Defence Industrial Strategy

– in the House of Commons at 12:43 pm on 15th December 2005.

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Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence 12:43 pm, 15th December 2005

With permission, Madam Deputy Speaker, I should like to make a statement about the defence industrial strategy, which I am publishing today and which has been laid before the House.

The men and women of our armed forces play a vital role as a force for good in the world. I know that the whole House—and every complexion of party in the House—is very proud of the work that they do, in dangerous and demanding circumstances, whether in Iraq, Afghanistan, the Balkans or closer to home. We recognise that three elements are required for them to be the best in the world: the intellectual element, involving training, planning and doctrine; the physical element; and the element of morale. All those elements are important. Our armed forces can be this effective only if the Ministry of Defence and industry work as a team to provide them with the best possible tools to do the job, particularly in regard to the second element, the physical component of our fighting power, which involves equipment and capability.

The defence industrial strategy, which we released today, is the product of five months of concerted effort by Ministry of Defence civil servants, the armed forces, other Government Departments, industry and the trade unions. It has at its heart the provision of effective and capable equipment to our armed forces. On a personal note, I should like to pay tribute to Lord Drayson, who has overseen the production of this substantial document.

The House will know that we are in the middle of a substantial transformation, enabled by the sustained growth in the defence budget that has been a feature of each of the spending reviews that have been conducted since the Government came to power. We are procuring a series of major new platforms, including future aircraft carriers—on which I made a written statement to the House yesterday—Type 45 destroyers, new medium-weight armoured fighting vehicles, the A400M, the Typhoon and the joint combat aircraft, among others. This transformation has at its heart the delivery of truly network-enabled capabilities, linking sensors, decision-makers and shooters in a much more integrated way.

We expect these platforms to have very long service lives. The future business for the defence industry in many sectors will therefore be in supporting and upgrading the platforms throughout what we believe will be their long service lives, rapidly and incrementally inserting technology to meet emerging threats, fulfilling new requirements and responding to innovative opportunities. That is what we expect of a large section of industrial effort, rather than immediately moving to the design and manufacture of the next generation.

This will require rationalisation within the defence industry, particularly of over-capacity in production facilities. In some cases, sustaining the skills, technologies and industrial capabilities that we need will be challenging. Change is sometimes challenging and painful, but the one thing that would be much more painful than not changing in a changing world would be to refuse to change, and to find that redundancy and irrelevance had overtaken the product. While we may look overseas to meet some requirements, we will need to ensure that we in this country maintain military freedom of action and safeguard our national security. This degree of change and transformation—and the respect for future planning capabilities and the maintenance of our strategic safeguards—implies the need for a comprehensive strategy for how we engage with the industrial base.

The defence industrial strategy, building on the 2002 defence industrial policy, articulates a strategic view of our defence requirements going forward by sector, and the principles that will underpin procurement and industrial decisions in the future. It communicates for the first time to industry and the City those skills, technologies and industrial capabilities that are assessed as being required onshore in the UK in order to sustain the armed forces' ability to operate with an appropriate level of sovereignty. It recognises that this will be possible only if we have a healthy, profitable and internationally competitive industry capable of responding to our requirements.

The defence industrial strategy also investigates how we might with industry address mismatches between planned activity and the work required to sustain desired capabilities. It will give industry and investors a much clearer idea of our priorities, allowing them to plan more assuredly for the future, which will be of benefit to the management, shareholders and workers in industry.

I now turn to the impact of the analysis that we have conducted on specific sectors of the defence industry. In the maritime sector, the Government are investing in the biggest naval shipbuilding programme that the Royal Navy has seen for two generations. The highly capable expeditionary fleet that will result will offer significantly enhanced military capability, well suited to the demands of the 21st century.

However, we need to recognise that the industry is currently fragmented—different companies and facilities undertake submarine build, surface ship build and support, even though the skills required often cross over. We must also face the fact that current levels of work, although huge by comparison with the recent past, will not last for ever. Once we are over the hump of the major reinvestment in new ships in about 10 years' time—that is how far ahead we are looking at the shortest end of our horizon—it will not be affordable to sustain excess industrial capacity in the longer term. That means making plans now so that we can keep the required key skills onshore in the UK.

For submarines, we are committed to maintaining onshore the ability to design, manufacture and support through life all aspects of that capability, which is so important to our national security. Cost growth in the area, however, is a real and persistent problem. We must control cost. To improve productivity, a new structure is required.

As my announcement on the future carrier in a written statement to the House yesterday demonstrates, we need to sustain the ability to design and integrate complex surface ships and to support and maintain them through life. A stable and healthy programme of warships and other complex vessels will continue to be built in the UK, and that will maintain and grow the high-end skills that we need. However, we might look to outsource some lower-end manufacturing offshore. That makes sense, not least in order to avoid the boom-and-bust cycle of sustaining or creating capacity for which there is no medium or long-term demand. That is also a much better arrangement for employees, providing the basis for more security and stability to develop and enhance their skills in long-term structured and secure employment.

In the air sector, the Royal Air Force is in the middle of a substantial re-equipment programme, introducing into service the Eurofighter Typhoon and looking forward to the arrival in the next decade of the joint strike fighter. Both those aircraft will last for at least 30 years. Our current plans do not, therefore, envisage the UK needing to design and build a future generation of manned fast jet aircraft beyond the current projects—that is some 30 years away.

That has unavoidable consequences, in forward planning, for the medium-term shape of the aerospace industry. We need to retain, however, the high-end aerospace engineering and design capability required to support, maintain, operate and upgrade Typhoon and the joint strike fighter through life, so that they are capable of tackling new challenges as they come along and incorporating new technology and improvements to meet those challenges. That is key to operating our aircraft in the manner that we would choose.

The aerospace industry has a critical role to play, and there will be substantial business opportunities for BAE Systems and other companies such as Rolls Royce and SELEX. I am pleased to announce that we have reached an agreement with Rolls Royce to provide future through-life support to the RB199 engine on the RAF's Tornado aircraft.

As the focus shifts from designing and building new manned aircraft towards supporting them through life, industry will have to make that challenging transformation. We are, however, committed—this is enshrined in the defence industrial strategy—to working with industry to manage that transformation with foresight to our mutual advantage. To that end, we intend to enter into negotiations with BAE Systems in the new year with a view to agreeing how best to work together—and with the many other key suppliers in the sector—to ensure that the key skills and capabilities that we need are sustained in a cost-effective manner. That work will be complex and arduous and will necessarily take time. It is essential, however, if we are to maintain stability in a period of transformation.

This is an exciting, high technology industry with a healthy future. I am delighted to announce that we will invest in a significant technology demonstration programme for uninhabited combat aerial vehicles. That will help us to better understand the potential military benefits of uninhabited aerial vehicles—sometimes referred to as unmanned aerial vehicles, I have been instructed to say—including combat versions.

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

From a sedentary position, Dr. Lewis says "unpersoned". I think that everyone knows that we are talking about the development of what was previously referred to as a drone—no offence is meant to anyone in the Chamber. [Laughter.]

That is a serious investment in unmanned aerial vehicles, which is vital for the future, and it is also essential in assisting the sustainability of the required capabilities to support our new manned aircraft. Again, that involves a period of fairly dramatic transformation, and clarity and forward ability to manage that transition will maximise benefits to industry, the armed forces and, I hope, the taxpayer.

The armoured fighting vehicle fleet remains key to our land forces. Therefore, we must retain a capability to maintain and upgrade both our current and future equipment. We intend to work with BAE Systems Land Systems—the supplier of 95 per cent. of our current inventory—through a partnering agreement that will incentivise it as the systems engineer for the current fleet, contracting for capability provision, and bring advanced land systems technology into the UK. I am pleased to announce the signature today of an agreement articulating the principles under which such partnering will be taken forward.

Looking to the future, we need industry to develop the complex system of systems that will make up the future rapid effect system—FRES. The most likely solution will be a team in which national and international companies co-operate to deliver the FRES platforms, led by a systems integrator based in the UK.

A high concentration of knowledge relating to the existing fleet, but a healthy international competitive environment, also characterises the helicopter industry. As was announced last spring, we are working with AgustaWestland to promote a more open, predictable but demanding partnered relationship, providing better value for money while reducing the company's reliance on our investment to sustain the design engineering skill base. We are also undertaking a detailed capability and value for money assessment of the AgustaWestland future Lynx product, in relation to meeting both our battlefield reconnaissance and surface combatant maritime helicopter requirements. As we have long made clear, however, we will continue to look to the vibrant and competitive global marketplace to satisfy our future helicopter requirements.

The Government have made a major investment over the past 10 years—through such projects as Storm Shadow and Brimstone—in guided weapons. We attach considerable importance to sustaining capabilities for the design of new weapons, including upgrades, and support through life. However, the scale of our investment in that area, which has been massive in the recent past, is likely to reduce by 40 per cent. over the next five years. That is likely to lead to overcapacity and an inevitable requirement for rationalisation. That might require us to temper international competition in the short term. We will need to consider whether there are approaches that we might take, together with our allies, to maintain critical skills while continuing to show a welcoming face to those other companies that have established a UK presence in this field.

In the general munitions sector we regard assured access to ammunition as vital, but that is not to say that each and every component needs to be sourced onshore. Eighty per cent. of our requirements are currently met through a long-term partnering agreement with BAE Systems, the remainder being supplied via competition from a range of suppliers both in the UK and elsewhere.

The command, control, communications, intelligence, reconnaissance, counter-terrorism and chemical, biological and radiological protection sectors—all of which are covered in the defence industrial strategy—are growing markets both here and in the United States. That reflects the growing importance of network-enabled capabilities, as well as the sad reality of the terrorist threat that we face. The UK has a number of very successful, highly innovative companies operating in these areas, whose profitability and dynamism are manifest. We intend to continue to look to the market to sustain our requirements.

Value for money remains the bedrock of our commercial policy. Competition will remain a major element of that, but it will not be used when other tools, such as partnering, would deliver a better outcome, or where it would impinge on our operational sovereignty. The defence industrial strategy does not signal a move in the direction of protectionism. The UK operates the most open defence market in the world, and is at the heart of efforts to encourage other nations, in Europe and further afield, to follow suit.

This is a challenging agenda, requiring real change in the shape of the industrial base. That change will be required in industry, but also in our own practice, and it must involve our sharpness as custodians of taxpayers' money. All that will not be without pain, but only if we collectively face up to the need for change will we be able to provide our servicemen and women with the equipment that they deserve.

Delivering the defence industrial strategy will require sustained effort on both sides, and real leadership on both sides as well. Lord Drayson—who has done so much to produce the strategy—and I are determined to provide that over the coming months, and we look to industry to respond in like fashion. The rewards on offer are substantial. Sustaining the key technologies and capabilities required to maintain the operational edge of our armed forces and preserve national security is first and foremost in our thoughts. We also expect to enhance value for money for the taxpayer through improved acquisition performance, and to achieve better returns, health and sustainability for industry in return for such improved performance. For the nation as a whole, we mean to sustain a high-value, innovative and technology-driven industry that will provide quality skills and quality jobs for the future.

On that basis, I commend the defence industrial strategy to the House.


VFM? The US Secretary of Defense is trying to achieve this, but the public safeguards there may be seriously inadequate too.

"But already there are signs of trouble ahead. In the last few years, Mr. Rumsfeld has tried to kill some weapons systems he saw as Cold War anachronisms and to push a military modernization plan. But his efforts were thwarted by what Washington calls the Iron Triangle of Congress, the uniformed military command and military contractors."

Submitted by I J Read 3 more annotations

Photo of Liam Fox Liam Fox Shadow Secretary of State for Defence

I am grateful to the Secretary of State for his statement, and for making copies available to the Opposition in advance. As he will appreciate, however, it was a long statement and the document is extremely complex. The House might benefit from more time in which to consider the implications, and from a longer debate at some stage.

The document has been much trailed. It contains a number of points that we welcome, and many that we have called on the Government to adopt in recent years. We welcome the new tone of partnership between Government and industry. More than a year ago we called for

"a mature partnership with industry, with both sides working together from a project's inception through to the completion of its service life." —[Hansard, 4 November 2004; Vol. 426, c. 488.]

If Ministers have genuinely embraced the idea, the House should welcome that. We also welcome the identification of key capabilities that Ministers consider it essential to retain in the interests of our national sovereignty, although we shall have to study some of the detail.

The Treasury, however, holds the key to much of what is in the document. Has the Treasury agreed to fund the defence industrial strategy fully in the 2007 comprehensive spending review, and what discussions has the Secretary of State had with the Chancellor to that end? If the defence budget is squeezed in the spending round, the document becomes simply a wish list. Implementation is everything.

Has the Treasury made an assessment of the effect of spending on defence-related research and development and equipment on Britain's overall economic competitiveness, and will the Secretary of State make such information available to the House? Where onshore capability is maintained for reasons of strategic assurance, it is vital that value for money is guaranteed, especially when sole sourcing is involved. What measures will be established to ensure that, when the economic forces of competition are absent, taxpayers' money is best protected?

I have a number of specific sectoral questions. The document states:

"In a change to the stated Defence Industrial Policy, there is no absolute sovereign requirement to construct all our warship hulls on shore".

Does the Secretary of State expect to buy hulls from abroad? What assessment have the Government made of the impact on the shipbuilding industry and employment therein?

Individual helicopter programmes have been amalgamated in the overarching future rotorcraft capability process, and the overall budgets have been reduced by £1.4 billion on the basis that the Financial Reporting Council will identify synergies and savings. I think we have all heard that from Departments in the past. The most pressing requirements identified by recent reports from the National Audit Office and the Public Accounts Committee are caused by shortfalls in the helicopter lift capability that is essential to our activity in Iraq, Afghanistan and elsewhere. However, more than two thirds of the £3 billion FRC budget is about to be spent on two programmes, the Merlin Mk1 upgrade and Future Lynx programmes, most of which are unrelated to those requirements. Furthermore, £1.2 billion is scheduled to be spent on purchasing, without competition, 80 Future Lynx helicopters for the Army and Navy.

An Army purchase is required to spread the non-recurring costs, but it is unlikely that such a route would have been followed if operational requirements had been the main driver. That approach seems to be at odds with the avowed aim of the strategy to put the cost-effective acquisition of capability at centre stage. Perhaps the Secretary of State will deal with the apparent discrepancy.

The future aircraft carrier project was unveiled in the strategic defence review in 1998, with the first carrier due to enter service 14 years later in 2012. More than seven years down the line, we still have no firm order placed and no in-service date declared. Yesterday we had what is now described as a two-stage incremental approach to main gate. We will have another long wait before costs and timings are revealed.

Will the Secretary of State confirm that both carriers will miss what the Government used to say were the target in-service dates of 2012 and 2015? Is it not true that the industry expects no first carrier before 2014, and no second carrier before 2016 at the earliest? Where does that leave the existing fleet of three small carriers, one of which has been paid off prematurely while the other two are due for disposal well before the likely in-service dates of their successors? Above all, where does it leave the capability of the Royal Navy, which has already sacrificed so many of its other warships for the sake of the promised future carriers?

The statement made a passing reference to maintaining onshore the ability to design and build submarines, but no mention was made of the all-important issue of replacing the Trident fleet. Making the decision about embracing Trident is a step that the Government embrace about as much as Dracula would embrace a crucifix. Building a new fleet of missile submarines will have a massive impact on our defence industrial plans, and the time scale cannot be less than 12 to 15 years. That is why the Government pledged in the last Parliament to make the decision in this one.

Will the Government now face up to what is a vital issue? Why is the Secretary of State so afraid to do so? Of whom or of which is he more scared, the Chancellor, the Prime Minister in waiting, or the dissent of many of his Back Benchers? When will he begin in earnest the debate about the future of the nuclear deterrent on which people on both sides of the argument are willing, indeed eager, to begin?

Let me assure him in one respect. If the Government take the right decision, they will be able to count on the support of the Conservatives to ensure that the country remains protected indefinitely against nuclear blackmail. The generosity of the Opposition to the Government at this time is unbounded.

Overall, this may be a rather pessimistic strategy document. The argument seems to be that when the current tranche of orders is completed, surplus capacity will have to be dealt with. I wonder what assumptions are made in this assessment of the outlook for British defence exports and what measures the Government could put in place to ensure that some of the surplus capacity is used to expand our defence exports overseas, especially in the aerospace industry.

At first glance, there are a number of positive elements in the strategy document, but there are also a number of anxieties that will be felt across the country. The Secretary of State may be able to address some of them, but the Chancellor remains the key to preventing it from being a strategy of defence industrial decline. Sovereignty comes at a price; will the Chancellor and the Government be willing to pay it?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

There are obviously some elements of the hon. Gentleman's contribution that I greatly welcome. I think that the document is important and I have no doubt that we will return to it in the course of our debates. Perhaps, as it is a substantial document, we could chat through the usual channels about how best to handle that.

Secondly, I believe that we should try to achieve as much consensus as possible in respect of the document. I have always taken that view on defence as a whole. Issues of national security should, as far as possible, be resolved on a non-party basis. That is not easy and it does not mean the absence of criticism, but the consensual approach should be welcomed.

I note that the hon. Gentleman offers me the opportunity of going, as they would say in East Kilbride, "mob-handed" to meet the Chancellor with the Conservative party behind me. If I do not immediately accept his offer, I am sure that he will understand why. My old friend the Chancellor has overseen and watched from a distance. If the hon. Gentleman looks at the foreword to the document, he will see that one of the three faces pictured at the top is that of the Chief Secretary to the Treasury—and he is smiling. It can also be seen that the word "no" does not appear anywhere under his signature. As far as I can make out, that is a first.

I can assure the hon. Gentleman that there has been a great deal of cross-Government participation. That is why, sitting alongside me on the Front Bench, is the Minister for Industry and the Regions, my right hon. Friend Alun Michael and—a little further down, but close to us in spirit—my right hon. Friend the Paymaster General, who is also smiling. Clearly, the Government have adopted a united approach on this matter.

More seriously, the hon. Gentleman asked me whether the Chancellor has settled with me on the next three spending rounds. Of course he has not settled all that with me. We should remember that the rounds stretch through to 2015 and beyond, and it is obvious that no responsible Government would make commitments that far in advance. Over the past few years, there has been a real increase in defence spending which, as I am sure that the hon. Gentleman would in all fairness admit, was not always the case under the last Conservative Government. In fact, that period saw a 29 per cent. cut in real terms in defence spending. There is a great deal of unity on the part of the Government and I am glad that there is a great deal of consensus on the general direction of where we are going with our defence industrial strategy.

It is a detailed publication and it is divided into three parts. The first provides a strategic overview; the second an analysis of specific sectors; and the third deals with implementation and how we have achieved implementation thus far. On maritime, the hon. Gentleman was good enough to read out the section that said that there would be no blanket requirement for hulls to be built onshore, but he unfortunately missed out the next part of the sentence, which says that there is a need to maintain a sustainable work load for a viable restructured industry in this country.

Yesterday's announcement that 60 per cent. of the work on the two biggest craft—at 60,000 tonnes—ever to be built by the Navy will be allocated to British shipyards demonstrates clearly that we are trying to maintain a sustainable level of employment and skills, particularly at the high-end sector of the technological development of shipbuilding and refurbishment. We are seeking long-term clarity and attempting to introduce ships at what might be called a regular drumbeat in order to assist the maintenance of skills. If we need a peak capacity at the lower end of production—the sort of craft that would not traditionally be regarded as warships—we reserve the right to go offshore, but yesterday's announcement clearly shows that we intend to maintain a sustainable work load for a viable restructured industry.

The hon. Gentleman asked several detailed questions about aircraft carriers and in-service dates, but he appears to have missed something important from yesterday's announcement. By innovatively involving the companies that are to produce the new carriers—British Aerospace and the rest of the alliance—in the maintenance, updating and refitting of the existing aircraft carriers, we have effectively ensured continuity of capability. That is why the First Sea Lord, the Chief of the Naval Staff, said that yesterday's announcement was the best Christmas present that the Navy could have been given.

On Trident, I have little to add to what I have already said. It is a very important discussion, but we want to take time to reflect on it. With all due respect to the hon. Gentleman, we have clearly said, first, that we will retain the nuclear deterrent. We said that unambiguously six months ago in our manifesto. Secondly, the basis of retention is the assumption that, as long as potential enemies have nuclear weapons, we will retain them. Thirdly, we are not discussing whether to retain Trident, but whether in 15 to 20 years' time we will need something to continue the nuclear deterrent. We have a little more time, therefore, to challenge ourselves and each other on the assumptions and practicalities of the issue. There is no need to take a peremptory decision on that in order to meet the time scale for the defence industrial strategy.

Photo of John Spellar John Spellar Labour, Warley

The Secretary of State said that the UK operates the most open defence market in the world and mentioned efforts to encourage other nations in Europe and further afield to follow suit. No doubt he is often disappointed at their failure in that respect, so to what extent can he frame our policy to ensure reciprocation from others?

Will my right hon. Friend join me in paying tribute to the defence industry, companies, the work force and, indeed, the communities that have given such good service to our forces over so many years? May we have a debate on the effect of the strategy on many of those communities and its impact on our manufacturing base and the Government's wider industrial and regional policy? May we have such a debate early in the new year, so that Members from the affected constituencies can detail the effect on their constituents and attempt to ensure that we have a defence footprint throughout the country, not just in a few southern and eastern counties?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

Yes, indeed. My right hon. Friend will have noted that yesterday's carrier announcement referred not just to Portsmouth and Vosper Thorneycroft, but to Barrow-in-Furness and to Govan, in the constituency of my hon. Friend Mr. Davidson. There was a genuine geographical spread among the beneficiaries. Yes, I do pay tribute to the work force and its adaptability, flexibility and willingness to change right across the defence industry. What the document means, I can tell my right hon. Friend, is that we are offering a degree of transparency, information and forward thinking that should give those people a greater degree of stability and security in managing change in a fast-changing world. The trade unions—including John Wall of Amicus and various others—were involved, through the Confederation of Shipbuilding and Engineering Unions. I have written today to those MPs—in all parts of the House—with a particular interest in these sectors, saying that I or the noble Lord Drayson will meet them.

My right hon. Friend also asked what we, probably the most open defence procurers in Europe, are doing to encourage others to follow suit. We are doing three things, the first of which is to illustrate, through the success of our defence industries, that watching the minutes sometimes loses the hours, and that, through a degree of openness and competitiveness, we can develop a healthy industry. Secondly, during our presidency of the European Union we have encouraged our European colleagues to open up a little. Through the European Defence Agency, we have just signed a code of conduct that, although voluntary at this stage, moves matters in the right direction. Thirdly, we are maintaining dialogue with, and pressure on, our friends in the United States Administration—the President, Secretary Rumsfeld and others—with some degree of success. This is proving less successful on the Hill, and we must continue to work on that.

Photo of Michael Moore Michael Moore Shadow Secretary of State for Defence

I begin by associating myself and my colleagues with the tributes that the Secretary of State paid to our armed forces. This is indeed a very significant statement that will have far-reaching consequences for United Kingdom defence and its supporting industries. As has been acknowledged, we will all need time to study the 140 pages of detail, and I would also welcome the chance of a debate early in the new year on the strategy. But we certainly support the principle of ensuring that our armed forces have appropriate equipment at the right time and at the right cost; sadly, that has not always characterised defence procurement in recent decades.

In giving industry clearer signals about what is essential to national security, how will the Secretary of State ensure proper ongoing public scrutiny of the new partnering arrangements and any other mechanisms, so that we can be confident that we are maintaining competitiveness and value for money at the point of acquisition and throughout the project's life? Given the ongoing problems associated with technology transfer—from the United States, for example—to which he has alluded, how will he ensure that in the non-core sectors, we do not end up being over-dependent on other countries?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

I thank the hon. Gentleman for his remarks and I hope that the opportunity for such a debate arises. A defence debate is coming up early in the new year and Members may want to make representations about the topic of that debate. I would welcome our building a cross-party consensus on this issue. In a way, I regard the defence industrial strategy as a parallel of the strategic defence review, which I had the honour to oversee in 1997–98. It constituted a thorough review of the operational capabilities, configuration and direction of our armed forces, and I hope that this strategy proves similarly effective. There will be plenty of opportunities for scrutiny by, for example, the National Audit Office and Parliament, and Mr. Arbuthnot—he is with us today—who presides over the Defence Committee, will doubtless take an interest in this issue and in the project itself. The difficulty lies not in that but in getting the balance right between what we open up to competition, and what we maintain here as a strategic and sovereign requirement. I welcome all contributions to the debate on that issue, because I genuinely believe that it is not a party political one.

Several hon. Members:


Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. I am keen to call as many Back Benchers as possible on this statement, but I am also mindful that there is other business of the House, which must be protected. May I please make a plea for brief questions and answers?

Photo of Linda Gilroy Linda Gilroy Labour, Plymouth, Sutton

I congratulate my right hon. Friend on introducing this strategy, which is in the long-term interest of our defence capability and of value for money for the taxpayer. As the Member of Parliament for a naval constituency, may I ask him to recognise the important role that Plymouth workers have played in submarine and surface fleet support? Does he agree that Devonport has everything to gain from engaging positively with the plans laid out in the strategy? What will happen to the marine industrial strategy? I would welcome the early opportunity to discuss these issues with him, particularly the role of Devonport.

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

The answer to the first question is yes: the contribution made by the work force to which my hon. Friend refers is substantial. The answer to the second question is also yes: Devonport has everything to gain from participating in the strategy, just as work force and company representatives have gained from participating in the strategy thus far. On the third question, I look forward to discussing the maritime strategy with her and others. I am glad that we were able to announce yesterday a further stage in the reaffirmation of the carrier, and the allocation of work to the south—to Vosper Thornycroft—as well as to Barrow-in-Furness and to places further north. Everyone has an interest in making this work: the work force, management, shareholders, certainly the Ministry of Defence—hopefully, it will sharpen its act—and the armed forces themselves.

Photo of James Arbuthnot James Arbuthnot Chair, Defence Committee, Chair, Defence Committee

I am grateful to the Secretary of State for giving me advance notice of this document and I agree with him that it is very important. My Committee will examine it very closely at the beginning of the new year. Does he agree that the key issue is how we put this document into practice? We need action, rather than words. Does he further agree that, despite the strategy's welcome clarity in some areas, on one of the most important—research and technology—it leaves rather a lot unsaid? For example, it states:

"We must develop new ways of working together . . . We need to examine how R and T might better support our acquisition process."

Can the Secretary of State reassure me that this is not simply a case of pushing the most difficult questions off into the future? That is a very important issue.

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

Yes, I can. First, I welcome the interest that the right hon. Gentleman and the Defence Committee have shown in this issue. Secondly, I entirely agree with him that this is not a document for philosophical consideration; we hope that it is intellectually rigorous, but it is a blueprint for action. Thirdly, we have spent six months on this issue since I came in as Defence Secretary and it is not unusual to find that a document on a mammoth topic such as this needs further work in certain areas, and the right hon. Gentleman has highlighted one of them. There is a lot of grit in this oyster, but we welcome discussion and contributions in order to add more flesh to the bones.

Photo of Mark Tami Mark Tami PPS (Rt Hon Dawn Primarolo, Paymaster General), HM Treasury

I welcome the review but there has been some speculation about the air tanker project and a possible reduction in the number of aircraft to be ordered. Can my right hon. Friend enlighten us as to the review's impact on that project, and on how the discussions are going?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

I am glad to confirm that this document does not affect in any way the future direction of the tanker project. We continue to have detailed and complex discussions with financial institutions about the private finance initiative side of the project; there is no real question of the operational requirement being changed. Far from backing off this project, at the last informal meeting of our European presidency—it was held at RAF Lyneham and the central item for discussion was the tanker project—I encouraged our European allies to follow the direction that we are taking.

Photo of Robert Key Robert Key Conservative, Salisbury

I am sure that the Secretary of State's judgment in putting his trust in respect of our chemical and biological defence into the hands of the Defence Science and Technology Laboratory at Porton Down in my constituency is entirely correct. He gave an assurance about the testing and evaluation work carried out by Qinetiq at Boscombe Down, also in my constituency, but said that he wants the European Defence Agency to consider whether we should amalgamate and rationalise some of that work across Europe. However, what about the intellectual property rights that we share with our American allies? What will their reaction be if they know that we are working with European companies, some of which are sited in a nation that is not even a full NATO member?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

Obviously, that is one of the issues that has to be dealt with. Whenever I make a statement on any aspect of defence, the hon. Gentleman always has a perfect right to comment, as his constituency seems to have an interest in almost everything defence-related. He has identified a problem that we must resolve, but I shall make one general point about the EDA. We do not regard it as an autonomous body that can order and procure on its own. If I may use the expression, we think of it more as a dating agency—a body that brings member states together to collaborate on projects that they consider worthwhile. It does not act over and above the member states, but rather brings them together.

Photo of Ian Davidson Ian Davidson Labour, Glasgow South West

I very much welcome this document, and take particular note of the important fact that it has been produced to time. Of course, the devil is in some of the detail, and I seek clarification from the Secretary of State about balance. On the one hand, the document states that "complex vessels" will be built in the UK, but on the other, that "lower-end" manufacturing will be outsourced. Does that apply to a certain category of vessel, or are we talking only about peaks and troughs? When might it be possible to get clarification about how the strategy will be applied to the military afloat reach and sustainability program? Finally, if representatives of the work force feel that it is appropriate, will he be willing to meet them?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

The answer to the last question is yes: I am always ready for such meetings. I met those representatives recently, as my hon. Friend knows. I am prepared to meet them again, and he can be present again, if he so wishes. He asked about balance, and I assure him that there is no categorisation according to classification. Building what we traditionally regard as major warships at the upper end of the market calls for high technology and high skills, and can be sustained only by a systemic and systematic order process. At the lower end of the market, peaks and troughs occur according to fleet requirements. We are thinking about combining the two approaches, but yesterday's allocation of work—part of which went to my hon. Friend's constituency—makes it clear that my intention is to have a shipbuilding industry that is stable and sustainable in the long term, and which maintains the highest level of skills.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

This is an ambitious programme of big capital projects, but will the Secretary of State take into account the fact that there seems to be a shortage of cash for detailed implementation? The danger is that these ambitious projects will suffer as a result. There are too many stories about cannibalisation of parts, shortages, and the cancellation of operations. Will the right hon. Gentleman undertake to keep an eye on the detail as well as on the headlines?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

Yes indeed. One reason why we must get best value for money is that these projects are immensely expensive. Our goal is to have victorious armed forces, and the technological and cost demands of modern warfare are huge. Part of our job is to make sure that we impose on ourselves the rigours required to do things better and on time. My hon. Friend Mr. Davidson said that the document was delivered on time, but it has also been delivered on budget—and that is a claim that I have always wanted to make on behalf of the Ministry of Defence. Being on time and on budget is what we aspire to on our own account, as well as what we demand from industry. That is precisely because we need to get better value for money.

Photo of Brian Jenkins Brian Jenkins Labour, Tamworth

I welcome today's document for its openness, and I congratulate the Ministry on its value-for-money approach. A great deal of time and effort will be spent on the initial stages of the carrier programme, and the adherence to the gateway project is commendable. However, in respect of future provision, will my right hon. Friend say how much of our requirement will be purchased abroad?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

I thank my hon. Friend for his remarks about the carrier programme, and he is right about our approach. Yesterday, we allocated responsibilities for 60 per cent. of hull build and ensured a degree of continuity in capability by dovetailing the present carrier fleet with incoming vessels. We are prepared to spend £300 million, but we have made sure that all the negotiating levers will not be handed over to the carrier producers. It is very important to get right the demonstration and fine design stages, because it is there that the downstream cost is incurred.

With respect to our openness to competition, I can tell the House that 75 per cent. of our procurement is open to competition. We are not returning to protectionism, but our plans for the remaining 25 per cent. show that we are prepared to maintain a strategic industrial base to supply our armed forces.

Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

On the helicopter sector, may I, as MP for Yeovil and an economic liberal, say that the Secretary of State has managed to strike the right balance between the need to secure key sectors and the need to achieve value for money for taxpayers? I congratulate him on that. Can we expect an announcement early in 2006 on the key future Lynx order, provided that it meets the value-for-money criteria? Will he assure me that he will not take any advice on the matter from Conservative Front-Bench Members?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

Well, I suppose that I should begin by saying that I am deeply, deeply grateful for the support that the hon. Gentleman has shown me, given my leading position in the Labour party. I understand that that support is not supplied comprehensively for all leaders, but I thank him for what he has said.

As for the Lynx helicopter, we are keen to ensure that its through-life and update programmes are continued. The very important skills at AgustaWestland are essential to that, and I know that Mr. Laws is right to ask about that, from his perspective both as a constituency MP and as someone with an interest in the procurement of very important assets for our armed forces. He will know that the world market in helicopter production is thriving and competitive. We would be silly not to take advantage of that, as that is the context in which we find ourselves. I happen to believe that AgustaWestland is able to do very well in the world market, given its success in providing the helicopters used to convey the President of the United States. That is at least one example of Liberals supporting the US President.

Photo of Ben Wallace Ben Wallace Conservative, Lancaster and Wyre

My constituents who work for British Aerospace will be most disappointed to hear the Secretary of State in effect announce in his statement the end of the manufacture of manned fast jets after the Typhoon project. Even more disappointing is the fact that he said nothing about a desire to build the joint strike fighter and merely spoke about maintenance and support. Does the right hon. Gentleman agree that an absolute condition of placing the order for the joint strike fighter with the US should be that this country will do all the manufacturing and servicing of future versions of that fighter? Will he extend the buy-British approach to any future plans for unmanned aerial vehicles or drones, and ensure that such machines are built in this country?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

First, although the hon. Gentleman clearly feels that my statement is terrible for BAE Systems, the problem is that the company does not feel the same way. I believe that it will welcome the Government's defence industrial strategy. Secondly, it would be little over the top for the hon. Gentleman to tell his constituents that a dramatic crisis is looming because one of our planning assumptions is that we may go to unmanned aerial vehicles after 2040. That projection is no more than a warning about something that may happen down the line. Thirdly, we are spending in the order of £50 million on more than 200 Eurofighters, and we are also insisting that maintenance on the joint strike fighter and the updating of its technological capabilities is carried out in this country. All of that is good news. Most important for a company like BAE Systems is the fact that we are sharing with it our long-term vision of how much we shall spend within the limits of what is possible for a Government that must go through three reviews, where we will spend it and how it should invest its money and so on. That is good news for industry and I hope that the hon. Gentleman will reflect on that.

Photo of Michael Jack Michael Jack Conservative, Fylde

May I welcome the Secretary of State's involvement of BAE Systems in my constituency—employing some 6,000 aerospace workers—in the production of this strategy and his recognition of the strategic importance of our military aerospace industry? Can he give more comfort to the House on how he may secure the final assembly and check out unit to be based at Warton to look after and construct the joint strike fighter? Does he agree that in those negotiations it will be important to demonstrate to the United States that if they do not play ball, we have an alternative way of providing a marine aircraft for the new carriers? How will he conduct those negotiations?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

For blatantly obvious reasons the right hon. Gentleman will not expect me to tell him how I intend to conduct those negotiations. His points are relevant. We have made it plain that we must have the technological capability to upgrade, as well as maintain, the joint strike fighter, which is an essential element of our future carrier and other requirements, for its through-life capability. We continue to insist that that is the case.

Photo of Michael Weir Michael Weir Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Trade and Industry)

Given the time scale, has the Secretary of State made any assessment of the likely impact of the massive cost of either upgrading or replacing Trident and other defence projects in the long term?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

No, we have not got to that. I have made several estimates, however, one of which is: what would happen to the British armed forces and industry if we were ever to get a separate Scotland? It would be absolutely disastrous.

Photo of Mark Pritchard Mark Pritchard Conservative, The Wrekin

The Secretary of State mentioned outsourcing aeronautical engineering in pursuit of value for money. Does he agree that value for money can also be found in the public sector? If so, will he give an assurance today that those skills will be retained in the Defence College of Aeronautical Engineering in my constituency and within the public sector, so that there is a public-private partnership, not a drive towards and a doctrine of privatisation, which will see hundreds of jobs lost in my constituency?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

We live in interesting times. I saw Conservative Front Benchers curl up at those heretical words from behind them. I have no problem in identifying myself with the hon. Gentleman's sentiments. Efficiency, flexibility and productivity are not the monopoly of either the public or private sector. Therefore, we should not approach these matters dogmatically; we should take the best from both and encourage both to have the best. The hon. Gentleman will appreciate, however, that I will resist the temptation to go further and pre-empt the training review that is under way.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

Will the Secretary of State acknowledge the genuine concern in the RAF about the lack of equipment and the late delivery of new equipment? What is his view of the morale of the RAF following his statement?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

I suspect there has never been a time when members of the armed forces did not properly want more, quicker and better. That is part of what keeps us on our toes. As far as I am aware RAF morale is very good. They are delighted that the C-17s now supplement the Hercules, that we are developing the Eurofighter Typhoon, that we are intending to procure the new tanker aircraft—the A400M is listed as equipment that we will buy—and that the joint strike fighter will operate off the carriers. Those are all good reasons to believe that morale is good and following my statement morale may be even higher than it was a few hours ago.

Photo of Nigel Dodds Nigel Dodds Opposition Whip (Commons), Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Treasury)

I join the Secretary of State in his warm tribute to our armed forces. As he knows, we in Northern Ireland have more reason than most to be grateful to them and proud of their courage and dedication. He mentioned the critical importance of the aerospace industry and the business opportunities that arise. He will know, too, from his previous experience, of the excellence of the Bombardier company in Belfast and the skill of its work force. Will there be a role for Bombardier and Northern Ireland in general as part of the roll out of the strategy?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

I join the hon. Gentleman in his tribute to the forces. As he knows, I was involved in trying to work in partnership with Bombardier. I certainly hope that there will be a role, not only for Thales—formerly Bombardier—but for a lot of small and medium-sized companies that are perhaps not mentioned here today when we deal with the big shipyards and companies. I hope that by allowing the big companies to plan, through systems integration and project management in the United Kingdom and by indicating to small companies the direction in which the market is likely to move, it will assist smaller companies.

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering

What consideration has been given in the strategy to the importance to the United Kingdom of having an independent strategic heavy lift capability?

Photo of John Reid John Reid Secretary of State, Ministry of Defence, The Secretary of State for Defence

We have given that continual attention. I am musing on the word "independent". I am not sure what the hon. Gentleman means. Certainly I take responsibility as the person who, during the controversy about whether we should buy the C-17s, with Lord Gilbert was on the side of leasing C-17s. We believed that the operational capability of those huge aircraft overcame any objections that we should buy a less capable European alternative. We bought the C-17s and we are looking at buying more. As far as I can make out the RAF, whose morale will be flying a little higher than it was a few years ago, regards the C-17 as a great success. I forgot to mention it earlier. The independence of strategic airlift at European level is important. Some years ago it was identified as completely insufficient in the strategic defence review, so we tried to remedy that. We will continue to have a view on it.