Defence Procurement

– in the House of Commons at 1:22 pm on 4th November 2004.

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[Relevant documents: The Sixth Report from the Defence Committee, Session 2003–04, HC 572, Defence Procurement, and the Government's response thereto, Cm 6388]

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Watson.]

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence 1:24 pm, 4th November 2004

The professionalism and bravery of the men and women who serve in our armed forces are beyond question. We are rightly proud of the job that they do. The Government are committed to providing them with the capabilities and the support that they need in today's increasingly dangerous world. That is why we are investing in defence.

This July's spending review saw the defence budget increase by £3.7 billion over the next three years. That is the longest period of sustained real growth in planned defence spending for more than 20 years. It is our job to make sure that that extra money is spent in the best way possible. We must ensure that it makes a difference at the place where, every day, our armed forces make a difference: the front line.

We will spend more than £6 billion this year on new equipment and more than £8 billion supporting it. The management of those resources is a huge task. In giving our armed forces the best equipment that we can, we are also committed to delivering value for money to the taxpayer. In doing so, we support the British economy, helping to maintain key parts of our manufacturing and technology base.

Our procurement performance and the armed forces' equipment are rightly subject to a huge amount of scrutiny. However, sometimes there is unfair and unbalanced criticism. Yes, there have been disappointing delays and cost growth on some of our major legacy projects, but there have also been significant achievements.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

No, let me get on with the statement. It is nice to see the hon. Gentleman in his place, as he did not participate in the last debate and did not attend Defence questions. I know that he is the SNP's defence spokesperson, so he has obviously realised that he has a job to do. I will allow him to intervene later.

Let me provide some recent examples from Operation Telic in Iraq. First, we have seen the successful employment of the devastatingly accurate Storm Shadow missiles for the first time. Then there has been the delivery of the Mamba artillery locating radar system six months early, allowing troops to identify enemy positions, which saves soldiers' lives. Also, the world-leading Bowman personal role radio provided a significant boost to our infantry's capability. The US Marines were so impressed that they bought some of that equipment.

Photo of Angus Robertson Angus Robertson Shadow SNP Spokesperson (Defence), Shadow SNP Spokesperson (Foreign and Commonwealth Office)

I want to pick up on a point of scrutiny. Is it the case that the UK Government, unlike the US Government, still do not publish a comparative report on defence offset and its impact on the economy and defence manufacturing base? Are not foreign contractors obliged to submit regular reports to the Ministry of Defence every six months, updating their progress on UK offset obligations? If it is possible for the US to publish those details and scrutinise offset there, why is it not the case here?

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

I think that the best thing would be for me to write to the hon. Gentleman about that. There are reasons why we adopt our particular position. It is not because of the lack of intensity of pressure on companies to deliver, or an unwillingness to see the achievement of all the objectives of a procurement stream being implemented within the UK. My experience tells me that there are good reasons why we do not necessarily put these matters under public scrutiny. The hon. Gentleman shrugs his shoulders as if this were a great mystery. My experience in Government tells me that we do not do things lightly, but after long and careful consideration. Sometimes there are good established practices, but it does not mean that we do not consider whether there might be a better way of doing things. I note what the hon. Gentleman says, but as ever, there is more depth to the issue than the headline that he is obviously chasing.

The National Audit Office report on Operation Telic concluded that our equipment performed well and was effectively supported, and that the numerous items of new equipment that we deployed proved their effectiveness. But we are not complacent. We believe that we can do even better and that industry can do better, too. We have set ourselves demanding standards and today's debate will help to explain how we will deliver against those standards. Equipment procurement is not just about today's operations. We have to plan over decades, predicting the challenges that our servicemen and women will face in the future and then equip them to meet those challenges. That is no easy task and there is no simple formula for success.

Photo of Ms Julia Drown Ms Julia Drown Labour, South Swindon

I congratulate the Ministry of Defence on selecting MAN ERF UK as the preferred bidder for the biggest defence contract in Europe for 25 years. However, does he agree that some commentators have misunderstood what is happening? They have referred to the German parent company, even though MAN ERF UK is a UK company. It will get the best vehicles for our armed forces, and safeguard thousands of manufacturing jobs in this country. The company will also expand those jobs through the 15 major UK suppliers that it uses, and also at its headquarters, which is in my constituency.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

My hon. Friend makes a very good point. As ever, we are subject to bad press. In any procurement decision involving competition there will always be some disappointed companies. As a result, counter-arguments are often stoked up. My hon. Friend played a considerable role in encouraging the final decision, and will know the quality of assessment devoted to this procurement stream. However, although parliamentary pressure is always welcome, we do not always bend to it—nor should we, as we have to take account of a range of factors when we make a judgment. She has alighted on some of the key factors that made this decision appropriate. They include the role that the MOD plays in the UK manufacturing sector, and the vitality and size of this particular procurement stream.

This was a very big decision. It was right to take time with it and to consider all the available options. As a consequence, some companies were disappointed, but I pay tribute again to the contribution made by my hon. Friend to that debate.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

In respect of the support vehicle contract, will the Minister say whether the decision took account of the need to provide offset to the Austrians for the potential contract for the Eurofighter Typhoon?

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

I have no knowledge of that, but if what the hon. Gentleman says is the case, I shall make sure that my noble Friend Lord Bach, the Minister for Defence Procurement, communicates all the available information. However, the hon. Gentleman should be aware that there are many sensitivities in commercial projects. Some of them can be revealed if the companies so agree, but often they do not want that to happen.

I do not want to say that the issue raised by the hon. Gentleman was a factor in this matter, but revealing all the parameters of a successful bidder means that all the parameters of the unsuccessful bidders must also be revealed. Is that what companies want? I think not. My experience tells me that we should give competitors as much information as we can. That information then goes into the public domain. However, it is always better to treat commercially sensitive information with care, for fear of affecting share prices. A lot of factors have to be balanced in these matters.

I was saying that the procurement process was not easy, and that there was no simple formula for success. I explained some of the aspects of the problem, but it is worth looking at what we are doing in all three services.

We aim to give the Royal Navy an enhanced expeditionary capability. That involves providing two new large aircraft carriers, with the joint combat aircraft providing a more powerful air group than we have ever had before. We will also provide new amphibious shipping for the Royal Marines and, for the Royal Navy, type 45 destroyers—the most powerful air defence destroyers ever built. We will also provide a new submarine fleet based around the Astute class of submarines.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

How many ships are under construction today?

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

I do not have an answer to that, as I am not a walking abacus or computer. It would be nice if that figure were immediately to hand.

Photo of Keith Simpson Keith Simpson Shadow Minister (Defence)

My hon. Friend knows the answer.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

He may know the answer, but it is easy to ask a question when one knows the answer in advance. No doubt an answer will be winging its way here as we speak—or it may sail here—but I am tempted to analyse what is meant by the term "under construction". Mr. Viggers is probably not familiar with the MOD's new approach to these matters, in terms of smart acquisition and de-risking. A broad interpretation means that we could say that those factors form part of the construction process. That is why I hesitate about being too precise, but we shall try and get him an answer before the end of the debate, or in the wind-up to be delivered by my hon. Friend the Under-Secretary. However, I should be grateful if he defined precisely what he means.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

I am happy to clarify my question. By using the term "under construction" I wanted to know how much steel was being cut.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

The question could apply to the Astute submarines or the Type 45 destroyers, or to the LSD(A)s—the auxiliary landing ship docks. If the hon. Gentleman wants to talk about the number of hulls involved, I do not think that I could tell him off the top of my head, but we will try and get the information.

Photo of Jim Sheridan Jim Sheridan Labour, West Renfrewshire

Could my right hon. Friend give an estimate of how many ships would be under construction if we still had a Conservative Government?

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

There would fewer than under this Government. That is not an unreasonable question, given the cuts that the Conservative party recently announced that it would impose on some critical and key areas of defence spending. All of that needs to be examined. It is not my job to speak for the Opposition on such matters, but I think that it is fair to say that a Conservative Government would be less successful in its approach to defence procurement. As a result, this country would not be making the progress that it is making, or building the largest warship since world war two. That is a very important element, necessitated by the fact that we have to catch up with many of the non-decisions and cuts made by previous Conservative Governments.

Photo of Richard Ottaway Richard Ottaway Shadow Secretary of State (Environment)

I want to bring the Minister back to his announcement a few minutes ago in respect of the new carriers and air defence destroyers. In the old days, airborne early warning was used to give advanced radar coverage for the fleet. It seems that that principle is being abandoned. Will that result in a decline in our operational capacity, and mean that there is less time for defence of the fleet to be implemented? If so, why?

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

A range of factors was involved in the judgment on these matters, not least among them the decision not to upgrade the Sea Harrier. It was accepted that our approach to the defence of the fleet involved an element of risk, but that is always the case with our armed forces. As we move towards new procurement, we cannot always maintain the old approach. Legacy systems mean that maintaining the old procurement approach has some very large cost elements. We must strike a balance as we move forward.

In addition, it is worth listening to what the First Sea Lord had to say on these matters. He rightly identified some of the risks involved, but he also highlighted what the new Navy will look like. That new Navy will be better and more agile, and more able to deliver what is required of it as part of an expeditionary force.

Moreover, we believe that we would always work in alliance with other countries in any major conflict. That belief has informed our approach to uplifting the capabilities of NATO and the EU. We want to ensure compatibility and interoperability between naval fleets, and to ensure maximum protection for fleets required to enter dangerous environments

It is true that risks are associated with our approach; when he winds up the debate, my hon. Friend the Under-Secretary may be able to give more specifics. I have given the Government's general view of this matter, and hope that the hon. Gentleman will accept the general thrust of my remarks—that we have set in train the biggest programme of warship building since world war two.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

As far as the Government are concerned, it is more than all right. We have made a major commitment, and it is one for which previous Governments should have argued in preceding years.

We are giving the Army a highly deployable, flexible and effective mix of capabilities. These include the future rapid effects system. The FRES will be the central pillar, providing a potent medium-weight system able to project power rapidly worldwide. The capabilities also include the introduction into service of the Apache attack helicopter, which will provide a step change in our ability to engage land targets with agility and precision and at range.

We are enabling the RAF to strike with accuracy and devastating effect, as well as to deliver our forces rapidly and in strength. We are now taking delivery of Typhoon aircraft. The RAF is delighted with its performance and reliability so far, which have greatly exceeded expectations. Additional C-17 and A400M capability will further enhance our strategic lift. Those are just some of the big-ticket items, and I will touch on many more in my contribution.

Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley

The Minister has mentioned some of the high-tech procurement, and I am grateful for that because I have BAE Systems in my constituency and I am proud of what that company achieves. On the low-tech side, I have some firms that have suffered because a clothing contract has been given to a Northern Ireland firm that has outsourced provision to China. A constituent came to see me last weekend and pointed out that the French are able to ensure that the clothing provided to their servicemen and women is manufactured in France. Could we do that, and if so, why do we not take that opportunity to back British business?

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

The hon. Gentleman asked how we can back British business, but—as he said—the contract went to a UK company. The detailed background to the cut and sew contract is not in the public domain, but several firms made bids. Examination of the competing bids also entailed significant sourcing outside the UK. The conclusion showed that significant savings could be achieved for the MOD and, therefore, the taxpayer. The contract provides value for money and uses a supply route in which we have every confidence. I repeat that the contract did not go to a parent company outside the UK. We are sourcing from the UK, but the supply chain is a matter for the prime companies.

I hope that the hon. Gentleman does not suggest that we should do what other nations do, which is to impose conditions on contracts. That leads to overpriced contracts, which means that we cannot make savings that can be invested in defence spending elsewhere. That balance has to be struck in any procurement decision. We do not have such a protective system and nor did the Conservative Governments of long and distant memory. We have to ensure that we have a robust contract that will deliver on time, on value and on quality. That is what we believe we have achieved in that case.

Photo of Paul Keetch Paul Keetch Shadow Secretary of State for Defence, Defence

The Minister was right to go through the broad aspects of the Army, Navy and Air Force main procurements. Will he say anything about procurement for the Royal Fleet Auxiliary, especially the Military Afloat Reach and Sustainability—or MARS—programme? As he knows, while the two new carriers and the new assault ships are welcome, they will not be sufficiently deployable unless they have support ships to refuel and rearm them in combat. The MARS programme is a substantial programme that will place huge demands on our design and shipbuilding but is vital to the future of the Royal Navy.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

I agree that the MARS programme is important. I am increasingly intrigued by Opposition spokesmen who make demands but never put a ticket price on them. They give lists of everything they want, but deny that they amount to spending commitments. They say that they want us to do this and that, but they never reveal their total commitment in each area. Nor do they ever say what they would take out of the existing programme to make way for their demands. If we are to have an honest and open debate on procurement—

Photo of Paul Keetch Paul Keetch Shadow Secretary of State for Defence, Defence

Answer the question, and then we might do so.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

Well, I have said that the MARS programme is important. Our whole approach to expeditionary warfare requires support shipping. How we pay for that and the timing of its provision are issues for the procurement stream. As I said, we are spending £6 billion this year on procurement and £8 billion to sustain it. I do not know whether the hon. Gentleman would want to spend more.

Photo of Gordon Prentice Gordon Prentice Labour, Pendle

I wish to take my right hon. Friend back to the issue of the desert field jacket, the contract for which was awarded to Cooneen in Northern Ireland. He has written to me on the issue and I am grateful for that. I do not know whether he has yet had sight of the letter from the chairman of Carrington, a company in the north-west, but it reveals that it has been 19 weeks since the contract was award to Cooneen. In that time, the Chinese subcontractor—People's Liberation Army factory No. 3533 in Chongqing—has not been able to produce fabrics that meet the specifications for tensile strength, tear strength, shrinkage and infra-red reflectance. How long does Cooneen have to meet the specifications in the contract before it is awarded elsewhere? [Interruption.]

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

I hear the snide comments from the Opposition. Is it suggested that we should have a trade embargo with China? [Interruption.] Well, it is nice to know that that is not what is suggested. Outsourcing in China is an acceptable part of a process put in place by any prime contractor. All contracts have to be subject to evaluation as they proceed. That happens in all procurement streams, and if contractors do not supply on quality, on time and on the required numbers, the penalty will fall on them. They will then have to find other sourcing methods. If contractors do not deliver, it is their failure and we hold them to account for it. That is exactly what would happen on the contract my hon. Friend mentions. He said that he had a letter about the contract, but several allegations have already been made about it. All of them have been investigated, and the allegations he makes will also be investigated. We owe that to the people who depend on the equipment procured, be it uniforms or the big-ticket items I have already mentioned. We will give consideration to the points that he makes, but making an allegation does not make it a fact or accurate. We will have to examine the allegations.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

I wish to make some progress. I have always been generous to my hon. Friend, although I am not so sure that he is always generous to me. I will come back to him in a moment, but I wanted to comment further on the big-ticket items and how we are trying to deliver in some very demanding procurement areas. There is no easy or simple formula.

We have received criticism from the Defence Committee, as well as from some ill-informed sections of the media. We are not letting down the armed forces. Not only is the criticism in the recent report misleading, it is unfair and demoralising to all those people in the Defence Procurement Agency, both service and civilian, who work so hard for our men and women on the front line. I am conscious of the fact that my right hon. Friend the Chairman of the Defence Committee is present. I do not know whether he will seek to catch your eye, Mr. Deputy Speaker.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

No doubt my right hon. Friend will make his points. I am sure that he recognises that we normally have robust exchanges between the Defence Committee and the Ministry of Defence, and where criticisms are levelled, a reasoned response is always given, but he should perhaps also recognise that the strong response on this occasion was caused by some of the wildly wrong comments and criticisms in the report.

The DPA comprises about 3,500 civilian and military personnel, all of whom work extremely hard, but we are told that they are working in a climate of fear—a statement that was never made by any member of the MOD, although it somehow appears in the report. I will not go into all the detail in the report; we have more useful things to discuss. No doubt the Chairman will tell us his point of view in great detail, but let us have a balanced debate. As I say, I believe that some of those comments are very misleading, unfair and unquestionably demoralising for those who are trying to do what is undoubtedly a very difficult job.

I shall say more about the improvements that we continue to make in our procurement processes, but first I want to say something about what we are trying to achieve with our procurement plans—our vision, to use the jargon. Before I do so, I will give way to my hon. Friend Mr. Davidson. I hope that he still remembers his question.

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

I do indeed. I take very much to heart the point that the Minister made when he said that I am insufficiently generous to him. He has perhaps not been listening to what I have been saying about some of his colleagues.

I very much welcome the enormous shipbuilding orders that are in the pipeline, but will the Minister expand a little on the management of the relationship between the MOD and the industry? Will he speak about how he is trying to avoid boom and bust and how dialogue is emerging to ensure that peaks and troughs are evened out? Will he tell us when the maritime coherence study might be published? In particular, what can he do to avoid the redundancy of design staff, who are rapidly running out of work on Clydeside and for whom no work is available in the short term?

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

I take that as a very generous and helpful comment. I will consider what my hon. Friend says about my colleagues, and I may sleep better at night knowing that he is less of an enemy of mine than of theirs.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

Okay, if my hon. Friend wants to put it that way; my colleagues may see things differently. I shall say something later about the important issue that he raises, and he may want to intervene then.

People often focus on specific pieces of equipment—that is understandable, and it has happened already in the debate—but it is important that those pieces of equipment combine to generate the capabilities needed to meet the threats of the future. Last July, my right hon. Friend the Secretary of State for Defence outlined in his statement on future capabilities how the coming years will involve continued movement away from the traditional emphasis on numbers of platforms and people to an emphasis on effects and outcomes.

We no longer face the threat of the cold war, but myriad threats and opportunities. The type of technology and the options for the associated equipment that we can procure for our armed forces in the future are equally varied and numerous. The capabilities of our armed forces and the military effect that they can deliver are growing year by year. Increasingly, we can combine intelligence with target acquisition, modern communications and precision weaponry. The result is changing the nature of modern warfare. For example, in Iraq, the RAF was able to hit more of its targets with less ordnance and therefore fewer aircraft than ever before: 85 per cent. of our air-dropped munitions were precision-guided bombs. That represents a step change in capabilities over the relatively short period of a decade.

In the future, military operations will involve the rapid, accurate and decisive delivery of critical military effect at the right moment. Again, to use the jargon, that is known as effects-based warfare, the key to achieving which will be the agility and flexibility of our forces and the platforms that they operate from. Procurement is crucial to delivering that transformation. Too often in the past, procurement decisions were made through replacement thinking—automatically replacing ageing platforms with new ones designed to do much the same job. These days, our procurement decisions are increasingly made on the basis of capability, flexibility and inter-operability. We need adaptable and flexible capabilities that we can use alongside our allies.

I want to outline three elements of our vision for delivering those capabilities: network-enabled capability; defence industrial policy; and equipment acquisition reform. Let me deal with network-enabled capability first because it is central to effects-based warfare. It is not a weapon, but a concept of war, and it cannot just be bought off the shelf. Put simply, it is a linked network of systems, platforms and headquarters that can all communicate with one another in real time. It allows up-to-date intelligence and information to be delivered exactly where it is needed most, so our commanders achieve the rapid, pinpoint response that we require. That is not just a future aspiration.

In Iraq, we have seen the difference that networked capability can make. The Mamba artillery detection radar, which is a procurement success story, was recently used in concert with our communications network to pinpoint enemy firing positions. Fire was then brought to bear from coalition aircraft at the precise time and location that it was needed. That is a graphic demonstration that our NEC approach is already paying dividends.

At the strategic level, our investment in the Skynet 5 satellite system—the largest private finance initiative contract ever awarded by the MOD—will provide secure communications between strategic decision makers and front-line forces. That secure network will extend to the operational and tactical levels, using systems such as Cormorant and Bowman, both of which are at an advanced stage. Bowman entered service in March this year, with Cormorant due in service in 2005.

Of course, the network will be only as good as what is connected to it. That is why we are investing in state-of-the-art technologies from surveillance assets, such as the Watchkeeper unmanned aerial vehicle, to other world- beating air, land and maritime capabilities for the delivery of effect in theatre, such as Typhoon, Apache and the aircraft carriers.

Photo of Michael Jack Michael Jack Conservative, Fylde

The Minister has alluded to the fact that BAE Systems is one of the key suppliers of the type of weapons system to which he has referred. Will he confirm that the MOD has no doubts about the integrity and probity of the company in the way that it has conducted its business for his Department and for contracts abroad?

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

We have very good relations with BAE Systems and all our major suppliers throughout the supply chain. I know about the criticisms that have been made. I have heard people say that there could be corruption at the highest level between the industry and the MOD. If they say that, they must make it stack up. This goes back to the importance and vitality of what we do in procurement and the way in which it delivers not just for individual companies and their employees but for the good of the British economy. Crucially, what the suppliers deliver is vital to our war-fighting and peacekeeping capabilities. I endorse the point of view expressed by the right hon. Gentleman.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

No, I want to make progress now.

I have already mentioned the new aircraft carriers and Type 45 destroyers. Our amphibious capability has been enhanced most recently by the introduction of the assault ship, HMS Albion, in July last year. HMS Albion will be joined by her sister ship, HMS Bulwark, this December. Our future maritime expeditionary force will therefore be better placed to support the land component—a vital element of any military intervention, which is known in the jargon as the boots on the ground. Our future procurement plans will also ensure that the Army is ready for whatever it will face.

I have mentioned FRES, but better-balanced land forces also need flexible, highly capable support. Helicopters provide a flexible attack and lift capability. Over the next decade, a significant part of our helicopter fleet will be retired from service. We therefore intend to invest about £3 billion over the next 10 years to replace and enhance that capability. The Apache attack helicopter is the most recent addition to our fleet. Apache gained initial operating capability on 28 September, and any hon. Member who has seen it will know that it is an awesome aircraft. It will provide the Army with an unprecedented long-range precision attack capability.

Our commitment to more flexible and deployable forces is also borne out elsewhere in the air environment. Our planned purchase of an extra C-17 and 25 A400M military airlifters will boost the tactical and strategic airlift for all three services in times of peace, crisis and war.

Delivering all that capability is done through a partnership between the Ministry of Defence and industry, so safeguarding our forward equipment programme and equipping and sustaining our front-line forces are central to safeguarding that partnership. That brings me on to the defence industrial policy, which is the second element of our vision that I want to touch on.

The Government are committed to a strong and healthy UK defence industry. The defence industry brings significant economic benefits to the UK. It creates employment, technology and intellectual property.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

If I am going to give way to my hon. Friend, I trust that he will not be asking about the Defence Aviation Repair Agency—I live in hope.

Photo of John Smith John Smith Labour, Vale of Glamorgan

Not on this occasion. My right hon. Friend mentioned the defence industrial policy and the need to retain capability. He rightly said that the Apache will come into operation, but there is a large capability requirement for new helicopters and our helicopter industry depends on that. Does he anticipate that there will be an early announcement on that? Does he think that it will benefit the British-based helicopter industry?

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

I do not know what my hon. Friend means by "early". I was grateful that he did not raise DARA, although he often raises the important matter of DARA St. Athan on behalf of his constituents.

I said that some £3 billion would go into the rotary fleet, and that vital investment will have a major impact on British industry. The work on, and consideration of, that process are currently going on and major suppliers will form part of those discussions. The general answer to my hon. Friend is yes, but I cannot give him a time line. I know how assiduous he is, so I have no doubt that he will be on the case and pursue the matter vigorously in the months ahead.

We have made great advances in our relationships with our suppliers. It is now more than two years since we published our defence industrial policy, which was a watershed. For the first time, we brought together all the issues that affect our relationship with industry into a single, coherent policy. It was developed against a backdrop of huge industrial consolidation.

In the area of market access, we are addressing the barriers to UK industry in our allies' markets. The defence exports and market access forum has been set up jointly with industry to address issues that affect our ability to participate in overseas markets. While we are on the subject of participation, it is worth noting that we have just appointed John Wall, the national officer for the Amicus trade union, to the National Defence Industries Council. Partnership with industry means just that: there is partnership with not only the companies but those who deliver the product—the work force.

We have taken a leading role in Europe on shaping the new defence agency. The agency's principal purpose is to improve member states' military capabilities. It will do that by easing access to member states' markets, improving the flow of information and technology across borders and creating an environment that allows companies to co-operate more closely. Our closer relationship with European partners does not jeopardise our relationship with the US in any way. We have always been clear that maintaining both relationships is crucial. Nearly 18 months ago, the Prime Minister signed an agreement with President Bush to increase co-operation on military and defence matters even further. Progress has been much slower than we would like, and has not been helped by some in Congress who continue to stand in the way of an international traffic in arms regulations waiver for the UK.

Although we are encouraged by the positive language in the recent US Defence Authorisations Bill about the processing of export licences, it does not address the root cause of barriers to co-operation. We need a US system that recognises not only that the UK is wholly trustworthy but that it has the necessary legislation to safeguard sensitive information and control arms exports. It is high time for the intent of our agreements to be translated into concrete actions that meet the needs of both our Governments. We will continue to press the new Administration on that point.

Our defence industrial policy also sets out the factors that we take into account when assessing acquisition options. In addition to factors such as security of supply, we also take account of impact on the industrial base, such as the level of investment in intellectual property, facilities and employment in the UK. The globalisation of the defence business means that the UK defence industry embraces suppliers that bring benefit to, and create value in, the UK, regardless of the nationality of their shareholders.

We are now working on the next step: developing the policy into an industrial strategy. That will explain more clearly which technologies and industrial skills are most important for maintaining existing capabilities and which we expect to require in the long term. That is a major undertaking, but the output will inform better the investment decisions of industry and the Government alike.

We have also been working hard to develop our industrial strategy in the shipbuilding sector, which my hon. Friend the Member for Glasgow, Pollok mentioned. The current programme has the potential to create or secure several thousand jobs in UK shipyards and their suppliers. However, I appreciate that without a reasonable amount of programme stability, core skills might be lost and we may thus be unable to build on experience or achieve longer-term investment in modern facilities. Ministry of Defence and Department of Trade and Industry officials and representatives from the shipbuilding industry have been meeting on a regular basis.

We have been examining the industry for some time. In summer 2003, the supplier relations group began a study on the UK naval shipbuilding industry. That study was complementary to the RAND study on UK shipbuilding capacity. The output from the studies has underscored the need to develop an industrial strategy for UK shipbuilding that supports the delivery of the forward programme and promotes a healthy and economically viable industry in the long term.

We do not wish to impose change on shipbuilding or any other part of industry. We aim to work together to establish changes to the way in which we conduct our business that both sides need. For example, we are involved in close dialogue with the aerospace industry about how we both need to change so that we can deliver our future programme.

Both aerospace and shipbuilding are key industries. We are working in greater partnership with industry and we need a more open-book examination of the situation. We must deal with the peaks and troughs and ensure that we have capacity when we need it. We must ensure that we have core capability when we need it. The important thing is to establish a way in which we can smooth the process while achieving that. There will be difficulties, because individual companies that are at different phases of their future plans have competing demands, but there is determination to find a solution.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

I am not sure of the precise meaning of the hon. Gentleman's question.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

Let me try to understand what the hon. Gentleman means, because I want to make progress. The amount invested in the procurement stream must have an impact on it—that is a given. The industry knows that, but it is beginning to realise that the cash register is no longer in place. We will not feed a future overspend in the present, so we must deal with the situation. Is the hon. Gentleman asking for the budget to be increased, and if so, by what amount? [Interruption.] I am only posing the question.

Photo of Mr John Burnett Mr John Burnett Shadow Minister, Home Affairs, Shadow Solicitor General, Law Officers (Constitutional Affairs)

I am asking an entirely sensible question. The shipbuilding consortium talks about a bunching of contracts because of the process of re-fleeting. I am asking whether normal budgetary constraints will smooth out the process.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

That would depend on the nature of the proposition when set against the budgets, which is what is being discussed. I accept the premise on which I thought that the hon. Gentleman's earlier question was based, but budgets must have an impact on the procurement stream. We must get the balance right because we need future capability. We need to be able to ensure that it will exist when we need it, so we need to talk with industry sensibly and openly, but equally it has to talk to us realistically. We are not involved in a one-way process. We are the main purchaser and we keep the shipyards open. As I have said before, if there were no MOD spending in British shipyards, there would be no shipbuilding industry. I am sure that that message has struck home.

We also work closely with industry on research and development in the UK. The MOD spends £2.6 billion per year on research and development, which is comparable with the largest private investor in any sector.

On our acquisitions strategy, I have highlighted the successes of our procurement system and the wide-ranging work to develop our industrial policy, but we cannot let it rest there. In May 2003, we commissioned a review of the Defence Procurement Agency's progress in implementing smart acquisition. The review confirmed that the principles of smart acquisition were the right ones, but it also recommended a programme to enhance its application, including new and improved processes. Those focus on project review; financial management; supplier management; and greater joint working with the Defence Logistics Organisation. The changes will be supported by other initiatives, such as the establishment of senior responsible owners for major projects, to strengthen the governance process. We are also increasing the funding provided in early years to de-risk projects where we are working with complex leading-edge technology.

One example of de-risking is FRES, which recently made considerable progress. The assessment phase is gaining momentum and Atkins has been selected as the systems house preferred bidder. The systems house will be independent of any product range or manufacturing capability. Its project management, systems engineering and risk management expertise will provide objectivity and reduce risk early in the programme. In the case of the carriers, we have extended the assessment phase of the programme as part of the process of de-risking it.

Successive National Audit Office reports have endorsed the importance of up-front technology risk reduction. We have taken that message on board. I have set out how we are driving that forward. That is, perhaps, long overdue, and perhaps lessons should have been learned earlier, but we have now taken those messages on board and are driving forward those fundamental changes.

Leadership of the acquisition process, within both the Defence Procurement Agency and the Defence Logistics Organisation, is being driven by the very top of the Department, and all the issues—military, scientific, financial and industrial—involved in acquisition are being addressed. The changes are being managed through a new acquisition policy board chaired by the Minister for Defence Procurement, Lord Bach. The process is part of our overarching structure, which is driving forward major transformation in the way in which we go about our business, from procurement, through logistic support, to a better structured, more flexible and capable front line.

The Government are investing in defence. It is worth repeating that for the third successive spending review we have announced real growth in the defence budget. That is without precedent since the mid-1980s. We are committed to ensuring that that extra funding is spent in the best way and delivers where it can make a difference—at the front line.

I have outlined the three elements of the transformation of procurement that is necessary to deliver the capabilities vital to future military operations. To do that, we must continue to take the right decisions for defence. Those decisions might be hard for some, but are none the less essential. Change and transformation is not an easy process, but the gains it will deliver are what our front-line needs.

In conclusion, do we have a perfect track record on procurement? No, but no Government ever have. Are we getting better? Yes, unquestionably. Are we determined to provide the best equipment for our armed forces that we can? Absolutely. The men and women of our armed forces deserve nothing less.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence) 2:13 pm, 4th November 2004

As is my custom, I start on a note of agreement. My hon. Friends and I join the Minister in paying tribute to the courage and professionalism of our armed forces. I am sure that I speak for the whole House when I say that.

I also endorse what the Minister said about some of our equipment. Storm Shadow has performed superbly in Iraq. It was brought into operation early, which speaks volumes for Britain's defence industry and the quality of our scientists and engineers who ensure that such equipment is delivered. We endorse the C-17 as important heavy-lift equipment. We have consistently supported the principle of the two new aircraft carriers. I have said before that I issued a press release welcoming the Government's decision to go for the short take-off and vertical landing variant of the joint strike fighter and to incorporate in the design of the carriers the possibility of retrofitting the catapult. There is common ground, but inevitably there are disagreements.

A recent report stated:

"Our Armed Forces have been let down by the organisation tasked with equipping them".

Those are not my words, but the conclusion of the Defence Committee. Its recent report on defence procurement exposed how the Government's procurement process is in almost complete disarray. It is hard to recall when I last read a report by a Committee dominated by Members of Parliament of the governing party that was so overtly critical of the Government, so much so that it led to the extraordinary situation of the Government virtually rejecting the report out of hand. Worse still for the Government, however, is that it was one of a succession of critical reports exposing their inability to get a grip on their procurement process.

The reports follow on from another series of reports on the Government's approach to the equipping of our armed forces for the recent Iraq war. All concluded that there was deficiency in the provision of some kit. I remind the Minister that one of our accusations was sustained by the National Audit Office, which said that there was insufficient kit in theatre. It gave three reasons for that. First, there were insufficient stocks on the shelves. It did not entirely criticise the Government for that because it accepted that it was not possible to keep a vast array of kit on the shelves that may not be required. Secondly, there was difficulty in getting some of the kit into theatre. Again, that involves logistics issues, which we all understand. However, the NAO's third point was that the Government had allowed insufficient time to make up the shortfall of the kit that was not on the shelves. The Government have not been able to defend that serious accusation, which we lay at their door, and we pray in aid the NAO in support of our position.

I must tell the Minister, who speaks on behalf of the Minister for Defence Procurement, that the argument has again surfaced in connection with the court martial that concluded yesterday. It was told that

"training for soldiers who were to be deployed to Iraq was delayed because of the attempts to negotiate a peaceful settlement."

That is simply unacceptable. It illustrates the fault at the heart of the Government, not only in equipping our armed forces, but in training them. They did not allow sufficient time for either equipping or training because they were concerned that that would send the message to their Back Benchers that they were preparing for war at the same time as they were negotiating at the United Nations. I am afraid to say that as a result our armed forces were betrayed. Yesterday's verdict in a court martial further confirms the extent of that betrayal.

Photo of John Smith John Smith Labour, Vale of Glamorgan

Does the hon. Gentleman agree that the overall judgment of the NAO report was that the operation was a logistical success and that we deployed into theatre in half the time that it took 10 years ago in the first Iraq war?

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

Of course I accept that, but I cannot ignore—the House and the country would not want me to—the criticisms that have been made. Those specific and detailed criticisms go to the heart of the Government's thinking about the planning for the operations. In the world of realpolitik, we understand that it is necessary for a party to carry its Back Benchers with it, but the armed forces must not be sacrificed, and their safety not imperilled, by the political imperative of the Government of the day who are unwilling to face up to their Back Benchers, who might be hostile to military action. The result is that the troops do not get the kit that they want or do not get it in time.

Photo of Paul Keetch Paul Keetch Shadow Secretary of State for Defence, Defence

Is not another example of the point that the hon. Gentleman is making the large number of urgent operational requirement orders that were placed in the run-up to the Iraq war? That clearly shows that forces were being sent without being properly equipped. It is worth remembering that this was not a war that occurred suddenly, like the first Gulf war or the Falklands war. This was a war of our timing, which should not have been started until our forces were ready to begin the conflict properly.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

The hon. Gentleman reinforces my point and I am grateful to him for doing so, particularly as he comes from a slightly different position on these matters. What he says about urgent operational requirements, which amounted to about £500 million, also illustrates the point. However, the National Audit Office was right to say that it would not be reasonable to expect any Government to have on the shelves, ready to use, equipment for 50,000 troops in the Arctic, the desert, temperate climates and so on. We must be reasonable; taxpayers' money is at stake.

Only last month the Public Accounts Committee published a highly critical report on the Government's management of their 20 largest projects. That report, based on the equally damning NAO 2003 major projects report, cited cost overruns of £3.1 billion and an average delay of 18 months across the 20 largest projects. The Defence Committee described the performance of the Defence Procurement Agency as "woeful". On the cost increases, the Committee concluded:

"Such substantial cost increases are also likely to have an impact beyond defence procurement and result in cuts elsewhere. Given the recent pressures on our Armed Forces, we believe such impacts would be unacceptable."

I am sure the House would agree. How are those cost overruns to be funded? From cuts elsewhere? If so, it is incumbent on the Minister to tell us where.

Since the Government came to power, spending on defence has fallen both in real terms and as a share of gross domestic product.

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

Would it not be helpful to point out to the House that the largest cost overruns were on projects inherited from the previous Conservative Government?

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

The hon. Gentleman will have to wait for what I am about to say on that topic.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

The hon. Gentleman will hear the answer.

Despite the claims made by the Minister in his opening speech about how much more is being spent on defence by the Labour Government—I leave aside the extensive extra commitments to which they have subjected our armed forces—defence spending in 2004–05 will be almost £1 billion less in real terms than it was in 1995–96. Defence expenditure was then 3 per cent. of GDP. By 2005–06 it is set to fall to 2.3 per cent. of GDP, resulting in reductions in equipment, platforms, manpower and overall funding to the front line.

Demands on our frontline forces are far greater than envisaged by the strategic defence review, and the message from the White Paper is that those demands are likely to increase. The White Paper is littered with modern MOD-speak such as "capabilities-based approach" and "effects-based warfare", terms deployed in today's debate by the Minister. Those are a cloak to mask the cuts resulting from decisions made in No. 11 Downing street. We have been warning that such cuts would lead to dangerous capability gaps and place our front-line forces at risk. We cited the withdrawal of the Sea Harrier as an obvious example.

The First Sea Lord said:

"You will need a lot of type 45 destroyers to give the same coverage as a naval air defence fighter."

That accords with the point made by my hon. Friend Richard Ottaway. We have also raised serious concerns about the repeated claims by the Secretary of State that numbers no longer count and that it is capabilities that are important; again, a point made by the Minister. But no one unit of capability can ever be in two places at once. The First Sea Lord has been honest about the risks that the Government are running. As he told the latest issue of Warship World in respect of the Government's proposed 20 per cent. cut in the number of destroyers and frigates:

"My gut feeling is that we need a DD/FF force"— that is, destroyer/frigate force—

"of about 30 ships . . . I would still much rather not be losing those Type 23s. It is a painful cut, and I believe we are taking a risk. We shouldn't delude ourselves."

That is precisely what the Minister was doing in his opening address.

The Defence Committee endorsed the concerns expressed by the First Sea Lord and from the Conservative Benches. The Committee stated on page 9 of its report:

"We also consider that a policy of reducing the existing number of platforms in advance of acquiring the new capabilities is potentially dangerous."

We agree. That is why our commitment to spend £2.7 billion more on the front line than the Government are spending will allow us to ensure that our armed forces are fully funded.

It is appalling that the Minister left his Prime Minister so exposed to my right hon. and learned Friend the Leader of the Opposition the other day, when the Prime Minister was clearly unaware of the announcement made by my right hon. Friend the shadow Chancellor and my hon. Friend the shadow Secretary of State for Defence. It was extremely neglectful of Ministers in the Ministry of Defence to leave the Prime Minister so obviously ignorant and in danger of misleading the House, but perhaps that is no surprise coming from the current Secretary of State, who is fairly cavalier about such things.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

I recognise the headline figures that the hon. Gentleman is bandying around. If £1.1 billion is to be funded from cuts elsewhere in Government programmes, will he tell us where? If £1.6 billion is to be taken out of defence expenditure, on top of the £2.8 billion efficiency changes that we are making, that means a £4.4 billion cut in defence activity. Will he give an indication of where that extra £1.6 billion-worth reduction in activities is to come from?

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

The debate is about procurement issues, but let me address the Minister's comments. The James committee, led by an experienced businessman with a fantastic track record of turning round ailing businesses—he would be hugely advantageous to the Government—identified substantial savings across other Departments, of which £1.1 billion, I assure the right hon. Gentleman, is a drop in the ocean. The Government cannot stomach the fact that they are making so-called efficiency savings, but nobody else can make efficiency savings beyond those that they have identified. I can tell the right hon. Gentleman that we have done our sums. The figures are in the public domain and we stand by them. I assure him that we will be able to fund all that we intend to do for our armed forces, which will be significantly more than the Government are prepared to do.

Perhaps the Minister could answer a point on the annual report and accounts of the Defence Procurement Agency. In 2003–04 capital commitments amount to £14 billion in round figures, contracted but not provided for; £14 billion of commitments for which the Government have no money. So we are taking no lessons from them. The Conservative party is determined to ensure that our armed forces are properly funded for the tasks that we give them.

It is six years since the Government introduced their policy of smart acquisition and the results of the policy have been, at best, mixed. The Chief of Defence Procurement, Sir Peter Spencer, told the Defence Committee earlier this year that of the seven aims of smart acquisition, only one had been met. The Committee accordingly concluded:

"We find it immensely disappointing that the Smart Acquisition initiative, launched some six years ago, has yet to deliver its aim of procuring equipment faster, cheaper, better."

That is pretty damning stuff, and it is easy to see why the Minister felt stung by the vehemence of the charges and felt constrained to respond so vehemently just now to the Committee.

However, the MOD has itself admitted that smart acquisition has not been applied in the way that was envisaged on some of the newer projects, and that it has failed to bring the anticipated improvements to legacy projects, to which Mr. Davidson just referred. It is not the Committee with which Ministers should be taking issue; rather it is their own chief of defence procurement. It was Sir Peter who predicted that this year's accounts were likely to present another problem year.

The problem with smart acquisition is not so much the policy itself but its implementation. The Government's failure properly to implement their own policy has meant that some of the potential savings, which could have been achieved through improved management of risk, through life management and a partnership with industry, have not been achieved, and it is to those key areas that I wish to turn.

On risk management, the Public Accounts Committee concluded:

"The Department admitted that the figures showed that some projects had not been properly de-risked in the Assessment Phase and this was an indication that Smart Acquisition was not being applied thoroughly or consistently."

Much more needs to be done to manage risk. The SDR sets out that 15 per cent. of a project's budget should be spent prior to the key decision-making point, known in the trade as main gate, to try to reduce that risk. However, smart acquisition projects have seen only 4.4 per cent. of their total budget being spent prior to main gate, well short of that target of 15 per cent. that the Government have set themselves.

The Minister has just told us that the Government have taken that message on board, and we welcome that, but they are a long way short of achieving the objective that they themselves have set. It is no good their bleating on that the problems are exclusively with projects started by the last Conservative Government, because Sir Peter admitted last week that one of the reasons smart acquisition projects had not encountered difficulties similar to those of the so-called legacy projects was that they were in the relatively early stages, and could well run into problems later in the procurement cycle when such difficulties traditionally arose. So the answer to the hon. Member for Glasgow, Pollok is that the jury is out on his Government's own projects. We wait to see whether the Government fulfil their own commitments.

Part of the solution is to ensure that there is adequate research funding. However, the amount spent on research has been falling since the Government came to power. At £450 million, the current research budget is less than half the total research budget in 1990. We acknowledge that the culture around the DPA is increasingly one of risk-aversion—not fear—to which the Defence Committee drew attention, as officials seek to limit the risk of a kick in the backside by the NAO, the PAC and the Select Committee. It must be given some leeway to explore the possibilities of science, without feeling at every point that it may be kicked. I hope that we can share that aim with the Government. This is not a criticism of the Government, but a criticism of the system, and together we must find ways to address that, so that the DPA scientists can do their job without feeling that if they fail at the cutting edge of technology, they will be kicked in the backside, because that is not the answer.

There are serious issues here. Rolls-Royce tells me that unless it has some support for the hot-end development of its aero-engines, it could shift the company out of the United Kingdom. That is a serious issue to which I urge Ministers to pay attention. If Rolls-Royce were to move out of the UK, I suspect that there would be an uproar; not an attack on the company, which is answerable to its shareholders, but an attack on the Government who allowed that to happen.

There continue to be great concerns about the future of Qinetiq, in which, as the Minister knows, I have a vested interest as its headquarters are in my constituency. My hon. Friend the shadow Secretary of State for Defence fully shares my concerns on that front. The Minister must face the fact that being starved of resources for the development of new technology is driving business to the United States, where Qinetiq's minority shareholder, Carlyle, is based. Once the business is in the United States, we then face the difficulties of repatriating the benefit of that development work to the United Kingdom, thanks to the operation of the international traffic in arms regulations in the United States, to which the Minister referred.

Another issue of concern was raised at the weekend in The Observer, although for that reason I naturally take it with a pinch of salt. Ministers should come to the House and tell us their policy on the whole issue of defence research. If it is true that there are people who now believe that it is not worth working in the defence sector and that they should hawk around the world their experience and the knowledge that they have gained from working in UK secret defence establishments, that is a serious issue that we need to address.

The MOD defines through life management as

"an integrated approach to all Smart Acquisition process, planning and costing activities across the whole system and whole life of a project".

In May last year the NAO released its report on through life management at the MOD. It found that the MOD and DPA had been slow to recognise its potential benefits and were not doing enough to achieve effective through life management. In particular, the NAO had criticisms of the interface between the DPA and the Defence Logistics Organisation, such as incompatible information technology systems and different financial reporting systems.

The inability to transfer a project seamlessly between those two organisations was preventing the MOD from achieving a genuine through life approach. The next Conservative Government will take steps to ensure that the DPA becomes a much leaner organisation, and that the relationship between it and the DLO is such that major capital projects in particular are managed through their life without an artificial interruption as they pass from one organisation to the other.

The NAO described progress as "patchy", and said that the almost complete absence of a role for the second customer and for the supplier following a project's entry into service demonstrated that the MOD had not taken it on board that it required an attitudinal change in project management. Failure to integrate into the process the services that will be using the equipment, and the industry that builds and supplies that equipment, means that the process of delivering military capability will be incomplete.

Another key to achieving the aims of smart acquisition is developing a mature partnership with industry, with both sides working together from a project's inception through to the completion of its service life. Government and industry need to be honest with each other on costs, capability and time issues. I agree with the Minister. This is not simply a matter for the Government; industry has a role to play here. It involves setting achievable budgets and in-service dates. If the Government set a budget that is too low simply to gain Treasury approval, or industry gave a low estimate in order to win a contract, the result would be escalating costs later in the process. Equally, if for political reasons the Government set an unrealistic in-service date and industry accepted such an estimate, the result would be time slippages.

However, recent experience tells us that such a relationship is not yet developing. Despite what the Minister said, there have been repeated reports of difficulties between BAE Systems and the MOD. In their extraordinary rejection of the Defence Committee report, the Government said:

"It was remarkable that no mention of any kind is made of industries performance—the Committee suggests that all the faults appear to lie with the DPA."

I partly agree with that. On the other hand, the Committee was right to point out that it is incumbent on the customer to work with industry. Again, I agree with what the Minister said earlier in reply to Mr. Burnett about providing a clear programme of stability for industry in so far as that is compatible with the requirements of the Treasury. But that has now become an imperative. We can no longer continue with peaks and troughs in the British defence industry.

The Minister knows that there is a fantastic warship building programme. The question is whether we have the skills to undertake that programme. We have feast or famine, and we cannot go on like that. If we are to maintain a defence industrial base in this country, we must find a way to even out that stream of income for business, something to which the Conservative party is absolutely committed.

Photo of Mr John Burnett Mr John Burnett Shadow Minister, Home Affairs, Shadow Solicitor General, Law Officers (Constitutional Affairs)

I hope that the hon. Gentleman agrees that if the ordering process were more orderly, it would retain competition, because having one supplier and one customer is unlikely to be in the best interests of the taxpayer.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

Yes, of course. We were the architects of the introduction of extensive competition into defence procurement, which resulted in a considerable saving for the British taxpayer and a sharpening-up of British industry. We must also face the fact that the defence industrial base is contracting not only in this country but around Europe and in the United States. We must also address security of supply.

Photo of Dari Taylor Dari Taylor PPS (Ms Hazel Blears, Minister of State), Home Office

The hon. Gentleman discussed how the Conservative Government increased competition, but does he remember that he closed Swans, an excellent naval yard, which reduced competition?

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

My hon. Friend Mr. Soames has confirmed that the hon. Lady is a magnificent woman and we all welcome her contribution. Of course, we closed various things when we were in government, and this Government have closed things. The point is that we must have an adult debate. The world has moved on.

The Minister told the Select Committee that he seeks the answer to the question: which essential capabilities does this country require? We understand that point and are doing our own work to see whether common ground exists or whether we disagree on the capabilities that it is necessary to retain in the United Kingdom. Given the contracting defence industrial base, we must address the essential issues. I hope that I have made our policy clear: we believe that it is essential to work with industry and to even out the peaks and troughs so that we can retain the skills base in the United Kingdom to ensure that essential capability is maintained.

I do not want to take too long on individual projects, but the Minister inevitably raised Typhoon. He mentioned that the Royal Air Force is pleased with the product, and I endorse that view. The last Conservative Government started the Typhoon project, and it is a fantastic bit of kit. I look forward to seeing it at close quarters, when I introduce its delights to my hon. Friend the Member for Mid-Sussex. I hope that we shall manage a flight in it—my hon. Friend did not know that.

This time last year, we were told that a decision was expected on tranche 2 of Typhoon by Christmas. We still expect a decision on tranche 2 by Christmas—unfortunately it will be Christmas 2004 rather than Christmas 2003. Will the Minister give the House an assurance that the Government expect to sign off tranche 2 by the end of the year? If the contract is not signed by the end of the year, what plans does he have to introduce some form of bridge funding to ensure the maintenance of the skills base, particularly among the sub-contractors, an issue to which I have just referred?

We have consistently called for the second tranche of Typhoon to be adapted to a ground attack role and hope that that project will now proceed. I understand that design work is at an advanced stage, but we must know when it will be finalised and how confident the Minister is that the new systems integration work has been satisfactorily concluded and de-risked.

When will the new variant enter service? The Defence Committee concluded:

"We are concerned that there appears to be a wide disagreement between the MoD and industry on how much the necessary enhancements will cost. We find it surprising that MoD considers that there will be little impact on the total cost of the programme, unless there are plans to reduce the size of the third Tranche."

I am not inviting the Minister to comment on the third tranche, but I ask him to comment on that particular point. The Government response to the report suggested that the Committee was confused. Will he tell us what the planned enhancement programme is all about and how it differs from the ground attack variant?

Hon. Members will remember that the MOD originally expected to award FRES—the unfortunately named future rapid effects system, which is medium-weight battlefield equipment—to Alvis Vickers, Britain's major land system manufacturer. Ministers later backtracked from their initial position and dismissed out of hand a joint proposal last year by BAE, Alvis and Thales to work with the MOD to develop that project. So much for the partnership with industry. Months passed while the MOD was reviewing its procurement strategy.

Later, the Government announced their intention to establish a systems house to reassess the entire project, adding at least another year to the process. The Minister appointed W S Atkins to undertake the assessment phase. When does he expect it to be completed? In a recent interview in Jane's Defence Weekly, the chief of defence procurement, when discussing the FRES project, stated:

"we are not going to sign up to any in-service-date, any capability or cost until we understand what the customer wants".

I agree with the de-risking, but the assessment has gone on for such a long time that the gestation period is approaching A400M proportions.

The CDP's statement would be fair, were it not for the fact that Ministers had already set an in-service date of 2009, which subsequently slipped to 2010. The Minister cast doubt on the achievability of that in-service date in a written answer last month to my hon. Friend Ann Winterton, who inquired about the introduction of an assessment phase:

"Part of this Assessment Phase work will be to identify and reduce risk in the programme to enable us to define an appropriate In-Service-Date."—[Hansard, 4 October 2004; Vol. 424, c. 1874W.]

Will the Minister stick by 2010?

Can the Minister tell us how much he has set aside for the FRES project, which the Chief of the General Staff, General Sir Mike Jackson, regards as absolutely essential? There has been some speculation that the programme's lifetime cost could be as much as £50 billion on top of the initial £6 billion figure. Again, we would welcome clarification from the Minister on that point. It is little wonder that a senior infantry officer was quoted in The Daily Telegraph on 2 October as saying that the FRES programme had turned into "a debacle".

On the question whether the programme will be collaborative, the Minister confirmed in a written answer to me on 19 October that a collaborative solution is a possibility. What work is going on? Will we collaborate with our European partners or the United States, which has a similar programme under way? We must be told the parameters within which the Government are operating.

The record is not happy on collaboration with our European partners. The Minister abandoned Tracer and the multi-role armoured vehicle, both of which were collaborative programmes. Having abandoned those programmes, is there any sense in going down another collaborative route? The answer is in the Minister's hands, and I would be grateful if he explained it.

Serious questions remain over the future of the project to design and build the carriers. First, the Government announced that they wanted the MOD to take a risk-sharing part in the programme, leading BAE's former chairman, Sir Richard Evans, to express the concern that the three-way alliance was developing into:

"some sort of a procurement committee, chaired by a procurement officer from the Ministry of Defence who will have a balancing vote on the committee".

He was rightly concerned about where and with whom the responsibility for risks resides and whether a committee is the right decision-making body. Have those concerns, which were raised by one of the prime contractors in the carrier project, yet been attended to?

The decision to introduce a physical integrator for the carrier project represents little more than an added layer of bureaucracy on an already cumbersome project. As I said at Defence questions last Monday, the contract is not, as has been reported, for the management of the project, but rather it is the contract for the management of the contract for the management of the carrier project, which is extremely convoluted.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

No, the Minister must do that.

On the joint combat aircraft, which was formerly known as the joint strike fighter, reports persist about continuing problems with the short take-off and vertical landing variant. Can the Minister confirm that the weight problems with the STOVL variant have been resolved? I understand that those problems have not been resolved, giving rise to concerns that the aircraft will carry only two 1,000 lb bombs instead of the planned 2,000 lb bombs. As Jane's Defence Weekly put it:

"the requirement has now been made to fit the aircraft, instead of the other way around".

Are the Government prepared to accept that reduced payload?

Doubts have also been cast on the viability of the STOVL variant. Tom Fillingham of BAE told Jane's Defence Weekly:

"STOVL is not set in stone. Right now our current planning is for STOVL but we don't have a contract."

A decision to abandon the STOVL variant would mean the new carriers being fitted with catapults to launch conventional aircraft. When does the Minister expect to make that decision, and what effect would the need to change the JCA requirement have on the cost of the carrier programme and on that aircraft project itself?

I do not want to speak for too much longer, because I know that many hon. Members want to contribute to the debate. The Minister mentioned the international traffic in arms regulations waiver. I agree with him that progress has been slow, although I attach no blame to Ministers, because Lord Bach has batted as hard as anybody. We are all indebted to Senator John Warner of the Senate armed services committee for his work on behalf of Anglo-American relations in trying to drive through a solution in Congress, where the real problem lies, to benefit the United Kingdom and the United States.

We are indebted to the Senator for at least having got into the Appropriations Bill a specific undertaking that the United States Government will ensure that the United Kingdom's applications for the export of technology are expedited—whatever that means. I fear, though, that it is not enough. The Secretary of State said in a letter to the US Defence Secretary on 16 June:

"The mutual operational, technological and industrial benefits we have enjoyed over the years of co-operation could quickly evaporate, with both of us being losers and with obvious political ramifications."

I think that he is right.

My own view is that progress will remain slow unless the Prime Minister seeks to extract some dividend for the phenomenal support that he has given President Bush over the past few years. It is the very least that the United States can do. This is not an intemperate criticism of the US Administration. However, the fact is that we are partners, and the Prime Minister deserves some dividend for his support. The Minister is more aware than I of the damage that the Prime Minister has incurred from his own side. One dividend should be to get the ITAR waiver—which, I remind the House, concerns unclassified information. We are not asking for classified stuff—well, we are, but we are not getting it—yet we cannot even get an agreement enforced on unclassified material. The Prime Minister deserves that.

I turn to Galileo, the EU's proposed competitor to the US's free-to-users global positioning system, which provides aeronautical and motor car navigation systems—although more advanced Members no doubt have SatNav in their BMWs.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

My hon. Friend is nothing if not fully conversant with the most up-to-date and modern technical gizmos. With an hour's briefing, I am sure that he will be able to fly the Typhoon.

The Galileo project represents a potential source of growing transatlantic discord. It has serious military potential. Ministers insist that they will resist any attempt by France to give Galileo a military application. On 7 June, the Under-Secretary of State for Transport, Mr. Jamieson, told European Standing Committee A that it

"would not be used for operational military matters."—[Official Report, European Standing Committee A, 7 June 2004; c. 6.]

Is that also the intention of the MOD?

Furthermore, the Minister will have seen last weekend's article by Christopher Booker in The Sunday Telegraph, which referred to a discussion at the Royal United Services Institute on 11 October when the question was posed whether, in the event of a conflict involving the US, the EU would agree to deny Galileo facilities to America's enemies. I understand that that is the case, as I have been told in a letter from Astrium. At that meeting, when EU officials replied that they would not be prepared to turn it off, US officials unsurprisingly responded that in such circumstances the US would be forced either to jam the Galileo signal or destroy Galileo's satellites.

There is a further cause of concern in that China has been admitted to the project as an equity partner. It will therefore have access not only to Galileo's facilities but to the technology, and is reported to have said that it will resist any US attempt to deny access to Galileo—whatever that means. These are extremely serious issues on which the country is entitled to know the views of the MOD, as well as the Department for Transport.

There are, of course, aspects of defence policy with which we agree, and we recognise that there are real difficulties with which the Government and their Ministers have to wrestle. However, they have chosen to deploy Britain's armed forces more frequently and in greater numbers than for decades. It is their duty to ensure that the men and women of our armed forces have the right equipment and that they sustain Britain's defence industrial base to ensure that we have security of supply. We believe that the overwhelming evidence is that they are failing to deliver. Their failure to invest in research will have deeply damaging consequences for Britain's defence industrial base in years to come, their reliance on new technology gizmos at the expense of numbers of tanks, ships and aircraft will expose our armed forces to real risk, and their inability to manage the procurement process has proved costly to an already stretched defence budget.

It is time for a new Government—a Conservative Government—who are committed to ensuring that our armed forces go into combat properly trained and equipped. That is what our superbly courageous and professional armed forces need, and that is what I hope that the people of Britain will ensure next year that they get.

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. Before I call the next speaker, I remind the House that Mr. Speaker has placed a 15-minute limit on all Back-Bench speeches, and that applies from now on.

Photo of Bruce George Bruce George Labour, Walsall South 2:55 pm, 4th November 2004

I came to the Chamber with three speeches. Plan A, if the Conservatives were forgetful of their failures over the years, was to repeat my classic A to Z of Tory procurement foul-ups. Mr. Howarth almost forced me to do so. Plan B was a run-of-the-mill speech on defence procurement. I am well able to give run-of-the-mill speeches, but I resisted that temptation. Plan C was what I would say if the Minister attacked the Defence Committee. So it is going to be plan C.

The Defence Committee's report on defence procurement was published at the end of July. It received considerable press coverage, although not as much as the Ministry of Defence's riposte, which was a little over the top. Having read it, I was reminded of the famous quotation of Robert E. Lee, who once said:

"I was too weak to defend, so I attacked."

I shall therefore try to explain our motives and purposes.

In fairness, the extent of the current defence procurement programme and budget is formidable in terms of ensuring that our armed forces are among the best in the world. The cost of the top 20 projects for 2002–03 was in excess of £50 billion. I am very pleased about that. We have already heard about the joint strike fighter and Typhoon. In our much maligned report, we listed the top 20 projects; it is an impressive list. We welcomed the fact that the Government are spending more on defence. I do not believe the figures cited by the hon. Member for Aldershot. The Government are giving procurement a great deal of attention. Much of what they have done is to be supported, and we did so in our report.

The procurement of high-tech, cutting-edge equipment is not easy, but lessons from the past need to be learned and acted on. Some of our previous reports pointed to the risks if equipment programmes are not managed properly. Those reports go back years. I have been on the Defence Committee since 1980, and we have produced endless critiques of the defence procurement process. In our report on the strategic defence review, we discussed the major inquiries—the Gibb-Zuckerman in 1961, Downey in the mid-60s, and Levene in the mid-80s—and looked into smart procurement. Those were all serious attempts to do something that we have never done as a country—to produce defence equipment effectively, on time, and to cost.

We are still striving for that, and progress has been made. In our highly-criticised report, we said that the system is not yet succeeding—indeed, there have been several failures. The report was based on our own methodology. We have a full-time member of staff seconded from the National Audit Office, we undertake an annual review of the defence procurement process, and we read the NAO material and all sorts of documentation. Many of our criticisms came from the chief of defence procurement. How can we be criticised for citing the senior guy in the procurement process apart from the Minister? That is indefensible.

We pointed out that the top 20 defence procurement projects for 2002–03 had experienced in-year cost increases totalling £3.1 billion and that those projects had slipped a further 18 months beyond their expected delivery date, with nine months' slippage occurring in 2002–03. However, the report highlighted several good things, including the successful de-risking of the 2087 sonar radar project—2087 is not the projected in-service date. We complimented the decision to extend the assessment phase of the future carrier programme and the second tranche of the Eurofighter Typhoon aircraft to multi-role.

Despite claims to the contrary by the MOD, this was a fair report. We welcomed the fact that the MOD had recognised the importance of establishing an industrial strategy to sit alongside a defence industrial policy. We said that the decision to procure a Hawk trainer aircraft was sensible. However, we have a key role in examining expenditure, administration and policy, and we do that on behalf of the taxpayer. It is not our job to be a cheerleader for the MOD and to ignore poor performance where it occurs.

The Government's response, published in October, called our endeavours "misguided, disappointing and flawed". It accused the Defence Committee of being selective in its use of evidence and said that it had missed an opportunity to be constructive. What did we say? First, the performance of the Defence Procurement Agency in 2002–03 was "woeful". That was a slight mistake. The Clerk could not read my handwriting. I wrote, "The performance of the Defence Procurement Agency was wonderful." He is on his first written notice, and he had better learn how to read my writing. Secondly, we said that

"our armed forces have been let down by the organisation tasked with equipping them."

We also said that the MOD had only recently taken action to improve performance on major projects and that a fear culture existed in the DPA. The Government's response, it is fair to say, did not accept those specific conclusions.

I intend to respond to some of the more extreme claims made in the Government's response in due course, but first I want to highlight the fact that in a number of areas the response agreed with what we were doing. The hon. Member for Aldershot, a good personal friend, despite his politics—he claims that he is to the left of me, but I deny it—commented on the ITAR waiver. He will remember that we lobbied very hard against the "buy American" Act, and for the ITAR waiver and the helicopter sale for the President, so we have been helping the MOD as far as we can.

The Government's response welcomed a number of the Committee's other conclusions, some of which were highly critical. When the Government introduced smart acquisition, their objective was to procure equipment faster, cheaper and better. The Committee welcomed that initiative and looked forward to the expected improvements. Some of those improvements have been obvious; others have not.

In addition to the poor headline performance figures for 2002–03, the most disappointing findings from our inquiry were the evidence provided by the chief of defence procurement, Sir Peter Spencer, head of the DPA. Sir Peter had commissioned an independent review of the DPA, referred to by the Minister, and specifically of the implementation of the smart procurement initiative. He told us in an evidence session that the findings from the review included the following: the underlying causes of poor performance were endemic; only one of the seven key principles underlying smart procurement had been implemented in full; there was a misunderstanding throughout the MOD as to what project leaders were expected to deliver; and some of the projects that had commenced following the introduction of the smart acquisition process were showing signs of problems.

If those were the findings of Conservative Central Office, we would quite rightly dismiss them, but they were the result of a report commissioned by the MOD. We are castigated for echoing some of those points. If we were selective in our evidence, as the MOD claimed, it is because we drew on the evidence provided by the head of the DPA, part of the MOD, and the findings of an inquiry commissioned by the MOD. Why are we considered to be the aberration? Why are others trying to be difficult with the MOD?

I shall give a few quotes. The first states:

"Cost overruns of £3 billion and delays of nine months on average on major defence projects during a single year is a poor performance. Our servicemen and women will be without the equipment promised, and will have to continue to use older kit planned to be withdrawn . . . The Department must properly apply the sound principles of smart acquisition".

Where did that come from? It came from the Public Accounts Committee's comments on the major projects report. It gets all its information from the National Audit Office. The second quote states:

"The Agency . . . failed to achieve its targets on programme slippage and cost growth . . . overall performance was seriously damaged by major cost and time delays".

Was that the Defence Committee? Was it The Daily Telegraph? No, it is the foreword to the DPA's annual report and accounts 2002–03.

One more quote:

"People were so excited about smart acquisition delivering more for their money that they got over-optimistic . . . People want to believe their own publicity and think they can get it for the cost they first thought of before they had done any of the reconnaissance and then you get a slightly unholy alliance of optimism".

Who said that? Was it the hon. Member for Aldershot? No, it was the chief of defence procurement in an interview published last week in Jane's Defence Weekly.

Photo of Dari Taylor Dari Taylor PPS (Ms Hazel Blears, Minister of State), Home Office

I am sure that my right hon. Friend remembers that I was a member of the Select Committee, under his chairmanship, when defence procurement was something that we were all discussing and becoming involved in. May I ask him whether he made any criticisms of it at the time? Frankly, I cannot remember him ever doing so. In fact, I remember that it was Mr. Brazier and I who made such criticisms, not my right hon. Friend.

Photo of Bruce George Bruce George Labour, Walsall South

I cannot go back as far as the idyllic days when my hon. Friend was a member of the Committee, but I will talk to her afterwards.

The Government's response suggested that the Committee should have highlighted the success of the procurement of items. We did, and in our "Lessons of Iraq" report we were in many ways very complimentary. The MOD attacked us as uninformed and disliked our conclusions, but those were based on solid evidence given to us.

The Committee concluded that a fear culture existed in the DPA. The Government disliked that intensely. Several pieces of evidence led us to our conclusion. Perhaps the most compelling was from the chief of defence procurement, who told us:

"You have to ask yourself with some of these very big failures which occurred, why did they suddenly appear to come out of a clear blue sky? Somebody must have known".

He also told us:

"We need to make sure that people give us honest forecasts. The worst way of getting out of this is simply to hoard up bad news until after you have gone and then somebody else comes along and uncovers it inside a project . . . We effectively had an amnesty to say 'If you have something you need to get off your chest, this is the year to do it.'"

Why would officials need an amnesty? What would prevent them from admitting that their programmes were experiencing problems? Fear? However, our conclusion was rejected by the MOD.

One of our industry witnesses also used the term "fear culture", and Vice-Admiral Sir Jeremy Blackham, former director of equipment capability—a dangerous outsider—spoke at a recent RUSI procurement conference, which I chaired, about procurement problems being prompted by

"the fear of failure outweighing the glare of glory".

Our report focused on the latest available data at the time on the performance of major defence projects. What about the procurement performance since then? In the DPA's annual report and accounts for 2003–04, published in October, the chief of defence procurement says that the agency failed to achieve its targets on programme slippage, cost growth and customer satisfaction. He added:

"Failure to meet three key targets is incontrovertible evidence that the agency has yet to deliver the full benefits of the smart acquisition reforms introduced five years ago".

I could go on and on, but it is too painful.

My point is that things have gone right in many instances. The budget is going up and the programme set out by the Government to acquire weapons to equip our armed forces for the future is formidable and commendable. I admire what they have done. They are trying to achieve almost the impossible. Many previous Governments have failed in the task. The Government have begun the process and made progress but, unfortunately, failures have occurred. It is incumbent on the Defence Committee to point out those failures. If the Minister does not like the message, he should not shoot the messengers, because most of them are in the pay of the Ministry of Defence. I ask him to tell the person who wrote the document that slags us off that he should perhaps have approached us privately so that we could exchange views. We are trying to be constructive, not destructive.

The budget constraints are obvious, and we need to get the best equipment that we can afford. The Minister, his colleagues and I remain good friends. I have had my famous discussion with a nameless person and I emerged in one piece. We are on the same side. Even the Opposition are part of the process of considering how best to serve our armed forces with the money available. I hope that our comments, those of Ministry of Defence employees, and of internal mechanisms, can be acted on. I hope that lessons will be learned, without rancour or excessive anger. We can then collectively deliver to our armed forces the right amount of high-quality equipment that is good enough for them. They deserve the best and perhaps we can collectively help them to get the best equipment so that they can do what we ask of them.

Photo of Colin Breed Colin Breed Shadow Minister, Defence 3:11 pm, 4th November 2004

It is a privilege to follow the Chairman of the Select Committee and to agree with everything that he said, especially his last comments. The purpose of such debates is to try to ensure that we get to the bottom of all the matters that need discussion, not only for our armed forces, but for taxpayers, constituents and the country. We should be able to do that in a helpful and constructive, rather than a destructive, spirit.

A fortnight ago, we debated defence in the world, which clearly demonstrated our enormous current defence commitments, not least in Afghanistan and Iraq. In the context of Iraq, I want to comment on some "breaking news"—the phrase that appears on television screens. The Black Watch is apparently deploying to a larger geographical area. Although I do not have the exact details, I hope that the Minister will make a statement at the end of the debate. On 21 October, the Secretary of State said:

"The deployment is limited in scope, time and space".—[Hansard, 21 October 2004; Vol. 425, c. 1037.]

I hope that the breaking news does not contravene that, and that later we will understand what constitutes the enlargement of the geographical area.

I place on record again our admiration of and support for the bravery and professionalism of all our troops, especially in the difficult times that they are experiencing, leading up to what we all hope will be successful elections in Iraq in the new year. I am pleased that presidential elections, although they may not have been perfect, were held in Afghanistan. We wish President Karzai the very best in trying to take his country forward.

The annual opportunity to consider defence procurement policy provides us with the chance of considering individual high-profile projects. The two previous speakers have spent approximately an hour going through two aspects of those high-profile and costly projects. However, I hope that the debate also provides us with an opportunity to explore the changing strategic environment in which long-term decisions have to be made. The United Kingdom is—I suspect, not for the first time—at a crossroads in several matters, which will have a significant bearing on those decisions. I should like to consider them briefly.

Mr. Howarth alluded to the first aspect, which is the relationship on foreign affairs and defence with the United States of America and the European Union. Without unnecessarily repeating the catalogue of events that led up to the conflict in Iraq, we must surely recognise that if we move ever closer to the USA in foreign policy, it will inevitably affect relationships with our European partners. It is also likely to determine the shape of our defence assets.

The necessity for compatibility with US equipment when fighting alongside each other is clear and obvious and such a policy has significant cost implications. Unless compatibility is also possible with our European partners, we face either expensive duplication or possible value for money integration. It would be ideal, as the Minister said in his opening speech, if we could harmonise in Europe and be compatible with the USA. I am not clear about whether that will be possible on a medium and long-term basis.

Secondly, procurement spending appears increasingly polarised between expensive technology and what might be considered low-tech personnel numbers. As greater technological advances are made in our weapons and communications equipment, it is tempting and seductive to believe that fewer fighting troops are necessary. Yet is clear that, although impressive technology was able to win the brief war in Iraq, the lack of troops on the ground to patrol the borders and secure arms dumps, vital oil installations and other infrastructure dramatically changed military planning. We need both, and expenditure and focus on one should not compromise the provision of the other.

Thirdly, I want to consider the importance of the UK defence industry. Again, much has been said about that with which I agree. Its importance in security of supply and economic value to the UK cannot be overestimated, yet we must ensure that our armed forces get the best possible equipment and that the taxpayer gets value for money. As the Chairman of the Select Committee pointed out, those decisions are sometimes incredibly complex and difficult. We do not criticise to make a point—we acknowledge that decisions are difficult—but we want to try to understand all the parameters.

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

The hon. Gentleman says that there are difficult decisions. Will he disown the comments of the Liberal Democrat Lord Garden, who recently said that he wanted the order for aircraft carriers to be placed in the United States and the aircraft carriers to be built in Norfolk, Virginia?

Photo of Colin Breed Colin Breed Shadow Minister, Defence

I was not aware of that and I hope that the aircraft carriers will be built here. There is every hope that that will happen. However, it would be interesting to examine the cost comparisons so that we understood the issues. Sometimes the definitions of value for money—and the definitions in general—are not sufficiently broad. When I read the report, it took me a while to understand the term "de-risking". I believed that it meant to get rid of risk, but it means risk assessment. Why use "de-risk" to mean risk assessment? I worked in an industry that considered risk and reward all the time. It is not possible to remove all risk but we can try to assess some risk and make cost comparisons.

Photo of Adam Ingram Adam Ingram Minister of State (Armed Forces), Ministry of Defence

If the cost comparator said that it was cheaper to build abroad, would that become Liberal policy?

Photo of Colin Breed Colin Breed Shadow Minister, Defence

Decisions would not be made purely on cost comparisons. We must acknowledge that value for money contains far more elements than the actual cost of building a vessel. If, as I understand it, the life span is 50 years, that will have all sorts of implications for the economy, and so on. There is no reason why we cannot be honest and mature enough to examine how much production might cost in different places, and to consider the benefits.

Such objectives sometimes seem incompatible. I do not believe that they are, but our instinct must be to buy British where possible. Because of globalisation, however, the necessity of joint ventures and the scale of some defence programmes, the international defence industry is shrinking in terms of the number of companies involved, particularly with the capacity to undertake such programmes. With the huge US defence budget and the nationalistic calls from American politicians to buy only American, it will be more difficult to maintain an independent UK defence industry. The Government have indicated that they do not consider ownership of a company important provided that it remains based in the UK, with all the employment opportunities and with some safeguards for intellectual property rights. I do not take that view, as I believe that joint ventures as well as mergers and acquisitions provide Trojan horses, which could by stealth appropriate the component parts of our defence industry.

This brings me to the last of my crossroads concerns—research and development, which has been touched on in previous contributions. The Government have rightly indicated that the UK's future economic fortune lies in knowledge-based industries at the heart of which is research and development. There are three vital elements to successful research and development in any field, but they are perhaps most important in defence: a supply of highly intelligent and motivated people; considerable financial resources; and an appropriate Government policy. It is interesting to note from today's newspaper that seven of the top 10 universities in the world are American, and perhaps we ought to congratulate Oxford and Cambridge on being the only two UK universities in the top 10. As regards funding, the vast majority of venture capital funds now available for R and D are located in the USA. And the enormous programme of public expenditure by the US Government provides an attractive background to R and D projects, allied to a most attractive corporate taxation policy to encourage R and D in companies at all levels.

We are rightly concerned about the admissions policy of our universities, and hon. Members have engaged in all kinds of debates recently on that. While we are debating, however, American universities are scouring the world and Europe in particular to offer attractive packages to the very best students, with the prospect of US citizenship at the end. In no way do I present this scenario as an anti-American rant, but as a recognition of the USA's clear, co-ordinated policies to assemble a defence industry that has the capability for significant domination in the foreseeable future. It is therefore vital for us to recognise that our procurement policies will have to take into account those realities. I hope that that gives my view in terms of work that may go out of this country to the USA in particular.

I want to turn to a few current concerns. Mention has already been made of the Astute submarine programme, and especially the delays that have been experienced. I have recently been made aware of the operational vulnerability of our existing Trafalgar class submarines. I understand that HMS Torbay and HMS Tireless have been withdrawn from service and are undergoing further expert assessment at Devonport. I readily pay tribute to the highest safety standards that are adopted at Devonport when dealing with our nuclear-powered submarine fleet. Clearly, safety is of the utmost importance not only to those who sail on those ships but to those who do the work at Devonport. It places inevitable strains on the existing submarine fleet if replacements are delayed, however, and we are likely to experience technological difficulties in ships that are probably among the most complex pieces of machinery in the world today. Increasingly, lengthy delays will be experienced, exposing some of the problems with replacements. If the Minister cannot provide clarification of the current situation of those two submarines in Devonport in his wind-up, I would be grateful if he could write to me.

As we have indicated previously, we wholeheartedly support the carrier programme and would welcome the Minister's confirmation of the current situation. Reference has already been made to that. In an intervention, my hon. Friend Mr. Keetch mentioned the Military Afloat Reach and Sustainability project in an attempt to understand the thinking of the MOD in respect of the MARS and carrier programmes, as it appears that they are inextricably linked. If our warship yards cannot cope with the construction of eight to 10 ships for the MARS programme at the same time as the construction of aircraft carriers, we would like some understanding of the thinking on how to tackle that programme. If they can be constructed at the same time as carriers, in this country, I would be only too pleased to hear it.

Finally, I want to refer to the results of the MOD internal survey, which was published only a few months ago. I hope that the Minister agrees that it provides some alarming figures. Two thirds of those questioned are spending their own money on extra equipment because they do not have confidence in the MOD issue, and nearly half our soldiers in Iraq have no confidence in their fighting kit. Furthermore, a constituent of one of my hon. Friends who is the mother of a Royal Marine serving in Iraq at the moment has advised me that the Marines cannot operate effectively at night because there are only eight pairs of night-sight goggles for a total of 800 men. That seems extraordinary and I would therefore welcome the Minister's comments.

The same survey revealed that 39 per cent. of soldiers do not feel valued by the Army and that 35 per cent. felt that morale was very low. When asked, "Does the MOD look after its personnel?", only 3 per cent. of respondents strongly agreed, and 32 per cent. somewhat agreed, leaving 62 per cent. who either did not know or did not believe that the MOD looked after its staff. Furthermore, 35 per cent. of soldiers were critical of the frequency of the operation of tours, while 87 per cent. of the RAF said that they were overstretched, with 20 per cent. working more than 50 hours a week. I hope that the Minister at least finds those figures as worrying as I do, and will seek to address some of the underlying problems. Again, I would be appreciative of his views in his wind-up.

I think that it is agreed across the House—at least I hope so—that we need to ensure that our forces have the best and most effective equipment, and yet it is clear from the survey that that does not seem to be the case. I readily accept that no one can provide everything without reference to cost, but in the total sum game, the amount spent as a proportion of total expenditure on basic kit and basic equipment cannot be large. I would hope that some reprioritising of expenditure, bearing in mind the huge costs of some of the big-ticket items mentioned this afternoon, can be made so that we can at least ensure that no member of the armed forces would feel compelled to purchase additional kit with their own hard-earned cash in order to feel more confident in the dangerous situations to which we send them.

Photo of David Crausby David Crausby Labour, Bolton North East 3:28 pm, 4th November 2004

I shall begin by making the obvious statement that it is undeniable that our armed forces deserve—indeed, must have—the very best equipment and support services available. They are, after all, men and women who risk life and limb in our defence on an increasingly regular basis. Whenever there is a conflict between the safety of our troops and buying British, we must have no hesitation in coming down on the side of protecting our brave servicemen and women. Cost is obviously an important issue, but we would be wise to take a sensibly balanced view in the procurement process, so as to deliver a secure supply of defence-related products and services in the long and medium term.

The safety of our forces notwithstanding, the most secure and dependable supply is, of course, a local supply, manufactured and delivered by the UK in the UK. The end of the cold war has completely changed western defence priorities, and the globalisation of the industry has put enormous strain on both defence manufacturers and the trade unions. The trade unions have dealt with and accepted enormous numbers of job losses over recent years, and defence manufacturers, for their part, have continued to invest, in spite of difficult trading conditions.

Despite this revolution in the industry, the UK has been able to maintain its position as the world's second largest defence supplier; and so we ought to be, as we are, after all, the world's second largest defence importer as well. This is not just a one-way process, with UK manufacturers demanding more of the defence budget. The size of the budget is in many ways dictated by the size of our industry and its ability to produce. As the British defence supply chain declines, the temptation to cut the budget will increase.

The UK's defence industry is one of which we should be enormously proud. While I accept the Minister's comment that without the MOD there would not be a British shipbuilding industry, I must point out that without the British shipbuilding industry there would not be an MOD—or, indeed, a British nation, other than one that might well be French or Spanish-speaking. This is very much a two-way process. The UK defence industry is world-class, and it should be valued in the same way as we value our armed forces themselves. It contains irreplaceable talents and skills, and it is vital to our independent ability to protect ourselves and our nation.

The UK has the most open defence market in the world, but our openness to others is not always reciprocated. Does anyone really believe, for example, that the French would allow us to build their aircraft carriers, or the Chinese would dress their soldiers in Lancashire cotton? I doubt very much that either of those things could happen.

The defence industrial policy launched in October 2002 was an important step in the right direction, but it was long overdue. The order for Hawk trainer jets was secured only at a very late stage, after some very serious arm-twisting. Sir Richard Evans, the then chairman of BAE Systems, told the Defence Committee that the recommendation from the Defence Procurement Agency was to acquire the Italian Aermacchi aircraft rather than the British Hawk, and that in coming to that recommendation no account had been taken of the additional value to the UK of purchasing the Hawk. He went on to say that the Indian Government had placed an order for 66 Hawks only after the British Government's eventual decision to buy British, and that he could genuinely see us being able to sell 400 to 500 such aircraft worldwide. Well, we shall see, but one thing is absolutely certain: none of that would be possible without the MOD order. After all, who would expect the Indian Government to buy the Hawk if the British Government had not been prepared to?

The eventual decision by the Secretary of State to secure the Hawk trainer was a brave and sensible one that was obviously made in Britain's interests, and I suppose that this example demonstrates the success of the defence industrial policy in the end. Why, though, did he have to make the decision at such a late stage? One of the six overarching themes of defence industrial policy is maximising economic benefit to the UK from defence expenditure. The Americans do not appear to be so reticent in protecting their manufacturing base. They are not quite as enthusiastic as we are about being fair and open to foreign competition. That is clearly demonstrated by their reluctance to grant even an unclassified waiver of the international traffic in arms regulations to the UK, which is disgraceful. I greatly appreciated the Minister's robust comments on the waiver in his opening speech, and we strongly support his efforts to overturn the decision.

America's argument in favour of the regulations is that it should not export its technology to the industries of untrustworthy countries. That is understandable, but Canada has done so and enjoys free trade with the United States. The question is, who will George Bush turn to first when he needs a reliable military ally—Canada or the UK? There is an urgent need for the President to deliver on the ITAR waiver. The White House has no excuses now that the Republicans are clearly in control. Failure to deliver will inevitably damage our special relationship. Without full access, we are entitled to ask why we should stick our neck out in support of the United States if it does not trust us with its technology. The denial of the waiver delivers a huge and unfair advantage to American companies.

Photo of Andrew Robathan Andrew Robathan Shadow Minister (Defence)

I agree with what the hon. Gentleman is saying about ITAR, but the question that must be asked—perhaps he knows the answer—is whether the Prime Minister has asked that favour of the US Government, and if so, what the response from his friend George Bush was.

Photo of David Crausby David Crausby Labour, Bolton North East

The Prime Minister has not confided in me personally, but my understanding is that the White House is very much in favour of the waiver, and support from the President is there. The problem lies with Congress, and people such as Congressman Hunter. My point is that as we move into a second and strong presidential term, the President should redouble his efforts to ensure that Congress delivers. As I have said, the lack of a waiver gives American companies an unfair advantage. Not only are there obvious commercial difficulties in having to license thousands of individual components, but delays could make effective competition virtually impossible.

Increasingly, UK companies are trying to get around American protectionism by buying up US companies. Therein lies another problem. Many of our major enterprises are forced to employ nearly as many workers in the US as in the UK. If we do not halt that drift, Britain will rapidly become the low-tech end of the business, completely reliant on other countries and their Governments. If that is coupled with the purchase by overseas companies of UK defence manufacturers, we could end up with just the unskilled and outdated end of the business.

The globalisation of high-tech manufacturing is of course inevitable. With a level playing field, the British defence industry can compete with anyone in the world; but defence industrial policy must ensure that the UK has maximum exposure to new technologies. British taxpayers and British politicians will be best persuaded to invest in defence when they can see that the wealth of our nation benefits as a result.

Photo of Peter Viggers Peter Viggers Conservative, Gosport 3:39 pm, 4th November 2004

Thank you, Madam Deputy Speaker, for giving me the opportunity to follow my Defence Committee colleague, Mr. Crausby. Of course, our thoughts today are with our armed forces, many of whom are being put at risk on our behalf. Our objective is to contribute to the discussion in order to ensure that they have the best possible equipment available to them.

The facts have been rehearsed by several hon. Members. The 20 largest projects in defence procurement cost £51.9 billion—a massive sum—excluding the two most sensitive, which are not recorded. In 2002–03, some £3.7 billion-worth of defence equipment was delivered, but there was a slippage—an increase in cost—of £3.1 billion. Looked at in one way, that means that we are scarcely making any progress at all. There was a 6 per cent. increase in costs and an 18-month slippage in programmes. Nine months of that slippage occurred in the last year, so in that time only three months of real progress was being made. Moreover, although the Defence Procurement Agency said that it expected to spend 15 per cent. of programme costs on investment in de-risking, only 5 per cent. was actually spent. So the smart procurement initiative—now known as smart acquisition—aim of "faster, cheaper, better" is not being met.

With the possible exception of Ministers, we all enjoyed very much the speech of Mr. George, Chairman of the Defence Committee, in which he robustly defended the Committee's report. It was accurate in every case, and every allegation and statement can be fully justified. The Government's description of it as "disappointing and flawed" is completely incorrect. I take part in this debate with relish, and I am happy to associate myself with some of the more critical sections of the report. It is not a habit in this House for a Member to be identified with a particular phrase in a report, but I am proud to be associated with some of this report's more robust language.

We have to ask ourselves what has gone wrong. How can it be that a respected Committee's report can describe the programme as "woeful", which indeed it was? Smart procurement was introduced some six years ago, and it is highly charged with management consultant-speak. My background is in business, and I used to have ministerial responsibility for economic development in Northern Ireland—I was responsible for the privatisations of Harland and Wolff and of Short Brothers—so I do not regard myself as completely ingenuous when it comes to business matters. However, even though I listened carefully for about an hour when I attended my first smart procurement presentation many years ago, I did not really understand what those present were talking about. The presentation was completely suffused with management consultant-speak. Ordinary, normal people find it difficult to tune into such language, which was full of "main-gates" and special technical phrases. One needed a dictionary to understand what was being said.

We have reached the stage where the director of defence procurement is offering an amnesty for honest forecasts, and there is a gap in targets. For example, the Ministry of Defence says that there is a 50 per cent. likelihood of a target being met in five years, whereas the DPA is talking about a 90 per cent. certainty of meeting a target in six years—so they are not even talking about the same targets. Every project has to jump through the same hoops, and as so often with this Government, they have created a set of artificial targets and are spending an inordinate amount of money and time trying to meet them. Exactly the same thing is happening in the national health service. The Defence Committee Chairman, whose speech I am trying to develop, said that things have gone wrong; I am trying to work out why.

In the NHS, micro-management has resulted in the Government setting targets in order to decide whether a hospital should get stars. They set targets for waiting times in accident and emergency units, for example. I know that my own local hospital had to work for weeks in advance to build up to its target week when it would be checked for its accident and emergency times. Having reached the target, it wound down from there. Doctors' leave was cancelled in order to meet the target in the particular week, but it was subsequently restored. Having to meet the target distorted the work of the hospital for months.

Exactly the same is happening in defence procurement. The Defence Procurement Agency sets artificial targets and people have to meet them rather than the interests of efficiency. The way ahead must be to develop a team of trained service personnel who have experience within the armed forces. They can move over to the procurement field when they have built up service experience.

The Defence Committee provides a similar sort of analysis in paragraph 14 on page 47 of its report:

"MoD estimates that Smart Acquisition has resulted in savings of £2 billion. However, given that the Chief of Defence Procurement has acknowledged that only one of the seven principles of Smart Acquisition has been implemented, we have no confidence in the reliability of this estimate."

These are the key words:

"Indeed, the programme of Smart Acquisition was created and named by government, but does not necessarily define the ultimate standards in defence procurement. Success in defence procurement should be measured by objective standards and not just by reference to the seven principles that the MoD has itself adopted."

Smart acquisition has at its kernel the point that a task is de-risked at the beginning, but how can we de-risk a project? Let us take the example of the two huge new aircraft carriers, which we all fervently hope will eventually materialise. How do we decide whether the joint strike fighter, with its short take-off and vertical landing role, will be able to meet its requirements? We all know that there is a significant weight risk with the VSTOL joint strike fighter, but how can we possibly work out whether the technical problems will be overcome, and how can any commercial manufacturing company be prepared to take the risk of the project not working properly? It simply does not work. The Public Accounts Committee made the point that it is unreasonable to expect commercial companies to bear the risk, however much study is put into the project at the beginning.

The only way ahead is to have a trained team of people. Having spoken to a wide range of people in the armed forces over a long period, I would submit that people involved in defence procurement need to have military, hands-on, armed services experience. We need to work in the long term to build up a team of trained and suitably qualified people from the outset and give them hands-on military experience for, shall we say, 10 or 12 years. At the age of, shall we say, 32 to 35 at the rank of, shall we say, major, these people would move over and take over long-term procurement projects. The long term is important: we cannot expect people to pick up a full understanding of major projects in a short period.

The concept of drafting in Army, Navy and Air Force personnel for the standard billet of two and a half to three years and expecting them to be able to pick up and run with the ball is just not realistic. We need a cadre of people, perhaps comparable to the old Royal Corps of Naval Constructors. They usually had services experience before they moved in to become professional experts in their particular fields. I urge the Government to go down that road, to develop a cadre of trained people and then to trust them. We cannot second-guess them all the time; we must put them in position and let them manage. I would maintain that the besetting fault of this Government in particular, and of socialism generally, is that they love micro-management and believe that everything can be controlled from the centre.

I want to make three more brief points. First, we should enhance co-operation with other nations. If the chairman of British Airways said that he wanted aircraft to be designed to his specifications, we would all think that he had gone barking mad and that the company would go out of business. However, the Army, the Royal Navy and the Royal Air Force all have equipment specially designed for them, and the same is true in France, Germany and most other countries.

Governments are protectionist when it comes to defence procurement, and hon. Members, who have the interests of their constituents at heart, are also naturally protectionist in that respect. However, we must steel ourselves to recognise that procurement is not a job creation scheme. Adopting more long-term thinking about defence procurement means that we will work more closely with other nations. In that way, the cost to taxpayers will be reduced, and defence forces will receive equipment that is the most cost-effective possible.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

I understand my hon. Friend's rationale, but is not one of the difficulties with collaborative programmes the fact that, on average, they are some 40 per cent. more expensive? That is a result of the collaborative element. The difficulty lies in trying to harmonise common requirements without compromising on the capability that is aimed for, and in banging together heads in Europe in an attempt to keep the costs down.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

My hon. Friend is right to say that collaborative projects are more expensive. That is why we must be much more strategic in our thinking, so that one country takes the lead in developing a tank, for example, while another takes the lead in developing a ship, and another in developing an aircraft. However, that would require a level of statesmanship that is not evident anywhere in Europe, or even in the UK.

Secondly, I want to say a word about the carrier programme, about which I am less sanguine than my colleagues on the Defence Committee or in the House. There is a yawning gap between the £2.9 billion that the Government say the ships can be built for, and the £4 billion that the manufacturers say is the absolute minimum. The Government started by setting up a competition between BAE Systems and Thales, and then announced that there would not be a competition after all. Input was forthcoming from VT, which has a great deal to offer, and from Swan Hunter, which has very little. Now we have an alliance—effectively, a committee made up of representatives from BAE Systems and Thales, with a Defence Procurement Agency chairman. We are told that it is not a committee, but if it is not that, what is it?

Photo of Dari Taylor Dari Taylor PPS (Ms Hazel Blears, Minister of State), Home Office

Did the hon. Gentleman really say that Swan Hunter had little to offer when it came to building the aircraft carrier? If so, will he explain exactly what he meant?

Photo of Peter Viggers Peter Viggers Conservative, Gosport

The hon. Lady will know that Swan Hunter almost went out of business before it was pulled back from the grave. I may be putting myself in a position that resembles the one encountered by my hon. Friend Mr. Johnson, and I may have to make a journey to the north-east, but I stand by what I said. There is widespread apprehension in the shipbuilding industry as a whole that Swan Hunter is being included because of jobs and not because of skills. I do not resile from that statement.

My third and final point concerns the need for open markets in defence products. The UK is the nearest thing to an open market in Europe in that respect, but we must work more with colleagues to encourage the US to give us the international traffic on arms regulations waiver that we need so much. The VT group has suggested a new industry-Government approach to secure greater access to global defence markets, which would also be very welcome, but the ITAR waiver is crucial.

To be fair to the Prime Minister, I understand that No. 10 and the White House issued a joint statement after a meeting between him and President Bush. The statement said that they had agreed

"radically to improve the sharing of defence information and technology between our two countries."

The US Administration have therefore supported a waiver for the UK, but the problem lies with Congress. We must hope that the new profile of the membership of Congress will help, as we urgently need to ensure that we can maintain a good defence dialogue, in technological terms, with our American allies.

Photo of John Smith John Smith Labour, Vale of Glamorgan 3:54 pm, 4th November 2004

It is always a privilege to follow Mr. Viggers. I do not always agree with what he says, but his speeches are always a good listen, with occasional thought-provoking ideas. This is an important debate, especially after the announcement on the White Paper and yet another transformation in our armed forces.

I often think that defence procurement and logistics are the poor relations, but they are in fact some of the most important aspects of defence policy. If we advocate serious change but do not get right procurement of equipment and the logistical support for that equipment, we will be in serious trouble. People can wish for effects-based defence or for capability, but they will not get it if procurement and logistical support are not got right. As I have said before, although it is often forgotten, almost half the defence budget is spent, not on equipment or front-line capability, but on supporting that equipment and front-line capability. The House does not get the chance to debate that aspect of defence policy enough.

My comments today are made as a loyal supporter of the Government's defence policy, which has been a huge success since we were first elected in 1997. Like the hon. Gentleman and indeed you, Madam Deputy Speaker, I have had the honour to represent Parliament on the NATO Parliamentary Assembly for some years. I have also been a member of the sub-committee of that assembly on future military capability, and I have been proud to observe the role that British defence policy—especially the strategic defence review—has played in transforming defence, not only in this country, but in other NATO countries. I do not know whether hon. Members are aware that all the countries that have undertaken a strategic defence review, including Norway, Germany, Spain and many former Warsaw pact countries—the latter through their military action plans—have referred to the British strategic defence review as a basis for considering transformation.

I was present when the former Supreme Allied Commander Europe, General Wesley Clark, held up a copy of the British strategic defence review and told other NATO countries that that was how it should be done. The SDR has been a great success story. Indeed, I have a spare copy, for anyone who is interested, of the Spanish defence review, which pays particular tribute to the British review. In fact the only country in Europe to undertake a defence review recently without paying tribute to the British role is France. Hon. Members may not be surprised to learn that.

I welcome the speech by my right hon. Friend Mr. George. All hon. Members should read the Defence Committee's report carefully, and it would be a mistake for the Government to ignore what it says. We have done well in formulating our vision and in the reconfiguration of our forces to meet future challenges, but I sense a drift in the Ministry of Defence on issues of procurement and logistical support. The Defence Committee report should be welcomed by Front Benchers as a warning shot across the bows. There are problems developing in the Department and now is the time to do something about them, while we still can. In that way, we can build on the excellent start that we have made with our smart procurement and smart acquisition policies.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

The Ministry has no intention of suggesting that we do not understand the points made by the Defence Committee—I will say more about that later—or that we are not willing to learn lessons. We have proved over the years that we are willing to do so. However, some of the language used in the report was not properly evidenced. That is where the disagreement has occurred between the Defence Committee and the Ministry.

Photo of John Smith John Smith Labour, Vale of Glamorgan

I am delighted with the assurance that my hon. Friend gives us in that intervention, but I still have deep concerns about trends in the Department.

Photo of Lindsay Hoyle Lindsay Hoyle Labour, Chorley

Does my hon. Friend agree that procurement—whether for Typhoon, Hawk or the A400M—has been very good under the Government, but the big problem, especially in respect of British textiles, is that uniforms are being made in China by a red army company? I am sure that he would agree that that is absolutely absurd and should not be allowed to happen.

Photo of John Smith John Smith Labour, Vale of Glamorgan

I am not familiar enough with the issues to be able to comment on them—I am sure that my hon. Friend the Minister is and will take every opportunity to do so—but I take the point that was made earlier; what we want for our servicemen and women, who do such a wonderful job for us throughout the world, is the best equipment at the best price. That occasionally involves making tough decisions.

I want to spend the time left to me throwing up a case that reflects my concerns about developments in the DPA and the Defence Logistics Organisation that have been flagged up already in the Defence Committee report. I refer to the announcement on 16 September of the Minister of State's preferred option to hand back the entire deep repair and maintenance of the RAF's premium front-line fleet of Tornado GR4s to the RAF. I am talking not about servicing in theatre, first-line servicing or minor repairs to keep those aircraft in the air, but factory maintenance. Major repair and overhaul is being taken away from the Defence Aviation Repair Agency.

I commend the report produced by the Defence Committee in March 2001 that heralded the creation of that agency as a great innovation, as part of the strategic defence review as it relates to smart procurement. DARA was created by Her Majesty's Government in April 2001, as an alternative competitive source of aircraft repair to that offered by the commercial, private sector. It has a major strategic role in ensuring that our front-line fleet is kept in the air at the right price, so that we get value for money.

The RAF used to carry out deep repair and maintenance—in fact, it did so in my constituency for 40-odd years—but not because it could deliver front-line capability better, more cost-effectively or more efficiently than business, but because there was a very good military case for doing so during the cold war. Since the end of the cold war, no one—none of the NATO countries, nor any of those who produced strategic defence reviews—believes that there is any military or economic case for the RAF to carry out deep support for our fast jets on the front line.

Only the declaration of a preferred option has been announced, but I am deeply concerned that, if pursued, it will result in capability failures and a dependence on a monopoly source of support for the RAF, and that a well-known defence contractor—I shall not name it, but I am sure that those on the Front Bench are aware of it—will be relied on to bail out the RAF in the future, as it has had to do in the past. If the fully commercialised civilian capability that exists is taken out of DARA, the RAF will have no one else to turn to. I draw the House's attention to the recent comments of the Public Accounts Committee when it interviewed Sir Kevin Tebbit about the Ministry of Defence's constant failure to avoid being dependent on a monopoly supplier; that is exactly what is happening.

The decision is bizarre, but it reflects the drift that is occurring in the DPA and the DLO. I am absolutely delighted that the Defence Committee has decided to investigate the preferred option before the decision is taken, rather than after the recommendation is implemented and the capability is lost for ever.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

The hon. Gentleman knows that I am with him in spirit because St. Athan in his constituency carries out parallel work to Fleetlands in my constituency, which undertakes the overhaul of rotary wing aircraft. Does he agree that the Government's proposal flies in the face of most logic? If one can take manufacturing and overhaul facilities away from the uniformed armed forces, one can reduce costs and increase efficiency.

Photo of John Smith John Smith Labour, Vale of Glamorgan

I agree with the hon. Gentleman. If one does that, one can enhance front-line capability at the same time.

It was right to carry out a review of logistics. An end-to-end review of logistics in land and air was carried out in 2002–03, which was precisely when the Defence Committee suggested that serious problems were occurring. I recommend that hon. Members read the review. Its recommendations were completely flawed because they ignored the strategic role that was created for DARA as little as three years ago by the Government. Secondly, and crucially, a proper distinction was not drawn between the productivity, output and potential of servicemen and women operating in a factory environment under a military code and Queen's regulations, and those of civilians working in a factory in a commercial environment. They were treated as the same, but that beggars belief because it goes completely against common sense.

I am mindful of what the hon. Member for Gosport said about the dangers of management speak because earlier this year, the Minister of State rolled forward the maintenance of the Harrier GR9 to Marham. We were told that that happened because service personnel had developed a lean technology and a pulse line and that they could thus compete with the private sector; what utter nonsense. They are not there to compete with the private sector, but to prepare for and fight wars. They are the best in the world at doing that, so for goodness' sake, let them get on with that and stop pretending that they are businesses and that they should be running factories, precisely the nonsense that is proposed.

The move to Marham was not a success. The so-called lean machine has been fraught with problems. The Minister has asked me on several occasions to list some of the problems and provide him with the information, but I do not wish to do that in the House today. I have a long list of aircraft that have experienced difficulties in recent months, but I shall put only one example on record: Zulu Delta 402. Will the Minister seek an independent assessment of what went wrong with the aircraft and why it took 219 days to turn it around, rather than the 60 that it should have taken? The reason for that is obvious. Those people are loyal servicemen and women who joined the Royal Air Force, as I did many years ago, to serve their country, not to work in a factory or to behave as commercial civilian factory workers.

The decision is a disaster for the military in terms of its capability and for the British taxpayer, because we will pay through the nose for it. When we are dependent on that monopoly supplier, there will be no way out. The supplier will be able to ask for blank cheques. It was little wonder that the supplier was pleased when I recently spoke to it about the prospects of the new partnership and new relationship. There is still time to do something about that, however.

If the decision were right for our military and the taxpayer, I would go to my constituents, who are very experienced—in the Minister's words, uttered within the past 12 months, they are world-beaters—in defence aviation repair, and say that in the interests of the defence of this country we have to bite the bullet, take the tough decision and find ways to minimise the impact, but that is not the case. The decision is bad for the military, the taxpayer and the aviation industry in south Wales. It is wrong in principle and wrong in practice.

I ask my right hon. Friend to reconsider the decision. The end-to-end review was flawed. It took place within months of the creation of the Defence Aviation Repair Agency. The RAF was not happy about the agency in the first place and, surprise, surprise, the review's recommendation is to give the work back to the RAF. If he cannot see that, it is a matter for concern, which is why I am delighted that the Defence Committee will investigate the issue shortly.

Please do not get this decision wrong. It is not a question of jobs in my constituency. It is not even a question of the damaging effect that it will have on the south Wales economy. It is a question of the future capability of the British Royal Air Force. We cannot place that at risk.

Photo of Michael Jack Michael Jack Conservative, Fylde 4:12 pm, 4th November 2004

In following Mr. Smith, may I say that I am glad that he implicitly acknowledged the excellent work in the private sector by the many thousands of my constituents at BAE Systems Warton, who produced the Tornado mid-life update and the GR4 model as a result of that? I have noted his comments, which will not be lost on those aerospace workers.

I want to pick up a theme of Mr. Crausby, who made a perceptive and interesting speech, touching on many of the challenges that lie ahead in securing the future for Britain's high-technology defence industries, particularly in the aerospace sector. The House knows that the home of BAE Systems is in my constituency, and it is to that that I want specifically to address my remarks.

Although I found much in the Minister of State's speech that was interesting, I was disappointed with the number of omissions relating to specific projects. I appreciate that he cannot cover everything, but we are embarking on taking our place in the construction of the joint strike fighter project. It is the world's biggest military aerospace project. Some 230 of our personnel are in Dallas Fort Worth. I think that I can claim to be the first British politician to visit that plant, to have a presentation on the JSF, to see the future for myself and to talk to some of our excellent people who are contributing to that project. However, the Minister made no specific detailed mention of the future of that project and the implications of that for Britain's aerospace industry.

On the future offensive air system—the cradle of the development of the new technologies that will equip our industry for the future—the Minister told me in a written answer that since 1999 we have spent £84 million on that project, subsumed as it is into the European technology acquisition programme. But there was no mention in his speech of what the project is currently about, what technologies are involved and when we can expect some public exposure of the projects that will arise from it. In the parliamentary question I asked for a statement on the future offensive air systems project, including the project's objectives. We got two lines on arguably the most important programme that will determine our future aerospace industry technologies.

The debate has touched briefly on the Eurofighter Typhoon. I take the opportunity to put on record my personal appreciation for the courtesy and kindness that the Minister for Defence Procurement, the noble Lord Bach has shown in personal discussion and correspondence in response to the many letters of representation that I have sent on the subject of tranche 2. The discussions between the company and the Ministry of Defence about the difficulties of the cost of the second tranche and the implications for the cost structure of tranche 1 appear to have been successfully concluded. May we please have a straight answer to the question as to when an announcement will be made? This has been run out for far too long. It is nearly a year since those of us with an interest started asking when the matter would be sorted.

I say this not for any kind of political gain. I recently had a constituency advice bureau in BAE Systems and, one after another, members of the work force came to me and said, "Mr. Jack, when is this going to be settled? When will we know that we have some future for our work at Warton and Samlesbury?" I acknowledge that the Minister must have a meeting with the other three partner countries before the matter can be finally decided, but he owes it to those workers to give them an early Christmas present and put the future of tranche 2 once and for all beyond doubt.

The language on Eurofighter Typhoon has become noticeably more positive from the Secretary of State and all Ministers and from the Chief of the Air Staff. I welcome that endorsement. It will certainly help prospects for export orders in the discussions that are going on with the Greeks and the Malays, for example, and perhaps even future orders for Saudi. More confidence among export customers would be welcome, but the biggest vote of confidence would be the signing of tranche 2. Perhaps in his winding-up speech the Minister will put us all out of our—I will not say misery, but anticipation.

Photo of Michael Jack Michael Jack Conservative, Fylde

The Minister says no, and that will be noted. Many thousands of workers would have liked an answer, which they will not receive tonight.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

My understanding is that our European partners are awaiting a decision from the United Kingdom. They are all ready to go. I understand from BAE Systems that the price has been agreed with the Government. What is the hold-up? My right hon. Friend is right to say that the Minister must give us an answer today.

Photo of Michael Jack Michael Jack Conservative, Fylde

I agree. My hon. Friend underscores my point.

I should be grateful if the Minister explained why pen has not yet been put to paper on the subject of the Hawk order for the RAF. The hon. Member for Bolton, North-East rightly emphasised the importance of the United Kingdom's decision to purchase that aircraft, yet I understand that the plane has not yet been ordered. A decision in principle has been made, but it would helpful to know when the order will be placed.

Another notable omission from the Minister's speech was the Nimrod MRA4. That may be, from the Minister's point of view, in the "All too difficult" column, but let us spend a moment reviewing MRA4 and its importance to the UK aerospace industry. It is currently the largest British aircraft project. In fact, it is the only large British aircraft project in construction. I would be the first to acknowledge that the birth of MRA4, representing as it does nearly 95 per cent. of a brand-new aircraft, has not been painless. There are huge lessons to be learned from the way the procurement exercise was undertaken, but with the successful flight of the first prototype from Woodford to Warton in my constituency, we know the aircraft will fly. We know also that two other prototypes studying the mission system are under construction at Woodford.

This aircraft is a world-beater. Its mission system, which Boeing has helped us to develop, is the envy of the world. A fair chunk of what Boeing has done is going into the American P3 replacement aircraft. It has, for example, a 14-hour loiter capability, one of the largest bomb bays of any military aircraft in the world, and the latest acoustic suite and electronic surveillance systems. It is one of the best aircraft of its type and yet it was not mentioned specifically in the Minister's speech. It is of crucial importance to the aerospace industry, with 1,500 workers at BAE Systems at Woodford, Warton and Brough combined involved in it. There are 2,000 more in the supply base, and many small and medium-sized enterprises depend on it. So far, the most that the Government have said is that they need, or think they need, approximately 12 of these aircraft to carry out the capabilities of the existing fleet of Nimrod patrol aircraft.

Given the investment that the Government and the company have put into the project, it merited at least a mention in the Minister's speech to give us some indication of how the Government will take forward the future assessment of the project and when, if ever, they will decide to buy more than one, two or three. I do not know, but in terms of the future of our maritime patrol capability, and possibly, as it is a world-beater, even selling the aircraft to others, we should at least have had a mention of it in his speech.

I had the rather surreal experience in the middle of September of standing in the middle of the joint strike fighter factory in Lockheed Martin at Dallas Fort Worth. That aircraft plant is over a mile long. It is the home of the F-16 and the F-22, as well as now of the F-35. The reason why it was odd to be standing there was that I was having a discussion with representatives of 230 of our own aerospace workers who were there. They were admired for their skills and they told me how impressed the Americans were by our engineering capability. They said that the Americans were in awe of the fact that when British-made components came together, they fitted. There were no shims, no adjustments, no nothing. They did what it said on the outside of the can. They talked about their contribution, but then they said that they had already put their technological jewels on the table and that that was what had got them into the joint strike fighter project. They asked what was the future of the British aerospace industry, where were the new technologies coming from, and what would keep the skilled teams of engineers and systems designers together. The most that we have heard on that score in the Minister's speech today is that he welcomed the desire to secure a long-term future for the aerospace industry, or words to that effect, and he muttered something about the defence industrial strategy.

I welcome the fact that there is a much better dialogue between BAE Systems and the Government. In fairness, there is both listening and discussion. But unless that exercise, combined with the work of the future offensive air system project is to mean anything, we must have a clear statement first, that the Government regard the aerospace industry in the same way that they do shipbuilding. Shipbuilding is on their list of strategic capabilities that they feel that the UK should have. That lines up, as I understand it, with nuclear weapons, nuclear propulsion and encryption. But aerospace does not currently figure on the list of strategic defence capabilities that we should maintain in this country.

I can see, from having seen the size of Lockheed Martin's plant at Dallas Fort Worth, that we will never be able to rival the might of the American defence industry. But, to pick up on the points made by the hon. Member for Bolton, North-East, we have world-beating capabilities that should in future put us at any table, anywhere in the world where there is a project of partnership that would be to the advantage of the United Kingdom.

The Government must now state with greater clarity what they are doing to develop new technologies. What are the new technologies? What work are the Government doing in the materials development field? Which new electronic systems and manufacturing systems will they support? After Eurofighter-Typhoon and other current projects, we will not have an industry.

In conclusion, I turn to the JSF. I wholly endorse all that has been said in this debate about technology transfer and welcome the efforts on the ITAR waiver, but now is the time for the Prime Minister to call in the cards. I know from my discussions with the Foreign Secretary and a question that I put to the Prime Minister in the House that they take seriously the discussion about that matter with President Bush. As America's most loyal ally, it is time for America to come to our aid and make certain that meaningful discussions to evaluate the RAND Europe report on the JSF in Europe are pursued.

I say that because the report offers the prospect of a final assembly and check-out line for the up-to-150 aircraft in which the Government have an interest. There is certainly the prospect of a maintenance and repair unit for those aircraft in this country, which is a necessity. In addition to servicing, such a unit could also undertake lucrative upgrades over the aircraft's potential 20-year lifespan.

The production run in the United States could exceed 2,800 planes, and when I visited Dallas Fort Worth, Lockheed Martin indicated that it might be subject to supply constraints. If that is the case, it is incumbent on the Government carefully to evaluate—perhaps on behalf of or in concert with other European countries which are interested in the aircraft—the possibility of locating the final assembly and check-out facility in the United Kingdom, hopefully at Warton. A facility to deal with maintenance and repair makes eminent sense in the long term. If technology transfer does not occur, however, all the possibilities for British industry and the JSF identified in the Government-funded RAND Europe report will not happen, because we will not get the required technologies.

The JSF is a vital project and we have embedded our best technology to date in it. Given that we may want to develop the aircraft in the future, I back the attempts to achieve technology transfer. However, I hope that the Government will indicate whether they will engage in meaningful discussions with the United States about the long-term planning for that aircraft.

I have briefly covered the major procurement projects that matter to BAE workers, not only in my constituency but across the north-west and throughout the country. Unless long-term decisions are taken in the context of the future offensive air system about where Britain's military aerospace industry is going when the JSF has been built, the Eurofighter has been delivered and decisions have been taken about the Nimrod MRA4, we will not have a meaningful aerospace industry in this country, which is totally unacceptable in military and, indeed, economic terms.

Photo of Dari Taylor Dari Taylor PPS (Ms Hazel Blears, Minister of State), Home Office 4:28 pm, 4th November 2004

I take great pleasure in having an opportunity to contribute to today's debate, which I have enjoyed.

Appropriately, I shall start with the 2004 spending review. Although all hon. Members are concerned about how much we are spending and how effectively we are spending it, it is also important to remember that we are spending. The defence budget will increase by some £3.7 billion over the next three years, which is something to be satisfied with. I say to the Minister that I will always want more, but I am pleased that the Government have put the money up front.

We should acknowledge that the average real terms increase in spending of 1.4 per cent. a year, building on the additional investment in defence in the 2000 and 2002 spending reviews, gives us a sense of satisfaction and security. We are putting our money where it is required to achieve the best equipment and kit for our armed forces. That represents seven consecutive years of planned, real-terms growth—the longest period of sustained growth in planned defence spending for more than 20 years. That is a record of which to be proud.

My knowledge of defence and the defence industry started with my membership of the Select Committee on Defence, which represented a tremendously valuable opportunity for me. During that period, I met many of our troops serving in the Balkans, in Kosovo and in parts of Europe where they were playing high-quality, creative and professional roles. I was never more proud than when I met them in Banja Luka and they explained how they were helping to maintain peace. To be honest, I often felt that I would love to be a member of the armed forces. My back went straight and I was always wanting to stand to attention, because although what they were delivering was not known about or acknowledged by many people in Great Britain, it was superb in terms of what it achieved.

I felt the same when I met our armed forces as members of NATO involved in partnership for peace. They were committed to involving others in working together in partnership better to deliver change and to understand one another, and working together better to achieve a peaceful Europe. That was very pleasing.

As we are talking about procurement, I shall lean on the fact that I was Parliamentary Private Secretary to my hon. Friend Dr. Moonie when he was Minister with responsibility for veterans—that was a tremendous experience—and to Lord Bach, Minister for Defence Procurement. That gave me a keen insight into the Royal Navy. That was not because they wear the smartest uniforms, although they do—many hon. Members have teased me about that—but because of the way in which they deliver a service. Through the Defence Committee, I gained knowledge of Portsmouth, Plymouth and Barrow, as well as keeping a sure and clear eye on my own River Tees and River Tyne.

I was staggered when Mr. Viggers told the House that Swan Hunter had won the contract to build part of the aircraft carrier merely to provide it with work. That was a straightforward insult, and I hope that he will have the decency to come to the House to withdraw it. I had to ask him to repeat it because I could not believe it the first time. Swan's has 100 years of experience and a reputation as an excellent builder of naval ships. I got to know the men—the boilermakers and engineers—there when I worked in trade unions in the northern region. Whenever I went to Portsmouth or Plymouth or to parts of the world where commercial contracts were being put together, I was proud that men from the north-east regularly made themselves known to me. They were often in the majority among the construction force. Let nobody in this House say that we won the contract in order to provide jobs. I am not trying to fool anybody—of course I want jobs so that my community can work—but I would not want a contract for the Royal Navy to be built by sub-standard people, as was implied by the hon. Member for Gosport.

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok

Does my hon. Friend agree that the hon. Gentleman made it even worse by suggesting that he might have to follow Mr. Johnson up north, not realising that the hon. Member for Henley went to Liverpool, which is in the north-west, while Swan Hunter is in the north-east. Does not that explain why the Tories have only a small band of support on the south coast?

Photo of Dari Taylor Dari Taylor PPS (Ms Hazel Blears, Minister of State), Home Office

My hon. Friend knows that I could not agree more.

When Swan Hunter won the contract for the two auxiliary landing ships logistics, I was delighted. I was thrilled to watch the construction process, with its expert shipbuilding and engineering competence. When the first ship was launched, everyone, including the Royal Navy, said, "Look, Dari,"—they did not call me "the hon. Member"—"this is not high-tech kit," but to my eyes it was an excellent piece of engineering. It was expertly made and totally dependable; it was launched on time, and it was made to price. To my way of thinking, all those are qualities.

I want now to bring a problem to the attention of my Front-Bench colleagues. I hope that they will be sympathetic to what I am saying. Swan Hunter is now building the second logistics ship. Construction should have started three months before it did. I believe that production is catching up and that the ship will be launched in 2005, but I want my Front-Bench colleagues to acknowledge the following problem. During the building of the first logistics ship, the Royal Navy decided that it wanted greater electronic competence and better technology, so the design had to be rethought for the second ship. The designers had to go back to the drawing board, and that took time. Inevitably, time is money. If the Royal Navy wants better, more and different, that is exactly what we should be producing and delivering, but the straight fact is that it will cost. I do not know which one of the hon. Members present is prepared to stand up and say, "We should have the lesser design because it was cheaper and it was done on time." I most certainly will not be making that statement.

The new landing ship dock logistics, or LSD—an unfortunate acronym—will be launched in spring 2005. I have no illusions about my competence to understand the changes that the Royal Navy required, but I do know that I support its determination to achieve the best. We in this House should determine likewise and spend accordingly. I do not want anyone to be under the illusion that I expect there to be an open chequebook, but when the Royal Navy can explain why and how the costs have increased, we are honour bound to accept that.

My next point has to do with the maintenance of a competent manufacturing industry, which is a difficult and expensive achievement. We must understand that investment in equipment is astoundingly expensive. I want to put a problem to my Front-Bench colleagues. The second logistics ship is, as I said, to be launched next spring. We know that, justly, Swan Hunter has won the contract to build 25 per cent. of the aircraft carrier, but all the suggestions are that the date for that project has slipped. It could be 2006; it might be later. That is seriously problematic for a shipbuilding industry that is costly in terms of its skilled work force and the equipment that it uses.

I cannot complain about that: the design of the carriers has to be right, and if the project takes longer, we have to cope with that. However, we also have to be sympathetic to the manufacturer, who cannot have kit lying idle or watch the people whom he has trained disappear into the ether. How would he get that trained work force back again quickly and effectively—a work force whom we trust to build the carrier? I have a suggestion for Ministers. It is not that I want the Department always to build on time—that is not always possible—but I want it to acknowledge that there are alternatives when that is not possible. I want to suggest such an alternative.

The Royal Fleet Auxiliary Service needs new oil tankers. I do not believe that that is a secret—the whole House probably knows that. New oil tankers are necessary because the single-hull tanker is being decommissioned for appropriate reasons. We can rebuild or put in a second, additional hull lining. Both options mean good work. I want to persuade my Front-Bench colleagues that the contract should go to a British yard. Of course, I want it. Mr. Burns is smiling because he knows jolly well what I am about to say: I want the contract to come to the north-east and I shall lobby and exert pressure for it. However, I especially want Ministers to understand that we have a responsibility to support a competent defence manufacturing base. It also has a responsibility to look for new products, diversify and ensure that it is looking for commercial opportunities.

I hope that Ministers would not consider giving the tankers to Holland or the Ukraine to build. Again, I make it clear that I understand that those places could build cheaper—the industry's estimate is £2 million cheaper—but the cost to us would be clear in many other ways.

Photo of Michael Jack Michael Jack Conservative, Fylde

Does the hon. Lady agree that the north-east has the potential to offer another service to the Ministry of Defence? If any existing Royal Navy vessels need to be scrapped, a proper and environmentally friendly facility for dismantling them could be built, possibly in Hartlepool or other north-east sites, using the expertise to which she adverts.

Photo of Dari Taylor Dari Taylor PPS (Ms Hazel Blears, Minister of State), Home Office

I agree with the right hon. Gentleman. The northern defence industry is keen to press its competence to decommission in an environmentally friendly way. Not only Hartlepool but the Tyne faces much opposition. Both rivers have the competence and I hope that Ministers are listening because it is crucial to keep that manufacturing base.

I have spoken about the right of the Royal Navy to change the specifications if it believes that to be appropriate. We should support that. I have asked the Department to consider the way in which we can bring product forward to support the defence manufacturing industry when that is feasible. I know that hon. Members want building to be done to cost and on time, but I want us to build the best so that our armed forces have the best.

The debate has been good and robust. We have challenged each other and we are clearly thinking about a complex part of defence. I started by complimenting my Front Benchers and I shall end by doing that because it is valuable and important. They made it clear that they believed that they could cut waste. They believed that they could make savings. We all watched and wondered how and if. I am delighted to read a report that states that the pledge to make £2 billion of savings over 10 years has already been met. The Department is hitting its targets. It is spending good money and minimising waste. I simply ask my hon. Friends for one more thing—to ensure that any slippage is acknowledged and stopped and, when possible, to support our defence manufacturing industry. It is precious to us all and the last thing we want to see damaged.

Photo of Simon Burns Simon Burns Shadow Spokesperson (Health) 4:44 pm, 4th November 2004

It is a great pleasure to follow Ms Taylor, who made a passionate and interesting speech. She conveyed to the House her love of men in uniform—the armed forces—and her stalwart support for constituency interests. Although I will not follow her comments, except in one respect, I was impressed by her interest in and love of the armed forces and defence. I mused, as I listened to and watched her, on how interesting it would have been to hear a speech on defence from her 20 years ago. It might have been a case of then and now with regard to her views, but given her background before she came to the House, perhaps she had not had the same experience that she has had since of meeting our armed forces in the field, which may have influenced her.

The part of the hon. Lady's speech that I would like to follow is that which she devoted correctly to her constituency interest. That is what I would like to do briefly today. My constituency has for many years been associated with defence procurement. In 1987, there were five Marconi companies in the constituency. It still has a Marconi company—Marconi Selenia—but because of changes in defence procurement, a global economy and rising costs, there have been changes in the ownership and composition of some other companies that remain in my constituency such as e2v and BAE Systems, which, having taken over some of the Marconi empire, has a manufacturing presence there. Chelmsford has expertise and experience dating back many years because it is the home of Marconi. We have a close interest in defence procurement, and rely on it for jobs and the sustainability of the local economy. We are proud of the town's contribution over many years to supplying our armed forces with highly skilled, highly technical equipment, and to supplying armed forces and commercial, non-military companies and establishments around the world with first-class equipment.

I want to ask the Minister four questions, to which I hope he will respond, if not in his wind-up, because of pressure of time, then in writing as soon as conveniently possible. The nature of defence companies has changed rapidly because of the massive costs of research and development for new equipment. Much more international co-operation has developed between companies seeking to produce the finest equipment that armed forces need. As a result, there is concern in my constituency, which my hon. Friend Mr. Howarth shares, about the need for clarification of the Government's view on giving defence contracts to companies that may be part of an amalgamation or conglomeration that is not exclusively British-based. As the Minister will know, the Government's defence industrial policy states:

"The UK defence industry should be defined in terms of where the technology is created, where the skills and the intellectual property reside, where jobs are created and sustained, and where the investment is made."

First, on that basis, are the Government more concerned about investment in and growth of UK defence industries than the ultimate ownership of a defence supplier?

Secondly, inward investment is clearly extremely important for the future of the UK's defence industry. We need to move away from the issue of company ownership and focus instead on where jobs are created and how best the UK can attract more foreign investment. For instance, Finmeccanica is an Italian business, but its subsidiary, Marconi Selenia in my constituency, is a UK company that sustains high-quality jobs both at its sites in Chelmsford and Liverpool and through third-party relationships in the UK that support delivery of its contracts. So my second question to the Minister is: do the Government agree that creating and sustaining such jobs is essential in order to avoid a technology drain, in which such expertise is forced to leave the UK in search of jobs overseas?

Thirdly, the UK defence industry does not exist in isolation. Rather, it collaborates with European partners to identify procurement and third-party opportunities. Such an approach is naturally two-way, and by encouraging inward investment UK workers and businesses can continue to identify new opportunities for growth. So my third question to the Minister is: does the Government's policy on defence procurement take into account the need for ever greater collaboration so as to ensure the continued successful growth of the defence industry?

Fourthly, the UK's industrial capability and export ability are key to this debate. Companies such as Finmeccanica are well placed to exploit networks on behalf of the UK industry. For example, the global defence communications market sector is estimated to be worth about £500 million over the next 10 years, and it is essential that UK companies compete vigorously and successfully in this market. So my fourth and last question to the Minister is: what is the Government's stance on the need to increase the UK's export capability? It is crucial that British companies, either working alone or in collaboration with overseas companies, should have the ability to be at the sharp end of research and development, developing new technologies and products that will ensure that our armed forces have the finest, best and most appropriate equipment to enable them to continue to defend this country and protect our interests overseas.

These companies have gone through an extremely difficult time economically as world markets and the industry contracted very painfully, with far too many job losses and all the misery that that entails. It is important that they should now be given the opportunity to put the difficult times behind them and to move forward, so that they can thrive and look forward to a bright, successful future in which they have the ability to be innovative and entrepreneurial, both in our own national interest and for the purposes of inward investment, job creation and exports.

Photo of Ms Jane Griffiths Ms Jane Griffiths Labour, Reading East 4:52 pm, 4th November 2004

Thank you, Madam Deputy Speaker, for the opportunity to take part in this important and interesting debate. I come to the debate having taken note of the Defence Committee's report, and as a member of the defence committee of the Western European Union. In September, the Committee met in Hengelo, in the Netherlands, to discuss defence procurement, and we looked at the issue from a pan-European and international perspective. The issues addressed at the meeting were extremely similar to those addressed by the Select Committee in its report and by the Public Accounts Committee in its recent report on major projects.

One of the main issues that the Committee sought to address was international collaboration in the defence industry. The view was that this has tended not to work very well. In shipbuilding, for example, good ships have been built in collaboration projects between European countries, but have cost about 25 per cent. more than they would if any country had built them alone. So it would seem that, even in collaboration between European countries, there is the same problem of cost overrun.

To address this problem, a European defence agency is in the process of being established, but it is important that there is a will for it to succeed. The point of the European defence agency is to ensure that there is sufficient capacity in Europe for national Governments to meet their own needs for defence and security, and for European needs to be met. But it is important to remember that decisions on defence have an impact on the economies of the individual countries involved. A nasty, cynical mind might think it would be all too easy for policies to be tilted to ensure a beneficial outcome for one country's defence industry. We must ensure, in all our wider interests, that that does not happen.

In the last few years, we have seen consolidation in the defence industries of both Europe and the United States. Key European players in defence say that we must not have "fortress Europe"; but it must be borne in mind that the defence industry is unique, in that it is a market whose customers are just about always Governments. Improving defence procurement will have an impact on the defence industry. In fact, it could be argued that improvements in the defence industry will bring about improvements in defence procurement. But the US accounts for nearly 40 per cent. of the world's defence spending, more than double that of the European Union—and it is worth remembering that great big China's proportion is only 6 per cent. The needs of the US will dominate the world's defence market, whether any of us like it or not.

As a result of action taken by the then US Defence Secretary, William Perry, we have seen a massive rationalisation of the US defence industry which has resulted in just five major airframe companies, three missile companies—down from nine or 10—two armoured vehicle land systems, and only three shipyards. Progress in Europe has been even slower. According to the head of marketing at BAE Systems, Sir Charles Masefield,

"Firstly, the defence budget shown there of the combined European companies is only 115 billion, less than half the total annual US defence budget, in fact just 41 per cent. Instead of 5 airframe manufacturers chasing that greatly reduced budget, you can see we have 7, we have double the number of missile companies in Europe, we have three times the number of armoured vehicle companies in Europe, and we have nearly four times the number of shipyards."

In the US there has been a move to deliver the industry that delivers the economies of scale, to deliver an improved performance on procurement. We in Europe are much slower in achieving that.

There is, however, a danger that European defence industrial consolidation will result not in a better European industry able to compete and collaborate with large US companies, but in the "fortress Europe" that I mentioned earlier, in which preference will be given to European solutions for European requirements. Similar problems in the US could also damage defence procurement. The Defence Committee has expressed concern about that, saying:

"A careful balance is needed, with the UK government using its influence in Europe to avoid any undue European-preference policy emerging while also playing a full part in rationalising the defence equipment market in Europe."

Ideally, in market terms, the US and Europe need an integrated marketplace. In a lecture in Rome 17 May 2001, Sir Charles Masefield of BAE Systems said:

"But what about the transatlantic consolidation? I believe if you look at the US and European situation, we have of course as I've shown, the four mega companies in the United States, Boeing, Lockheed, Raytheon and Northrop Grumman. We have in Europe, Finmeccanica, BAe, EADS and Thales. How are those going to play in the 10 years ahead? Well no-one knows but my guess is that this sort of thing will gradually happen and if we were to meet in this room in ten years' time, I wouldn't like to predict what would be the marriage in those global companies, but instead of 8 major defence companies in the world, I believe it is much more likely there will be 3 or maybe 4 . . . I believe each of those 3 or 4 will be transatlantic global companies, rather than either the United States or European companies."

One important piece of work for the European defence agency will be to look forward to how the different countries in Europe will be able to carry out their defence procurement in this kind of world. How will we meet the different requirements of the different countries in such a marketplace? In particular, how can we be sure that in a global marketplace UK defence procurement is driven by the requirements of the UK military, rather than just by what the large companies are willing to offer? I don't pretend to have any answers to those dilemmas now, but they are being discussed.

Photo of Kevan Jones Kevan Jones Labour, North Durham

Does my hon. Friend agree that the defence White Paper allows the market to help drive the efficiencies to which she alludes, rather than creating a rigid policy under which national Governments would decide what the future of the defence industry in their countries should be?

Photo of Ms Jane Griffiths Ms Jane Griffiths Labour, Reading East

My hon. Friend makes a very sound intervention and he is absolutely right. That very point is being made, and it is contributing to the discussions that are taking place in what I hope is a positive way. It is well understood within the Western European Union, for example, that the UK invites competition in its defence procurement industry, while other states do not. That is an obvious difficulty, and hopefully, a body such as the European defence agency will play a part in opening things up.

I end with a very short story that shows the difficulties associated with truly opening up transatlantic defence procurement. The new helicopter for the newly re-elected US President is being built by AgustaWestland, mainly at its factory in Italy, which the WEU's defence committee visited last year. Because it will carry around the President of the United States, it has had to be called US101 to make it sound American.

Photo of Mr John Burnett Mr John Burnett Shadow Minister, Home Affairs, Shadow Solicitor General, Law Officers (Constitutional Affairs) 5:00 pm, 4th November 2004

It is a pleasure to follow Jane Griffiths, who made a very thoughtful contribution. Unlike Ms Taylor, she did not assert an ambition to join the armed forces. I have had a pleasant few minutes to dwell on what would have happened had the hon. Member for Stockton, South been able to join my troop in 42 Commando. I do not know what line she would have followed, or what specialisation she was keen on.

I am concerned that there are some unanswered questions about defence procurement, and I want to begin by asking a few of them. Today is indeed the time to ask them, and I hope that the Minister will answer them when he winds up. I have an outstanding shipyard in my constituency, called Appledore, which still exists despite going into receivership last autumn. Earlier this year, the assets were bought by DML, and I am delighted that that happened. Before going into receivership, Appledore had some 600 employees plus 300 to 400 self-employed personnel working in the shipyard. Given that it provided jobs for more than 1,000 people, it was an extremely important employer—in my constituency, regionally, and indeed nationally. Its work force was outstanding, and it had a great reputation for its high skills. It competed in the commercial world for commercial orders, but it was not successful when it came to Ministry of Defence orders.

I was pleased that DML Plymouth bought Appledore's assets. DML is not solely reliant on the MOD for orders and work; it actively seeks and tenders for commercial orders worldwide. It now has a proven track record in the construction of super-yachts. Some are being built as we speak, and I hope that further yachts will be ordered in the near future. DML took on Appledore's superb design team of some 50 people straight away, and a further 50 are now employed on a super-yacht construction contract. So about 100 of the original 1,000-strong work force—only about one tenth—are re-engaged.

DML Appledore is currently competing in the MOD tender for the 1 Castle class offshore patrol vessel. Appledore has built a number of these vessels in the recent past for the Royal Navy—but only as sub-contractors—and also for the Irish navy. Its record is excellent. Vessels were constructed on time to a fixed cost, and to top quality. It also built the arctic survey ship HMS Scot on a sub-contract from BAE Systems. She has been at sea nearly every day since her construction, and every report that I hear is of her excellence.

DML itself has a turnover of some £500 million sterling a year, so we now have the financial muscle to compete for MOD orders. I point out to the Minister that neither DML nor Appledore has ever had a prime MOD contract for the construction of a Royal Navy ship.

If we win the OPV contract, a further 200 employees will be re-engaged for at least 18 months. Importantly, it will give the MOD a further shipyard to engage in the competitive tendering process—a shipyard that is used to competing in the commercial world where the competition is extremely tough, and a shipyard that understands that the future for British shipbuilding is to be in the forefront of technology, building sophisticated niche vessels.

On the role of competition in winning MOD orders, I have reason to be dubious, if not cynical, about the process. Three or four years ago, Appledore tendered for two alternate landing ships logistic. The order was won by the north-east—Swan Hunter, I believe—as the hon. Member for Stockton, South said. We took that on the chin, on the grounds of fair competition. A few months later, out of the blue and without any further tendering process, orders for two further vessels were placed at Govan, despite our numerous attempts. The only satisfactory explanation I can find for this order is that it was just in time for the Scottish elections.

My question to the Under-Secretary is this: how can a senior Cabinet Minister direct an MOD order, whether it be for construction or refitting, to be placed at a shipyard other than the one making the most competitive bid? Why cannot commercial confidentiality be lifted and full scrutiny allowed after the exchange of contracts and completion? Bidding itself is an increasingly expensive process and the inherent costs of the favoured lease-maintenance deals are extremely high.

Research and development, construction and maintenance are not the only costs that shipyards have to bear. On lease-maintenance deals, banks are always involved and they usually buy and lease. The banks will want to extract watertight indemnities as well as pick up capital allowances. Bank charges will be substantial; legal costs will be high. Documents such as leases, performance guarantees, collateral warranties and so forth have to be drafted and agreed. There is the risk to the shipbuilder of having to take the vessel back when the lease expires, often with very little residual value left. It is a complex process, very costly in management time, bank charges and professional fees. Do Ministers really believe that that is the best way to manage procurement and provide value for taxpayers' money? It is a question that I should like to hear answered when the Under-Secretary winds up the debate.

Along with other hon. Members, I recently attended a presentation given by BAE Systems at which that company suggested that shipbuilding companies should form what I would loosely call a consortium and bid as one for a future construction programme for the re-fleeting of the Royal Navy. The discussions are mainly taking place between Vosper Thorneycroft and BAE Systems, but I know that DML Appledore is also involved.

What are the main reasons behind the precipitation of the discussions? First, there is the over-reliance of many yards on MOD orders and, secondly, the abundance of new naval orders in the pipeline. I welcome that, but the Under-Secretary will have heard my intervention on the Minister of State earlier when he spoke about the programme, and the budgetary constraints are being evened out more than is apparent as we speak. What it would mean is that the MOD would effectively be the sole customer and the new consortium company the sole supplier. That is not a satisfactory state of affairs for the taxpayer or for the shipbuilding industry in the medium or long term when, as they surely will, the MOD orders dry up. I hope to hear what the Under-Secretary believes the medium and long-term solutions will be in respect of these matters.

Some of us are seriously concerned that important contracts are subject to undue influence by senior Ministers, and that the contracting process is unnecessarily complex and costly. When the Minister sums up, I hope that he will endeavour to allay our fears on these matters.

Photo of Ian Davidson Ian Davidson Labour/Co-operative, Glasgow Pollok 5:10 pm, 4th November 2004

I shall begin with a quotation:

"The problem with building big carriers is that we haven't done it for 50 years and we want to do it here. If we really wanted big carriers they have a production line for them in Norfolk, Virginia. We could be buying American, rather than giving work to the shipyards in Britain."

That was said on "Sky News" on 28 July by Lord Garden, the Liberal Democrat spokesman on these matters in the House of Lords. I am glad that there is a clear division between the Liberal Democrat party and the Government as to where the carriers should be built. Among Labour Members, there is no doubt or equivocation that these carriers should be built in Britain.

The carriers form part of the biggest ordering pattern for some time. I very much welcome that, and the partnership developing between industry and Government in respect of ordering. It is important that we work towards avoiding boom and bust in the shipbuilding industry. I want to raise several matters with the Minister this evening. If he cannot answer them tonight, I hope that he will respond to me at a later stage, in my capacity as chairman of the parliamentary shipbuilding group.

How far has the MOD's maritime coherence study progressed? If it is complete, will it be made available to hon. Members? Also helpful would be an update on the discussions that have taken place between the MOD and the industry about bringing the industry together. What patterns and structures have been discussed? One of those hon. Members who represent Devon constituencies raised these matters earlier, but details of the MOD's view would be useful.

I have touched already on warship procurement in this country. It would be immensely helpful if we could have a clear and unequivocal statement from the Government that the MARS ships will be built in this country as well. Will the entire construction of those vessels take place in this country? Will the Minister assure the House that the MOD—or some forces within it—will not seek to have the hulls built abroad as part of a cost-saving exercise?

Most of us who have been involved in the industry for some time recognise that the distinction between hull construction and outfitting is now artificial. Vessels are designed to be built in modules, segments and sections, and that is much more efficient and cost-effective. It means that the hull is completed, followed by the other steelwork and then the rest of the outfitting. I hope that that point will be taken into account.

Will the Minister give an indication of when work will begin on the second batch of Type 45 destroyers? As I asked earlier, what efforts are being made to ensure that the design work on the new carrier is moved forward? I am aware that the supply of design work on Clydeside is rapidly running out and that a gap between the available work force and the work required is likely to become apparent in December. To avoid redundancies, the MOD needs to give the okay for some of the second batch design work to begin now. If highly skilled people in ship design are allowed to leave the industry, it will be very difficult to reassemble that work force later on.

Finally, I very much welcome the fact that work on the first of the Type 45 destroyers—HMS Daring and HMS Dauntless—is well under way. If that pattern is to be maintained, surely it would be logical to name the third ship, or a subsequent one, HMS Davidson?

Photo of John Mann John Mann Labour, Bassetlaw 5:14 pm, 4th November 2004

I shall be brief and refrain from discussing general manufacturing industry, except to make one point about the skills of welders and others at Swan Hunter. I propose that the House should consider inviting a welder from Swan Hunter to demonstrate the most creative way of welding the hon. Members for Gosport (Mr. Viggers) and for Henley (Mr. Johnson) together.

Our defence industrial policy recognises the vital importance of procurement to our industrial base in the UK and ensures that jobs, skills and exports are all fully considered in making procurement decisions. Does my hon. Friend the Minister agree or disagree with that statement? If he agrees with it, why has that policy not been applied to the clothing manufacturing sector? On what basis are decisions made on price rather than best value? On what basis do we not classify clothing as warlike? Are there any other EU countries that do not classify clothing as warlike? For example, do the French classify clothing as warlike—despite the fact that their army never appears to participate in many wars, unlike ours?

The large contracts that are being given out are, it could be suggested, ruinous to small and medium-sized enterprises. What cognisance has the MOD taken, in its procurement policy for clothing, of the Department of Trade and Industry policy on contracting with SMEs? What cognisance has been taken by the MOD of the ability of our domestic clothing manufacturing industry to compete in the future? How does our present policy sustain an environment that enhances competitiveness? That is one of the categories of defence industry policy. My hon. Friend the Minister may be unclear about the point that I am making, so I shall put it another way. Some British clothing companies will no longer produce clothing because they have lost contracts that they previously had. The new contracts are for five or 10 years, so how will British companies be able to tender for such work in the future? The industry will no longer exist. In other words, will the inadvertent result of present policy be that we will have to give all the work to overseas competitors?

The example of Cooneen has already been cited. I understand that that company is world famous for the manufacturing of wedding dresses and babywear. Has due diligence been exercised to ensure its capacity and capability to carry out a contract for the MOD? Is it the case that the company failed to register accounts in the last year, and if so, why? Was the red army factory No. 3533 in China part of the tender bid that the company put in or did it change its outsourcing, after it won the contract, from, say, Belgium to China? I presume that such issues as capacity and capability were considered in advance of the contract being awarded. We would not want to be in a situation in which actual fabric samples had not been provided. Were fabric samples provided from China or any other proposed outsourcing for that contract?

Finally, has there been any quantification of the loss of British jobs throughout the supply chain caused by such decision making? I ask that because the supply chain includes some of my constituents. Bassetlaw provides a disproportionately high number of new entrants to the armed forces. Next week, young people in my constituency will apply to join the armed forces, and I do not want the people who volunteer to join our armed services when there is conflict around the world to be equipped with second-rate, shoddy Chinese clothing, instead of British clothing, to do the job that they are paid to do.

Photo of Jim Sheridan Jim Sheridan Labour, West Renfrewshire 5:20 pm, 4th November 2004

In the short time left to me, I want to concentrate on two main issues that are relevant to today's debate. I have worked almost all my working life in the defence industry, so I hope that I reflect it accurately.

The first issue is smart procurement, which the DPA has promoted and implemented as a way to improve defence procurement. That has involved a change to the procurement cycle, the idea being that the industry is involved at an earlier stage. That may be true, but the overriding desire to get value for money still dominates competitions. MOD staff continually talk about wanting offers from industry that provide 80 per cent. of the capability at 50 per cent. of the cost. Various permutations of percentages are used, depending on who is talking. It is a great principle, but we rarely see it happening, because the DPA evaluation teams are not empowered or organised to assess non-compliant proposals.

Currently, a proposal may arrive from industry that is around 12 inches thick and is broken up into lots of small packages that are distributed to many disparate MOD teams who score it against a set of requirements. At no time do those teams have access to sensitive price data. All they can do is mark each response paragraph as compliant or non-compliant. Each proposal is assessed for its compliance, and in effect only those proposals that are deemed to have cleared the bar are considered for price and other commercial issues. At the end of the day, each company feels compelled to submit a fully compliant and therefore intrinsically expensive bid, and it would take a very brave company indeed to aim under the bar.

The basic point is that the DPA and its customer, the MOD's equipment branch, are not equipped or organised to assess a non-compliant bid that may offer better value for money by proposing a reduced capability and price. If the MOD and the DPA truly want to implement smart procurement they need to change their way of assessing bids and increase the calibre of staff involved in the process.

My second point is about overseas competition, which many hon. Members have mentioned today. The MOD, in its pursuit of competition, encourages overseas companies to compete for work in the UK. All UK defence companies are used to competition—it is a way of life for many of them, and it can be a positive pressure on businesses to ensure that waste is eliminated, overheads are reduced and product development cycles are shortened. It keeps companies fit and lean in the defence industry. However, the marketplaces where we can compete openly in the world are not that big. In fact, we find that we compete with the same companies in the far east and middle east as on our home turf. Okay, all is fair in love and war, but we do not have the opportunity to compete in those competitors' home markets, and the biggest culprit is the USA.

American companies are growing strong on rich pickings at home, and that gives them an added advantage over this country overseas. The UK Government should either get the US and other European domestic markets opened up to fair competition, or they should impose the same domestic restrictions on the US and other countries to protect our defence industrial base. That is the sort of language used in the pubs and clubs in my neck of the woods by people who work in the defence industry.

As I said, I spent most of my working life in the defence industry. I was a worker at Barr and Stroud, which is now called Thales. I also worked in Yarrow shipyard on the Clyde, which is now operated by BAE Systems. I congratulate the people whom I worked beside on the education that I received during that period—I am not blaming them for it—for which I am eternally grateful. Without being too critical, I have to say that the Ministry of Defence is one of the most difficult organisations to deal with. Extreme frustration is caused by procrastination when placing orders. Companies have to wait for orders that keep getting pushed further back down the pipeline. Companies and management sometimes have difficulty retaining their work force while waiting for such orders to come through and holding on to spare parts and components required to fulfil a contract. The Ministry of Defence is not an organisation with which someone would choose to work.

Many jobs in the defence industry have been lost over the years. More jobs have been lost in it than in any other industry of which I am aware. I am proud of the fact that that was done by companies and trade unions getting together to recognise the problems and taking appropriate action. I pay tribute to them, because if they had not acted at the time, we would not have the defence industry that we do, especially on the Clyde.

If we are to have a strong, robust and efficient defence industry, we must give the management and the work force the tools to realise that. That is why we need a long-term strategy that allows employers to plan, where possible, some years ahead in placing contracts and getting the tools to do the job. We must also consider the suppliers to the major contractors, because they have a right to know about the strategy. More importantly, employees in the defence industry must know the direction in which the Government's strategy for defence is going and how that will impact on them.

I am proud of the Government's record on placing MOD contracts with British companies, and I hope that it continues. However, may I also send a message to British companies that depend wholly on defence contracts? The MOD requires only a finite amount of equipment and has only a finite amount of taxpayers' money to spend. Every company involved in the defence industry should develop tangible diversification plans so that when there is a downturn in the defence industry, they will be able to compete in the commercial market.

Photo of Andrew Robathan Andrew Robathan Shadow Minister (Defence) 5:28 pm, 4th November 2004

As many hon. Members have reminded us, while we sit talking in this comfortable Chamber it is important to bear it in mind that our soldiers, sailors and airmen are putting their lives on the line and themselves in danger on our behalf.

The Minister of State told us how well defence procurement was going. To use his words, he highlighted our successes on defence procurement and said that all issues on smart acquisition had been addressed. Sadly, few people who have spoken in the debate have agreed with him. I do not pretend that defence procurement is easy or that it was easy for Conservative Governments; anyone who does so is foolish. However, we must always remember the end result of failings in defence procurement; a frightened soldier, sailor or airman who is protecting our country's interest and defending us, yet who, because of deficient equipment—a failed radio, a rifle that does not work properly or an engine that does not start—might die. That explains why the debate is important.

The Select Committee Chairman, Mr. George properly highlighted, with great wit, his Committee's report. He also highlighted the Minister's astonishing sensitivities when confronted with criticism. We all know that the truth hurts and that we only get really angry with criticism when it is justified. As many hon. Members said, the report needs a proper reasoned answer, not the Minister's petulant response, and the important points need to be addressed.

If the Minister of State has moved to the right of my hon. Friend Mr. Howarth, he should start to be called Genghis by Labour MPs. [Hon. Members: "He already is."] I was not aware of that.

Photo of Andrew Robathan Andrew Robathan Shadow Minister (Defence)

I thank the hon. Lady for that.

I do not often agree with the Liberal Democrats, but Mr. Breed rightly talked of the looming crisis in research and development, echoing my hon. Friend the Member for Aldershot. He also spoke of the importance of the ownership of defence companies. Not all defence companies or products have to be British; that would be ridiculous. However, we are right to remember that ownership matters. In the Gulf war in 1991, our Belgian allies had a request from the Ministry of Defence for 5.56 small arms ammunition, which was running short. They refused it.

Mr. Crausby spoke—I hope he does not take this the wrong way—a great deal of sense about defence industrial policy. He said that it is not necessarily benefiting the UK and has a bad effect on our industry while other countries benefit to our detriment. That was an excellent point.

My hon. Friend Mr. Viggers described the indecipherable gobbledegook and management-speak of smart acquisition. He made an excellent critique of the failings of smart acquisition and a sensible point about the need for proper service experience in long-term procurement management.

Photo of Nick Brown Nick Brown Labour, Newcastle upon Tyne East and Wallsend

On the contribution by Mr. Viggers, will the hon. Gentleman take this opportunity to dissociate the Conservative party from the disgraceful and gratuitous attack on the work force at Swan Hunter shipbuilders?

Photo of Andrew Robathan Andrew Robathan Shadow Minister (Defence)

The right hon. Gentleman should attend the debate if he wishes to criticise hon. Members who spoke in it.

Photo of Andrew Robathan Andrew Robathan Shadow Minister (Defence)

I know that the right hon. Gentleman was here at the beginning, but he was not here when my hon. Friend the Member for Gosport spoke. My hon. Friend's point was reasonable. I have to confess that I have never visited Swan Hunter. I do not know what the situation is there. My hon. Friend has been there, so he spoke with some authority, but I cannot support or deny what he said.

Photo of Nick Brown Nick Brown Labour, Newcastle upon Tyne East and Wallsend

It is possible to follow the debate on the closed circuit television that we all have in our offices, which I have been doing. The remarks by the hon. Member for Gosport were gratuitous and offensive. If the Conservative party is to have any standing in such debates, it should take the opportunity to dissociate itself from them.

Photo of Andrew Robathan Andrew Robathan Shadow Minister (Defence)

I am sorry, but I do not intend to associate myself with those remarks. However, my hon. Friend the Member for Gosport took a judgment that Swan Hunter did not have the ability to do the work. Surely anyone is entitled to make such a judgment.

Photo of Andrew Robathan Andrew Robathan Shadow Minister (Defence)

I am not going to go on about this unimportant point. All this nonsense about an apology is unworthy of Mr. Brown. He should attend the debate instead of sitting with his feet up in his office drinking tea. If he had attended, he could have intervened on my hon. Friend the Member for Gosport. I was disappointed with my hon. Friend in one respect; he did not mention Haslar, which I think he has mentioned in every other debate.

We also heard from Mr. Smith, who described himself as a loyal supporter. The hon. Members for Bassetlaw (John Mann), for Glasgow, Pollok (Mr. Davidson) and for West Renfrewshire (Jim Sheridan) all made points that were not supportive of the Government. It was not that they were anti-Government, but their criticisms were good. Even in her loyal speech, Ms Taylor reported that she had identified problems and demanded that the UK support UK defence manufacturing industry; a fair point.

My right hon. Friend Mr. Jack made an excellent speech and asked some pertinent questions about the aerospace industry and where skills would come from. Those questions need answers from the Minister. The dialogue that he mentioned earlier is not enough.

I joined the armed forces in 1970, which makes me distressingly old. I shall tell a short story that illustrates defence procurement. With a very short haircut I was shown around the Royal Marines commando training centre—perhaps "shown around" is not the right way to describe it—and I remember a signals captain showing me something called an A40. Some hon. Members may have carried an A40. It was a big one, and very heavy. I carried it across Dartmoor, the Brecon Beacons and all sorts of places. It was almost impossible to tune and very inefficient. The person who had the job of carrying it was the unlucky one. In 1970 the marine captain said, "Don't worry, Clansman is coming in soon. It's a brilliant new set and we're all going to have Clansman." This is not a party political point, I hasten to tell the Minister. I rejoined my battalion in 1987 in Hong Kong and we still had Larkspur A40s. It was only in 1988, 18 years after I had been told that it was coming soon, that Clansman came in.

I mention that because Bowman's original in-service date was 1995; under a Conservative Government, I know. The Labour Government said in 1999 that the in-service date was 2002 and it eventually came into service in March this year. Procurement is dogged by such delays. It needs to be sorted out, but I do not have any pat answers.

Smart acquisition, of which we have heard a great deal, was introduced six years ago, but we have yet to see evidence that it is working. It was intended to result in faster, cheaper, better procurement, delivering

"best value for money for the taxpayer", but the Government cannot continue to claim that the strategy is working if, as we heard earlier, the 20 biggest projects are already delayed by, on average, a year and a half and the taxpayer is footing the bill for the Government's £3 billion overspend. Typhoon was four and a half years behind its target in-service date and will cost at least £1 billion more than promised.

Let me emphasise the consequences of delays and overspend. Not only are service personnel jeopardised when they find themselves on the front line without the equipment that they need, but there is the prospect of having to cancel or scale down the size of projects, as in the case of Type 45 destroyers.

My hon. Friend the Member for Aldershot mentioned the Defence Procurement Agency's "woeful" track record, which the Chairman of the Select Committee also described. The cancellation of the human centrifuge project, which has not been mentioned, is an example of how the MOD has lost its grip on the procurement process. In 1997 a contract worth £14 million to design and build a human centrifuge to allow trainee pilots to experience G-force was let to the US firm Environmental Tectonics Corporation, ETC. In July 2001 the MOD took the decision to cancel the project, citing

"the failure of that company to deliver a centrifuge to the Royal Air Force".

Before the project's cancellation, the MOD had already made progress payments of almost £6 million, which were of course written off.

The costs to the taxpayer of the centrifuge that never was do not end there. Earlier this year the MOD had to pay cancellation costs. According to the 2003–04 annual report and accounts of the MOD, under the rather euphemistic heading "Constructive Losses", the final cost of the project to the British taxpayer was reported to be £14.4 million. The MOD paid more to cancel the project than it would have cost to acquire the centrifuge. The project was not cancelled on grounds of insurmountable risk or because of an inability to achieve the desired capability, as ETC was able to design and build the centrifuge. It was cancelled as a result of the Government's inability to manage the procurement process. I can report to the House that the centrifuge, designed and built with British taxpayers' money, is in full operational service with a far eastern air force. That is what we call smart acquisition; by them.

We hear much about future effects and capability, but what happens first is cuts. The promised future capability is often still at drawing-board level, while our forces have to cope with what they have been left with. Is that sensible at a time when our forces are experiencing overstretch as never before?

Admiral Sir Alan West has acknowledged that the reductions in the fleet leave the Royal Navy exposed to "enhanced risk". He has said:

"People should be under no illusions that with only 25 destroyers and frigates we will be very close to the cusp . . . my concern overall is that we are taking risk on risk".

I come now to logistics in the Gulf war last year. British troops were dubbed "the borrowers" by their American counterparts because they were short of equipment. That is not new, because troops always like having other people's equipment, but nevertheless it is true. The hon. Member for South-East Cornwall mentioned equipment survey findings in Iraq. The 2003 survey for the Army last year found that 55 per cent. of troops and 42 per cent. of officers had bought items of kit with their own money.

Photo of Andrew Robathan Andrew Robathan Shadow Minister (Defence)

Indeed, there is nothing unusual in that, but it is rather worrying that they feel compelled so to do.

In addition, 1 Armoured Division had to come back to find the kit that they needed in the UK. That should not have happened. The 1991 Gulf war had an enormous logistical build-up. As people said, there was no warning; it began from a standing start and took a long time, but the logistics were fantastic. Very good kit was delivered when we needed it.

Just-in-time equipment is fine, but we are not talking about cans of beans. We are talking about issues that may affect soldiers' lives, and—as the Commandant General of the Royal Marines said earlier this week and as my hon. Friend the Member for Aldershot mentioned—more equipment should be stockpiled.

I very much hope that we will see two carriers, but the in-service date for the first CVF is 2012, and 2005 is less than two months away. When will the contracts be signed? When will the keels be laid? What will be the long-term running costs? I heard an extraordinary suggestion, which I am sure should be dismissed, of £3 billion per year per ship. What will be the complement of each carrier and, given that the Minister is cutting manpower now, is he confident that trained crew will be available to man them? Will he say something about point defence and close-in weapons systems? Like our existing carriers, the US carriers have a close-in weapons system, but unlike ours they also have Sea Sparrow surface-to-air missiles. We will have to rely on the Carrier Air Group, but the Type 45 air defence ships will be reduced from the projected 12 to eight. That does not leave many spare for two carrier forces.

Other hon. Members have spoken about shipbuilding, and I do not want to dwell on that, except to say that we need to overcome the cycle of feast and famine that characterises the shipbuilding industry. The Select Committee's report in July 2004 referred to the Astute programme and particularly mentioned that delays were exacerbated by shortfalls in skills. The MOD needs to concentrate on creating a stable procurement programme; a smoother pattern of demand in order to retain workers and protect the UK's valuable shipbuilding expertise, which I believe is referred to as gap filling.

I return now to the issue of through-life management, which was particularly mentioned by my hon. Friend the Member for Gosport. Civil servants are sent for two, three or four years to deal with a project, and service personnel are posted for two, three or four years to deal with a procurement project. They realise that they will not see it into service, so they try to put off making decisions. They do not want to see it in service because they will end up with the problems. My hon. Friend was right. We need a new approach. We need people to see a project through from beginning to end. We need people with experience and an understanding of service life, and we need long-term continuity in project management. Conservatives intend that that should happen.

All hon. Members want our troops well equipped, which is why we have been debating the matter. I hope that the Minister will now respond in a reasoned manner to the criticism that he has heard from the Defence Committee and everybody else because our servicemen deserve nothing less.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence 5:44 pm, 4th November 2004

I begin by welcoming Mr. Robathan to his new shadow Defence responsibilities and look forward to further exchanges in the months and years to come.

Twelve Back Benchers contributed to this afternoon's interesting debate: my right hon. Friend Mr. George; my hon. Friends the Members for Bolton, North-East (Mr. Crausby), for Vale of Glamorgan (Mr. Smith), for Stockton, South (Ms Taylor), for Reading, East (Jane Griffiths), for Glasgow, Pollok (Mr. Davidson), for Bassetlaw (John Mann) and for West Renfrewshire (Jim Sheridan); Mr. Jack, who is a regular contributor; and the hon. Members for Gosport (Mr. Viggers), for West Chelmsford (Mr. Burns) and for Torridge and West Devon (Mr. Burnett). I shall try to respond to as many points as possible in the time available, but, given other matters, that may be not possible, in which case I shall ensure that hon. Members receive written responses to their inquiries.

As the hon. Member for Blaby said, equipping our service personnel with battle-winning capabilities is a matter close to this House's heart. We owe a considerable debt to our people, and I pay tribute to those men and women in the armed forces who are currently engaged in serious and dangerous undertakings throughout the world. The Government are committed to ensuring that our armed forces remain highly capable and effective. Through our procurement plans and by making sure that our armed forces are properly equipped, they can respond effectively to the challenges that they confront, day in, day out.

In his opening remarks this afternoon, my right hon. Friend the Minister of State outlined the continued improvements to the way in which we procure equipment. Procurement is a vital part of the MOD's role and has often been subject to criticism. In his final words this afternoon, my right hon. Friend said, "Do we have a perfect track record on procurement? No, but no Government ever have." That point should form the basis for this debate.

We have taken many of the valid criticisms on board, but there is much to be proud about. The urgent operational requirement process rapidly equips and supports our armed forces at the front line in Iraq, and has been a success. The process proved to be flexible and adaptable, and I reject any suggestion that our forces have been let down by the MOD and the Government. Indeed, Mr. Keetch raised urgent operational requirements in an intervention. Urgent operational requirements are an accepted means of supporting operations and are an effective and efficient way to target activity against emerging operational priorities. The National Audit Office has complimented the urgent operational requirement process.

I shall respond to the comments made by Mr. Howarth about yesterday's court martial. I am sure that the House will join me in extending our deepest sympathies to the family of Sergeant Nightingale, who was killed in that tragic incident. We are aware of the finding of the court martial arising from the death of Sergeant Nightingale. Lance Corporal Braymire was found guilty of a military offence concerning his failure to conduct normal safety procedures, which do not involve advanced technical procedures. He had successfully completed his weapons handling test, which included passing the safety modules, during his mobilisation training.

Photo of Nicholas Soames Nicholas Soames Shadow Secretary of State for Defence

On Lance Corporal Braymire, will the Minister accept that 2,300 young men went to the Gulf as reservists without properly certified weapons training? Will he assure the House that the board of inquiry, which we understand has been set up, will report, that its findings will be made public and that the people responsible for that gross failing will be held to account, whatever rank, military or civilian, they may be?

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

The hon. Gentleman is right. In accordance with our normal procedures, an Army board of inquiry has been set up. It was rightly stayed, pending the outcome of the court martial. We have seen the findings of the court martial only in the past 24 hours and will of course consider very seriously the comments of the judge advocate. However, we are yet to receive a full copy of the transcript, and I think that the hon. Gentleman would accept that we should wait to see that before going any further.

We heard about the ITAR waiver and the importance that the House attaches to it. There has been progress on that front. My right hon. Friend the Prime Minister last raised the issue with President Bush in June in the margins of the NATO summit meeting. We will continue to press the point, and contributions from both sides of the House are welcome.

Much has been said about the Defence Committee's report on procurement, about which I intervened on my hon. Friend the Member for Vale of Glamorgan. I was rather taken with the Committee Chairman's suggestion that we should have preliminary discussions before the Government responses are published. That is okay provided that he is prepared to offer us the same facility before his Committee publishes a report. Perhaps the MOD and the Committee can discuss that in the weeks to come.

I want to highlight one or two aspects of the Committee's report. It claimed that the performance of the Defence Procurement Agency could only be described as woeful; my right hon. Friend the Member for Walsall, South tried to suggest that the word was meant to be "wonderful", which might have given a different tone to the whole report. We cannot accept that the agency's performance was woeful in that particular year, when it delivered £3.6 billion of new equipment.

The report said that there are still problems in relation to four legacy projects. We accept that, although I should say that the Committee particularly welcomed the progress that we have made on Nimrod and Astute to try to deal with the situation. Around 40 per cent. of the cost increases comprise internal interest on capital charges.

The other significant aspect of the report relates to paragraph 53, which refers to a "fear culture" at the Defence Procurement Agency. Several hon. Members tried to explain what they think that means, but it clearly relates directly to staff. The Ministry of Defence wholeheartedly rejects the assertion that such a culture exists. The Committee did not substantiate it, and although it had many opportunities to consult MOD officials and my noble Friend Lord Bach, it failed to do so. The House will understand that such an accusation could have a serious effect on morale at the agency. I am afraid that the Committee did not properly think that through.

I hope that we can move on from here, but it is right and proper to place on record our feelings about the report and its failings, notwithstanding the fact that that there are of course lessons to be learned from the Committee's comments.

I want to move on to comments made by Members. Various Opposition Members suggested that CVF—the future aircraft carrier—is now being run by a committee. In fact, it is an alliance. That works well in other industries and there is no reason why it should not work well in defence procurement. As the House knows, BAE Systems is an important member of that alliance.

I was very disappointed by what the hon. Member for Gosport said about Swan Hunter. I utterly reject his comments and strongly support those of my right hon. Friend Mr. Brown and my hon. Friends the Members for Stockton, South and for Glasgow, Pollok. Conservative Front-Bench Members could, in winding up the debate, have dissociated themselves from the hon. Gentleman's comments; they should have done. I will just say this: those who work at Swan Hunter and the people of the north-east will have heard what the hon. Gentleman said today.

Mr. Breed asked me about Devonport, and I undertake to write to him about those issues. The hon. Member for Aldershot asked about Galileo. It is a civil system under civil control, as has been confirmed by successive EU Transport Councils. The requirement for navigation and timing information to support UK armed forces will continue to be met by GPS, which remains the de facto NATO standard.

I return to the hon. Member for Gosport—on a slightly happier note, I hope—to answer his point about shipbuilding. There are three Astutes, two Type 45 destroyers and two handling ship docks that he might regard as being in some phase of construction.

There was a suggestion that the Defence Procurement Agency accounts may affect our ability to complete some of our planned projects. The figures presented show the value of actual contracts placed with suppliers, less any expenditure recorded elsewhere in the accounts. They do not in any way mean that funding to meet commitments for our procurement programme is not available. I hope that I have clarified that point.

In the short time remaining, I want to make a couple of final points about industrial policy and future capabilities. My right hon. Friend the Minister of State set out in his opening remarks the key principles of the defence industrial policy and the importance of defence manufacturing industrial support. That was welcomed by many Labour Members, including my hon. Friend the Member for Stockton, South. I take this opportunity to emphasise a further aspect of that important policy. Our partnership with industry is crucial in equipping and sustaining our front-line forces. In achieving those objectives, it is vital that the Ministry of Defence and industry continue to work together. We must seek fully to understand the pressures on industry but, in return, industry must respond effectively to the challenge of delivering equipment to time and to cost in fulfilling the contracts that it wins from the MOD.

On future capabilities, I want to emphasise that the challenges faced by our armed forces are complex and ever changing, as I hope the House understands. We have to make difficult procurement decisions today and tomorrow to equip our forces for that unpredictable future. We are often looking decades in advance, so it is not a simple business. Just as our armed forces will have to be increasingly flexible and adaptable in future, so will our procurement plans. The proposals outlined in the future capabilities announcement by my right hon. Friend the Secretary of State in July will be implemented over the coming years. We plan to increase our capacity to undertake expeditionary operations alongside an equipment programme that is delivering, and will continue to deliver, an advanced range of capabilities.

This Government are investing in defence. For the third successive spending review, we have been able to announce real growth in the defence budget. That is without precedent. We owe a considerable debt of gratitude and thanks to our people, wherever they are serving, at home and abroad. Their courage, determination and ability are making the difference across the world, but that in itself would not be enough without sustained investment in defence and the continued modernisation of our armed forces which will help to guarantee our battle-winning capability long into the future.

It is only right that our armed forces, the best in the world, are provided with the equipment and support that they need to do the job. Procurement plays its part in that process; it has delivered, and will continue to deliver, in that important task. Our investment in network-enabled capability will deliver increasingly agile and precise military capability. Our future procurement programme will support more flexible and deployable forces with world-beating kit tailored to achieve that effect. I can assure the House that this Government will spare no effort in making that happen.

Photo of Jim Fitzpatrick Jim Fitzpatrick Vice-Chamberlain (HM Household)

I beg to ask leave to withdraw the motion.

Motion, by leave, withdrawn.