House of Commons Hansard Debates for 3 Dec 1997 (pt 5)

10.41 am

The Parliamentary Under-Secretary of State for Defence (Mr. John Spellar): I congratulate my hon. Friend the Member for Chorley (Mr. Hoyle) on securing this debate and on his vigorously presented case on behalf of the defence industry and its employees, especially those involved in the Eurofighter and future large aircraft programmes and the aerospace industry.

As the United Kingdom industry's biggest single customer, my Department is acutely aware of how important our decisions are to our suppliers. As the right

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hon. Member for Kensington and Chelsea (Mr. Clark) rightly pointed out, the prime responsibility of the Ministry of Defence is to obtain equipment that is fit for its purpose at a proper price and is suitable for the operations of our armed forces. We must also be mindful, however, of the impact on industry and of industry's future ability to supply our forces. It is for that reason that we have instigated the widest possible consultation process with defence industry employers and trade unions, ensuring that they are fully aware of our needs, and we of theirs.

Let us, however, be clear about the matter. Despite the reductions that the industry has faced, defence is still very big business. Nationally, the defence industry involves 11,000 companies that employ well over 400,000 people, which is 10 per cent. of the UK's industrial manufacturing work force. The industry exports some 30 per cent. of its total output. In 1996, it won more than 25 per cent. of the world market for defence orders, which was second only to the United States. That is a proud record of British achievement.

I very much took on board the points made by the hon. Member for Salisbury (Mr. Key) and welcome his comments about improvements in the licensing system. The Government certainly understand companies' concerns. As my hon. Friend the Minister for Small Firms, Trade and Industry outlined in her written answer of 25 November 1997, every effort is being made to reduce the processing time involved in considering export licence applications. We are not being complacent about the matter, and we are in regular contact with industry to ensure that further progress is made and that British industry is not disadvantaged.

In the north-west, as my hon. Friend the Member for Chorley keeps reminding me, the defence industry is extremely important. It supports directly or indirectly about 70,000 manufacturing jobs, involving an estimated 600 companies. Although we rightly acknowledge the importance of prime contractors such as British Aerospace, with its major presence in the north-west, we must also stress the key role of the many subcontractors, many of whom are world leaders in their field.

Nevertheless, the big contracts are also extremely important. Like my hon. Friend the Member for Chorley, I am delighted that, last week, the German Bundestag approved funding for Eurofighter production. The project will, of course, be an immense benefit to the UK defence industry, particularly in the north-west.

Mr. David Borrow (South Ribble): I very much welcome confirmation of the Eurofighter order. I wonder, however, whether my hon. Friend the Minister will be prepared to make a few comments about the links between the civil and military sides of much of the defence industry? In my constituency, for example, Leyland trucks--which is perceived as a civil manufacturer--produces military trucks and is partly dependent on defence orders. In British Aerospace, the links between the civil side--for example, vis-a-vis Airbus and the FLA--and the military side are also very important. Decisions made by the Ministry of Defence therefore have

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important consequences for non-military industry. Those links, and the links between the MOD and the DTI should be emphasised in this debate.

Mr. Spellar: I thank my hon. Friend not only for his intervention but for the strong interest that he has taken in the subject since being elected to the House and for the strong way in which he has championed the industry. He is absolutely right that maintenance of the industrial base and supply chain and the interaction between the civil and military sides of many of those companies is an important feature of the defence industry. We are mindful of that feature, and we certainly take it into account in our deliberations--not least those on the strategic defence review.

In the more general context of the SDR, the House will be aware that, in May, my right hon. Friend the Secretary of State announced that we would be implementing an SDR--the major reappraisal mentioned by the right hon. Member for Kensington and Chelsea. I tell the hon. Member for Salisbury that, in the past few months, the Secretary of State has made keynote addresses--not least that at the Royal United Services Institute--that have clearly indicated the directions in which policy is going. I think that most hon. Members have welcomed such indications.

I hope that my hon. Friends are in no doubt about the importance that the Government attach, in the context of the strategic defence review, to improvements to our procurement processes.

In the defence policy debate, on 28 October 1997, I listed the goal of the smart procurement element of the review. We want faster, cheaper and better defence procurement through development of a range of modern, streamlined procurement techniques. Achieving our goal will allow us not only to keep up with technology but to work in a more integrated way with industry, to meet the requirements of modern armed forces.

As our work has proceeded, it has become very clear that we have to take a wide-ranging view of defence procurement. Procurement is not only about the way in which contracts are placed, but about the way in which requirements for equipment are drawn up, the way in which technology is harnessed, and the way in which the problems of maintaining equipment during its life are addressed.

We are examining how the MOD's procurement policies work, and I very much take on board the point made by the right hon. Member for Kensington and Chelsea about the need for interaction with the operational requirements side of the business. We must also, however, specifically tie in our policies with the part that industry has to play. A vital component of that work will be to re-examine the way in which the MOD and industry can work together to secure value for money and to ensure timely delivery of world-class equipment for our armed forces.

On 13 November 1997, my right hon. Friend the Secretary of State announced a further extension of that work, to examine more fundamentally the organisational structures supporting the totality of the procurement cycle, in which we are again working closely with industry. I take the point made by the hon. Member for Salisbury

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about the active role played by the National Defence Industries Council in the process. We will examine the smart procurement partnership--a section of the review that I am overseeing. That is further proof, if any were needed, of our recognition, in government as well as in opposition, of the benefits to the UK of a strong, capable and competitive defence industry. Ours is a commitment to deliver measurable improvements to our procurement performance and value for money to the customer, the armed forces and the taxpayer.

The key theme that is emerging is that, without in any way relaxing the necessary, tight commercial discipline of the relationship between the MOD and industry, there is a need to work together in a more systematic and integrated fashion. We need to see ourselves as partners, each with a stake in undertaking procurement better. The work that we have put in place will examine not only the roles that all relevant parts of the MOD play but the contribution that industry can make. I take the points made by my hon. Friend the Member for Barrow and Furness (Mr. Hutton) in that respect. It is essential that full account is taken of best practice across the international scene in industry and other procurement organisations.

This new and constructive relationship marks a step change in the way in which the MOD and industry work together, and will make an important contribution to tackling our procurement problems. As hon. Members have mentioned, it will enable industry to plan better on the basis of a more transparent approach and make a more long-term response.

Industry, for its part, has stated that, on the basis of such an approach, it can deliver considerable improvements in the cost of projects, especially in that vexed problem of the time scale required for bringing equipment into service. We shall work together to achieve the means of putting that commitment into practice. It is an ambitious agenda, but it underlines our determination to tackle hard problems in the strategic defence review.

I turn to industrial restructuring, which is in many ways at the heart of this debate. When winding up the defence policy debate on 28 October, I said: