Armed Forces — Motion to Take Note

Part of the debate – in the House of Lords at 5:26 pm on 5th November 2012.

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Photo of Lord Davies of Stamford Lord Davies of Stamford Labour 5:26 pm, 5th November 2012

Yes, indeed. First, it would not be a common defence force in the sense that you would have people from different countries serving in the same unit. That would be absurd. However, a common defence policy would require a guarantee on the part of all the other members of the EU with regard to all our domestic territories, including overseas territories. That would apply to the French, the Dutch and others who have overseas territories. That would be an essential part of the deal. I have no doubt about that at all. The noble Lord realises that that raises all sorts of issues but all of us need to look at these matters with a greater degree of realism because the alternative is impotence. We will all be spending a lot. The total defence spending in the European Union is in the order of about €200 billion, which sounds a lot but is very small compared with the United States. It must be something like a quarter of the United States defence spending. I cannot get the arithmetic completely right while speaking on my feet but it is a large amount of money. A lot of it is being spent completely ineffectively for the simple reason of the negative gearing effect to which I have already referred. These matters need to be considered. I cannot go into the detail this afternoon but we need to go into the detail on these matters. We need to consider them. I realise that this is considered in some quarters a revolutionary and, indeed, very obnoxious suggestion, but I have put it to the House that the alternative will be impotence, and that cannot be the right solution for Europe as a whole and for the future of a civilised world.

I would like to say a word or two about defence procurement. I say frankly to the Minister that I was pretty astounded by one of the things he said. I am sure that he was loyally mouthing the current government propaganda on the subject; that is what you have to do sometimes when you are a Minister, as I know. He referred to new equipment. I think that he said there would be new submarines, new ISTAR and new helicopters. What did he mean by that? As regards new submarines, as far as I know the Government-thank God-are continuing with the Astute programmes and the Successor-class submarine programme but are delaying both. That is not exactly new equipment. I suppose that by new helicopters the Minister means Wildcat and Chinook. It so happens that I was responsible for promoting, pushing through, negotiating and concluding both those projects. They are not new in any way. Far from adding to them, the Government are actually reducing them. They cancelled 10 of the 22 Chinooks that I ordered, so it is pretty rich to describe that as new equipment and put it to the credit side of the Government. I suppose that by new ISTAR the Minister meant the Predator system, for example, which we bought more of, and Watchkeeper, which again goes back to Labour's time in office. One needs to be cautious about listening to some of the extraordinary government propaganda that comes out on this subject. We need a reality check from time to time.

We particularly need a reality check as regards the great deficit that the previous Labour Government are supposed to have left behind-the so-called £37 billion or £38 billion black hole. My next comment has been said before but it needs to be said again, because we continue to hear this dreadful piece of black propaganda. There is no such thing as the figures I have mentioned. You get to figures of that kind only if you make two assumptions which you cannot possibly make in good faith. One is that everything on our prospective procurement list would be procured. That never happens. I cancelled several things myself. I cancelled the medium helicopter project in order to finance the Chinooks, as the noble Lord no doubt knows. I cancelled the MARS tanker programme. One is always cancelling things for good military reason and switching to higher priorities in defence procurement.

The second thing which one can accept in good faith even less is the assumption, which has to be made to get to the figure that I have mentioned, that there would have been no cash increase. In other words, there would have been an enormous real-terms reduction in our military budget and our procurement budget for 10 whole years. In fact, the previous Labour Government increased defence spending by 1.5% per annum in real terms after inflation. Although the coalition will hold defence spending within a cash ceiling for the first five years it has always said that in the second five years it would increase the cash spending, so even the coalition is not pursuing a policy which would have led to the £37 billion or £38 billion figure. Therefore, it is time that we ceased to hear about the £37 billion or £38 billion.

I want to say something positive and helpful. I mean that sincerely. I hope it will be in the interests of the country that I say it now. You can always improve the defence procurement process. I think that we did so in my time, working very closely with General Sir Kevin O'Donoghue. We reduced the bureaucracy substantially, particularly the assurance process, and developed new models of open-book co-operation with some of our major defence suppliers, but you can always go further. However, there is one big problem that I identified which I was not able to resolve: namely, that we do not do procurement spending and procurement evaluation on a present-value basis. Noble Lords who have experience in the private sector will know that, in all significant-sized companies, investment appraisal and procurement is done on a present-value basis. In other words, what counts is the present value of the future stream of expenditure or the future return from investment and you compare that present value with alternative approaches or solutions to the same problem. That is not done in defence spending. In defence spending certain amounts of money are allocated to certain years and you have a limit you can spend within a particular year, which means you completely lack flexibility.

I will give the House two examples of where, in my time, we lost hundreds of millions of pounds for no good reason but the existing Treasury rules. One was during the shipping crisis in 2008. I realised that we could probably buy the MARS tankers that we had in the programme for two or three years later very much more cheaply by simply purchasing tankers on the open market rather than building them at enormous expense, which had already been examined and provided for. We had £1.2 billion in the budget for six tankers. I spoke to several shipping brokers and discovered that we could actually buy, on the second-hand market, tankers of the right capacity-30,000 to 50,000 tonnes, capable of refuelling at 15 knots at sea and so forth-for $50 million apiece. If you then spent some money putting on a helicopter pad, one or two bells and whistles, some armaments and so forth, it could not cost you more than $75 million as opposed to the £200 million which we had in the budget for each one of those tankers. It was a no-brainer but I was not allowed to do it. I went to the Treasury and said that we could save public money but it said, "No, no, no, that's the rules, we can't do it. Sorry, but you have to wait two or three years". I told it that in two or three years' time the shipping market would have revived and we would not be able to get that sort of deal. "Sorry, too bad", it said.

The same thing happened with the Astute class. I wanted to buy the components and a lot of the systems for Astute-class boats 4. 5, 6 and 7 together in bulk, getting a considerable discount. I was told, "You can't do it because all these things are allocated to individual years". I worked up, with the National Audit Office, a proposal for the Treasury to change this and we had meetings with the Chief Secretary, Liam Byrne. I explained all this to my successor, Mr Luff, who was sadly sacked-I do not know quite why-at the recent reshuffle, but nothing has happened about it so I put it on the table now. This is something that needs to be examined. It can be done and I could go into great detail if I had the time. This is an opportunity and prospect which we cannot afford to ignore in the context of any genuine attempt to save public money and provide a more efficient basis for defence procurement.