measures available to rebalancing the economy.

The previous Government recognised that the aerospace sector was and should remain a major contributor to UK Plc. and much valued support was provided through initiatives including the establishment of the Aerospace and Defence Growth Partnerships, as well as the Aerospace Technology Institute. Such efforts are efficient means by which the UK aerospace industry can recapture its reputation as a global competitor and enhance its huge export potential.

Ongoing focus on original equipment manufacturing (OEM) capability to compete in a global marketplace has, and will continue to pay significant dividends. Currently missing from the supply chain strategy is support for Maintenance, Repair and Overhaul (MRO), which represents a very significant aerospace specific worldwide business. Government support for ongoing industry innovation, technological advancement and skills development will ensure the UK can continue to develop leading-edge capabilities for the provision of national security and long-term prosperity.

The RAeS acknowledges that the Government will publish its planned Strategic Defence and Security Review (SDSR) before the end of this year, which will set out its strategic objectives, and the Comprehensive Spending Review (CSR), to set the budget for Government spending. The Society will provide informed views on these Reviews separately but we believe Government should refrain from setting new arbitrary short-term financial targets before thorough reviews of the UK’s defence and security needs have taken place. The interruption of programmes, even for a short term, can have a lasting impact from which it is not always possible to recover. Instead, the RAeS fully endorses efforts to deliver further efficiency savings to existing programmes.

The Government should take steps now to support supply chain capability so the industry can deliver the Government’s current and future strategic objectives, within allocated budgets, while also exploiting international opportunities for the national economic good.

Finally, a significant strategic concern is the uncertainty over approval and delivery of additional airport expansion in the South East of England, which continues to deprive the UK of vital connections. The RAeS urges the Government to expedite a decision as quickly as possible.

Royal Aeronautical Society T: +44 (0)20 7670 4300 No.4 Hamilton Place F: +44 (0)20 7670 4309 London W1J 7BQ E: [email protected] United Kingdom www.aerosociety.com

The RAeS recommends that the Government:

 Continue with the growth partnership strategies that are proving an effective and efficient mechanism for the re-generation of a world-class capability in respect of technology, skills and tool sets. Expansion of the initiative to include MRO activities and skills development will help to capture additional, significant export growth.

 Should resist premature reductions to the Ministry of Defence (MoD) budget in time for the July Budget, and wait until completion of the forthcoming SDSR before reviewing financial commitments. The pursuit of further efficiencies in the delivery of current programmes is fully supported.

 Continue working with aerospace industry to create quality apprenticeships that will boost the capability of the supply chain for it to deliver nationally significant programmes in the UK and exploit opportunities abroad. The RAeS would recommend to Government that:

o mechanisms be put in place that would measure the quality and true success of apprenticeship programmes – not simply focusing on the quantity of new starts

o vocational routes to Science, Technology, Engineering and Mathematics (STEM) careers be developed to sit alongside accepted academic routes.

o details be outlined of funding for the proposed three million additional apprenticeships to be created through the Full Employment and Welfare Reform Bill

 Use the occasion of this ‘emergency’ Budget to set out its planned timetable of activity that will turn the Airports Commission’s final recommendations for additional runway capacity in the South East of England into a lasting, deliverable solution.

Royal Aeronautical Society T: +44 (0)20 7670 4300 No.4 Hamilton Place F: +44 (0)20 7670 4309 London W1J 7BQ E: [email protected] United Kingdom www.aerosociety.com

1. Supply chain capability:

As the economy strengthens and returns to steady growth, policy-makers must capitalise on the opportunity to help re-establish the UK’s military and civil aerospace supply chain capability to meet the clearly growing global demand. Growth partnerships are most helpful in this respect and are supporting the development of technology, skills and tools. To take full advantage of the investments made by the previous Government, it is vital that the positive momentum is not allowed to dissipate.

As is well understood, the industry faces currently a number of ongoing challenges that combine to hinder its export and growth potential, such as a rapidly ageing workforce and difficulty recruiting young people – with the right types and levels of skills – into the industry.

The aerospace sector has a lower proportion of young people currently working in it than manufacturing generally and a greater proportion of those over the age of 45. It is estimated that over 8,000 people could retire from the sector in the next eight years, but only 5,000 young people are likely to be employed based on current employment trends – representing a deficit of 3,000.1

Over the past five years, the previous Government acknowledged the fact that industry requires high-quality skills, training and education in order to achieve long-term, global competiveness and deliver high-value, nationally-significant Defence and Civil aerospace programmes. Through the Aerospace Growth Partnerships (AGP) and the Defence Growth Partnership (DGP), the previous Government had identified with industry the way ahead to meet current and future needs, and this strategy remains sound.

One area that particularly requires more attention is the number of apprenticeships being created to help address the growing capacity gap and raise the skills of those entering the industry. Further to initiatives set out by the AGP and DGP, the RAeS welcomes the Government’s commitment contained in the Full Employment and Welfare Benefits Bill to create three million new apprenticeships over this parliament and seeks funding commitments from this Budget that will help industry deliver this target.

Maintenance, Repair and Overhaul

Worthy of more Government focus and specific support is the Maintenance, Repair and Overhaul (MRO) sector. The market is expected to grow from $60 to over $90 billion by 2024 but there are risks to the industry to be able to meet growing MRO demand. The sector faces ongoing challenges to recruit. In MRO 1,200 MRO licensed engineers are aged 20-30 compared with over 3,500 aged of over 502.

There are concerns that young people are being steered into Higher Education courses and STEM-focused routes that do not deliver the necessary hand skills required by the OEM and MRO industries.

1 HM Government (2013) Lifting off – Implementing the Strategic Vision for UK Aerospace 2 Ibid

Royal Aeronautical Society T: +44 (0)20 7670 4300 No.4 Hamilton Place F: +44 (0)20 7670 4309 London W1J 7BQ E: [email protected] United Kingdom www.aerosociety.com To correct these issues and to allow the sector to flourish, the Government can take a number of steps to encourage young people to consider apprenticeships and vocational routes into STEM careers which are currently closed off. The RAeS supports the previous Government’s flagship Trailblazer scheme as an opportunity to raise standards of competence in aerospace; however, a greater focus on the success of the scheme in generating a young workforce that is fit for purpose and with the skills industry requires will enhance the efficiency and effectiveness of the programmes.

2. Defence capability:

Maintaining a sufficiently strong national defence capability must remain a top priority in light of the increasingly unpredictable nature of the international environment and growing global threats.

Notwithstanding pressures to reduce central government budgets to assist with deficit reduction, the RAeS cautions against making short-term cuts to defence budgets and encourages the Government to wait until completion of its forthcoming assessment of national security and defence requirements, along with setting foreign policy objectives, before reviewing financial commitments.

Following a review 3, of the last Government’s Major Projects Report (2014) and Equipment Plan (2014) we caution that the MoD may have understated the costs of the equipment plan for the armed forces, which would require use of the MoD's entire contingency fund and lead to cuts being made elsewhere.

Efficiency savings to improve value for money for the taxpayer are to be encouraged as long as they are achievable and do not impact on the deliverability of other, essential, military capabilities.

Unmanned Aerial Systems

One such capability is that of Unmanned Aerial Systems (UAS). Civil and military UAS, or Remotely Piloted Aircraft Systems (RPAS), can continue to deliver major benefits to the UK’s national security and defence through advanced surveillance and precision weapons, and to the national economy. Government has already committed substantial funds on UAS research and development (R&D) and in supporting infrastructure. This investment is delivering growth in high value jobs and exports services. Challenges remain with technology gaps and sustained Government demand is therefore required to support planned industry investment.

3. Aviation infrastructure prioritisation:

The previous Government was right to prioritise infrastructure investment and delivery over the duration of the last parliament. Infrastructure underpins the functioning of a successful economy, enabling goods and people to move freely and efficiently around the UK and across the world, and facilitates innovation. Unfortunately plans for the UK’s physical infrastructure are still inadequate in some quarters to support a modern, globally- competitive economy, and an important milestone in helping to address that will be

3 House of Commons Public Accounts Committee (2015) Major Projects Report 2014 and Equipment Plan 2014 to 2024, and reforming defence acquisition

Royal Aeronautical Society T: +44 (0)20 7670 4300 No.4 Hamilton Place F: +44 (0)20 7670 4309 London W1J 7BQ E: [email protected] United Kingdom www.aerosociety.com publication of the final recommendation to the Government from the Airports Commission on additional runway capacity – including the necessary air traffic control facilities to support extra capacity – in the South East of England.

While supportive of the Airports Commission process and its exhaustive approach to developing a lasting solution that has cross-party support, any avoidable delay to the decision and setting in train the process from final recommendation to a Government decision, must be avoided to minimise any further damage to UK connectivity and the economy.

We therefore call on the Treasury to use the opportunity of this ‘emergency’ Budget to set out the process by which the Government will implement the Commission’s final recommendations once published – providing a detailed timeline of activity where possible.