BAE Systems

Backbench Business — [Un-allotted Day] – in the House of Commons at 12:24 pm on 24th November 2011.

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Photo of John Bercow John Bercow Chair, Speaker's Committee for the Independent Parliamentary Standards Authority, Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons, Speaker of the House of Commons 12:24 pm, 24th November 2011

Just before I call Mr Davis to move the motion, I stress for the convenience of the House that the six-minute limit on Back-Bench contributions will take effect after the speech by the shadow Minister, which I think will be the fourth speech in the debate.

Photo of David Davis David Davis Conservative, Haltemprice and Howden 12:27 pm, 24th November 2011

I beg to move,

That this House
urges BAE Systems to act to preserve the UK’s defence production skills base and, as a recipient of enormous resources over many years from the UK taxpayer, to deploy those resources in such a way as to protect the nation’s manufacturing capability.

On 27 September, BAE Systems, which is Britain’s biggest engineering employer, delivered an agonising shock to its work force. It announced that it intended to lay off 3,000 employees in its plants across the country. In this process it will be closing the production plant at Brough in my constituency, thereby terminating the jobs of almost 900 skilled workers and staff. That was a shock, but not a surprise because the previous weekend the newspapers had published a leak about those plans, which were in breach of all BAE’s codes of corporate responsibility. This cruel treatment of a loyal, decent and hard-working work force was, frankly, a disgrace. As I shall point out, that was not the only disgraceful aspect of this decision.

The symbolism of this retrenchment could hardly be starker. Both aerospace and defence are massively important businesses for the United Kingdom. BAE is by far the biggest company in either industry in Britain. The size of the cutback is grievous and grimly symptomatic of the decline in manufacturing in this country—so far, so bad—but there is a risk in this storm of statistics and grand economic strategy that we lose sight of what really matters. What matters most is the misery that the decision visits on individuals, families and communities: the destruction of their hopes and the blighting of their lives.

In Brough—a community that thinks of itself as the home of the Hawk, centred on a factory that has been building military aircraft since 1916—the shock was visible. It is one of those factories where grandfathers, fathers and sons all work, thus maintaining a proud tradition of skilled work through the generations. A number of married couples who work there met there. Therefore, after Christmas this year, whole families will be looking for work, and what a time and place to look for work. Many of them live in a part of Hull that has more unemployed people chasing every job than anywhere else in the country. In the past four years, the city and area have lost 7,500 manufacturing jobs—a quarter of all the manufacturing jobs now left there.

Brough’s closure is not only an industrial tragedy, but a human tragedy—all so painful, and all so unnecessary. While Brough was announcing job losses across Yorkshire and Lancashire, Airbus was opening a £400 million factory, which increased jobs by 650 and underpinned 6,000 other jobs. That factory makes Airbus wings. In past years, Brough and other parts of the BAE empire have made the struts, spans and other parts of wings for Airbus.

Until about five years ago, BAE maintained a stake in Airbus. The close relationship meant that Airbus components of all sorts were made by the BAE work force. That was a smart strategy. Although civil and military aviation operate on different business and economic cycles and different demands at any time, the manufacturing skills and requirements are interchangeable to a large extent. Until then, the company could switch resources backwards and forwards to whichever sector had the demand.

Despite the counter-cyclical nature of those businesses, profits were stabilised—as, of course, was employment—but five years ago, before the banking crash and the sudden constraints on public spending, defence sales looked lucrative and profitable, and civil aviation looked just a bit too competitive. Now, all is reversed of course: defence sales are hard to come by anywhere in the world, and commercial aviation is booming.

In 2006, in what must count as an astonishing piece of strategic myopia, the company made a hideously short-term decision and disposed of its stake in Airbus and withdrew from civil aviation. Britain is the country that created the first jet airliner. We now own no production capacity for civil airliners. That is not the only strategy error to hit the work force.

Over the years, BAE and its predecessor companies have had a symbiotic relationship with the Government that is all too characteristic of defence industries. In the largely cost-plus environment of defence procurement, the British taxpayer funds the development and production of weapons and aircraft. British test pilots risk their lives testing, proving and improving those aircraft. In exchange, the nation receives the aircraft, equipment and weapons necessary to defend our shores and interests, but it also obtains a defence industrial capacity that supports us in time of war.

In addition, the Government go in for defence sales support, specifically to maintain the viability of that domestic capacity. That is the theory. It seems to me that what has been happening is almost the opposite. Let us take, for example, the Harrier, perhaps the most iconic post-war British aircraft. Without it, we might have lost the Falklands war. It was developed with British taxpayers’ money and tested by British test pilots. Today, it is an American aircraft. As far as I can tell, the Americans paid little if anything for the transfer of intellectual property in the most innovative aircraft since the war, yet they now manufacture that aircraft: British money; British skill; American jobs and capability. Sadly, that appears to be happening again.

If we win the potentially huge American order for the T-X aircraft, between 350 and 1,000 advanced Hawks will be manufactured not in Britain, but in Texas. What that means is demonstrated by what has been happening with the sales of the Hawk to India. In the past decade, about 150 Hawks have been sold to the Indian air force. The vast majority of them—all except the first 24, I think—have been built in Bangalore. BAE will tell anyone, as they told the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson) and me at the time, that it was a necessary offset and that it did not mean that it was moving Hawk production abroad.

I looked in the Indian papers and the defence journals that cover both sides of the story to see what is happening on that project. Ashok Nayak, the chief executive of Hindustan Aviation, which builds the Hawk in India, said this year:

“Last year, while negotiating the contract for 57 Hawks, BAE Systems wanted to give HAL”—

Hindustan Aviation—

“additional work in building Hawks in the future. HAL is looking for a large role in that build. What exactly, is still being discussed.”

That was quoted in the Indian newspaper, Business Standard, but such things are said in not just one paper. The journal, Defence Now said much the same thing:

“BAE was discussing moving more production to Hindustan Aviation”, effectively to create export sales out of India. Separately, reporting at the Paris air show earlier this year, the journalist David Donald said in another journal:

“BAE Systems envisions no problems in maintaining the Hawk’s production status for many years, with the production line in India now driving and sustaining the all-important supply chain.”

It is plain to see that, whether by accident or design, BAE is effectively moving to a position where the emblematic British aircraft, the Hawk—the Red Arrows aircraft—will be made abroad. That is where a serious part of our jobs are going now. What happened to the Harrier yesterday and what is happening to the Hawk today, if we are not careful, will happen to other aircraft in the future. In summary, successive British Governments have maintained a policy to keep a cost-effective British defence industry on British soil. BAE Systems has gained from that strategy, with the effect that we have exported those jobs and capability to foreign soil.

It gets worse. Since the 1960s, to maintain a viable defence industry, successive British Governments of all parties have operated under a set of rules, known as the yellow book, that determine which costs the company meets and which costs the taxpayer meets. It transpires that when BAE lays off 3,000 workers, the BAE shareholder will not meet the cost, as is reported on the front page of the Hull Daily Mail today: “Taxpayers face £100m BAE bill”. Given how the system works, between £60 million and £110 million—we do not yet have the number—will be paid by the taxpayer, not by BAE, to lay off 3,000 people and destroy their jobs. That is outrageous.

A policy designed to defend our defence capability is being used to make us subsidise the destruction of that capability. A policy designed to defend and protect British jobs is being used to destroy British jobs. If I were the Minister, I would not pay BAE a penny. I would tell BAE, “This is your decision. This is the outcome of your strategy. If you don’t like it, I’ll see you in court.”

I should tell the Minister that I have spoken to the Chairman of the Public Accounts Committee about this matter, and she has agreed to have a National Audit Office investigation. I hope that that helps to stiffen the Ministry of Defence’s spine. I have also discovered that BAE has already benefitted to the tune of hundreds of millions of pounds from such yellow book subsidies for failure. I will ask the PAC to investigate that, too.

Photo of Ben Wallace Ben Wallace Conservative, Wyre and Preston North

I have been following the thread of my right hon. Friend’s argument, but I point out that the issue is not entirely one-sided for BAE Systems. The previous Government signed a number of contracts based on the work throughput in a location. No matter what Her Majesty’s Government ordered, BAE Systems was guaranteed to deliver work, through the Clyde, Woodford and other sites around the United Kingdom. If the Government cancelled orders, BAE Systems had to pick up the bill, because it was a sort of Stalinist tractor factory contract that the previous Government put in place.

Photo of David Davis David Davis Conservative, Haltemprice and Howden

Frankly, I will resist making this a Labour versus Tory argument, for a simple reason. For the past 10 years, when it comes to BAE Systems and employment in our constituencies, the right hon. Member for Kingston upon Hull West and Hessle and I have studiously aimed solely at protecting jobs, sometimes demurring from scoring political points. My hon. Friend Mr Wallace makes a good general point: there is a central planning approach—a bad one—but the raw truth is that it was designed to ensure that our defence capability and defence employment were stable, and would be there in time of war. That has been turned, and it has effectively been used to destroy those jobs and that defence capability.

Photo of Jack Straw Jack Straw Labour, Blackburn

Mr Deputy Speaker, who represents Ribble Valley, in which Samlesbury sits, together with many other colleagues, regardless of party, and I have sought to adopt the same bipartisan approach in our pursuit of BAE interests on our sides of the Pennines. We are in full support of what Mr Davis and my right hon. Friend Alan Johnson are seeking to do. It would be terrible and hopeless if we turned this into a 2011 contest across the Pennines.

Photo of David Davis David Davis Conservative, Haltemprice and Howden

The right hon. Gentleman is absolutely right on both counts. It would suit very well the people whose mind we are trying to change if we fought against ourselves on party political or geographical grounds. Much as I look back with amusement and fondness on past cricketing experiences in the wars of the roses, those wars need not be repeated here and now.

Photo of Tobias Ellwood Tobias Ellwood Conservative, Bournemouth East

My right hon. Friend makes a powerful argument, much of which I agree with, but in the interests of balance, will he concede that there is another side to the coin? The Apache helicopter, which we purchased, made by Boeing, was built in the UK, not by the American work force. We also make kit that is exported: the empennage—the rear section—of the F-35, designed for an American market, is made here, and the M777 Howitzer is made in this country and exported. There is another side to the coin.

Photo of David Davis David Davis Conservative, Haltemprice and Howden

There is another side to the coin, but since my hon. Friend draws me on that point, I am afraid that on one side there is a pound, and on the other there is a ha’penny. I was the Public Accounts Committee Chairman for five years, and I looked at the issue in close detail, and I have to tell him that the Americans are far more aggressive and effective than we are when it comes to protection of their intellectual property.

The proposals have all sorts of strategic implications. One of the things that we looked at 10 years ago—I am probably not breaking too many secrets—was the advanced medium-range air-to-air missile. We were not even allowed technological knowledge of AMRAAM because of the Americans’ defences, and that made it less effective for us. This is quite an area of battle. Indeed, the previous Defence Secretary made quite an issue of this, as my hon. Friend Mr Ellwood will know, and will understand only too well. We have not fought our corner very well, and I am afraid that BAE Systems is culpable, as part of that. It has been very poor in terms of its strategic decisions on civil and military aviation, and when it comes to protecting our intellectual property.

Photo of David Davis David Davis Conservative, Haltemprice and Howden

I shall give way for the last time, because many Members want to speak.

Photo of Greg Knight Greg Knight Chair, Procedure Committee

I am most grateful to my right hon. Friend for giving way; he is being very generous. He posed the question of whether what was happening was the result of accident or design. Has he not now answered that question? The answer is design—it is the deliberate decision of the management.

Photo of David Davis David Davis Conservative, Haltemprice and Howden

It is certainly the consequence of deliberate decisions. Whether the management intended this outcome at the beginning, or whether it is sheer crass misjudgment, I will leave the House to judge. What I am trying to do is lay out the facts as starkly as I can, because it was long ago time to open up the process to public scrutiny.

That brings me to the decision today. The company is in the middle of a 90-day consultation period. From the start, the right hon. Member for Kingston upon Hull West and Hessle and I, and a number of colleagues—probably every Member of Parliament involved in the process—told the company that we would hold it to its legal responsibilities on a 90-day process. Those legal responsibilities involve being transparent and open, and looking in good faith at all proposals put to it. I repeat that: looking in good faith at all proposals put to it. Unfortunately I have to tell the House that, based on the company’s behaviour to date, it seems to me entirely possible that it has broken its legal responsibilities. It has not looked in good faith at all the options available to it, but I will leave it to my right hon. Friend—I beg his pardon, the right hon. Member for Kingston upon Hull West and Hessle; he is my friend—to say more on that later.

I certainly expect the company to demonstrate why it turned down the options that it was looking at before it made the decision. As far as I can see, it has not even done that. Secondly, I expect it to give proper consideration to the plan drawn up by its management to preserve employment at Brough in my constituency, albeit at lower levels. Again, I think that the right hon. Gentleman will touch on that point.

The work force at Hull are the best, in terms of attitude, productivity and skill, I saw in my 20 years in business before I came to the House, and BAE Systems senior management agree. The work force’s attitude is positive, their productivity is high, and the right hon. Gentleman and I have always been told that they are competitive on cost and quality. They deserve a proper chance.

If the company does a proper, open-minded review, and the figures do not add up—I accept that is possible—its responsibilities do not end there. We have been fortunate: the Civitas think-tank has invested £50,000 in looking at the Brough site to see what it can be used for, how the skills can be deployed, and what we can do without destroying the skills base. For that, I thank it warmly. The chairman of the Government’s skill retention taskforce came to see us yesterday, and it is at work, looking for alternatives. The Government acted within two weeks and put in place two enterprise zones, one on each side of the Pennines, to help us in all this, but if we cannot come up with an alternative, we will again lose a critical mass of skilled workers that will not be replaced once it is dissipated. That is the nub of the matter.

The job losses in Brough and on the other side of the Pennines are, to a large extent, a direct consequence of the company’s strategy over the years. The company’s profits come, to a very large extent, from taxpayer support.

Photo of Andrew Percy Andrew Percy Conservative, Brigg and Goole

My right hon. Friend makes a powerful point. On the legacy issue, does he agree that it is not good enough for BAE Systems to say, “We will do everything that we can to find people alternative work”? It has to make sure that that legacy remains in east Yorkshire, and that the site remains a site of employment in manufacturing for our constituents.

Photo of David Davis David Davis Conservative, Haltemprice and Howden

My hon. Friend, who has been very active in this campaign, brings me to the nub of the issue. It is precisely because the company had, until five years ago, experience in civil aviation; precisely because it is the biggest employer of engineers in the country; and because of its knowledge, access, contacts and understanding of the markets, that it is best equipped to find an alternative use for Brough—full stop. That is what I—and others, I am sure—demand. It is not just Brough; I keep saying Brough because it is closest to my heart, but the company must find alternative employment and use for the assets and the work force across the country. That is what it is best equipped to do. Frankly, as far as I can see, so far it has not lifted a finger in that direction.

There has been a lot of criticism in recent weeks of high levels of executive pay. Recently, the statistic came out that, over 30 years, senior executives have had a 4,000% increase in pay. Despite severe criticism of senior management by investors and others over the years, the pay of BAE’s chief executive grew by 8,000% over the same period, double the national average. I am not one of those who believe that people should not be paid large sums of money, but I expect them to earn it. They could perhaps justify their salaries—the chief executive’s is £2.4 million—by doing a better job not only for shareholders, but for employees and the country.

Several hon. Members:

rose —

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. I inform the House that the debate will conclude at 2.30 pm.

Photo of Alan Johnson Alan Johnson Labour, Kingston upon Hull West and Hessle 12:50 pm, 24th November 2011

It is a pleasure to follow Mr Davis. As he said, for the past 14 years we have worked together to try to protect the interests of BAE workers at Brough. We have been joined in that by other Members who represent constituencies in Hull and the east riding, many of whom are here today, but he and I have been working together on it the longest.

Three consistent themes have run through all our discussions with BAE and its work force. First, there is a superb work force at Brough, as BAE has stated over and over again. Indeed, Allan Cook, who heads the Government’s talent retention unit and has a long history in the aerospace industry, having worked for Marconi, Cobham, BAE and Marshalls, told us a few days ago that he had never encountered such a talented group of workers in his entire engineering career. Secondly, there is the success of the Hawk. Since its first flight in 1976, 900 Hawk aircraft have been sold around the world. It is an iconic British product that is still in great demand, as I will show later. Thirdly, the work force have shown remarkable loyalty to, and respect for, the company. On the several occasions when the plant has been downsized, I have found the work force’s enormous respect for the company incredible.

Since the announcement on 27 September, only one of those three consistent themes has changed; I am afraid that the company has lost the respect of its work force. One long-serving employee who wrote to me—I am sure that colleagues have received similar letters—said, “Until this week I was proud to wear BAE Systems’ name but now find myself appalled by the actions of the senior management.” That kind of sentiment has been repeated by people who feel utterly betrayed by the announcement and by the way it was made.

BAE is seeking to end 100 years of aerospace manufacturing on the Humber not because of any problems with the staff or the product they produce, but because in difficult times it would rather impress shareholders with how tough it can be than impress the work force with how honourable it can be. The decision of the four Typhoon countries to slow deliveries of the aircraft was of course a blow, but the European Aeronautic Defence and Space Company and Finmeccanica are slowing production of the Typhoon in Germany, Spain and Italy without losing any highly skilled manufacturing jobs.

Photo of James Wharton James Wharton Conservative, Stockton South

The right hon. Gentleman makes the important point that this might appear to be a short-term decision that benefits shareholders in the immediate future, but does he agree that in the long term shareholders would probably rather see the retention of an important skills base that will allow BAE to compete effectively in future and secure contracts?

Photo of Alan Johnson Alan Johnson Labour, Kingston upon Hull West and Hessle

That is absolutely right. That is why we wanted a debate in the House with a motion setting that out, because that is precisely the message we need to put out. As I will say later, that is precisely what other serious manufacturing companies are doing.

Four countries are affected by the decision to slow delivery of the Typhoon, but only BAE in the UK has reacted by throwing highly skilled engineers out of work and abolishing a manufacturing plant. Although the company says that its announcement was forced by the slow-down in orders for the Typhoon, almost a third of the job losses are for the Hawk, an aircraft that remains popular around the world. Orders are imminent from Saudi Arabia, Oman, Iraq and the United States, and potential orders are imminent from Poland, Kuwait and the RAF in a few years’ time. When we and others, including the unions, have asked the company what will happen if they get an order for 10, 50,100 or 150 Hawks next week—this relates closely to the point that the right hon. Member for Haltemprice and Howden made about the 90-day process—its reaction has been that nothing would change. Our suspicion is that is because there is a view that it will not be the other side of the Pennines that benefits from extra Hawk orders, but Texas, India and manufacturing plants abroad.

When the unions have berated BAE on the effects on British manufacturing and pointed out that it is an important British manufacturing company, it has replied that it is not a manufacturing company, but an engineering company that chooses to manufacture, the implication being that that is the choice it has made at the moment but might not make in future. In no other major industrialised country in Europe would a company that has spent much of the past decade moaning about skills shortages be getting rid of some of the most highly skilled people in the country. In no other major industrialised country would a company whose biggest customer is the Government and whose biggest investor historically has been the taxpayer be causing such damage to a precious sector of the economy.

There is an alternative approach. Andrew Witty, the chief executive of GlaxoSmithKline, another British manufacturer that sells its products abroad, lambasts British businesses that turn themselves into “mid-Atlantic floating entities” with no connection to society. He says that his company has given a lot to Britain, but that Britain has given a lot to his company and that it would not exist without the work of British people and the support of the British Government. He is busy returning manufacturing jobs from abroad to this country. He says that his objective is to give more jobs, provide more skills and pay more taxes in Britain. It is a shame that other iconic international British companies do not follow the same philosophy.

Photo of Mark Hendrick Mark Hendrick Opposition Assistant Whip (Commons)

I am well acquainted with Andrew Witty, having met him at GlaxoSmithKline’s research and development centre in China. It is now a global business that employs thousands of Chinese people, and although the company returns a lot to the UK, it also has major investments abroad in the same way BAE Systems will have when it is employing people in India.

Photo of Alan Johnson Alan Johnson Labour, Kingston upon Hull West and Hessle

My hon. Friend is absolutely right. That is precisely the point. We can compare those two British companies. Around 96% of GlaxoSmithKline’s sales are abroad, but it is making a decision as a British company to invest in Britain and open manufacturing plants at a difficult time, and it is of course helped by the patent box that was agreed by the Labour and Conservative parties. It is an example that BAE should follow.

As thousands of highly skilled BAE employees contemplate a miserable Christmas, it is time for the company to engage properly with its work force in order to ensure that their important skills are retained in aerospace manufacturing and that aerospace manufacturing is retained on the Humber. We are 58 days into the statutory 90-day process, but there is no sign whatsoever that BAE is doing anything other than going through the motions. Indeed, the site director at Brough told my hon. Friend Diana Johnson only last week that nothing would change during this consultation process. He told her that they were going though the motions. When the 90 days end on Boxing day, it will still be 27 September as far as BAE’s plans are concerned.

The unions are working hard to hold the company to its statutory obligations. The union representatives involved are very good and need no advice from me, but if I was a union rep involved in the case, I would seriously consider seeking a protective order against BAE for its lack of engagement.

We believe that BAE’s three manufacturing sites should be retained. The company should stand by its loyal work force in difficult times, so that when the good times return it has sufficient manufacturing capacity in this country to deal with the extra work.

All the signs are that military aerospace will expand dramatically from about 2016. At the very least, BAE should adopt the intelligent proposals put forward by its own executive group at Brough in order to mitigate the significant risk inherent in the company’s plans by retaining crucial assembly and sub-assembly at Brough for the duration of the next Hawk acquisition contract, thereby saving about one third of the jobs until 2016.

Photo of Tobias Ellwood Tobias Ellwood Conservative, Bournemouth East

The right hon. Gentleman is making a powerful speech, but will he elaborate on his statement that the defence industry expects to expand with orders in 2016? From the angle that I see the issue, the United States, NATO countries and so forth are doing exactly the opposite: this is the area in which budgets are being cut; defence is being affected.

Photo of Alan Johnson Alan Johnson Labour, Kingston upon Hull West and Hessle

That is true, and I will turn to civil aerospace in a moment, but all the experts in the area, including the unions handling the situation, expect that from 2016 there will be an increase, particularly in Hawk orders. We are looking at the home of Hawk in Brough, and it is going through a difficult time, but most expect that, if we can get to 2016 and through the next difficult period in this country and throughout the world, there will be significant opportunities in military engineering.

The executive group at Brough has put forward a proposal to safeguard what is probably the Saudi Arabia contract, to ensure that there are no dangers to it and, therefore, to save about one third of the work force until 2016. There is a desperate shortage of necessary skills to meet booming demand in the commercial aerospace sector by companies such as Rolls-Royce and EADS, so the retention of some Hawk work should be combined with facilitating and incentivising the transfer of packages of commercial aerospace work to Brough. It is an attractive site, with exceptional access by air, sea and land. It has the machinery, the layout and the work force that commercial aerospace companies need, and it can be utilised without causing job cuts elsewhere.

It is time for fresh thinking. As the right hon. Member for Haltemprice and Howden has pointed out, we are in the crazy position of using taxpayers’ money to destroy skilled jobs in an economy that is desperate for high-value manufacturing to expand. It is time for an ethical and, even, patriotic approach by big profitable international companies, such as BAE, to the problems that this country faces. The Government have an important role to play in such a strategy, but the prime responsibility rests with the company.

I have a final quotation from Andrew Witty. He says:

“I…believe one of the reasons we have seen an erosion of trust…in big companies is they’ve allowed themselves to be seen as detached from society…They’ve allowed it to be perceived that it’s all about money.”

BAE needs to avoid being a “mid-Atlantic floating entity” and to demonstrate that it is a British company that cares about British society and British jobs. The work force at Brough have been loyal to BAE in difficult times. BAE needs to reciprocate that loyalty now.

Several hon. Members:

rose —

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. I am going to call the Front Benchers next, but I ask them to be mindful that a number of MPs who wish to contribute to this debate have constituency interests in the matter.

Photo of Peter Luff Peter Luff The Parliamentary Under-Secretary of State for Defence 1:03 pm, 24th November 2011

It is good to see a constituency Member in the Chair for this important debate, Mr Deputy Speaker, and I will do my best to be as brief as the complex issues raised allow.

May I say how much I enjoyed both speeches that we have heard? My right hon. Friend Mr Davis seized the opportunity for this Back-Bench debate with his usual skill and aplomb, and he spoke with passion and conviction; and Alan Johnson spoke movingly and thoughtfully. The company would do very well to listen to the concerns that they both expressed.

I must emphasise, however, the deep regret that the Government and I, personally, feel at the job losses that BAE Systems announced on 27 September. Such decisions, I hope, are never taken lightly by companies, and we fully recognise the very real impact that they will have on local industry and individual livelihoods. I emphasise also—it is clear from the debate so far—that the decision was a commercial one, made by the company, which explained that it was necessary to maintain competitiveness both in the UK and internationally. This debate is testing that rationale.

Photo of Stephen Hepburn Stephen Hepburn Labour, Jarrow

I share the concerns about BAE that the mover and seconder of this excellent motion have expressed, because we are experiencing similar problems on the Tyne. The shock decision to switch work from A & P Tyne will have a disastrous effect not only on our region through the loss of hundreds of highly skilled jobs, but on the economy. Will the Minister urge BAE to rethink?

Photo of Peter Luff Peter Luff The Parliamentary Under-Secretary of State for Defence

I know the decision to which the hon. Gentleman refers, and it will of course please other parts of the country, because BAE Systems will do the work elsewhere in the UK, but I shall happily talk to him about it privately afterwards if he would find that helpful.

I do not want to labour the point, but we all know how important defence is as an integral part of advanced manufacturing in this country. It sustains about 300,000 jobs, many of which are highly skilled, in thousands of companies of all sizes. Those employed are at the pinnacle of manufacturing and engineering ability, and they do a significant job in helping to keep our country secure. The industry is a key sponsor of manufacturing apprenticeships and training, the quality of which is acknowledged by employers across a range of industries, and intensive research and development programmes also mark out the defence sector as a source of innovation and intellectual property.

The House will also be aware—this was at the heart of the two speeches that we have heard—that defence is a major contributor to export revenues. UK industry has an outstanding record of export success, second only to the US as an exporter of defence equipment and services. Despite the challenging market conditions experienced by many sectors of the wider manufacturing base, the UK has in the last year won almost £6 billion in new defence exports business. That represents an increase in our share of the global defence market from 18% to 22%, and we are committed to continuing that trend with strong support for future defence export campaigns, including the products mentioned by the Members who have spoken.

Within that vital and dynamic sector of the UK economy, BAE Systems has a significant role. It has been the MOD’s largest defence supplier for some time; it is the fourth largest supplier to the US Department of Defence, which accounts for 50% of its revenue; and it is, indeed, the world’s second largest defence company. I should like to pay a tribute to BAE Systems: its speed and adaptability in updating software for the Typhoon aircraft’s radar and defensive aids systems was one of the keys to the success of the recent action in Libya, and we owe all its staff a great debt of gratitude for that.

BAE Systems’ wider involvement, beyond Typhoon, extends to many of the MOD’s largest programmes, including the Astute submarine, the Type 45 destroyer, the Queen Elizabeth class aircraft carrier, the joint combat aircraft, general munitions and support for the armoured fighting vehicle fleet. Overall in 2010, BAE Systems’ revenue from the UK amounted to just over £4 billion, representing 20% of the company’s total revenue. So hon. Members should be in no doubt about the importance that the Government attach to the contribution of the UK defence industry in general and BAE Systems specifically to a re-balanced economy and export-led growth.

Let me turn to the specific programmes that are relevant to today’s debate. In the air, Typhoon, a triumph of European engineering, has really come of age. It is a first-class aircraft and the envy of discerning nations throughout the world. Already in service with six air forces—in the UK, Germany, Italy, Spain, Austria and Saudi Arabia—and at the forefront of the world’s media coverage following its recent exemplary operational deployment in the skies above Libya, the prospects for expanding Typhoon’s user community have never been better, and Ministers are working hard to ensure that we crystallise those opportunities.

Those export prospects meant that some changes were needed to the Typhoon programme. In May 2010, a request was made by the Eurofighter GmbH industrial consortium—I emphasise industry, not Government—to slow down the rate of Typhoon aircraft production in order to free up and sustain sufficient industrial capacity in the Eurofighter partner companies, comprising Alenia, BAE Systems and Cassidian, and to service export orders.

The UK, along with the other partner nation Governments, agreed to the industry’s proposal in July 2011—on the basis that it would not adversely affect the build-up of our own Typhoon fleet. As a result, there is now the prospect of Typhoons being made over a longer time frame, with the production lines open to 2018 rather than closing in 2015 as previously planned.

Photo of Peter Luff Peter Luff The Parliamentary Under-Secretary of State for Defence

In just a second.

The letter that BAE Systems sent to Members ahead of this debate does not accurately explain the reasons for the slow-down, which in turn is responsible for many of the redundancies in Warton and Samlesbury.

Photo of Peter Luff Peter Luff The Parliamentary Under-Secretary of State for Defence

I will return on several occasions to that letter, which was disingenuous in several respects, and am grateful to my right hon. Friend.

The MOD has also invested £190 million in shaping a potential future unmanned combat air vehicle programme. BAE Systems has been our partner in that, and it led an industry team formed of Rolls-Royce, QinetiQ and GE Aviation. An unmanned combat air system programme could form part of a cost-effective solution in air-to-air and ground-to-air combat roles. That work includes the Taranis technology demonstrator, which is a world-class project and a testament to the UK’s advanced design, engineering and technology talents. It exhibits UK manufacturing capability at its very best.

We recognise and welcome the investment that the industry is making in technologies for unmanned air systems and encourage it to continue, so that it will have products that meet our needs and those of export customers. I have to say once again that the letter sent by BAE Systems to hon. Members does not appear to do justice to the partnership nature of the programme, because BAE Systems seems to take all the credit for it. The letter refers to the significant funding BAE Systems put in, but it does not emphasise the Government’s funding or the other three partner companies involved in the project. BAE Systems should be a little more modest from time to time in the claims it makes on behalf of the company.

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons)

Will the Minister explain the situation regarding UK air flights of Taranis and unmanned aerial vehicles, because there seems to be a problem with the Government not supporting test flights and not helping BAE Systems?

Photo of Peter Luff Peter Luff The Parliamentary Under-Secretary of State for Defence

The whole future of the unmanned combat sector is important for the Government and lies at the heart of the strategic future of aerospace and defence aerospace. We will be considering the matter extremely carefully later in close dialogue with the companies involved. The hon. Gentleman makes an important point. It is vital that the programme succeeds. The matter is complex as it plays into the UK-French bilateral relationship, but we are determined to take it forward in the best interests of UK industry and, crucially, the defence industry.

Photo of Diana R. Johnson Diana R. Johnson Shadow Minister (Home Affairs)

I listened with interest to that last point about how important the sector could be to the future of the defence industry. As an MP representing a constituency in Hull, may I ask the Minister whether he has had any direct conversations with BAE Systems about how that type of work could help to deal with the issues identified at Brough regarding future work?

Photo of Peter Luff Peter Luff The Parliamentary Under-Secretary of State for Defence

The short answer to that question is yes. I have obviously discussed the future of the sector with the company, but I have not done so in specific detail about Brough—in general terms, yes, but not specifically about Brough. If the hon. Lady wishes to make a suggestion to me, I will happily take it forward.

The Government need an efficient defence industry, and I make no apology for saying that. Another line in the letter to hon. Members seems to suggest that we are in some sense to blame for wanting BAE Systems to be more efficient. We want it to be more efficient for the sake of taxpayers and also for the sake of export opportunities. I make no apology for demanding that efficiency of our suppliers.

Although using open competition on the global market is the MOD’s preferred option and its default position for purchasing defence capabilities—I listened carefully to what my right hon. Friend the Member for Haltemprice and Howden said in that respect—in certain situations, the MOD has had to enter into single source procurement for some of the capabilities we must have in the UK. In these situations, we use the yellow book—it is called that because it is yellow—or “Government Profit Formula and Associated Arrangements” to give its full title. The yellow book covers the pricing arrangements to be used in single-source, non-competitive procurement. That can include reasonable rationalisation and redundancy costs, provided they are associated with a reduction in work related to single-source procurement.

The yellow book arrangements have remained largely unchanged for more than 40 years, which is why in January this year I commissioned Lord Currie of Marylebone to undertake a root-and-branch independent review of it. The MOD is currently undertaking a consultation, which runs until the new year, on Lord Currie’s proposals. No decisions will be made on his proposals until the consultation has been completed.

Photo of David Davis David Davis Conservative, Haltemprice and Howden

The Minister is making a very courteous and informative speech that is very helpful to us. Will he ensure that the response of the Public Accounts Committee and the National Audit Office to my request that they investigate some of the yellow book operations is taken on board in that consultation?

Photo of Peter Luff Peter Luff The Parliamentary Under-Secretary of State for Defence

Yes. In fact, there has already been discussion with the National Audit Office about aspects of the single-source regulations. My right hon. Friend makes a very important point and I welcome what he said about that in his speech. It is very helpful indeed to have those remarks on the record.

The scope of Lord Currie’s review covers not just rationalisation and redundancy costs but a whole range of other issues associated with the process. He made his views clear on that in the document he produced, which states:

“We do not recommend moving away from the requirement that the MOD should bear the redundancy and restructuring costs associated with programme curtailment or cancellation. The alternative, whereby the contract bears such costs, would be appreciably more expensive. Faced with the possibility of bearing such costs, the contractor would necessarily need to price in a significant, possibly prohibitive, risk premium into contracts against that eventuality, over which it has little or no influence.”

Let us put those observations on liabilities in a BAE Systems context. The Brough site has historically been used for a variety of purposes, including the manufacture of the Hawk advanced jet trainers. It also has a structural testing facility used for a number of different airframes, and has been involved in the manufacture of some Nimrod MRA4 and Typhoon parts.

Some of those projects were procured on a single source basis, but many of them were not. In the course of normal business, BAE Systems has approached us to begin discussions on payment for a share of its rationalisation and redundancy costs at Brough. We will ascertain what proportion, if any, of those costs we should be liable for under the yellow book framework. I can assure the right hon. Member for Kingston upon Hull West and Hessle and my right hon. Friend the Member for Haltemprice and Howden that our negotiations will be robust in defence of taxpayers’ interests. I am very grateful for their support in that process.

We also recognise that the Government’s procurement decisions directly impact inward investment and exportability. Our involvement as the only level 1 partner in the joint strike fighter programme has brought significant high-end work into BAE System’s Samlesbury facility and, indeed, to UK industry more widely. That site manufactures the joint strike fighter rear fuselage for Lockheed Martin, in respect not only of the UK order but of orders from the US and other international clients. That production run should continue until at least 2035 and, on current plans, supply 3,000 aircraft. Following that, the UK should be very well placed to win additional competitively placed work within the JSF production support programme, potentially valued at £30 billion. Similarly, Government investment in the assessment phase of the electronically scanned radar for Typhoon will enable a capability leap for the Typhoon fleet. That not only benefits UK armed forces well into the 21st century, but improves Typhoon’s chances of success in the highly competitive, fast-jet market.

One issue that has not been raised is the fact that the letter from BAE Systems to hon. Members alludes to the withdrawal of the Harrier aircraft, but it does not provide the context and detail for that decision. In the bipartisan spirit of today, I shall simply say that we had a very challenging financial situation at the MOD and leave it at that. It is also true that the previous Government took the decision to delete the Sea Harrier in 2006, which is the air defence aircraft. In 2009, they took a subsequent decision to reduce the size of the remaining Harrier fleet, which meant it was not large enough to achieve sustained operations in Afghanistan and maintain an adequate contingent capability for the unexpected on its own. A combined fleet of Tornado and Harrier would not be cost-effective, because retiring an aircraft type delivers significantly greater savings than running two smaller fleets.

Although the withdrawal of the Harrier was a decision we took with regret, it was effectively forced upon us. Despite that sorry affair, we have worked hard to make the most of the situation. I can tell the House today that we have agreed the sale of the final 72 Harrier aircraft frames and associated parts, which will be used as a major source of spares to support the US Marine Corps Harrier AV-8B fleet of aircraft. The value of the sale is $180 million—some £110 million—and represents a good deal for UK taxpayers and the US Government. Added to the savings made from retiring the Harrier fleet from service, that sale takes the total estimated receipts and savings to the Ministry of Defence to around £1 billion. That will enable investment in a more modern and capable mixed fast-jet fleet, including the state-of-the-art joint strike fighter and therefore be good for British jobs.

The Harrier was a marvellous piece of technology and demonstrates the UK’s significant contribution to the development of fixed-wing aviation. I pay tribute to all those who contributed to its design and manufacture, as well as to our service personnel who flew and supported them. Accordingly, I am pleased to announce that we plan to offer two Harrier aircraft to museums in order to preserve the UK’s aviation heritage.

On the points made by my right hon. Friend the Member for Haltemprice and Howden about the overseas production of British aircraft, conditions in the international marketplace do influence commercial choices and outcomes —it is not just a matter of what the Government say. It is increasingly unavoidably the case that export customers are demanding that their orders be satisfied mostly or wholly by means of local production and technology transfer. There is often a need to satisfy that critical condition in order to secure an order. That is certainly a feature of many of the potential Typhoon and Hawk export orders. My right hon. Friend regrets it—I may regret it, too—but it is a fact of life. If we want to win business, this is the way we have to do business.

The insistence on local involvement by the customer becomes even more likely and significant with larger export orders. The choice is to offer that condition or not to compete for the contract at all. That would reduce the viability of the businesses themselves and would be bad for UK employment. Last year’s deal to sell 57 Hawk to India was worth several hundred millions of pounds for UK companies, even though the final assembly was in India itself, so it is good for both sides of a vital strategic partnership for this country.

However, we also fully recognise our responsibility to those whose livelihoods are threatened by changes in the market. Work will continue for some time at Brough and the Skills and Jobs Retention Group and the Jobcentre Plus rapid response service will assist skilled workers there and at the other sites in finding new roles.

Photo of David Davis David Davis Conservative, Haltemprice and Howden

I think everybody takes the point that, in the modern defence market, there will be offset. Everybody has offset; we have offset. As has been made clear, offset arrangements do occur. It is problem when those offset arrangements become the permanent new manufacturing base for the aircraft, which is effectively what has happened with Harrier and seems at least to have been discussed with the head of Hindustan Aviation with BAE.

Photo of Peter Luff Peter Luff The Parliamentary Under-Secretary of State for Defence

I agree that when overseas production becomes a source of rival manufacture for export purposes, there is an issue for us. We have to accept, however, that the success of the Typhoon contract in India will depend on significant participation by Indian aerospace industries in the manufacture and upgrading of the aircraft. That is the price for winning the contract, and it is a price that we have to be prepared to pay.

Additionally on the subject of support for those who are sadly affected by these decisions, last month the Chancellor invited strong and viable proposals for enterprise zones in the areas surrounding the sites, with a view to enabling those zones to be up and running by April next year. As the right hon. Member for Kingston upon Hull West and Hessle said, attracting new industry to these existing manufacturing hubs could soften the impact of BAE’s change in structure without undermining the lives of these highly skilled workers.

Photo of Alan Johnson Alan Johnson Labour, Kingston upon Hull West and Hessle

We are pleased to get an enterprise zone, but we need to look at other work that these skilled workers can do; many companies would be pleased to get them. Our point is that this requires a new way of thinking. There is no reason why we cannot bring packages of civil aviation work to Brough, where there is a fabulous site and a really good work force. The alternative is that these workers have to move, which is very difficult given the housing market and all the other problems that they face with schools, families and so on. We then find very highly skilled workers ending up as taxi drivers or dropping out because they have to stay in their local area. Will the Minister consider, with Allan Cook, attracting these packages, given that there is such a skills shortage in commercial aviation?

Photo of Peter Luff Peter Luff The Parliamentary Under-Secretary of State for Defence

I will do precisely that with the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend Mr Davey; it is very good to see him in his place today supporting this debate and showing the concern for the issues raised that is felt across Government more widely. Of course, I do not have responsibility for civil aerospace. Although I happen to agree with my right hon. Friend the Member for Haltemprice and Howden about the wisdom of selling the share in Airbus, that is a personal, not a ministerial, view. I believe that there are significant opportunities for the wider civil aerospace sector resulting particularly from what has happened at Brough, and I entirely agree that BAE Systems should be creative, thoughtful and active in making those opportunities come to fruition exactly as suggested by my right hon. Friend the Member for Haltemprice and Howden and the right hon. Member for Kingston upon Hull West and Hessle.

Photo of Peter Luff Peter Luff The Parliamentary Under-Secretary of State for Defence

I will give way for the last time, because I am anxious to conclude and let other Members speak.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Foreign and Commonwealth Affairs)

Filton airfield is one of the enterprise areas linked to the local enterprise zone in Bristol. Is the Minister aware of concern about the closure of the airfield, which many people think will pose a real risk to aerospace jobs in the area? Does the Department have a view on that?

Photo of Peter Luff Peter Luff The Parliamentary Under-Secretary of State for Defence

I am aware of the issue, but the evidence suggests that that concern, although I understand it, is probably not well founded. I believe I am right in saying that today—

Photo of Peter Luff Peter Luff The Parliamentary Under-Secretary of State for Defence

I give way to my hon. Friend, who might have more details than I do.

Photo of Jack Lopresti Jack Lopresti Conservative, Filton and Bradley Stoke

I was concerned about the potential impact of the closure of Filton airfield on local jobs and industry, so the first thing I did was speak to local companies such as Airbus, Rolls-Royce and GKN, which all assured me that the existence of the airfield was not in any way consistent with their increased orders or viability in the long term—on the contrary.

Photo of Peter Luff Peter Luff The Parliamentary Under-Secretary of State for Defence

I am grateful to my hon. Friend. My understanding is that the Secretary of State for Business, Innovation and Skills is in the Bristol area today announcing additional jobs for Airbus. Although I genuinely respect the concern expressed by Kerry McCarthy, I have heard other assurances similar to those of my hon. Friend. However, I promise that I will keep my eye on the situation as best I can, as a Defence Minister, and I am sure that the Department for Business, Innovation and Skills will do exactly the same thing.

The defence sector and, in particular, BAE Systems have a significant role in rebalancing the economy by offering the taxpayer better value for money; and by offering the world the products, innovation and services required to compete on the global stage. However, BAE Systems must also be prepared to take responsibility for its decisions and to understand the debt that it owes to the country and the taxpayer.

Photo of Alison Seabeck Alison Seabeck Shadow Minister (Defence) 1:23 pm, 24th November 2011

This is an important debate, not only for the workers affected in Brough, Warton and Samlesbury, and for their families and their wider community, but for the wider UK defence industry, UK manufacturing, and all the businesses and their employees in the supply chain.

The case for this debate has been set out in stark terms by Mr Davis and my right hon. Friend Alan Johnson. Their comments, though, have to be set against the bigger picture. We have an economy that is flatlining, with the lowest growth of any country in the G7 bar Japan—which, of course, suffered an earthquake and a nuclear disaster—and the lowest growth of any EU country bar Greece, Portugal and Cyprus, yet we have a Government Department that repeatedly states that the decisions on where redundancies fall are nothing to do with it. I have to ask the Minister whether that is also the view of his colleagues in the Department for Business, Innovation and Skills, the Department for Communities and Local Government, and the Department for Work and Pensions, who have to pick up the pieces and the costs of these significant job losses.

We are talking about very skilled workers, whether in the north-west or Humberside, who have so much to offer to the company and to UK plc, and yet face a hugely uncertain future. It is far from clear whether the processes have been properly managed. It is also unclear whether the 90-day consultation process has been genuine or whether the company has been paying lip service to this requirement. I can well understand why right hon. and hon. Members and the trade unions that represent those affected speak inside and outside this place with such frustration and anger at how this is being handled by BAE as it downsizes and rationalises its footprint in the light of changing global demands. The leak in advance of its announcement is clearly unacceptable. We must understand just how much that affects the work force’s perception of the management and what had until now, as my right hon. Friend the Member for Kingston upon Hull West and Hessle said, been a very good working relationship. It is unclear what efforts have been made to relocate any of the work force and to consider alternative proposals from inside the company. My right hon. Friend, who has vast experience in these matters, posed a whole series of questions that the company needs to answer and in which the Government should take a close interest.

I know that the Minister cannot answer questions today, but I hope he will none the less give serious thought to this. I was reassured to hear him say on several occasions that he would take away issues that were raised across the Chamber. That is not least because we saw in the 1980s the loss of large defence and industrial employers and the devastating effects that that had on communities. Those effects outlast generations, as we saw in my own constituency of Plymouth—and, indeed, in Barrow, in Woolwich, and in other places.

This is a test of the Government’s willingness and ability to support British manufacturing, British defence industries and skilled British jobs, and not merely to talk of an export-led recovery. I do not mean to stray into territory that I am sure will be covered at length in the following debate, but the issues raised at Brough speak to the wider question of how the Government are failing to support British business and get the economy growing again.

Photo of Alison Seabeck Alison Seabeck Shadow Minister (Defence)

Forgive me, but I will not, because a lot of Back-Bench Members want to speak. The Minister gave way a lot, and we need to move on.

A key part of the very significant contribution that the defence industries, and indeed BAE, make to our economy is the need for a strong defence industrial strategy —one that meets our overall defence needs and protects our sovereign capability. We need a coherent plan of investment—for example, in unmanned aerial vehicle technologies—that will help to sustain the whole-aircraft skills on which this industry has traditionally been based. Labour Members have already commissioned our own review of defence procurement, and it will be interesting to see whether, in the long promised White Paper, the Government pick up on any of the themes we have suggested, which deserve further consideration. Crucial too, and touched on in our document, is the economic case for a strong defence sector able to export goods and grow its markets rather than, as we are seeing now, having to scale back its work, shrink its work force and leave the taxpayer covering the cost of unemployment.

The relationship that BAE Systems has with the UK Government, and therefore within the defence industrial base, is significant because of its substantial reach. It is a company of global significance with some 38,000 employees in the UK, one of the largest cohorts of apprentices, 10%-plus of all defence industrial jobs, and over a third of its sales market in this country. In fairness to the company, it does understand the need to protect the skills base. BAE also has some 9,000 UK suppliers, with tens of thousands, if not hundreds of thousands, of supply chain jobs therefore partly dependent on it.

We are working in a market environment in difficult financial times, and it is therefore important to understand from the Government what discussions they had with BAE prior to this announcement. The Minister touched on that. Was the prospect of off-setting potential job losses from the slowing of programmes at BAE against the mooted development by Siemens in Hull ever discussed? Siemens, of course, was in line to pick up the work that Bombardier failed to get. There is some uncertainty all around this. We should be a little clearer about which branches of Government are looking to ensure that there is sustained, ongoing skilled employment in the Humber area.

We have to have concerns when organisations such as ADS, the trade organisation advancing the UK aerospace, defence, security and space sectors, express the view that the current cuts to BAE are the tip of the iceberg. We need to be convinced that the Government are using all their tools—I realise that that is not solely the responsibility of the Minister who is present—to help those successful industries to be more productive. When the Government are the client, they must still ensure that the taxpayer gets value for money. The Government must decide whether they want to act to support sovereign capability with skilled jobs based in this country. If they do, they need to act now.

We have to look at the potential problems facing the Typhoon programme. Italy and Spain are having difficulty paying their way. I heard the Minister’s positive comments about the Typhoon programme, but we need reassurance that the Government are doing everything they can to keep it on track. We need to be sure that, along with the Department for Business, Innovation and Skills, the Department is looking at the impact of the loss of intellectual property rights, such as those associated with the Harrier and the Hawk, which were mentioned by the right hon. Member for Haltemprice and Howden. Those are transferable, and in theory that allows build programmes to happen outside the UK. Will Hawk production be shifted entirely to India? Is that an entirely desirable endgame for the British Government? I suggest that it is not.

I hope that the Minister will listen, as I shall, to right hon. and hon. Members in this important Back-Bench debate as they flag up what is wrong with the way BAE is responding to the current downturn, and highlight the ways in which the Government are not supporting British industry in this sector as Members feel they should. The Minister should not only take a direct interest in the current situation, as he has made clear that he does, but pay heed to the critical reports of the Public Accounts Committee and the National Audit Office, including any future investigations that they might undertake as a direct result of today’s debate, particularly into the yellow book. In the forthcoming White Paper, the Government should indicate clearly a positive way forward, because BAE, irrespective of the issues raised in the House today, is a significant player in the Government’s defence strategy and wider industrial strategy, particularly for fixed-wing aircraft and unmanned aerial vehicles, so it needs to be able to plan with some certainty within its own domestic market, as do all its competitors. In turn, it will be able to secure high-skilled jobs such as those at Brough into the future. We must avoid further job losses, any further loss of expertise and, of course, the poor use of taxpayers’ money.

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

The time limit has been reduced to five minutes in order to get everybody in.

Photo of Lorraine Fullbrook Lorraine Fullbrook Conservative, South Ribble 1:32 pm, 24th November 2011

I congratulate my right hon. Friend Mr Davis and Alan Johnson on securing this debate.

In the South Ribble area, 15% of the residents who work in manufacturing work for BAE. BAE’s presence in Lancashire is vital to the local and regional economy. The motion is about preserving the UK’s production and skills base, and there is no larger manufacturing employer in the UK than BAE Systems. BAE is important to Lancashire not only because of its size as an employer, but because of the nature of the work force, who are predominantly highly skilled workers. Some 45% of BAE’s UK work force are based in the north-west, making it by far the most important region to the company. In turn, the company is the most important manufacturing base in the region. BAE provides one in eight of the knowledge-intensive jobs in the north-west. The Warton site alone added £300 million to the regional economy in 2009.

Sadly, jobs are at risk as BAE Systems responds to changes in key programmes, most notably the slowdown of the production of the Typhoon and slower than anticipated rates of production of the F-35 joint strike fighter, and to pressures on defence budgets globally. It is essential that we all take every step necessary to support employees whose jobs are at risk, UK aero-defence manufacturing, and BAE in Lancashire.

I want to reassure my constituents that I will back them, BAE, the supply chain and subcontractors to grow the manufacturing base in Lancashire. I am proud that my constituency and the north-west have some of the most highly skilled workers in the country. We must do everything that we can to ensure that, where possible, workers who do not retain their jobs at BAE as a result of this consultation remain employed in the defence manufacturing sector, for example at Rolls-Royce or Airbus.

South Ribble needs BAE to remain competitive. I urge the Government to continue to do all that they can to support it and to ensure that it wins future business. I want to see that business carried out in Lancashire. Exports are essential. In 2009, the defence sector delivered more than £7 billion in UK exports, with £4.9 billion of that attributed to BAE alone. The Government are backing BAE and Lancashire in promoting the Warton-built Typhoon in foreign markets to help the region retain its defence industrial skills base.

Typhoon has had the opportunity to increase its worldwide demand with its prominent role in Libya, when it was said that

“Typhoon has truly come of age.”

After its performance in conflicts in Libya, where it flew about 3,000 operational hours and reported a 99% success rate against fixed targets and a 98% success rate against mobile targets, the Typhoon is now the leading contender in the two-horse race to win a deal to supply the Indian air force—a deal worth $20 billion. Securing that deal and other export possibilities, such as to Japan, Malaysia and Qatar, would secure BAE’s position as the UK’s premier defence and security company and its largest manufacturing employer for many years to come. To ensure that the Typhoon continues to be competitive in the export market in the long term, I would like to see continued Typhoon development, including into e-scan radar capability.

BAE has made a strategic decision to base its centre of excellence in Lancashire. Should BAE be successful in winning those contracts, the Typhoons will be built in Lancashire. On behalf of my constituents who work at BAE, I encourage the Minister to continue to rigorously promote the case for Typhoon overseas in any way possible.

BAE Systems has invested considerable resources in an unmanned combat air system development programme. I was fortunate to be invited to the first viewing in July last year of the UCAS demonstrator, Taranis, which receives joint investment from the Ministry of Defence and the industry. Unmanned air systems are vital to maintaining a comprehensive military aerospace design and build capability in the UK. It is necessary to sustain these industrial skills in Lancashire for the continued safe operation of the Tornado and Typhoon fleets that are in service. I would like to see another UCAS demonstrator programme, following on from Taranis.

I want to see the highly skilled pupils in Lancashire’s schools today become the highly skilled workers in Lancashire of tomorrow.

Photo of Mark Hendrick Mark Hendrick Opposition Assistant Whip (Commons) 1:37 pm, 24th November 2011

BAE Systems is a world-leading manufacturer of defence and security products. It has bases scattered across the globe in places as distant as the United States, Australia and India. However, it is important that the UK remains at the core of its business and its base.

Before the recent announcements, BAE Systems employed 40,000 people directly. When the indirect employment throughout the company’s supply chain is factored in, about 120,000 British jobs are dependent on BAE Systems. To further demonstrate the company’s standing, it generated £9.2 billion in revenues in 2009. It made a direct value-added contribution to UK GDP of £3.3 billion and contributed more than £650 million to the Treasury’s coffers. The Prime Minister has spoken at length about wanting to support British manufacturers. No company has done more than BAE Systems.

BAE has a centre of excellence in the north-west. In 2009, a comprehensive report into the company by Oxford Economics stated:

“The North West is by far the most important region within BAE Systems UK, accounting for about half of all its UK employment.”

That is about 20,000 jobs. The report went on to make a point that has just been made by Lorraine Fullbrook:

“BAE Systems now accounts for exactly one in eight jobs in knowledge-intensive production within the North West.”

BAE’s concentration in the north-west means that the recent announcement that the company will axe 3,000 highly skilled workers, half of them in Lancashire, is a body blow to the region, as I am sure it is in Yorkshire as well.

The Warton site, which employs more than 8,000 people and contributes more than £300 million to the local economy, will see 822 redundancies. A further 565 jobs will go in Samlesbury, and more than 100 elsewhere in the region. Many of them are in my constituency and the surrounding constituencies in central Lancashire. That is a tragedy for those employees, their families and the region. We have heard a great deal about Brough today, but to put the matter in context, more jobs are being lost in Lancashire than exist at Brough as a whole.

Contrary to some fairly derogatory remarks about the standard of the work force in Lancashire, Warton and Samlesbury are highly confident that they are capable of doing whatever work is required on any aircraft if the company asks them to undertake it. The north-west is where BAE Systems has placed the bulk of its operations, and it is where the company’s future lies. The north-west centre of excellence exists at Warton and Samlesbury, and it will be a major contributor to this country’s gross domestic product. Coming when they do, however, the changes are a particular problem for families on either side of the Pennines.

The Typhoon jet is a huge success story, which we want to be continued. As the hon. Member for South Ribble mentioned, the jet undertook its first major combat missions earlier this year, providing an invaluable service in the skies of Libya. Production of the Typhoon has taken place in three tranches, and although the previous Government signed up to tranche 3A, it has sadly been subjected to the coalition’s ill thought-through and rushed strategic defence and security review. Rather than producing a carefully constructed industrial strategy, the Ministry of Defence is now planning to halve the UK’s tranche 3 order, and BAE will cut its annual production from 61 to 36 jets.

Last week, the Minister made the point that much of what was happening was due to the slowness of ramping up work on the F-35. Nigel Whitehead, the group managing director, has made it plain in a letter to me and other hon. Members that the main reasons for the decision were the cut in the Typhoon, not the F-35, along with the withdrawal from service of the Harrier and the decision to scrap the Nimrod. That is what the company is saying about the facts.

Photo of Mark Hendrick Mark Hendrick Opposition Assistant Whip (Commons)

I am happy to take the Minister’s intervention, because I have only 16 seconds left and I shall get some extra time.

Photo of Peter Luff Peter Luff The Parliamentary Under-Secretary of State for Defence

I am very grateful to the hon. Gentleman. Whatever the rights and wrongs of his argument, the letter makes it clear that that decision was taken in 2008.

Photo of Peter Luff Peter Luff The Parliamentary Under-Secretary of State for Defence

The decision by the four core Typhoon nations not to acquire the full quantity of Typhoon tranche 3 aircraft was taken in 2008. I do not think I can take responsibility for the last Government’s decisions.

Photo of Mark Hendrick Mark Hendrick Opposition Assistant Whip (Commons)

I think the Minister is talking about tranche 3, not tranche 3A.

It is important that people get the matter into perspective. For each of the 1,500 BAE Systems jobs lost in Lancashire, four other jobs will be lost in Lancashire as a result. It is a huge blow to the region, to Lancashire and to many hard-working families from Preston.

Photo of Mark Menzies Mark Menzies Conservative, Fylde 1:43 pm, 24th November 2011

It is a great honour to follow Mark Hendrick, who I know cares passionately about the jobs of the work force at Warton and Samlesbury, as I do. I thank Alan Johnson and my right hon. Friend Mr Davis for securing this afternoon’s very important debate. None of us wishes we were having it, because we know only too well the impact that the job losses have had on our constituencies—not just the loss of skills, but the impact on communities and their economies.

I am very proud to be the Member of Parliament for Fylde, and for the headquarters of BAE Systems manufacturing at Warton. Warton has a proud record not just of building the Typhoon but of developing the unmanned aerial combat vehicle programme and of building the Tornado, so I wish to focus many of my comments on it.

Warton and Samlesbury truly have one of the most highly skilled work forces that I have ever had the privilege to meet. They are truly world-class, and for generations they have designed and built some of the world’s finest military aircraft. One needs look no further than Operation Ellamy in Libya to see their quality. It is no surprise that many of the world’s air forces are now looking to BAE’s aircraft to form the backbone of their capability.

When I visited the Warton site last Wednesday, I was reminded that the people there are more than capable of taking on any challenge that is thrown at them. I take this opportunity to invite right hon. and hon. Members to come with me to the site to meet the unions, speak with the management and see the quality of what takes place there. I have the utmost confidence that whereas the reorganisation that is taking place at Brough means huge devastation and disruption to people there, the transfer of work from Brough to Warton and Samlesbury will be done with the utmost excellence. I know that the work force at Warton and Samlesbury would do no less.

Warton and Samlesbury is the centre of excellence not for one area but for nine, which is reflected in the training and innovation that the work force there have built up there over the years. I take the opportunity to pay tribute to the unions for the constructive way in which they have engaged in a dialogue with me and other local Members over a long period. They are practical, pragmatic and an excellent example of a group of people who do everything with their members’ best interests truly at heart.

It was my privilege to meet some BAE Systems apprentices two weeks ago at the Imperial War museum, and I am pleased that it is doing everything it can to support those young workers in their bright futures. On several occasions in the past year, I have also had the privilege to meet trade unions from Brough, and I know that the loss of the Hawk work will have come as a bitter blow to them. It is important that all Members do everything they can to ensure that the work force there are given every assistance to find alternative employment that reflects their skills. I take on board some of the comments that Opposition Members have made about how we can use those skills in the civil aviation industry, and no stone should be left unturned in that field.

From a Government perspective, it is very important that we work tirelessly to ensure that we secure exports for the Typhoon and the Hawk. Nothing is won until it is won, and we should be careful about pouring cold water on some aspects of the work share agreement, because we have not won any of the contracts yet. I ask the Minister to consider options for bringing some of the deep maintenance work that is currently done on RAF bases to Warton, and whether that would provide potential stop-gap employment. I also ask him to get some of the multinational agreements on the unmanned aerial combat vehicle that are currently being discussed buttoned down, with finance arrangements in place. It is important that the work force and BAE systems can plan strategically for the future.

Time is against me, but I wish to say that the right hon. Member for Kingston upon Hull West and Hessle is absolutely right in identifying the considerable support that successive UK Governments have provided to BAE Systems over the years. Now, BAE Systems has an opportunity to demonstrate its commitment to UK manufacturing by attracting some of the key component manufacturers to the new enterprise zones that have been set up on both sides of the Pennines. The work force at BAE Systems are truly the best of British, and it is important that both the company and the Government leave no stone unturned in putting their skills to future use.

Photo of Diana R. Johnson Diana R. Johnson Shadow Minister (Home Affairs) 1:48 pm, 24th November 2011

I, too, pay tribute to the work of Mr Davis and my right hon. Friend Alan Johnson, who have championed the issue of BAE Systems for a very long time in the Humber area. I pay tribute also to all the Humber MPs who have been involved since the announcement in September about what will happen in Brough, and who have been fighting quite an effective campaign. I pay tribute to the trade unions at Brough, which provide an excellent example of a modern trade union movement that is fighting its corner very hard indeed.

In an exchange that I had with the Minister on 14 November, I asked him what he was doing to support the people at Brough who had been told that their jobs were in jeopardy. Unfortunately, he gave me a response with which I was not very happy, basically saying that it was a matter for a private company, that it was up to the company to decide whether there would be redundancies and that it was not really anything to do with him. I noticed that today, he talked about his deep regret about BAE Systems’ announcement of the redundancies at Brough, but I say to him that it is not a factory making widgets. It is a defence manufacturer that is strategically important to this country, and in an area that is suffering disproportionately in the economic downturn.

It is unusual to debate a specific company on the Floor of the House—debates are not normally about one company. There are three issues, the first of which is BAE Systems in the context of the Humber area. I am the MP of the constituency that has the dubious characteristic of having the most people on jobseeker’s allowance seeking a position—58.9 people are after every vacancy in my constituency. Any job lost in the area is a real problem for local people. The work force in Brough are highly skilled and motivated. If they lose their jobs, and if they can get other jobs locally, it is likely that they will be paid less and will not enjoy the conditions that they have enjoyed in previous years. Brough is an excellent example of manufacturing, and it would be a loss to the Humber region if it goes.

I noted what the right hon. Member for Haltemprice and Howden said about the salary of Ian King, which is more than £2.5 million this year. We should compare that with the average salary in my constituency: 40% of people in my constituency are on less than £14,000, which puts into context the importance of those jobs to Hull and the Humber region.

I hope that in the forthcoming White Paper, the Minister mentions not only the need to look at how we procure equipment, but the importance of maintaining manufacturing in the UK to its strategic capability.

Will the Minister undertake to press BAE on the following matters? First, why will the company not consider taking up the interim proposal of the unions and the executives to phase the movement of Hawk production to Warton over the next four years? That would protect an additional 300 jobs at Brough and save the company £22 million in production costs on the current contract. Secondly, how will the company manage the significant risk involved in moving production to Warton? The risk should not be underestimated—the move seriously compromises BAE’s ability to tender for aircraft contracts in future. Thirdly, will the Minister press BAE on why it will not consider allocating some of its significant naval works to the Brough site?

The Humber area is suffering with the economic downturn. My hon. Friend Alison Seabeck mentioned the flatlining economy, but the economy is particularly bad in the

Humber area—the region is suffering more than others in the country. The Minister and the Government need to consider very hard what else they can do through the Department for Business, Innovation and Skills to ensure that alternative work is brought to the Brough site.

If BAE Systems goes ahead with its decision and makes people redundant, what legacy will it leave for the community, which has served it very well for many years? People have worked there for 20 or 30 years, and whole families work there. What will BAE Systems do? What will it leave behind for that community, which will suffer if the decision to make people redundant goes ahead?

Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party 1:53 pm, 24th November 2011

I shall make a brief contribution on behalf of my Liberal Democrat Back-Bench colleagues. This has been an excellent debate. It is a bit disappointing that the Opposition Front Bencher soured it by making political comments, but there we are.

The UK has the largest aerospace sector in Europe and is second only to the USA globally. Aerospace is very much the jewel in the crown. It enjoys 5% growth year on year and in 2011 turnover was £2 billion. The fact that the UK has its own defence company is very important strategically.

Mr Davis said that manufacturing is declining, but it is not declining any more. In fact, it is up 2% as a percentage of gross domestic product, and by 10% in total.

The closure of Brough and the other job losses that have been announced are a tragedy for every single family, but I understand that Brough has not had an order for the Hawk fighter for more than four years. That is a real challenge. I implore the Minister to do all he can to effect the smoothing of any job losses and to encourage the adoption of any additional services. In fact, if GKN, Airbus and Rolls-Royce can make money out of commercial aircraft, I do not understand why BAE Systems does not look at that. There is obviously money to be made.

On job losses, Mark Hendrick made the point that for every job lost directly from BAE Systems, about four are lost from the supply chain. The Government have announced the two enterprise zones, and it is important that we do not lose those skills—not just the jobs at BAE Systems directly, but the jobs in the supply chain.

I have not been intimately involved in the story of BAE Systems, unlike right hon. and hon. Members who have spoken, but there seems to be a case to answer, particularly, as the right hon. Member for Haltemprice and Howden said, for the potential misuse of the intentions of the yellow book. I welcome the Minister’s announcement that that will be reviewed, after a long period. The last thing we should be doing as a Government is allowing companies to make commercial benefit from the sad situation of job losses.

I should like to compare what is happening at BAE Systems with what happened at a company that I know rather more about from my constituency: Jaguar Land

Rover. Two years ago, we were not sure whether we would lose the site in Solihull, but the company, with its determined work force, worked out a strategy. It worked well with the unions, as we have heard, and JLR is now in the good times. The announcement of 800 jobs at i54 in Wolverhampton was made just a few weeks ago, and last week another 1,000 jobs in Solihull were announced. There are new markets, opportunities and new products. That is what brought that high-level manufacturing company back into good times.

I appreciate that there are defence cuts and that BAE Systems must cut its cloth accordingly, but I hope our Minister can work with all the constituency MPs from both sides of the House to get a better outcome than the very sad one that we seem to be faced with at the moment.

Photo of Graham Jones Graham Jones Opposition Assistant Whip (Commons) 1:57 pm, 24th November 2011

I thank Mr Davis and my right hon. Friend Alan Johnson for securing this debate. The motion relates to the skills base of the UK's defence production, which many hon. Members have mentioned, and the workers who possess those skills are the most important aspect of the debate.

I have huge concerns about BAE Systems’ decision to sack up to 3,000 members of staff and the necessity of taking such action. I do not think that the Government have been particularly helpful either. Like many hon. Members, I received a letter from BAE Systems, which said that on top of the Eurofighter slow-down, one of the principal reasons for the labour force reduction was a

“slower than expected ramp up of the F35 Joint Strike Fighter Programme in the US”.

However, when asked how that related to the 3,000 job losses, BAE told my office that it was “unable to quantify” the number of jobs that have been lost as a result of the

“slower than expected ramp up”.

It therefore seems odd to assert that as a reason for job losses. I am incredibly concerned by that remark, as it seems to mean that BAE Systems is planning to sack people that it has not yet hired, which is a strange human resources model for a company that prides itself on its employment record.

Additionally, union officials representing BAE workers have told me that there are more people working on the F-35 than there were last year, and that there will be no decrease next year. In fact, BAE is still recruiting for the F-35. The Chancellor has said on more than one occasion that job losses at BAE are down to a reduced F-35 order from the US, which is not the same as a

“slower than expected ramp up”.

A reduction in projected future vacancies is not the same as losses resulting from reduced orders. I am worried that BAE is making ambiguous statements because the Government are making ambiguous statements. I pursued this in Defence questions on 14 November, but again was told that job losses were due to reduced F-35 orders. I hope that both BAE and the Government will shed some light on this point, as I am sure this House and those 3,000 people who may lose their jobs would like some clarity. I am told that there have been no reductions as yet in the F-35 orders.

I support the motion, and I want the House to make BAE aware that the reason it has been brought before the House is because of its particular relationship with the UK and taxpayers. The UK, and Lancashire and Humberside in particular, have through the years provided BAE with a great many reasons to be satisfied, and the UK taxpayer has invested significant resources in supporting the company’s operations. I would hope that BAE would honour that by continuing to invest in the labour force and the UK’s manufacturing base. We do not just want letters from BAE telling us how committed it is to the labour force. I want BAE in the UK, doing what it does best: manufacturing, exporting and employing people. The company has a great track record on employment and on investment in its staff, and I know that to be true without being repeatedly told by BAE. One has only to look at its links with local colleges and generous apprenticeship schemes.

I want BAE to recognise that it is deeply concerning to me and other hon. Members that the UK’s commitment to BAE is apparently not being reciprocated. Comments from a former Defence Minister about UK procurement moving towards “buying off the shelf”, and BAE’s huge expansion in Texas are worrying. The Government must be committed to a UK defence industry. The concerns of this House must be addressed: otherwise, BAE cannot justifiably continue to advertise itself on billboards and taxis as a company whose chief benefit to the UK is the number of people that it employs.

I want to conclude by making some remarks about the relationship with the wider economy. There is an opportunity for the Government to act. It is obvious that the Government’s plans for the wider economy are not working, and it is becoming increasingly obvious that a change of direction is required. Upgrading the e-scan radar in the RAF’s Typhoon fleet, or investment in the unmanned aerial vehicles, which we saw successfully used in Libya, could secure and create new jobs in constituencies such as mine. Given the time limit, I shall conclude there.

Photo of Ben Wallace Ben Wallace Conservative, Wyre and Preston North 2:02 pm, 24th November 2011

May I congratulate my right hon. Friend Mr Davis and Alan Johnson on securing this debate? I put on record my sympathy for the members of the BAE work force who have lost their jobs or have had their jobs put under threat—by the recent announcement or, indeed, over the past few years as the aerospace industry has contracted. I also wish to place on the record my thanks to BAE as a business. Both its work force and its management invest in my constituency, not just in plant, but in the schools and the community. They do an excellent job, certainly in Lancashire, in ensuring that they support the community from which they draw their employees.

In my constituency, I have nearly 3,000 BAE workers at both Samlesbury and Warton, as well as nearly 3,000 BAE pensioners. We should remember that when we bash the BAE brand as opposed to the work force, we may damage the share price, which is as important to the pensioners of BAE, many of whom live in the UK, as it is to job opportunities.

Before coming into the House in 2005, I was the overseas director for QinetiQ, a large UK aerospace company employing 10,000 people. I worked in consortiums, because most modern aerospace is now done by consortiums and subcontractors. I have worked with BAE, Finmeccanica, EADS, General Dynamics, Lockheed Martin, and with many overseas customers, in selling Britain abroad and, supported by the last Government and this Government, in our embassies, through the Defence Export Services Organisation and Ministers, in trying to win contracts. So I come with an awareness of what the real world is like in manufacturing industries. Eurozone manufacturing, for example—not us, I emphasise —has shrunk faster in the last quarter than it ever has since the war. We have a £34 billion black hole in our MOD procurement budget, and defence spending cuts around the world are in progress; if the US Congress cannot reach resolution, they will certainly be made in the United States. These all have a large impact on us and we have to remain competitive, as well as deliver winning contracts, here and abroad.

As for the background to the decision, we have heard before about the slow-down in Typhoon, and we do not have to repeat the economic problems of Spain and Italy, which are two of the partner nations in that project, which inevitably mean fewer shifts on fewer production lines. The joint strike fighter development delays involve both technical delays and Congress budget hold-ups. We are not in control of that process, but we are ready to do our best with the JSF. BAE and the Government have invested nearly £100 million in the Samlesbury site to manufacture parts for every single JSF—not just the British JSF, but the US JSF and everyone else’s. A joint strike fighter bought by anyone in the world will have part of its rear fuselage and some of its titanium manufacturing parts made in this country by my constituents and those of my colleagues in neighbouring constituencies.

We should not forget that we need to ensure that we secure the JSF programme in the US. The US has a $600 billion defence budget, and we must not forget that not many countries spend that much. As part of that figure, the US buys many components, not just from BAE but from many British manufacturers. The C-130 Hercules has 29% of its components from British manufacturers. It is made in America, but subcontracted in the UK. It is as important to subcontract and make parts as it is to perform final assembly and check-out.

I am afraid that I have to disagree with the analysis of my right hon. Friend the Member for Haltemprice and Howden about buying only what is made in Britain. The French have gone down that route, and their Rafale aircraft has sold precisely no planes abroad. Their aerospace industry is on its knees and they are desperate to try to privatise some of it or win orders abroad. We go head to head with them in India, and we can try to say to the Indians or the US, “No, you can’t have anything made there, you can’t final-assembly and check-out your aeroplanes there”, but we are not the only people in the ring. The French are desperate to save their aerospace industry, and there are two US contractors with dollar funds that make us look like midgets. We must do what we can, where we can: if it benefits the shareholder and the work force, that should be our priority.

What can be done? The Government can be tougher in committing to our UAV programme and ensuring that it has a long-term future, and I ask BAE to be much more transparent about increases in orders.

Photo of Karl Turner Karl Turner Labour, Kingston upon Hull East 2:07 pm, 24th November 2011

I start by congratulating Mr Davis and my right hon. Friend Alan Johnson on securing this important debate. I come to the debate late, not just because I have been called to speak late in the debate or because my alarm clock did not go off, but because my involvement with BAE goes back only to the last general election when I was elected to represent Kingston upon Hull East. I bow to the greater experience of right hon. and hon. Members across the House who have done huge amounts of work over the years in relation to the company.

I want to say something about the trade unions at BAE Systems in Brough. I have met them on numerous occasions over the past 18 months and they have always been very committed to the company. They are pragmatic, and are not the type of trade union that hon. Members on the Government Benches would normally like to describe. They are very sensible in what they do and, in my experience, have always been very supportive of the management. But something changed. I met trade union representatives in July. Some redundancies had been announced at Brough, but they thought that everything was going well. As far as they were concerned, nothing was on the horizon. That was also the attitude of the management at the time, but on 27 September something went wrong and 899 redundancies were announced at Brough. The impact on the individuals concerned is clearly massive, and how they found out about the potential redundancies was disgraceful. They found out the same way I did—in the media.

The work force are flexible and the trade unions are pragmatic, but from my meetings with the management I am convinced that they have already made up their minds. In my respectful submission, this so-called consultation period is a complete nonsense. They seem unlikely to change their view, and why would they given the yellow book situation that the right hon. Member for Haltemprice and Howden alluded to? I am told that up to 80% of the redundancy bill will be paid for by the taxpayer, so when a trade union official said to me yesterday, “That is me paying for my own redundancy”, he was absolutely right.

The management have come out fighting. Chris Boardman claims that it is not entirely the company’s fault. He said that

“we are in a really difficult period and the recession and the action the current Government has taken has just exacerbated that”.

That might be right but the management have still acted particularly badly. The Government need to speak to them to see what we can do to save those jobs in my area.

I want to talk about the campaign being run by hon. Members and others. A few Saturdays ago, my hon. Friend Diana Johnson and I spent some time collecting signatures for a petition. Members across the House have worked hard on this together—it has been a case of non-partisan politics—which has been helpful. The

Hull Daily Mail

, too, has run a campaign to protect people at Brough, and should be commended on doing an extremely good job.

Photo of Andrew Percy Andrew Percy Conservative, Brigg and Goole 2:13 pm, 24th November 2011

It is a pleasure to follow my near neighbour and fellow east Yorkshire MP, Karl Turner. I also pay tribute to my right hon. Friend Mr Davis and Alan Johnson for securing this important debate.

I cannot add much to the arguments about Brough so I shall talk about the impact on the local economy. First, though, I shall respond to one or two of the points made by other Members, starting with my hon. Friend Mr Wallace. It is a little unfair to suggest that we think that everything should be bought here in the United Kingdom or that there is some sort of magic bullet. We recognise the requirement for partnership, to which my right hon. Friend the Member for Haltemprice and Howden referred. We are asking, “Are we getting what we can out of these contracts, or is the country too subservient in this sector?”

I am delighted that the debate has not turned party political or into a Lancashire versus Yorkshire argument, which is important to me as a Percy: the Percys fought on the Lancastrian side despite being a Yorkshire family. [Interruption.] Actually, we changed sides halfway through because we like to be on the winning side.

Photo of Andrew Percy Andrew Percy Conservative, Brigg and Goole

The point is that this has not been a political debate.

I want to discuss the impact on east Yorkshire and my constituents in north Lincolnshire, a number of whom work at BAE Systems. It was brought home to me on the day of the announcement when my secretary, whose husband works at BAE, contacted me distraught about what was happening. Practically everyone who lives in east Yorkshire knows somebody who works at, or is connected to, the factory. As my colleague and near neighbour, the hon. Member for Kingston upon Hull East will attest—we were two boys at Hull comprehensives—when we went to school in the ’80s and ’90s if someone wanted an apprenticeship, they got one either at BAE Systems or at Saltend with BP. The vast majority of my compatriots and friends at school did not go to university but, like their parents, worked—and continue to work—at BAE Systems.

As Members have said on both sides, the company is rooted in east Yorkshire, and the impact of its leaving will be indescribable not just on the work force but because of the work it does in local schools and through pairing with universities and colleges. As Diana Johnson said, the Humber economy is in a pretty poor state, and has been for a long time. Over the past 10 years, we have lost private sector jobs along the Humber at a time when the rest of the country was growing private sector jobs. We are in a bad state, and the consequences of losing these 800 jobs will be indescribable.

The Minister used the word “disingenuous”. That is what we all feel about BAE Systems’ actions. As the hon. Member for Kingston upon Hull East said, when we met BAE Systems in July—the unions and everyone who has spoken have attested to this—we were told that although things were tough, the company was expecting Hawk contracts and that the most recent round of redundancies had secured the site and the business for the future. We expected those contracts to be landed and those jobs to be secured.

Photo of Alan Johnson Alan Johnson Labour, Kingston upon Hull West and Hessle

Does the hon. Gentleman recall that the specific criterion on which BAE let staff go in the last round of redundancies to which we agreed was that it would retain those with the capability to build Hawk? That was as recently as this summer. Would it not be strange for BAE not to be aware at that time of the decision it announced in September?

Photo of Andrew Percy Andrew Percy Conservative, Brigg and Goole

Absolutely. None of us can explain how in just six weeks the whole world was turned on its head. We have sat through BAE presentations and been shown projections going years into the future—although oddly the line always ends about 2016 and we never get to see the line beyond. Despite these predictions, however, in six weeks the world was turned on its head. Members and people watching can read into that what they wish.

We have talked about the legacy issues. It is unacceptable for BAE to think that its role is simply to secure work for the Brough workers elsewhere in the country. Constituents of mine who work at BAE Systems, including the former mayor of Goole, do not want to leave the local area or uproot themselves from their families; they want to stay working in east Yorkshire. After all, along with north Lincolnshire, it is the best part of the country to live in—so why would they wish to leave? They want to remain on that site.

I say to BAE—I hope that the Minister will listen to this message and take it forward—that it has a duty to do everything in its power, even if it hits it in the pocket, to ensure that manufacturing remains on that site, if not through the production of Hawk and other aircraft, through securing other companies and third parties on the site. It cannot walk away from Brough. It cannot say, “Well, we’ve done everything we want to do. We’ll help to find them jobs.” It has a duty to secure that site, and we, as local Members of Parliament—and, I hope, with the support of the Government—will do everything that we can to ensure just that.

Photo of John Woodcock John Woodcock Shadow Minister (Transport) 2:19 pm, 24th November 2011

It is good to follow Andrew Percy. I shall take up some of the points about which he spoke so well. We have also listened to powerful speeches from Mr Davis and my right hon. Friend Alan Johnson. I hope that the company will listen to them, make this consultation genuine and rethink its approach to the jobs currently set to go.

It is hard to underestimate the appalling hardship that looms for these communities. While the Astute programme in Barrow shipyard is maintaining the order book there, we remember and still feel the scar of the 10,000 jobs lost there in the early ’90s and the tale of long-term benefit dependency, which still remains with us to an extent to this day. It is not only those communities that feel the blow, as this is a hit on the defence industry across the north where synergies between the aerospace and shipbuilding industry jointly support supply chain jobs, which many people will be worried about if these job cuts go ahead.

Most of all, of course, this affects individuals. When I attended BAE’s apprenticeships awards earlier this month, I saw brilliant talent there—people who had been employed in engineering manufacturing kit to help injured troops returning from the front line who were based at the Queen Elizabeth military hospital in Birmingham. The teams from the affected sites were not clear about what their future would be or whether they would be able to remain.

Previous speakers have highlighted the company’s responsibility to rethink. I want to stress the importance of the questions facing this and future Governments about their approach to the defence industry and to maintaining our defence industrial base. In an earlier intervention, Mr Wallace criticised aspects of the previous Government’s defence industrial strategy as Stalinist. The right hon. Member for Haltemprice and Howden pointed to ways in which companies are still able to offshore, despite agreements put in place in certain areas. It is a great worry that current Ministers seem reluctant to take responsibility for helping to shape an overall strategy for industrial capacity.

Photo of Ben Wallace Ben Wallace Conservative, Wyre and Preston North

If my memory serves me correctly, the hon. Gentleman was a special adviser in the Ministry of Defence—if not, I apologise, as I would not want to tarnish him with that accusation. Does he not think it wrong that under the last Government—it is not about party—the decision was made to underpin industrial strategy by guaranteeing work for a period, such as for 15 years on the Clyde, even if contracts were not going to be placed. That would restrict future Governments in deciding the shape of the armed forces and taxpayers’ money would be used to compensate for work that did not actually exist. The Government were the contractor.

Photo of John Woodcock John Woodcock Shadow Minister (Transport)

Agreements that secured work in the UK were really important. Where there are lessons to be learned from how those agreements were put in place, we should learn them, but the current Government have turned their backs on this whole approach and that is a cause for considerable alarm. At a time when the Prime Minister and the Business Secretary are talking about reforming the Government’s overall procurement process to try to encourage more jobs here in the UK and to protect supply chains, I hope that such an approach will be meaningfully reflected in a rethink by the Ministry of Defence and in its forthcoming White Paper.

Whatever the balance of responsibility between Government and suppliers for ensuring that the current crisis is addressed and the future set more securely, we need to remember that it is not just the economic implications for areas that are important—as, indeed, they are—because what happens affects our ability to protect our country and support the front line. I have gone around and talked to companies and small businesses that are part of the supply chain about how they have been able to speed up getting vital equipment to troops on the front line for urgent operational requirements in Afghanistan. If our industrial base shrinks and we end up knocking on the door of foreign companies when we know we need new kit to ensure that we can have an edge on the battlefield, we will not have anything like the same level of guarantee that we will be able to accomplish that.

Finally, in an uncertain world, we simply cannot know what our defence requirements are going to be in decades ahead. It could significantly increase the nation’s vulnerability if we allow our prized industrial base to shrink from here.

Several hon. Members:

rose —

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. We have three more speakers. I shall allow them their five minutes each, but I strongly discourage any interventions during their speeches.

Photo of James Wharton James Wharton Conservative, Stockton South 2:25 pm, 24th November 2011

I congratulate hon. Members of all parties on what has been a passionate and heartfelt debate on behalf of constituents right across the country. It is always reassuring when there is a consensus across the political divide on an issue of such importance.

I shall speak primarily about one facet of this decision—the policy that successive Governments of whatever colour have taken towards defence procurement and how it should be considered by BAE as it moves forward. In broad terms, there are two camps on defence procurement. There are those who believe—we have heard some of their arguments put forward eloquently today—in the strategic imperative of retaining our defence industrial production base: our capability as a nation of building our own defence and aerospace systems. At one extreme, that could mean everything from building the wings and canopy on a fighter jet to supplying the bullets that go in SA80 A2. That is a valid argument that retains an integrity and strategic independence for the UK, which has been valued highly by Governments for many years.

At the other end of the spectrum—the other argument put forward by the likes of Lewis Page in his book, “Lions, Donkeys and Dinosaurs”—is the suggestion and proposal that we should buy “off the shelf” and look to find the most effective but also cheapest option that meets our defence requirements and needs. We should not falsely subsidise an industry, as some argue, for strategic reasons when so many other countries across the world supply their defence needs by “off the shelf” methods because they do not have that home-grown capability.

The reality for BAE is that it is a company that is a product of political decisions taken over many years. It is a product of decisions taken by the British Government to retain the defence infrastructure and capability for a variety of strategic and economic reasons, including the benefits that flow from that in jobs, development, R and D, new technologies and exports. In 2009, BAE exported about £4.9 billion-worth of equipment, expertise and knowledge from the UK. That is very valuable for our economy and helpful to the Exchequer.

BAE is a product of a series of policies. This debate sends an important message to the company. If by the decisions it takes it loses the skills base that allows it to be competitive, and if it stops delivering, or reduces, the jobs benefits and economic advantages to this country, there is a danger that those who propose a more purist free-market approach to defence procurement will feel that their argument is strengthened. BAE’s great strength is that it has provided British jobs, growth, investment, technology and research. If it loses skilled workers and finds itself having to re-recruit when future contracts are secured, thereby driving up its costs and driving down its competitiveness as well as damaging our skills base nationally, it will weaken its future prospects and strengthen the argument of those who believe that we should be looking to buy more off the shelf and to rely on others to do the heavy lifting of developing defence technologies, all of which are expensive. Although at heart I am a free marketeer, I am extremely concerned that BAE might take a decision that benefits its short-term profit margin but in the long term could damage its capabilities, strategic position and ability to compete successfully for British contracts.

I am concerned that the arguments of those who do not believe in, or support, our home-grown defence production infrastructure will be made stronger by what appears to be a short-term decision that will benefit neither the company nor this country. I therefore urge BAE to listen to what Members have said today, and to look at the options available to it. I ask it to reconsider its decision at this time of great economic need for the United Kingdom, and to come to a different decision that would be better for its long-term future and that of its work force.

Photo of Thomas Docherty Thomas Docherty Labour, Dunfermline and West Fife 2:30 pm, 24th November 2011

I speak in this debate both as a member of the Defence Committee and a constituency Member who has an interest in the future of BAE Systems. There is a plant in Hillend in south Fife that employs more than 200 BAE workers and makes radar components for the Typhoon aircraft.

This has been a remarkably consensual debate. I have a positive view of BAE Systems; it does a tremendous amount of good work in my constituency. Last week I visited the Abbeyview day centre; for its 25th anniversary, BAE gave it a grant of about £1,800 to allow it to continue to provide support to our older citizens, many of whom are pensioners who previously worked at BAE.

James Wharton talked about buying off the shelf. I believe BAE, along with many other defence industry companies, produces some first-rate exports. The Typhoon aircraft proved itself superbly during Operation Ellamy in the skies above Libya, and we look forward to the arrival of the F-35 Lightning II. It is worth noting that the Lightning I, which was made by one of the predecessors of BAE

Systems, BAC, was the finest jet aircraft of its generation and a testament to what British aeronautical engineering can achieve.

The Defence Committee did, however, have some concerns about the ongoing cost issues in respect of the F35. Those concerns are shared by our colleagues in the Senate Armed Services Committee. We have communicated those concerns to the Minister, and I have discussed them with him on several occasions. I know that he is committed to ensuring that BAE Systems and other companies do not allow costs to ramp up beyond control. The Defence Committee welcomes the Minister’s response to our last report. He announced that some of the Ministry of Defence’s best minds are currently working on the F-35 procurement programme.

It is disappointing that not a single Scottish National party Member has taken part in this debate. One might speculate that that is because they are part-timers, or because the SNP would, in its separate Scotland, destroy the defence industry in Scotland. Members on both sides of the House have talked about the value of jobs, and it is worth remembering that there are more than 4,000 BAE Systems employees on the Clyde working on shipbuilding. I have a number of BAE Systems staff working at Rosyth on the aircraft carrier Alliance, alongside their Babcock colleagues. They are engaged in ship assembly and refitting work. Those jobs would be lost in a separate Scotland. The SNP has offered no alternative to that.

Nor has the SNP explained what the future of the RAF or a Scottish air force would be. It has given no idea of the type or size of the Scottish air force. One can only assume it will not be buying any F-35s. It has said nothing about how many Typhoon aircraft it would purchase. We can only assume from that lack of information that it does not see a future for BAE Systems in Scotland, and that it would not offer any defence work to companies such as Babcock and BAE.

The fact that this has been a consensual debate is to be welcomed. In that spirit, I hope the Minister will promise to work with the trade unions in making the case for the defence industry in the UK. It is important that we continue to have exports around the world and that the Ministry of Defence sees part of its role as maintaining the business model for companies such as BAE Systems and Babcock. The MOD should be proactively going out and selling the virtues of the Typhoon and the F-35 Lightning II. I hope that the Minister will undertake to do that in the months ahead.

Photo of Tobias Ellwood Tobias Ellwood Conservative, Bournemouth East 2:34 pm, 24th November 2011

It is pleasure to be the final contributor to this important debate, and I begin, as others have done, by congratulating Alan Johnson and my right hon. Friend Mr Davis on securing it. Some interesting messages have emerged from it, both for the Government and for BAE Systems.

My right hon. Friend began by highlighting the importance of these decisions and the impact they will have on families where redundancies are involved, not only in his constituency—in Brough, which I know well, as I was married just up the road in Kilnwick—but across the country, as 3,000 jobs are going. The defence manufacturing industry can be a ruthless and competitive business, and we must bear in mind the impact on individuals, families and communities. He also mentioned that Britain no longer makes jets. That is true, but we do make an awful lot of parts. We are part of various consortiums, and that is the way forward, as it is in the car manufacturing industry. It is difficult to think of aircraft that do not utilise engines from Rolls-Royce, wings from Airbus and so on. That is the way of the world and we can at least be proud of the extent to which we are part of the great defence consortiums.

The Minister was right to remind the House that this country still has the second largest defence industry in the world, and our share of exports has indeed increased in the past year. My right hon. Friend the Member for Haltemprice and Howden also mentioned the concern that jobs involved in putting together these products, particularly the Hawk, are going to India. He countered my intervention by saying that I was absolutely right and that although we do export the M-777 and the empennage—the rear end—of the F-35, perhaps BAE Systems could look more wisely at things, particularly future upstream developments such as the Mantis, the Taranis, the Type 26 and other intelligence, surveillance, target acquisition and reconnaissance—ISTAR—assets which could be built in the UK rather than elsewhere. He also made an important point about executive pay, and restraint could be shown there.

We are being affected by an economic slowdown and that does cause a review of budgets, not least in the United States. That is why we are affected by what is happening with the F-35B, because it is American orders that are having an impact on us. That is not a decision made by our Government. However, this Government have had to make some very difficult decisions. Along with other Departments, the MOD received a cut of 7.5%. In addition, as confirmed by the Audit Commission’s report in 2009, there was a £38 billion overspend on procurement projects that had to be contained.

That raises the question about the involvement of the Government: how far do any Government get involved in the decision-making process of the defence industry, particularly in securing orders? As has been mentioned, there is a decision to be made about whether to buy off-the-shelf or have procurement processes. The first step is to have a strategic defence policy and a review to make sure that there is clarity about where we want to go. Let us consider what happened in Afghanistan. The replacement of the Snatch Land Rover took some time, and the Cougar, Vector, Jackal, Mastiff and Ridgback were procured off the shelf and then, in one way or another, got rid of. At the same time, BAE Systems made the RG31, a mine protected vehicle used in South Africa, and the MRAP—mine resistant ambush protected—vehicles, which were used by the Americans, but both those were ignored.

Mention has been made of the Nimrod, but that is a very sad tale indeed. The first contract was signed in 1996 for delivery in 2003, but by 2010, when the coalition Government were formed, not a single aircraft had been delivered. The cost of each aircraft had also jumped from £133 million to £455 million, which is a huge increase. This aircraft was of course based on the Comet design—it was a 1960s design. That was an appalling procurement project and eventually it had to come to an end.

I shall end my contribution by saying that I am very pleased that we are having this debate, as there are huge lessons to be learned in the procurement process. I am pleased that we have come forward with a defence industrial strategy. Redundancies are always regrettable and I hope that BAE Systems and the Government will take heed of the various messages that have come from hon. Members on both sides of the House in this debate.

Question put and agreed to.

Resolved,

That this House urges BAE Systems to act to preserve the UK’s defence production skills base and, as a recipient of enormous resources over many years from the UK taxpayer, to deploy those resources in such a way as to protect the nation’s manufacturing capability.