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Defence Procurement

It is certainly a pertinent time to have this debate, just a few days before the Budget. Our armed forces face an incredibly high tempo of operations; they are probably more overstretched than they have ever been. At the same time, their equipment perhaps faces the prospect of basically being worn out. Some of the equipment in the field today has been there not for weeks or months, as was the design in some cases, but for years. This Prime Minister is no different from many of his predecessors in sometimes failing to recognise that defence costs. So does defence deployment and time. The Ministry of Defence is often up against it when it comes to budget. I am acutely aware of the history. Historically, we have always tried to play catch-up with the threat. I would like to blame the Labour Government for finding themselves in that predicament, but it is not a new phenomenon. For centuries we have invested in the wrong technology, or had troops in the wrong part of the world when a threat has appeared elsewhere. We always do our very best to catch up. As both a former soldier, and a former civil servant who worked briefly at the Defence Evaluation and Research Agency before it became QinetiQ, and then at QinetiQ, I have experience of both sides of the coin. Having served, I have needed equipment as an infanteer and in the armoured infantry, as a Warrior commander. However, I have also been involved in trying to get money out of the MOD and in supplying the equipment to the front line. I am aware of the tremendous effort made in the MOD by officials, members of the armed services and indeed Ministers to try to get resolution to the problems that our forces face daily. One thing that we can say about the MOD is that historically, under all Governments, it has been a can-do Ministry. When I meet Ministers who have been in the Ministry of Defence and have then gone to other Departments, they nearly always say to me, "I could teach them a thing or two in this Department, with what I have learned in the MOD. I’d have the MOD running half of Whitehall." I often hear Ministers saying that—and I hear it just as much from the Government Benches as from my party’s Benches. We should not forget in today’s debate that there are hundreds of successful stories of defence procurement. It goes on all the time, producing good kit for our soldiers, and allowing our armed forces to do their job and to maintain their standard, often in the face of the enemy, although they are now under greater pressure—I wish it was not so—and although there are strained budgets. My right hon. Friend the Member for North-East Hampshire (Mr. Arbuthnot) raised the issue of the Treasury. We are always calling on our Ministry of Defence to reform—to reform how it procures its equipment, or how it deploys its assets or forces—but we seldom hear about the Treasury being forced to reform. Far too often, extra expense or waste in the MOD is caused by the Treasury’s insistence on short-term measures being taken in the defence budget, rather than engagement in understanding the long-term needs of defence procurement. There are a number of examples; the private finance initiative is a good one. Treasury figures that I eventually managed to get hold of show that by 2015, 4.5 per cent. of the whole defence budget—not just the capital budget, but the capital and revenue budget—will be taken up by PFI payments for a range of projects. That is a huge figure. Some £1.7 billion a year will be spent on paying off the mortgage broker, effectively. The chart given to me by the Treasury covers the next 32 years; I will have long left the House by then. I suspect that some of us will be in our boxes by that time. That is a long mortgage—my mortgage is only 20 years—and we have to ask what we have locked ourselves into. Another example was the time when the MOD wanted to buy four C-17 heavy-lift aircraft and the Treasury said that it could not buy them and would have to lease them. Some £769 million was spent leasing them for five years, after which the MOD was allowed to buy them at the original offer price of £200 million. If that is not an example of a huge waste of money caused by Treasury demands, I do not know what is. We have to insist that the Treasury accepts some reform. That is easy to say, and I am sure that the door would be slammed in my face, but I want to recognise the efforts that Defence Ministers in this and previous Governments make in day-to-day battling against the demands of the Treasury. My specific warning in that area concerns tranche 3 of Typhoon. In an intervention on the Minister earlier, I said that when we failed to take decisions about tranches 1 and 2, it cost the taxpayer £100 million in penalty payments. We dithered over the decision, production stopped and the contract meant that we had to pay compensation. Such penalties also exist for tranche 2 to 3. The Minister did not want to speculate, but he will know the likely cost if we do not make a decision on tranche 3 by May, or if the Germans fail to make a decision by the end of the year. That will be money wasted. The Government may be looking forward to blaming the Germans—a familiar pastime for many in this country at some stage—but they cannot say, "We have had to cancel tranche 3, but it’s the Germans’ fault—they have had an election and decided to delay." That will not be an acceptable excuse, because the Government have enough power within the consortium to achieve some resolution and push ahead. There are real procurement challenges ahead in the next few years, not just in the long-term strategy for our armed forces and our position in the world, but in refurbishing the equipment that we already have and that is wearing out. My hon. Friend the Member for Aldershot (Mr. Howarth) and I recently visited Congress. The US army has an office there, and the US colonel we met told us that he had 900 tanks coming back from the Iraq war that needed refurbishing. The challenge for his budget was to restore them to useable condition, let alone replace them with a new model. Such refurbishment will also cost us a lot. We will have to make the decision on all the urgent operational requirements—the UORs—as to whether we absorb them into the main defence budget and our defence infrastructure. For example, all the Mastiffs and other vehicles bought for operations in Afghanistan are one-off purchases at the moment, and the decision has not been taken about whether to bring them back and make battalions out of them or to give them to the Afghans. If we bring them back, that will take a large chunk of the budget. In one of the Defence Committee’s excellent reports last year, it identified the proportion of UORs that had been brought into the main core of the MOD, and it was only about 5 to 10 per cent. The biggest challenge in procurement of services will be post-conflict welfare—the welfare of our soldiers who, like their equipment, may be worn out. Dealing with the mental stress they face will mean the procurement of Army medical services and Combat Stress-type initiatives. From the history of procurement, we must learn that we have to insist on flexibility. The point was made by my hon. Friends the Members for Mid-Sussex (Mr. Soames) and for North Essex (Mr. Jenkin) that the debate on the super-carrier is not about how much money we should spend or even whether the Navy should have one: it is whether we are reducing the flexibility of our armed forces by putting all our eggs in one basket—or 32 airplanes on one piece of metal in one part of the world, as opposed to a more flexible option. When we cut off our flexibility, we get stung further down the line. We withdraw ships from certain parts of the world, and suddenly drugs trafficking across the Caribbean goes through the roof and the next thing we know we have drugs on our streets. Flexibility will see us through these periods with smaller and ever-decreasing armed forces, because that is how we will be able to plug into our closest ally, the United States, and into Europe. There are two programmes that I want to mention that need examining within our current budgets. They are perhaps unnecessary—some have been talked about already—or could do with significant improvement. The first candidate for cancellation is the A400M programme. In 2003, with a host of European nations, we set about the purchase of a medium-lift capability aircraft. One reason that we did that was that that aeroplane was built around the concept of the armoured FRES vehicle. We opted for the 23 tonnes lift capacity, while the Germans went for the 26 tonnes capacity. It would be able to fly the new FRES utility vehicle around the world to a medium range—a similar range to that of a Hercules. There is no FRES utility vehicle—I will not hold my breath for it—and it is starting to look like there is a gap. Why do we need a medium-lift capability? We have the C-130J Hercules, which has only 30 per cent. less payload capability than the A400M at about 48,000 lbs rather than 65,000 lbs. It has the same range, it is tried and tested and we run 25 of them already. We can use the same crews and will not need to retrain a whole load of people to fly a European A400M. The C-130J has flown and it is being made. The only photograph that anybody will see of an A400M is of the one that they had to tow out of the factory in Spain because the engine did not work. It still has not flown. We are going further along a path that leads to an expensive project, with an upfront purchase of £2.6 billion and a through-life cost over a decade of about £1.8 billion, depending on the exchange rate. The A400M is an expensive aeroplane that is untested, that will require the retraining of some of our crews and that is yet to fly. The only defence for continuing to purchase it that I can see at the moment came from the French Defence Minister when he gave evidence to the Senate in March. He said, "We have to have it, because we must have some competition for the Hercules." That was the only answer.