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Defence Procurement

It is a real honour to follow so many hon. and right hon. Members who speak with great experience on defence matters. I listened especially closely to what the hon. Member for Mid-Sussex (Mr. Soames) had to say on Trident. It was echoed, I think in the same way, by the hon. Member for North Essex (Mr. Jenkin), and I read that the right hon. Member for Birkenhead (Mr. Field) has said something similar in recent days. So, I very much take the point made about the debate on Trident. Perhaps I am one of the usual suspects who take a strong line against Trident, but I very much welcome the fact that people are, perhaps from a different direction, questioning whether it is the right thing to do in the context of such heavy financial pressures on the defence budget, but also in relation to the challenges of this century as we expect them to be. I am also pleased to follow the speeches of the hon. Members for Chorley (Mr. Hoyle) and for Plymouth, Sutton (Linda Gilroy), who spoke with such conviction in support of their constituency defence interests. I want to echo that in discussing procurement matters as they relate to Scotland, and in particular the important role of defence aerospace and naval industries in Scotland. According to SBAC Scotland—the trade association that represents the defence sector in Scotland—approximately 170 companies north of the border operate in the sector, employing about 16,000 people. Given that Scottish design engineering and manufacturing in general have a worldwide reputation for excellence, this industry in particular should and will go from strength to strength on the basis of its experience. It is a little-known fact that 59 per cent. of defence aerospace and naval output in Scotland is exported from the United Kingdom, which means that the overwhelming majority is not destined for the domestic market. The global reputation of Scottish engineering excellence will serve the industry well. The industry in Scotland has a long history and heritage. That was highlighted by the very successful 90th anniversary celebration of the Royal Air Force Benevolent Fund at Edinburgh Castle, which was hosted by the First Minister, my right hon. Friend the Member for Banff and Buchan (Mr. Salmond), and attended by the right hon. Member for Edinburgh, East (Dr. Strang). In his address to the large group of supporters of the fund, my right hon. Friend drew particular attention to the production and development of the crucial gyro gun-sights that were used in Spitfires during the second world war. The tradition of technical excellence in defence procurement is a long one, and the development and manufacture of key aerospace defence and naval products and construction has continued to the present day—from world-leading optical and radar equipment to top-of-the-range sea-going vessels and even land mine-clearing equipment. Undoubtedly the most important factor in that success is the people involved. It is due not just to one of the finest engineering traditions in the world, but to the steady throughput of trainees, apprentices and graduates learning the high standards of a very high-standard industry. Bearing that in mind, I am pleased that there is cross-party consensus in the form of support for the sector. Whether it is represented by the Prime Minister’s visit to Govan last week to see shipbuilders on the Clyde, or by Scottish Government Ministers engaging regularly with the sector to secure a competitive market advantage, all of it should be welcomed. Having said all that, however, I must add that I consider it important to deal with the funding realities of the domestic defence procurement sector. The hon. Member for North Essex raised the issue of relative spending on defence matters, without going into the—I think—pretty frightening GDP-related statistics. Defence is the only major area of United Kingdom Government expenditure that has not experienced an increase in spending as a percentage of gross domestic product in recent years, despite high-tempo and high-cost operations in both Afghanistan and Iraq. As a percentage of GDP, defence spending has fallen from 7.1 per cent. to 2.4 per cent. in the last 50 years. That is understandable in general terms, but the fact that it has fallen from 2.8 per cent. to 2.4 per cent. since 1997 is less explicable. In Scotland it is difficult to obtain official confirmation of procurement spending from the United Kingdom Government, although the Minister with responsibility for procurement may be able to answer some of the questions when he sums up the debate. Until the early 2000s, the Ministry of Defence was able to answer questions about defence procurement in Scotland, and I do not really understand why that is not the case now. On 1 February 1999, my predecessor, Margaret Ewing, asked a specific question. I will not give the details, but the question can be found in column 450 of the report. She asked how much the MOD was spending in Scotland on defence procurement and how much of that was passed by sub-contractors. The answer to that question was detailed and helpful, but since the introduction of accountancy changes—I understand that that is the excuse given for the impossibility of answering similar questions now—the MOD has been unwilling or unable to give equally detailed answers. Amazingly, the MOD cannot tell us what overall MOD expenditure is in Scotland. It cannot tell us what MOD personnel expenditure or procurement expenditure is in Scotland. It also cannot tell us what the projected costs are of MOD contracts placed with companies in Scotland, or the cost of MOD research and development expenditure in Scotland, or about Defence Bills Agency spending in Scotland, Defence Bills Agency procurement related to spending or expenditure by MOD bases in Scotland. These are all questions that I have put to the MOD, but none of them have been answered. However, all the past evidence points to a significant procurement and wider defence underspend in Scotland relative to tax contributions from Scottish taxpayers. The lack of transparency in that context is matched in respect of offset. I asked the Minister of State about this issue at the beginning of the debate, but, to be charitable, perhaps he had not been advised on it for today’s debate as he did not seem to understand why it is important. However, if one understands that military offset is a Government-negotiated agreement that requires a supplier of military equipment to direct some benefits—usually work or technology—back to the purchasing country as a condition of the sale, one understands why it is of importance. It is of such great importance to the United States Defence Department that it publishes annually a large document listing all information about offset arrangements, so that our colleagues in the US Congress and Senate can understand those offset contracts. We do not have that here, however, so we have very little understanding of the value that offset provides to companies operating in the UK in terms of their trade in this important sector. Frankly, that is not good enough. I am very much in favour of the valued Scottish defence sector having the following: a competitive taxation advantage, decision making close to production, and guaranteed full value of domestic defence spend, whether direct contract or through offset, which does not happen in the UK. I am, of course, also in favour of the Scottish Parliament making decisions on all these policy areas. Members have rightly scoffed at Parliaments or powers elsewhere making decisions about defence policy as it impacts on, from their perspective, the United Kingdom. I am in exactly the same position: I think it frightfully odd that a Parliament 550 miles away from my country makes decisions about our defence and procurement policy—but I have no doubt that that will change for the better in the years ahead. A Scottish Parliament and Government making decisions about defence procurement will allow us to continue with shared UK programmes where that makes sense and is properly managed, and to provide alternatives where that is not the case. It must be in the interests of the MOD in London to partner with neighbouring nations interested in making bulk purchases of expensive pieces of equipment, thereby bringing down the unit cost; surely no Minister in Whitehall would gainsay something like that. However, if in Scotland any procurement projects were not in either the taxpayer’s interest—we have heard a litany of them today—or the national interest, it would make eminent sense for Ministers in Scotland to be able to decide not to buy into them. However, so long as Scotland does not have the power to make such decisions, we will go on contributing to the UK Treasury, and throwing good money after bad in many procurement policy areas. I would like to conclude by turning to an area that has not been discussed, but which will be of growing importance: satellite and space technology. I do not need to talk at length about the military applications, as that should be obvious to anybody who understands anything about these matters. However, of particular interest is the fact that we are only a few short years away from commercial space flight operating from the UK. There are the beginnings of a significant satellite sector in the UK, and I greatly encourage the MOD to look as closely as possible at this. I must declare an interest: the leading, preferred site for the launch of commercial space flight in the United Kingdom is Lossiemouth. [Interruption.] I am glad to have such vocal support from right hon. and hon. Members on both sides of the House. I had a successful meeting with Lord Drayson a few weeks ago, and I very much sensed from that meeting that the UK Government are seized of the opportunities that that technological development offers. I hope that the Under-Secretary of State for Defence, the hon. Member for Grantham and Stamford (Mr. Davies), will take forward the development of space technology and commercial space flight from a site in the UK, wherever that site may be, although I of course believe that Lossiemouth is the best place for it. That development really would afford a whole range of options to the defence and aerospace sector, and it is worth pursuing it before other countries get there first.