MILITARY AIRCRAFT (LOANS) BILL

HC Deb 11 May 1966 vol 728 cc487-547

Order for Second Reading read.

7.22 p.m.

The Chief Secretary to the Treasury (Mr. John Diamond)

I beg to move, That the Bill be now read a Second time.

As the House is by now fully aware, the Government have entered into arrangements with the United States Government to acquire certain military aircraft for the Navy and the R.A.F. I refer to the three aircraft—the C130 Hercules Transport, the Phantom and the F111A. Part of the arrangements between the two Governments is that the American Government will make available credits amounting to 1,250 million dollars to cover the initial cost of these aircraft so far as this has to be paid in dollars.

The House has been kept informed about these credits as agreement has been reached. On 11th February last year my right hon. Friend the Secretary of State for Defence informed the House that the United States Government would make available credit facilities to cover the dollar costs of the purchase of the Hercules and R.A.F. Phantoms. On 5th August he told the House that it had been agreed that the credit could be extended to cover the Phantoms for the Navy ordered in 1964 by the previous Administration, and in Part I of the Statement on Defence Estimates this year it was stated that 50 F111A aircraft would be bought for delivery by January, 1970, and that the production costs and a contribution to research and development costs would be met by credit terms. The purpose of the present Bill is to extend the Treasury's powers to borrow so that we can take advantage of these credit facilities.

It may be suggested that the introduction of the Bill is perhaps unnecessary, in that essentially this transaction is one of borrowing money and, as such, is well within the Treasury's general powers of borrowing under the National Loans Act, 1939, which authorises the Treasury to raise money in such manner as it thinks fit for the repayment of maturing debt. But where such borrowing is, as in the present case, earmarked for specific expenditure, it would be unrealistic to regard the transaction simply as a loan; for in fact what is really happening is the acquisition of certain American aircraft by means of a loan and it is surely proper that the House should be enabled to exercise the same powers of control over expenditure as if the aircraft were being bought out of money voted by the House.

It is true that the passing of the necessary legislation inevitably consumes valuable Parliamentary time, but I feel sure that in this all important field of Supply the House must act in such a way as fully to preserve its rights vis-à-vis the Government of the day. It is in this spirit that the Government, rather than attempting to rely on their general borrowing powers, have introduced the Bill.

Perhaps it would be convenient if I were first to outline the loan transaction, then to refer shortly to the detailed accounting procedures and their relation to the provisions of the Bill, and finally to put the whole matter in perspective by a short reference to the defence position.

The initial dollar cost of the aircraft already described amounts to 1,250 million dollars or, in round figures, £450 million. Of this sum, 52 million dollars were spent last year, but we have borrowed these dollars under the general borrowing powers I have already mentioned, so as to get the benefit for our balance of payments. That leaves the sum of 1,200 million dollars, or approximately £430 million, which is the figure provided in the Bill. This is the sum which is to be spent during the six years ended 31st March, 1972; that is to say, the period during which the aircraft in question will be delivered and progress payments will be due. The expenditure is to be financed by borrowing from the American Government. The interest rate, as has already been announced, is 4¾ per cent. and the repayment terms are such as to keep the repayment of principal as low as possible up to 1968 and then spread fairly evenly up to 1978.

It is by no means the case that the whole of this expenditure relates to purchases made by this Government. Indeed, the additional dollar bill as compared with the programme we inherited from the Conservative Government is not in fact so very great. It is £165 million spread over the next 10 years, an average of about £16 million a year. I will explain a little later on the reasons why this additional cost is relatively small; but I thought it would be helpful for hon. Members to have this comparison in their minds when considering the accounting arrangements which I will now shortly describe.

The purpose of the financial procedures is to enable Parliament to have the same measure of control over expenditure being incurred as if it were being met from our own resources in the normal way, instead of being met in the first place out of borrowed money. Accordingly, as progress payments are made each year through the United States Department of Defence to the American contractors, so each year will the equivalent sum be included in the Votes presented with the Estimates to Parliament. Similarly, the sums of money which are borrowed from the United States Government to enable these payments to be made each year will be mirrored in the corresponding sums being issued out of the Consolidated Fund as appropriations-in-aid of the relevant Vote. In this way, although the net amount remaining on the Vote will be only nominal, both the full cost being incurred and the full amount being borrowed will be subject to Parliamentary scrutiny for every year this process continues.

Mr. John Hall (Wycombe)

It is perhaps because the Chief Secretary is reading rather fast that I am not following him exactly. Did I understand him to say that the amount spent each year would come forward in the Vote for Parliamentary scrutiny? What power would Parliament have to alter that, because are not we already fully committed to the expenditure?

Mr. Diamond

I am referring to the normal procedure of Parliament being able to control expenditure by means of debate on the Estimates and refusing Supply or refusing to vote for Supply. The point I wanted to make to the House is that those same rights are being preserved, even though this country is not being put to expense at that particular point of time, because the money spent is coming out of borrowed money.

It is quite a different point with regard to the contractual position. The House is in exactly the same position as it would be about any other kind of contract. It can refuse Supply, but if a Government have entered into a contract—either the previous Government or this Government—and if Supply is refused, problems about cancellation and the usual problems arise. However, this Bill deals not with that aspect but with maintaining the full rights of this House, as if the money were not borrowed money but actual expenditure spent on the Votes.

Mr. Tam Dalyell (West Lothian)

Can my hon. Friend confirm that the books will be open to the Comptroller and Auditor General and his staff?

Mr. Diamond

I am not sure which books my hon. Friend refers to.

Mr. Dalyell

The whole transaction.

Mr. Diamond

Yes, of course, the whole transaction will be open to the Comptroller and Auditor General in the normal way, certainly.

I was describing the procedure under which, in the early years, the transactions being met in cash in the United States would be mirrored in book-keeping transactions in this House. I described the Vote which is, in fact, the new Vote described as Ministry of Aviation (Purchase of United States Aircraft) Class IV, No. 9, which appeared for the first time in the 1966–67 Civil Estimates with an appropriate footnote. That Vote already exists.

When repayments of principal and interest under the loan are made by the Exchequer, matching repayments will be made to the Exchequer out of the normal Votes, that is to say, out of Defence Votes in respect of production and out of the Ministry of Aviation Vote in respect of research and development. Accordingly, the cost of these aircraft will fall on the defence budget when the real burden of their purchase falls on our economy, that is to say, when repayments of the loan and interest take place.

I hope that the provisions of the Bill itself will now fall into place. Clause 1(1) authorises the Treasury during the six years ended 31st March, 1972, when the planes are being delivered, to issue out of the Consolidated Fund sums not exceeding a total of £430 million to be applied as appropriations-in-aid of moneys provided by Parliament both for the purchase of American aircraft and to cover our share of the expenditure on research and development incurred in the United States.

Subsection (2) of Clause 1 protects Parliament in two ways. It provides that no issues from the Consolidated Fund may be made for the purposes I have described until Parliament has passed the necessary Supply Resolution covering the Estimate; and also that the amount so issued for any year is limited to what is specified in the Estimates for that year. It is those two provisions which securely protect the rights of this House.

Subsection (3) is in common form and authorises the Treasury to borrow for the purpose of making these issues. Authority is given to raise money in any manner provided by the National Loans Act, 1939, which in its turn refers, to raising money either within or outside the United Kingdom and either in sterling or in any other currency. Clause 2 follows the precedent set by previous Acts, for example, the Armed Forces (Housing Loans) Acts 1949–1965. Subsection (1) provides for the repayment to the Exchequer of moneys advanced under subsection (1) of Clause 1 as appropriations-in-aid of the new Vote. Repayments of principal and interest will be a charge on Air and Navy Votes, for production, or on the Ministry of Aviation Vote, for research and development, having regard to which Department ought properly to bear each final charge.

Subsection (2) enables the Treasury to use the interest and instalments of principal received from Departments to repay debt and to offset interest charges which would otherwise have to be met from the Consolidated Fund. In the present case, naturally, the sums paid by Departments will be used to service the American credit.

So much, then, for the legal provisions and accounting procedures affecting the loan. I should now like to deal a little more fully with the Government's reshaped aircraft programme, and to show that the provisions of the Bill are an essential means of reconciling our economic situation and our military needs. My hon. Friend the Under-Secretary of State for Defence for the Royal Air Force will be happy to reply to questions related especially to this aspect should he have the good fortune to catch your eye, Mr. Speaker, later on.

When the Labour Government took over from the party opposite, they were confronted with an aircraft programme which was going to place an enormous load on the domestic economy, but nevertheless was going to come to fruition too late, in certain essential respects, to meet the military need. What we had to do was to evolve a programme which both met the military requirement on time and also reduced the call on domestic resources in respect of arms production by about £1,400 million over the next 10 years. This very large sum represents the costs of human skills and material facilities which we estimated could, without causing large-scale unemployment or great hardship to individuals, be re-engaged in industry so as to make a most useful contribution towards direct exports and towards reducing domestic demands for manufactured imports.

Of course, we had to pay a price for this, and this price has largely taken the form of an increase in purchases of aircraft from the United States. But, as I said earlier, the additional dollar bill, as compared with the programme we inherited, is not in fact very great. Over the next 10 years it amounts to an average of about £16 million a year. The cost is relatively small for several reasons. First, we reduced the Polaris submarine programme from five to four. Secondly, we cut back the reconnaissance/strike aircraft order to 50, achieving in the process room for the co-operative Anglo-French development of an advanced variable geometry aircraft. Thirdly, we found it possible, partly as a result of the decisions we took about the carrier force, to satisfy our military needs with a combined Royal Navy and Royal Air Force Phantom order of about 200.

But the timing of the total dollar payments would have produced unacceptable effects on our economy. In the next two or three years we shall be receiving very large quantities of United States equipment and, without some arrangement for spreading the liability for payment, we should have been in some difficulty. This spreading is the fundamental purpose of the United States credit arrangements. Under them, we are able to borrow dollars and thus minimise the adverse effects of the whole transaction on our balance of payments. Between now and 1968, when we have other large liabilities to discharge, the sums due for repayment under the aircraft programme will be small. Thereafter they will be spread evenly over a period lasting beyond the mid-70's.

As a result of all this, we shall, of course, incur interest liabilities which are included in the figure of £165 million which I mentioned earlier. But the rate of interest is relatively modest, and without the benefits the loan transaction affords we should have been unable, in the absence of further major sacrifices all round, to provide our forces with the equipment which they need. I have no doubt, therefore, that this Bill is in the best interests of our country.

7.39 p.m.

Mr. Robert Carr (Mitcham)

The Chief Secretary, in moving the Second Reading of this Bill, concluded his remarks by going over some of the stale old arguments which we had heard before about the aircraft programme which the Labour Governor ant inherited. They do not convince us any more by repetition than they did the first time we heard them, and neither, as the Chief Secretary must know, do they convince many of his hon. Friends behind him.

It really is nonsense to make this claim about the dollar bill for these aircraft being only £165 million more than the dollar programme the Government inherited when they get the reductions in other ways. We are talking about the aircraft programme at the moment. Of course, but for the present Government's policy towards the British aircraft industry, they could have made the other changes to which they refer and saved many more dollars as well. They cannot get over the fact that the replacement of British aircraft by American aircraft is, to the full extent of the cost of those aircraft, an added burden to the balance of payments and to the dollar cost. If one is able to make other savings, that is another matter and it affects the overall balance of payments, of course, but it is quite unfair to compare the aircraft programme, on the one hand, with the overall programme, on the other. That is a very peculiar way of arguing.

There is another matter which we ought to keep in mind. This Bill does not represent the whole of the dollar cost of this Government's programme for purchasing American aircraft. I expect that this is known to the House but, perhaps, it could he something about which we could make an error in our thinking and we might mistakenly imagine that the £430 million mentioned in Clause 1 represented the whole dollar content of the purchase of American planes. But this is not so, and it would be as well for the House to remind itself of the total dollar bill. This was revealed most recently by the Secretary of State for Defence in a Written Answer shortly before the General Election. It appears in Written Answers in cols. 396–7 of HANSARD of 4th March, and it shows that the total dollar cost of purchasing the F111A, the Phantom and the C130 amounts to £660 million.

The Under-Secretary of State for Defence for the Royal Air Force (Mr. Merlyn Rees)

indicated assent.

Mr. Carr

I am glad to see the Under-Secretary of State agreeing with that. As I say, I am sure that there is no dispute between us, but it is as well to be clear about it. The figure of £430 million mentioned in the Bill might give some hon. Members and people outside the House the idea that this was the total dollar cost involved, whereas, of course, it is not much more than about two-thirds of the total dollar cost altogether.

In our view, that cost is likely to mount in the future. As we made clear in the defence debate at the beginning of March, we find the ordering of just 50 F111s rather incredible. The Chief Secretary takes credit for it now as one of the ways in which the dollar expenditure is kept down. But one must take account of inevitable wastage. Whatever precautions are taken, there is bound to be some wastage with any aircraft. Having regard also to the number of aircraft which have to be withdrawn from the front line at any given time for service, and so on, we are, to put it no higher, extremely sceptical about whether an order of 50 is credible. The House should realise, therefore, that the dollar cost we are talking about is likely to be much more than the £430 million mentioned in the Bill.

We regard the Bill as objectionable. It is abhorrent not only to us on this side of the House but also, as the Chief Secretary realises, I am sure, to a number of his hon. Friends as well. Those of us who detest it are, however, put in an awkward position, unless we take the view of a handful of hon. Members opposite. We are put in an awkward position because the Bill provides the machinery to enable the Government to carry out the agreement to which they are irretrievably committed to buy a whole range of American military aircraft. Following the cancellations and the castration of the British aircraft industry as a supplier of military aircraft in this range in the next few years, they have no alternative source of aircraft for the Royal Air Force. Therefore, if the House were to deny the Government this machinery, we should, in fact, be denying the Royal Air Force the aircraft it must have over the next few years. For this reason, however much we may detest the Bill, we cannot vote against it and we shall not do so.

Neither do we see anything wrong with the machinery provided. We see little to quarrel with there, given the unpalatable fact that this business has got to, be done. However, before we pass the Bill, we have the right to ask the Government to answer for the House a number of questions, and I am sure that the Under-Secretary of State for the Royal Air Force, who, I understand, is to reply, will note these points and do his best to reply to them.

First, we wonder whether the £430 million is enough. What assurances can the Government give us that it is likely to be enough? I have already mentioned our doubts about the credibility of ordering as few as 50 F111s, but I have more in mind than that. I wonder, for example, whether there are sufficient guarantees against price rises, against escalation. Let us take the F111 as an example. I take it as an example because we have had particular assurances that we really have a fixed-price contract for the F111 or, at least, we have been told that it is a ceiling price. Only a short time ago, in the previous debate, the Secretary of State for Defence reiterated that this was a ceiling price of £2½ million per aircraft, even with the modifications required by the R.A.F.

But what about spares for this aircraft? As we all know, spares over a period of years can make a substantial addition. The F111 seems, undoubtedly, to be having substantial development troubles. I am not suggesting that they will not be overcome, but the reports are too persistent to be swept aside. It seems highly probable that this aircraft is having substantial development troubles, and that to overcome them might well require heavy extra research and development expenditure over and above what has hitherto been budgeted for in the United States.

The question we put on this aircraft is whether we have any safeguards against such extra research and development expenditure as may be necessary above that previously contemplated being recouped by the Americans in the price of the spares which we shall have to buy from them? If anything of that kind were to happen—we believe that examples of it have, unfortunately, happened to some of our European allies when they have purchased American aircraft—then the cost could mount greatly above what we are talking about now even though the unit price of the basic aircraft is a fixed one. Taking the example of the F111, but, naturally, seeking information about the other aircraft involved, we should like an assurance from the Government before we pass the Bill that this is an adequate amount and is safeguarded in a reasonable way against escalation.

The second question which we put to the Government came up briefly in Questions to the Minister of Aviation earlier today. It is related to the troubles which the F111 appears to be having in its development. As we shall be dependent on this aircraft, we hope that these troubles will be overcome. There is no wish that they will not be behind anything I say, but there is the possibility that they might not be overcome. There is the possibility—we speak feelingly because we suffered it—that there could be another cancellation as there was of the Skybolt. Without any party partisan feeling but from the standpoint of, "Once bitten, twice shy", we want to know whether the Government have obtained proper guarantees from the United States of financial compensation in the event of cancellation of the F111 by the United States if, unfortunately, its present development problems are not overcome. We expect and hope that they will be, but we think that, if they are, extra costs will be involved. Further, there is the possibility that they might not be, and the British Government ought in prudence to have proper safeguards and ought to be able to tell the House that they have secured them.

Another question which we should like to probe a little deeper before we allow this Bill to go through is that of further information from the Government about the effect on our balance of payments. Here we come near to the subject matter of the earlier debate today. One thing which cannot be denied is that this Bill will add £430 million to the debit side of our balance of payments account. What we are concerned about is, what is the adequacy of the dollar offset agreements, and particularly the only complete dollar offset agreement the Government claim to have made, namely, on the F111? We need more information and assurance, because the present evidence seems very discouraging.

There is the vexed matter, around which the previous debate centred, of inclusion of the Saudi Arabian order in this offset. We believe that order should have been obtained—indeed, according to the Government's own testimony before Christmas it had been obtained—without any connection with the F111. Now we know that it is included in the offset, included to the extent, as the Secretary of State for Defence agreed a short time ago, of 280 million dollars. Almost three-quarters of the dollar offset for the F111, concerning sales to third parties, is in this deal completed by Britain before the F111 order was placed.

This does not encourage us very much. Nor, to be frank, are we much encouraged by some reports we hear of the kind of co-operation which we get from the United States even in obtaining the Saudi Arabian order. We understand that some co-operation agreement was made between the Government and the United States Administration. We also hear reports—it would be nice to have confirmation or denial, I hope a denial, of the reports—that, after we reached agreement with the United States Administration, not only did the American Lockheed company go on trying to get the order, but that it was officially supported in its attempts by the United States Government.

I ask this specific question. Is it true that following this agreement, this understanding with the United States Administration, a deputation went from the Lockheed company, headed by its Chairman, Mr. Gross, with the personal knowledge of President Johnson himself? Is it true that, having got to Saudi Arabia, that delegation was taken to see the Saudi Arabian Minister of Defence by officials of the United States embassy in Riadh? These are the sort of reports which are current. If they are true it gives us no faith at all in the value of United States co-operation in these matters.

We fully understand that the United States Administration cannot give orders to American companies to hold off. We would not expect them to try. I do not think British companies would take it very kindly if the British Government tried to do so in this country. But what we are disturbed about is reports that the United States Administration, having come to an understanding with the British Government, should not only not refrain from telling American companies to hold off but should actually encourage and help them in doing the reverse. If that is true, this agreement with the United States is not of much value.

I want to stress that these are reports and that reports can be untrue, but I think it better to bring these reports out into the open and have them denied, if denied they can be. If they are true it is also better, as well as honest to this House, for the Government to tell us that they are true so that we know the problem we are up against and can put the proper value on the offset agreements, which in that case would not be a very high value.

Another bit of evidence which causes us worry about the worth-whileness of the balance of payments offset agreement, is the British failure to obtain the recent Jordanian order for aircraft. Here, we would have thought, was a classic example of the sort of order which was in mind in the dollar offset agreement connected with the F111 purchase. Here was an order which, I think, came up later than the Saudi Arabian one. One would have thought this was the first example, the first test, of the worthwhileness of the sort of agreement we believed we had made with the United States Administration. As The Times commented in an editorial a few weeks ago, it was rather surprising that we did not seem to get anywhere near it.

We should like to know from the Under-Secretary of State for Defence for the Royal Air Force some of the background of why we did not succeed in obtaining the Jordanian order. Did we have co-operation from the United States in trying to get it? Was it a matter of finance? Was it that we did not want the order because we felt that the Jordanians could not have paid us for it? Might there have been some possibility that when our Government were negotiating with the American Government over such a matter as the purchase of the F111 we should have used our great bargaining power and made some agreement that some of the aid moneys made available to Jordan by the United States should be made available for purchase of British aircraft when they wanted them? We were in a strong bargaining position. From all the information I can get, the United States in general and Mr. McNamara in particular were most anxious that they should get the British order for the F111. We cannot help feeling that our bargaining power was thrown away and not used as strongly as it should have been.

Another bit of evidence which gives us discouragement about the value of the dollar offset agreement is the just recently reported failure to obtain orders for harbour tugs for the American Navy. This was thought to be a sufficiently important and hopeful item as to be mentioned specifically in the White Paper. The little matter of the Saudi Arabian deal was so minor that it could not be mentioned. The print ran out for this, but the tugs were thought to be so promising and important that they were specifically mentioned and now we hear nothing has come of it.

These are just some examples of our concern about whether the much-vaunted dollar offset agreements are as beneficial to this country as they are made out to be. There is also one other matter about which I should like to put a question to the Under-Secretary. What are the Government doing to keep down the dollar content of these aircraft purchases to a minimum? We know that sub-contracts, for example, for British components for the Phantom have been obtained. We are told that 40 per cent. to 50 per cent. of the cost of the Phantom is now represented by British parts. That is a good thing which we welcome. For example, we know how important the production of the Spey engines will be in this connection.

But there are disturbing reports that the Government either have put or are putting pressure on British firms which have obtained such contracts for parts of these American planes to use as much American material as possible in order to get more of the planes' value on the American loan account. The point is that the American credit must be restricted to dollar expenditure and therefore the bigger the British component we can get into these planes, the smaller the American credit and the greater the amount of expenditure in sterling which has to be met as it arises by the Chancellor of the Exchequer and which cannot be put back on the "never-never" system for five years.

Reports have been circulating that in order to keep down the expenditure of the next few years and to get as much as possible on the five-year credit, the Secretary of State for Defence—or, if not him, some other section of the Government—has been putting pressure on British firms to use as much American material as possible to keep the dollar content up. These, again, are reports. I hope that they are reports which will be firmly and categorically denied. But they are circulating. If they are true, they are disgraceful. If, as we hope, they are untrue, then it is far better to bring them out into the open and for them to be once and for all categorically denied without any doubt. I hope that the Under-Secretary will do that.

I have two final comments to make. First, the House and the country must realise what the Government are up to in this respect. They are not just buying a great many American planes. They are buying them on the "never-never" by paying the American costs on a five-year credit basis, and in this way they are able to get a "phoney" reduction in defence expenditure in the next few years, leaving whatever Government is in power in the 1970's to pick up the bulk of the bill.

Mr. Diamond

It will not be a Conservative Government.

Mr. Carr

We shall see about that. We feel very encouraged by the way in which things have been going in the last few weeks. But even if it were to be a Labour Government, what they are doing is merely pushing off the bulk of this expenditure into the 1970's, and to that extent the much-vaunted reductions in defence expenditure over the next few years are unreal and the House should recognise that fact.

Secondly, the Government have been negligent in bringing in the Bill so late. That is the view not just of the Opposition but of the all-party Select Committee on Estimates. I think that those hon. Members who may not have read that Select Committee's Report should be made aware exactly what the Select Committee said. I am referring to paragraph 20 of the second Report of the Estimates Committee, Session 1965–66, Spring Supplementary Estimates, House of Commons Paper 108. It was published on 2nd March. It is particularly worth drawing it to the attention of the House because, as it was published on 2nd March, I suspect that it has not received the normal attention which it would get from hon. Members, who at that time were either engaged in or concerned with certain events and who are unlikely to have read this Report with their usual attention. Paragraph 20 of the Report reads: Your Committee view with concern the fact that delays in introducing legislation have made necessary dollar expenditure of £6.7 million on the Ministry of Aviation's Vote this year and further dollar expenditure amounting to £15.8 million on other Votes, making a total of £22.5 million. I skip a sentence for brevity and conclude the paragraph: … at a time when balance of payments difficulties are acute, over £22 million of dollar expenditure is being incurred which could have been avoided by the introduction of appropriate enabling legislation. There could not be a stronger condemnation than that of the Government's incompetence and carelessness.

Mr. Diamond

As I made clear in my speech, the £430 million being borrowed is after deducting £20 million, in round figures, which is the figure which the right hon. Gentleman has mentioned. That has been deducted from the £450 million of the full cost. As I said, that £20 million has not been spent. It has been borrowed.

Mr. Carr

I was not a member of the Estimates Committee which took evidence on the subject, but I have been a member of the Select Committee of Estimates for five years and I know the care with which evidence is taken. I know that the Select Committee on Estimates is an all-party Committee which does not make critical comment of that kind without justification. If there is no justification for it, then I hope that an opportunity will be found by the Government for that Report: to be debated so that it may be made plain to the House that their Select Committee was wrong in that very strong criticism which it made.

I repeat—we find this an objectionable Bill, but we cannot divide against it because in the circumstances the effect of denying the Government the machinery which they are seeking would be to deny the Royal Air Force the planes which we on this side of the House know they must have and which now, alas, they cannot obtain from the British aircraft industry in the period about which we are talking. With great reluctance we shall let the Bill pass, but I hope that, in view of the importance of the subject, the Under Secretary will do his best to reassure the House and the country on some of the questions which I have put to him.

8.7 p.m.

Mr. Russell Kerr (Feltham)

A new Member of the House who hopes to make his maiden speech finds himself the recipient of much advice from all sides. With all due modesty, I have decided to ignore all but two of these pieces of advice which I have received over the past few days.

The advice which I propose to accept I have gleaned from the columns of the Daily Mail, from a celebrated columnist, the right hon. Member for Enfield, West (Mr. Iain Macleod), who recently gave it as his opinion that it did not much matter whether or not a maiden speech was controversial so long as the maiden speaker did not "do a Hamlet" on the House and spend the first half of his speech thinking out loud as to whether his maiden speech should be controversial. I propose to follow the right hon. Gentleman's advice and to leave it to him and others to judge for themselves.

The second piece of advice which I propose to follow is something which, along with other new Members of the House, I have already been incautious enough to suggest to the House—in the shape of an early day Motion seeking to keep the speeches of hon. Members on both front and back benches suitably short. I shall, therefore, be brief.

I feel that in my speech I must follow convention to the extent of saying that I feel greatly honoured to have been elected to represent the people of Feltham in this House. Feltham is a constituency the qualities of which are many, but its main claim to fame is that, prior to the creation of the Greater London Council, by hon. Members opposite, it had achieved under a Labour-controlled Feltham Urban District Council perhaps the finest housing record of any comparable local authority in the country.

The only other thing which I would say in this connection is that my constituents in Feltham, very many of whom are highly skilled workers at London Airport and on the surrounding industrial estates, are much too commonsensical and down-to-earth to be impressed by flowery phrases or "flannel" from their Member of Parliament, which is why I say no more about them on this occasion.

However, a reference to Feltham would not be complete without a word about my predecessor, "Bob" Hunter, whom the House well knew as an assiduous and dedicated Member and whom I have known as a good comrade and a very good friend indeed. I speak for a great number of people in Feltham, where he has been greatly loved as well as respected, when I say that we wish him a long, happy and productive retirement in the years ahead.

Aside from my natural and understandable pleasure at finding myself a Member of this honourable House, I have in addition a special reason for gratification which I share, as far as I know, only with the hon. Member for Maldon (Mr. Brian Harrison). Like myself, he, too, is an Australian born and bred and he, too, I have no doubt, shares my pride in the fact that the ties of Commonwealth are still sufficiently strong to make possible the election to this British Parliament of one who is still unrepentantly proud of the land of his birth.

I mention my Australian birth not merely for reasons of sentiment but also because I am old-fashioned enough to believe that the British Commonwealth has been a much under-estimated—and a much under-used—weapon in our political armoury. However, since this debate, though fairly wide-ranging, can hardly be held to include a discussion on the relations between Labour Britain and the Commonwealth, I will content myself by saying that I hope we shall not see a repetition of the quite shameful neglect of Commonwealth interests which occurred when some hon. Members opposite were hell-bent on getting Britain into the Common Market three or four years ago, irrespective of the terms available.

None the less, there is one sense in which this debate, which I believe indirectly to be concerned with the future of the British aircraft industry, connects with the Commonwealth. I believe that a not inconsiderable part of the troubles which have afflicted this industry, on the civil as well as the military side, has been due to a quite staggering failure to develop the potentialities of the Commonweath, both as a market for our civil aircraft and as possible collaborators in terms of the development and procurement of such military aircraft as the Government, preferably acting as the agent of the United Nations, may judge to be required in the future.

In my judgment, there is one consideration which should weigh above all others when we discuss the aircraft industry. The fact is that with every year that passes the aircraft industry of the Western world is becoming more and more of an American preserve. Helped by a scale of operation that we cannot hope to equal, with the enormously profitable defence contracts which are available to bear a large part of their development costs— and with hidden subsidies ever-present to sweeten the mixture—the Americans could easily swallow all their foreign competitors in this industry within a few years, with the most dire consequences for this and other Western European countries.

Such a development would be serious enough in terms of the livelihood of thousands of skilled workers in various parts of Britain, and, indeed, in such towns as. Toulouse, in Southern France; but the consequences for us in political and strategic terms would be infinitely worse. Any hopes which any of us may have entertained of an independent British foreign policy, including independent initiatives for peace, and so on, could safely be forgotten. Our dependence on America in strategic and political terms would he complete and final in that event.

For that reason, I have been unhappy about the Government's recent decision to purchase the F111 as a tactical strike aircraft for cast-of-Suez theatres of war. I believe that this decision is one more nail in the coffin of an independent European aircraft industry—an earlier and even more disastrous coffin-nail being the decision of hon. Members opposite to buy the American Phantom instead of developing a British or, perhaps, an Anglo-French aircraft for that requirement.

Unlike my right hon. Friend the Home Secretary, I am not a Common Marketeer. I happen to believe that that would involve selling our soul for a rather smelly mess of pottage. I certainly agree with my right hon. Friend, however, in a speech which he made in the House a year or so ago, when he pleaded for Anglo-French or, rather European collaboration in aircraft manufacture. If I understood him aright, my right hon. Friend, too, saw the dangers of an American-dominated industry, for this country above all others. I hope that his successor as Minister of Aviation will move energetically to bring together for the purposes of co-operative long-term planing and development the great array of potential customers among the airlines of the Commonwealth and of Europe.

It is very sad to me to see so many of our Commonwealth airlines, in particular, heavily involved in the purchase of American aircraft—the more so since the technical and scientific resources of both the British and French aircraft industries are in no sense inferior to the American and in several key respects are markedly superior.

I believe that the necessary and overdue transformation of the aircraft industry of Britain could best be carried out under a plan which includes substantial public ownership of the industry, or even the outright nationalisation of the private sectors of that industry—which, incidentally, over the last 15 years or so, has been in receipt of about £4,000 million of public money in one form or another. If this were done, the British industry would, I believe, be able to compete on equal terms with the highly efficient French firms, such as Sud Aviation, which have long since been owned entirely by the French nation.

I am well aware, however, that to pursue such a line of thought might well land me into an area of controversy, which is something I have tried hard to avoid. I therefore conclude my brief remarks by appealing to my colleagues and friends in the Government, at this very late hour in the crisis of the British aircraft industry, to open their eyes to the very real danger in the present situation.

I feel sure that a Government who have so firmly nailed their colours to the twin masts of scientific and technological progress, on the one hand, and political independence on the other, will not lightly stand aside when the well-being of the country, and the very future of Britain as an independent and powerful agent for peace in the world, is so obviously involved.

I thank you, Mr. Deputy Speaker, and Members of the House, for listening to me so patiently.

8.18 p.m.

Sir Lionel Heald (Chertsey)

I regard myself as very fortunate indeed in being able to follow the hon. Member for Feltham (Mr. Russell Kerr), for two quite different reasons. The first is that we would all agree that he has proved during the last few minutes of his quite short speech that he will be a substantial addition to our debating forces and also to our instruction on many subjects, not the least of them being that of the Commonwealth. It is a very fine thing indeed that we have such a splendid representative of the Commonwealth coming amongst us as a new Member.

My other reason, which is purely personal, is that the hon. Member's predecessor, Mr. Hunter, was one of my earliest friends in this House and has been ever since what, I hope, I might describe as a very real and dear friend of mine. I have always been fortunate—it is seldom, perhaps, that one can say these things, but they ought to be said—in having a number of very good friends on the other side of the House, and Mr. Hunter was one of the very best.

The only thing I would say is that I am afraid that his work here was becoming a great strain to him. There were some of us who were very concerned about his health, but from what I have recently heard I believe that he is gaining benefit from having a more restful time, although he will always be wanting to do something. I hope that I may be allowed to ask the hon. Member for Feltham to convey to him the kind regards of all of us, and particularly of myself. [HON. MEMBERS: "Hear, hear."]

I am also fortunate, again in that my constituency and that of the hon. Member for Feltham have quite a number of things in common. We are virtually next-door neighbours, and he has a number of men who work in the aircraft industry, quite apart from London Airport. I know from Mr. Hunter that there are a number of people who go from Feltham every day to Weybridge, so that the hon. Member has a special interest in that side of it.

Of course, we are very concerned about the aircraft industry, and we share that concern—apart from, perhaps we may say, minor differences which there are and must be between the hon. Member and myself. I could not go all the way with him, I am afraid; for instance, the word "nationalization" we on this side believe to be rather dirty. However, we look at the aircraft industry from entirely the same point of view, and, therefore, subject to trifling differences, I believe that what I have to say will apply as much to the hon. Member's constituency as to mine; and as, as I am sure he knows, more and more problems are arising, the more and more need there is for those who can agree about these things to work in harmony, and to try to reduce to the minimum the necessary, but very important, political differences between us.

Now, I am very grateful to the Chief Secretary for having explained, no doubt being responsible himself for, this Bill; because he explained very clearly that the purpose of it is to comply with the fundamental principle that Parliament should have an opportunity of discussion and of expressing grievances and demanding assurances before it agrees to a thing of this kind. When I say a thing of this kind it can be put in the simplest possible way in the very clear language of the Bill: during the next six financial years the Treasury may issue sums not exceeding in the aggregate £430 million to be applied in the purchase of United States aircraft.

I do not believe that there is anybody in the House who would disagree that before we do that we require to consider it quite carefully and that we require to have certain assurances—some of us, perhaps, from different points of view, but all of us, I hope, from the point of view, first of all, that we require an assurance that this is not to be taken to imply the death of the British aircraft industry. Let me say here again that I very much welcome the atmosphere, following a maiden speech by a believer whom we have just heard, for I have taken the attitude for years in my constituency that the aircraft industry is not and should not be a political cockpit—leaving out, of course, the good old subject of nationalisation; but in my experience the very large number of people who make aircraft are not any more worried about nationalisation than they are about many other things. They want to get on with the job. What they want are orders and work. That is what they are concerned about at this present time.

I rather want to follow the hon. Member in being as non-controversial as I can—for a change; but we cannot help, in my constituency at any rate, remembering that just before the General Election, on 7th March, 1966, a remarkable thing was said by the right hon. Gentleman the Minister of Aviation: As the White Paper makes absolutely clear … we have provided the industry with the stability that it has been seeking for so long in the programme that we have announced for the next five years. I am convinced that when our programme is put to the test of public discussion outside not only will my right hon. Friend's Defence Review be endorsed by the people, but, also, that the industry will accept that we have laid the foundation for a healthy aircraft industry and provided it with the stimulus by which it will save itself by its own exertions."—[OFFICIAL REPORT, 7th March, 1966; Vol. 725, c. 1862–3.] My constituents who are concerned, so many of them, directly or indirectly, with the aircraft industry were very disappointed that there was no reference to the aircraft industry in the election manifesto of the Labour Party and that there was no mention of it of any kind in the Gracious Speech. That has been a source of considerable concern to them, because they do not know where they are, and they do want to know what is the future. I am sure that, as I hope, I have the hon. Member with me, because I am sure he will find that those men employed in the aircraft industry, highly skilled craftsmen, are very gravely concerned about the future of this great industry.

It is a great industry, when we think of the production at Weybridge, of the Wellington, which was a military aircraft, and very relevant to the sort of discussion we are having today, a magnificent aircraft, and of the Viscount, no fewer than 500 of which were sold, and the VC10, which I still maintain is as fine an aircraft as has ever been made in the world. That is the sort of thing that has been going on.

Where are we today? I shall not be entitled to spend more than a few moments on it, but it ought to be realised that there is great concern and anxiety amongst those who work in the aircraft industry today. They ask, before we allow £400 million to be expended on American aircraft, for a statement from the Government of what they think about the British aircraft industry. We have not heard a single word about that since 7th March. We have not heard anything.

There may be reasons for that. I do not know what they are, because we have not had an opportunity of hearing them. It would not be quite fair to ask the Under-Secretary of State for Defence for the Royal Air Force to give us an authoritative statement now, but he may possibly give us some guidance, and I would also ask him and the Chief Secretary whether they would pass on to their colleagues the very real and strong desire and demand there is from everybody in the aircraft industry to get some idea of what the Government really intend with a view to giving that industry what it wants; that is to say, a feeling of stability and confidence and a feeling that it is worth while for the people who are in it to go on and for new men to come into it.

Let me give one example of the kind of thing which has been giving grave anxiety to my constituents and, I am sure, those of the hon. Member for Feltham. Recently, a development has taken place of an extraordinary character. Men who are expert draughtsmen and designers in the aircraft industry are virtually working for America in this country. There are organisations which have been set up in the region of London Airport where British draughtsmen and designers of the highest ability are employed. They are not employed on making anything for this country.

Elementary plans are brought over from the United States to the places where these men work, and into them is incorporated all the great skill of our British designers and draughtsmen. The plans then go back to the United States in order to be put into operation. That is an extraordinary way of avoiding the brain drain, yet, at the same time, sucking the blood of our best men. It is a very alarming fact.

I only give that as an example. I assure you, Mr. Deputy Speaker, that I have no intention of making a lengthy speech, but I want to emphasise one or two points which are giving great anxiety to the industry.

Surely it ought to be possible for us to have a clear and reassuring statement before long in which the very first point must be, as I emphasised every time I spoke on the subject during the General Election, that it is absolutely wrong to say that the British aircraft industry is dead. It is a very tempting thing to say, after some of the things that have happened in the last year or two. A number of people in my constituency who were employed in it wanted me to say that the Government have completely destroyed the industry. I am bound to say that I told them that some unkind people would say that they had done their best to do so, but had not succeeded, and none of us thinks that they have.

There is plenty of good morale and keenness still there, together with the desire to go ahead, but it must be stimulated and assisted. Therefore, I ask that we be given at any rate a preliminary assurance that the Government have these things in mind and that they will give us some definite idea of the future of the aircraft industry before too long. If that could be achieved, I believe that the fortunate coincidence of one hon. Member following another who has just made a maiden speech and finding that he comes from an adjoining constituency having very much the same interests may lead to great benefits for many other constituencies as well.

8.32 p.m.

Mr. John Rankin (Gasgow, Govan)

I always listen to the right hon. and learned Member for Chertsey (Sir L. Heald) with pleasure and with profit. I had the good fortune to follow him on the last occasion that we debated aviation, when he pointed out that it was time we knew somehing about the future of the aviation industry. I agreed with him, but I was not so strong in my support for what he was saying when he tried to put the entire responsibility on the Government for some of the difficulties in the industry today.

I am sure that he must have read the Plowden Report. Paragraph 125 of that Report gives us at least one reason why the industry is in difficulty today. It says: Erratic Government policy in defence procurement during the last decade has denied the industry the consistent objectives and stable programme needed for success. That is the verdict of the Committee that inquired into the health of the industry. It lays the blame clearly and substantially on the Tory Government who went out of power in 1964, never, I hope, to return to that high office again.

I do not want to be too controversial tonight. I agree generally with what the right hon. and learned Member for Chertsey said, because in 1960 the number of persons employed in this industry was 310,000; by 1964 it had come down drastically to 250,000, and today it is in the region of 200,000. This drop must arrest our attention and demand some form of action.

Sir Eric Errington (Aldershot)

Does the hon. Gentleman realise that in March last year exports from the aerospace industry amounted to about £8 million, while today, according to the figures on the tape, they amount to £21 million? How does the hon. Gentleman square that with the decay of the industry?

Mr. Rankin

I did not say that the industry was in decay. I pointed out that the industry had declined numerically, and I was about to point out that, while it had declined in numbers, methods of production had changed tremendously, and now, with the introduction of the latest methods of production, skilled labour is being dispensed with and the machine is doing jobs which were formerly done by individuals. This perhaps helps to produce the figure which the hon. Gentleman quoted.

I want to confine myself as closely as possible to the Bill. Naturally, a Bill of this nature must disturb many of my hon. Friends, and I must confess that I was dismayed when I saw that its purpose was to Provide money for the purchase of military aircraft, and parts, equipment and other articles for, or for use in connection with, military aircraft and a whole lot of diverse and specified reasons, without any indication of what these parts, and so on, are.

The Long Title ends with the words and for connected purposes". These four concluding words give any Government the power to venture not merely into pastures new, but into fields which, from the point of view of some of us, might be very dangerous indeed. Any alliance or understanding which brings us into closer contact with America at the present time is bound to create some disturbance in our minds. It does in mine, because the Bill, taken in conjunction with what the Secretary of State for Defence said in the House earlier today, means that we are to get not merely 50 F111 aircraft from America, along with this great host of accompanying parts, but that we are to enter into closer relationships with America than ever before. We are doing that at the very time when America is carrying out a foreign policy of the most despicable kind in the Far East.

Everyone in this country—and, I should imagine, everyone throughout the world—has been roused, alarmed and shamed by what happened in Saigon this week. To see little children come out with their hands up before American soldiers was a shocking business in a Christian age. That disturbs us. I do not want to see this nation, to which I am proud to belong, entering into a relationship which is any closer than that defined by the treaty to which both America and ourselves subscribe. I do not want to see us entering into any closer relationship than is presently accepted.

We have been told today that arms produced in this country are to be sold to America, and to further those sales we have agreed to make a special appointment of an individual. If these arms—aircraft and all their parts—are sold to America, will they be used against Vietnam? Are we now to be involved, indirectly, in the war in South-East Asia simply because military equipment of all kinds made in Britain is to be used in the war there? We have had assurances time and time again from the Dispatch Box, from the Prime Minister, that we will not put British soldiers into Vietnam. If we are to put military equipment into Vietnam, how can we refuse to put in soldiers?

Mr. Deputy Speaker (Mr. Sydney Irving)

I would remind the hon. Member that he must keep more narrowly to the Bill in hand.

Mr. Rankin

I have the F111A in mind all the time. I can assure the House that it is not out of my mind. I do not want to see its being bought from America under this agreement and then used in Vietnam. If we can use an aircraft we can use soldiers. They are part and parcel of our armed might.

If we are not to use soldiers, and pat our consciences on the back—which is an unusual English phrase—[HON. MEMBERS: "Scottish."] Scottish, all right; I never refuse to bring the best from Scotland—and it is not always in a bottle. If we say that we can use military aircraft, how can we say that we will not use soldiers. If we say that we shall not use soldiers, how can we defend the use of military aircraft? I hope that if we build military aircraft or buy military aircraft they will not be used in Vietnam to slay innocent people.

When my right hon. Friend was speaking I took one or two notes. He made an interesting statement. He said that the Bill enables us to reconcile our economic resources with our military needs. That is an achievement. However, when a Minister makes a statement like that—even when he sits on my own Front Bench—one should examine it with care. I am glad to see that my right hon. Friend has returned to the Chamber, because he and I are brothers—in the industrial sense. His statement assumes a constant if there is reconciliation of needs with resources and I should like to know whether that constant is embodied in our military needs.

We can reconcile our existing economic resources with our military needs at any point only if our military needs are constant. Does what my right hon. Friend has said mean that, despite the Bill, our military needs will not expand? That is one of the dangers which I see. We want an assurance about the Bill, that, with this aircraft, our military needs will not expand.

My right hon. Friend also had a kindly word for the Anglo-French variable geometry aircraft development. I was glad to hear that, because it is important that, when our Government are meditating on the possibility of entering Europe, we should say something to European people about a development of this nature.

I wonder whether we could hear a little more about it. In January, I was at Dassault and was in contact with French Parliamentarians and members of the joint Anglo-French committee which is dealing with this matter. They were very disappointed at the progress being made in the development of this Anglo-French concept. I hope that we shall be able to give them some encouragement.

I know that the debate is limited, and I do not want to speak too long, but this afternoon I raised the question of the F111 in another connection. I know that there is now a series of aircraft which all have this sort of designation. One of the versions is the Navy version: I think that that is the F111B. There is another, which we are getting—the Air Force version—which is the F111A. But a third version, the FB111 has been developed and, as I said, about 200 aircraft of this type have been ordered by President Johnson.

I am told that these aircraft will fulfil different purposes. That might not be true, but I think that it is generally accepted nowadays that aircraft like, say, the F111A or the FB111 might well do, if necessary, various types of jobs. They are strike aircraft and can be used for reconnaisance, and, in some cases, can be bombers as well.

No sooner is one version produced than another one is on its way. We want to be completely sure that, if we are taking the F111A, it is cleared of all the faults that many of us have been led to believe still attach to it, and also that it will not be outmoded and outdated by another aircraft that is already coming to birth in the United States.

I hope that, when we are spending the vast sum of £430 million, especially at a time when we are telling the nation that we have not too much to play about with, we shall get good value for that money, even although some of us are doubtful about the purpose. I understood from my right hon. Friend that we have adopted new methods in that no money changes hands—"ours today and unnumbered years to pay". It sounds attractive, but there is danger in that.

8.52 p.m.

Mr. Stanley R. McMaster (Belfast, East)

This has been a remarkable debate. We have had a number of speeches from both sides—including the excellent maiden speech of the hon. Member for Feltham (Mr, Russell Kerr)—and not one has praised the Bill. Hon. Members, including the hon. Member for Feltham in his non-controversial speech, have criticised the Bill, which proposes spending £430 million of the British taxpayers' money in supporting the American aircraft industry. There is no doubt that these purchases of aircraft from the United States do help to support the American aircraft industry.

I want to join in protesting strongly about the proposal in the Bill. These aircraft could well have been obtained in Britain. The British Aircraft Corporation, Hawker-Siddeley, Short Bros. and Harland and other companies could have produced aircraft which would have served the purpose just as well as the F111A and the C130 which the Government propose to buy. But the Government realised, when they cancelled the TSR2 and decided not to go ahead with the HS681 transport aircraft, that they would have to buy American aircraft. They decided that they would run down the British aircraft industry and that rundown is very serious.

The hon. Member for Glasgow, Govan (Mr. Rankin) has already mentioned the rundown in employment from about 250,000 to about 200,000 that has already taken place in the aircraft industry. Just before he died, I was speaking to a close friend, Sir Sydney Camm, who designed the vertical take-off P1154. The Government have ordered the P1127 but not the venturesome P1154. Sir Sydney was very nervous about the state of affairs in Hawker-Siddeley. Many of the senior design staff were leaving. The 10,000 or more who have left in the past year consist of the cream of the industry. When there is a rundown on this scale the best men leave first. These men can easily find other employment. Some of them are already designing American aircraft in Britain. Many others have gone overseas; to America, South Africa and, perhaps, Australia.

What is the net result of all this to Britain? It is that we are losing our balanced aircraft industry, and I stress the word "balanced". We not only need the facilities to manufacture aircraft. We need the design staff as well. Consider our export orders. British exports of aircraft and aircraft parts are running at about £150 million a year. The amount has varied during the past 10 years between £100 million and £150 million. We have already scored a record export figure in the past month and this reflects important orders for aircraft and equipment such as seats and so on—all won as a result of plans made four or five years ago by the former Government.

For how long can we expect such sales from the aircraft industry? What are the Government doing? The answer is that they are merely exchanging sales for aircraft rind parts, both civil and military—aircraft like the Lightning, which went to Saudi Arabia, the Hawker Hunter, which was sold widely throughout the world and was an excellent fighter, the Viscount, the VC10 and the BAC111.

The aircraft industry in Britain depends, like most aircraft industries, on military orders. Indeed, 70 per cent. of purchases from the industry in Britain represent military orders. In America the figure is 80 per cent. Even in France it is 60 per cent. These purchases of military aircraft enable British aircraft manufacturers to maintain their design staff and go ahead breaking into new fields of aviation.

It is an illusion to think that the Government can cut away the military orders and that the civil side of the industry will survive and flourish. That cannot happen if 70 per cent. of the industry's work is taken from it. Instead of earning exports by selling civil and military aircraft, we are having to pay £430 million for American aircraft. That is the first and most immediate loss and it will have a great effect on our balance of payments. In addition, we will lose the technological fall-out of the industry. It is an exciting industry which attracts the keenest and best brains. The men who possess these brains will not move to factories producing washing machines, cleaners or motor cars.

These men are interested in breaking new bounds of knowledge. Their brains and the products of their research—aeronautical research, metallurgy, new uses for plastics and so on—are all being lost. A tremendous technological fall-out is being lost to this country. In addition, we lose our independence, for we become completely dependent on the United States for our military aircraft and, perhaps for a large part of our civil aircraft requirements.

As the previous debate underlined, the House has been misled by the party opposite about the Government's intentions concerning the aircraft industry. The Prime Minister said in the House in February of last year: What this House wants to ensure and what the state of our economy demands is a healthy and balanced aircraft industry, an industry which never again becomes virtually dependent for its existence on one highly costly venture …"—[OFFICIAL REPORT, 2nd February, 1965; Vol. 705, c. 936.] He went on to stress the vital rôle to be played in our defences by the British aircraft industry and the contribution which it had to make to our national economy. The Secretary of State for Defence said in April of last year: … it is the Government's firm intention to retain a lively and viable aircraft and equipment industry …"—[OFFICIAL REPORT, 6th April, 1965; Vol. 710, c. 338.] In a leaflet circulated in Preston before the 1964 election, the Labour Party stated: There is a good future for the British aircraft industry under a Labour Government. Yet how do they act when they are in power? The Government cancel the main orders for our aircraft industry.

In my constituency we have the firm of Short Bros. and Harland. That aircraft manufacturing firm is in an area of high unemployment. We are very concerned about employment in Northern Ireland—about 7 per cent. of the men are unemployed. What did the previous Minister of Aviation say about the rundown in the aircraft industry? I will quote what he said, and ask whether hon. Members consider it to be an honest statement of fact. The Minister referred to the shortage of skilled labour, and said: … there is no point in releasing labour"— this was said on 9th February, 1965, with reference to the aircraft industry: unless it is to be quickly reabsorbed in more productive work. In any changes we shall, therefore, have the fullest regard to where and how far that is possible. We are determined not to leave labour lying idle. If retraining is necessary it will be energetically provided. The aircraft industry is spread fairly widely over the country. Much, but not all of it, is in areas of very full employment. If redundancies are necessary, we shall look to the firms to consult fully with us—they live, after all, on public money—and concentrate these redundancies in the most labour-scarce areas."—[OFFICIAL REPORT, 9th February, 1965; Vol. 706, c. 236.] That was a plain statement of fact yet in an Answer today, when I asked about the future of Short Bros. and Harland at Belfast, I was told that by the end of December this year the number will be cut to 6,000 men—

Mr. Dalyell

On a point of order, Mr. Deputy Speaker. Matters in Northern Ireland are obviously very important, but what have they to do with this Bill?

Mr. McMaster

I am relating all these remarks directly to the Bill, because the expenditure of this money is at the cost of employment at Short Bros. and Harland, which has the Belfast—

Mr. Deputy Speaker

I am grateful to the hon. Member for West Lothian (Mr. Dalyell) for his help, but I have as yet heard nothing that is out of order.

Mr. McMaster

I apologise, Mr. Deputy Speaker, for jumping, in too quickly.

The Answer I had today forecast a rundown of about 2,000 men in the next nine months, and in the following 12 months a further redundancy of 3,000 more, coming down in 1967 to just over 3,500 men at Short Bros. and Harland. Is that the way the Minister keeps his promise to concentrate redundancies "in the most labour-scarce areas"?

On 28th May last, the First Secretary of State and Secretary of State for Economic Affairs said: I would repeat the assurances given here"— he was speaking in Belfast at an apprentices' prize day, and a similar event will be held at the end of this week: by my colleague, the Minister of Aviation, only the other day. 'Shorts is part of the British aircraft industry and will remain part of it.' I can assure you that Shorts will fulfil their commitments in the matter of delivery or after-sales service … That assurance was repeated the following week by the present Home Secretary when the Financial Times reported him as saying on 19th May, 1965: Shorts is part of the British aircraft industry and will remain part of it. He affirmed the Government's intention that the company should continue its work in the missile as well as the aircraft field. I do not want to weary the House, but I have one last important quotation. I believe that these quotations show that the Government were deliberately misleading, not only Members of this House but my constituents in Belfast. On 2nd February, 1965, the First Secretary of State said: I am making a carefully considered statement and I think that he will find that Short Bros. and Harland, and Belfast, are looked after by this Government far better than by the last."—[OFFICIAL REPORT, 2nd February, 1965; Vol. 705, c. 1017.] The right hon. Gentleman was referring to the Conservative Government. Yet the work force in Belfast has been halved in 18 months.

I am glad to see the Chief Secretary to the Treasury here. I informed the Minister of Aviation this afternoon that I hoped to raise this point, and I am sorry that he is not here.

There are three projects to which I should like to draw attention. First, there is the collaboration which Short Brothers has been carrying out with Fokker of Germany in producing the F28 aircraft. The Plowden Report emphasised that if the British aircraft industry is to survive it must collaborate with Europe. Based on this collaboration, which has been very successful, over the F28, there has been formed the V.F.W. Consortium, consisting of V.F.W. and Fokker, both Dutch and German firms, and the Consortium invited Short Brothers to take part by putting up 40 per cent. of the capital and producing a new twin-jet aircraft for which there is a great demand—the VFW 614, a small feeder jet which is intended to replace the Dakota, of which many hundreds were sold and used after the war. But the Government refused to support the project. Is this the way they support Short Brothers and Harland? The Government have refused to support a very promising project. Now the Germans and Dutch are carrying on on their own, and they will probably have great success.

The Government should have looked carefully at the American attempt to sell out the British aircraft industry 'when it offered us the old C130E. The model started with A and they have gone through from A, B, C, D to E. It is a clapped-out old aircraft. The Government could instead have bought the Belfast, a new aircraft just coming into service. This aircraft could have been improved and developed. Why did not the Government take some of the Hercules on charter if they needed them urgently? They could have chartered this aircraft in order to fill the gaps. Ordinary civil air lines do this. In the meantime, the Government could have ordered further Belfasts in order to provide employment in Belfast and keep a viable aircraft industry in this country.

The last project is the Skyvan. It has just been reported in the Press that the Government will not support a promising approach from Indonesia to purchase 10 Skyvans. This might have earned this country and Short Bros. almost £1 million. I suggest that the Chief Secretary to the Treasury should reconsider this matter carefully. He was hoping to trade with Indonesia. It has just been announced that we are giving Indonesia a £1 million standby credit. If Indonesia does not buy the Skyvan, it is likely to buy the American aircraft, the Twin Otter. Short Bros. has just broken through into the toughest market in the world, the Australian market. Ansett, an Australian operator, has agreed to buy three Skyvans to be used in New Guinea. Here is a chance to bring work to the British aircraft industry and to a part of it which very much needs the work.

I ask the Government to reconsider the whole proposition of spending £430 million in America. They should reconsider the position of our aircraft industry before it is too late, and look again at all the proposals which they are incorporating in the Bill to see whether it is not possible to give more help to our aircraft industry and to Short Bros. and Harland in so doing.

9.9 p.m.

Mr. John Hall (Wycombe)

I am always impressed by the very wide knowledge of the aircraft industry shown by my hon. Friend the Member for Belfast, East (Mr. McMaster). I am sure that what he has said must commend itself to the attention of the House.

Before I turn to my general remarks on the Bill, I have the very pleasant privilege of complimenting the hon. Member for Feltham (Mr. Russell Kerr) on his maiden speech. I only wish that when I made my maiden speech, about 13 years ago, I had made it with the same confidence and knowledge of my subject as he showed. He is a member of one of the few husband-and-wife teams in the House, his wife being the hon. Member for Rochester and Chatham (Mrs. Anne Kerr). I am sure that we all hope to hear the hon. Member on many future occasions. The only similarity, in a sense, between the hon. Gentleman's maiden speech and my own is that we were both critical of our respective Governments.

In my case, it was about a tax on furniture—not, perhaps, quite such an important subject.

As my right hon. Friend the Member for Mitcham (Mr. R. Carr) said at the beginning of the debate, the Bill places us in a slightly difficult position. Clearly, it would be wrong for us to oppose it, for the reasons which have already been deployed. Nevertheless, we must examine very carefully, not only the future implications of the Bill, but the reasoning and the policy which has led up to it.

My right hon. Friend asked many questions and I want to emphasise one or two of them. For example, my right hon. Friend asked whether the amount in the Bill of £430 million was likely to be enough. He pointed out the various things which would have to be covered. He made one point of great importance which must again be emphasised. Does the agreement cover guaranteed prices for spares and any future development which may be found necessary; or are we likely to be faced with the cost of new developments to overcome present problems? Will that be put on to the cost of spares in the future? This is an important point which I am sure the Under-Secretary will answer.

My right hon. Friend also asked whether we were ordering enough of the F111s? He asked whether we were allowing for the kind of wastage which could conceivably occur. We have recently heard of the very unfortunate experience of the West German Air Force, where 54 Starfighters, which, I think, is the F104, have crashed during the last 18 months to two years. It is almost unprecedented in aviation history that this should happen. We know that this is a very sophisticated plane. It is supposed to be a very good plane. It is possible that it is its very sophistication which has created the problem which has produced the crashes. I wonder whether we have allowed for the possibility that with a very sophisticated plane like the F111 we may experience the same kind of casualty rate. If we do, this may well be disastrous for us.

My right hon. Friend asked whether the dollar offset agreement is likely to prove adequate. He mentioned the failure of our attempts to get the tugs purchased recently. Remembering the power of the pressure lobbies in Washington on behalf of the armament and defence industries in the United States, one sometimes wonders whether, with the best will in the world, the American Administration will be able to implement the offset agreement to the extent which Her Majesty's Government would like to persuade us will be the case.

I want now to refer to a point which was brought out in an exchange which occurred towards the end of the speech made by the Chief Secretary. I must confess that I was not quite clear about it. This was the reference to the sums which have already been spent amounting to £22½ million and to which the Estimates Committee called attention. The Chief Secretary said that this amount of £22½ million has now been covered by borrowing. This puzzles me. On what authority was the borrowing carried out? We are now considering a Bill which covers £430 million of borrowing which excludes this £22½ million. Therefore, by what authority were the Government able to borrow the £22½ million? This is a point to which I hope the Under-Secretary will turn his attention and give the House an answer.

My hon. Friend the Member for Belfast, East, in his excellent speech, drew attention to the fact that not one speaker has had a kind word to say for the Bill. Probably the strongest criticism has come from the Government benches. The hon. Member for Glasgow, Govan (Mr. Rankin) was very critical of the Bill and, indeed, of the thinking which lay behind it and of the reasons for it. We know that the hon. Gentleman has always been opposed to the defence policies followed, in the first place, by the Conservatives when we were responsible for government. At least the hon. Gentleman has been consistent. He has opposed the defence policy throughout. On the other hand, although right hon. Members opposite opposed it when they were in opposition, now that they have changed places they have adopted a similar policy.

The hon. Member for Govan said that he hoped the F.111 would not be outdated and would not be almost immediately superseded by a more advanced aircraft. I ought set his mind at rest. It has been said quite recently that aircraft are now being built that can go so fast that they can cross the Atlantic before they become obsolescent; so the hon. Gentleman need not fear too much.

My hon. Friend the Member for Belfast, East drew attention to the very serious consequences that this decision to change to American aircraft could have on employment in this country, and in particular in Northern Ireland. This could have a very considerable effect on the economy of this country as well as on our position as a military power.

The hon. Member for Feltham drew attention to the dangers into which we might put ourselves by making ourselves dependent almost entirely for our future fighter and bomber aircraft on the American aviation industry. He suggested that this would shackle us in the development of an independent foreign policy. This is a danger of which I am sure Her Majesty's Government are well aware. I took down the hon. Member's words and I thought they were interesting, coming as they did from the other side of the House. He said that we must open our eyes to the real dangers of the present situation. There is a lot to be said for this point of view.

Perhaps I could give a brief survey of the aircraft situation. We are all aware of the decision of the Government to cancel the British aircraft, the TSR2, the Hawker VTO fighter and the Hawker Siddeley 681 which is the short take-off jet fighter. When these were being developed, they were, as I understand, part of an absolute pattern of defence. They were mutually supporting. In a sense, we have now disturbed this pattern. Whatever may be the reasons for choosing the F111 and increasing the order for the Phantoms, part of which I agree was placed when my party was in power, I find it hard to understand why we should buy the Hercules. If my memory serves me correctly, the Hercules was being offered to us before 1960 and we should have known a good deal about this aircraft. It was obsolescent then and I should think it is even more obsolescent now.

Hon. Members on both sides of the House had an opportunity, I believe in June, 1960, to look at this aircraft and its performance. Several right hon. and hon. Members, including the First Secretary, the Minister of Agriculture, the Joint Parliamentary Secretary to the Ministry of Housing and Local Government, the right hon. Member for Leyton (Mr. Gordon Walker) and some hon. Members on this side of the House, saw this plane demonstrated in Atlanta, Georgia, in 1960, and I do not think that at that time there was any noticeable enthusiasm on the part of any right hon. or hon. Member who was present to buy that aircraft. We believed that in this country we had planes existing or in course of development which would be as good as, and indeed better than, the Hercules as it then was. It is my conviction that today we have aircraft which could have been better than the Hercules which it has now been decided to buy.

We have scrapped the Hawker Siddeley 681 A. I am not a technical expert. Aviation is not really my subject, but I am told by people who know about these things that that was a very good aircraft and, in the view of most experts, better than the Hercules.

The Secretary of State for Defence (Mr. Denis Healey)

Is the hon. Gentleman aware that there was no chance of getting the HS681 before 1972? The R.A.F. need a transport of this type next year and we shall get the Hercules next year. Nobody who is familiar with the problem that we have of deploying our forces in a hurry can doubt that we needed a vast increase in our medium transport fleet as fast as we could get it. There was no chance of waiting four years.

Mr. Hall

As my hon. Friend the Member for Belfast, East said, we could have taken the Belfast on a short-term hire or a charter arrangement without scrapping this first-class aircraft. The consequences go far beyond the military field. I accept the view that there might have been an immediate military need, but what about the effect on the civilian market We have put ourselves out of the jet freighter business for the foreseeable future. We have made it impossible for us to compete in this market, by deciding to scrap an aircraft of this kind. This was a most unfortunate decision.

The other outcome from the agreement is that we shall be importing into this country, over the next 10 years, American technology for the development of their own planes and we are restricting the development of our own technology very largely to assembly, repair and maintenance.

We have already seen the effect of this, and several hon. Members have referred to the way in which it affects their own constituencies where branches of the aircraft industry are situated. It affects employment in this country, although in a full employment society such as ours, by and large, a large number of the people who are put out of work may fairly readily he absorbed elsewhere.

But what cannot be absorbed elsewhere and what we shall, in fact, be losing, is the skill of our designers and specialist craftsmen. As has been said already, these are now going overseas or being used by American firms in this country and are being denied to our British aircraft industry in consequence. This is one of the great dangers resulting from a policy of this kind.

I realise that any Government faced with the difficult problem of mounting defence costs would look round to see in what way cuts could be made. It is natural to turn to aircraft, which are so very expensive, with costs rising all the time for development and the rest. It is quite understandable that this Government took that course to find a way by which they could reduce the overall cost of defence, but, in choosing this particular way, the machinery for which we see in the Bill now before us, they have struck a most damaging blow at the British aircraft industry, a damaging blow not only now but at its future development as well.

The policy has now been decided on and it is there. There is nothing we can do to arrest its development. But the Government must steel themselves and attune their ears to what will be a growing high-pitched scream from the emasculated British aircraft industry of the future.

My right hon. Friend asked several questions to which, I hope, we shall receive answers, but, even if we do have the answers, they will not detract from the fact that this Bill is, in the first place, the result of a failure to appreciate that legislation was necessary to give effect to the loan arrangements. This in itself is rather unfortunate. The Bill has come in late and, as we have heard, has in consequence attracted the censure of the Estimates Committee. We know that it imposes a further burden on our balance of payments. Already, £22;½ million have been spent in dollars at what is probably a most critical time for our balance of payments. We now, also—there is nothing against saying it—that we are handing over the technical development of our aircraft industry in its main lines to the Americans.

All this must have a dramatic effect upon the development of civil aircraft. As my hon. Friend the Member for Belfast, East said, to be able to develop civil aircraft one must have reasonable military orders as a basis for development and production. Cut those out, and it becomes almost impossible to develop a really worth while civil market and develop new planes with all the costs involved in research and development.

The Government's policy is a bad one, ill-conceived and not thought out to its logical conclusion. In this respect, it resembles other equally important legislation put before us in the recent past. The Bill and the policy behind it will produce a situation which we shall bitterly regret. I very much wish that I could advise the House to reject the Bill, but we know that we cannot because, if we were to deny the Government the Bill tonight, they would not have the borrowing powers necessary to pay for the planes which they have already ordered. We are told that we shall have in our own hands power to debate and consider year by year the amounts expended in dollars under the Vote headings, and the House, as is its right, will have the power to throw them out if it wishes and refuse to vote the money.

We know that this is true, but, under a Government with a very large majority, it is a rather empty protection. What is likely is that the Government will get what they want, so that this protection will be virtually illusory, until such time, of course, in another four or five years from now, when we shall have a change of Government and the situation will be quite different.

I wish that I could advise the House to throw the Bill out, but I cannot do so. I only hope that when the Under-Secretary replies he will be able to remove from our minds some of the more serious anxieties we feel about the effect of the Bill, not as a piece of machinery for borrowing money and paying for orders already placed but on the development of the aircraft industry and the effect upon the industry in this country.

I also hope that he will turn his mind to the effect upon our independence of action. If we are to be dominated largely by the American aircraft industry in the provision of fighter and bomber aircraft and weapons of war of this kind, I should like him to consider the effect on defence and foreign policy. I can only advise my hon. Friends to let this Bill pass, but we do so with regret. It should not be taken by hon. Members opposite that by not dividing against the Bill we are in any way approving the policy which lies behind it.

9.26 p.m.

The Under-Secretary of State for Defence for the Royal Air Force (Mr. Merlyn Rees)

I first offer congratulations to my hon. Friend the Member for Feltham (Mr. Russell Kerr). He represents a constituency which knows all about aircraft. His constituents can hardly stop listening to them at most times of the day and, as has been pointed out, large numbers of his constituents work in the industry. I should also like to add a word of praise to his predecessor, who was liked in all parts of the House and who served his constituents well.

The new hon. Member has practical interests in the industry, both professionally and as an officer of one of the trade unions concerned with it. As he pointed out, he is an Australian, a sort of reverse immigrant, a reverse "Pommy", who served in the R.A.A.F. during the war and who was a Pathfinder. On his first trip today he has been "on target" and now is "home and dry". In my maiden speech as a Minister this evening I am still approaching target and have yet to get home.

The debate tonight has been wide ranging and I shall try to answer all the points which have been made. Many controversial questions of policy raised in the last Parliament have been raised again tonight. Before looking into them, it would be as well to remind ourselves of the much more limited nature and purpose of the legislation before us. All the major decisions have already been taken and fully discussed in this House.

The decision to purchase Phantom aircraft for the Navy was taken by the Conservative Administration in 1964. The decision to cancel the P1154 and the HS68I and to purchase the Phantoms and the C130 was announced by my right hon. Friend the Prime Minister on 2nd February last year. On 6th April last year the Secretary of State for Defence told the House of the decision to cancel the TSR2. The 1966 White Paper announced the decision to buy the F111As.

These matters have been discussed on many occasions, most recently on 7th March and 8th March this year. Hon. Members have had a very full opportunity to express their views about the merits of the new aircraft programme. The greater part of the decisions has been implemented. The capacity of the British aircraft industry has been, or is being, redeployed to take account of the cancellations, and firm orders have been placed for the American aircraft in the new programme, although not for the full quantity to be purchased in every case. To a considerable extent, therefore, we are contractually committed to the decisions that we have taken.

In these circumstances, the Bill that is now before us is a technical Measure dealing with a straightforward although important financial problem. Its purpose is to avoid a sharply increased burden on the balance of payments during the particularly critical next two or three years in this respect. It is during that period that we shall be receiving large quantities of United States equipment, and unless we make these arrangements for spreading the burden we shall have to pay for it as the liabilities occur.

To overcome this difficulty, we have negotiated an arrangement with the United States Government under which the Americans will make available credits to cover the dollar capital cost of the American aircraft which we are purchasing. The Bill is needed to extend the Treasury's borrowing powers so that we can take advantage of these credit facilities and to make it possible to use the borrowed money to relieve the Votes from which progress payments for the aircraft, their equipment, and so on, will be made.

The Bill is founded on the Resolution of last week. These two Measures authorise the Treasury to make loans to the Ministry of Aviation and the Ministry of Defence of up to £430 million in six years.

Sir E. Errington

Does the £430 million include the £22 million which has already been borrowed and the 46 per cent. in respect of work that was done in this country?

Mr. Rees

The 46 per cent. work done in this country is paid in sterling and, therefore, does not enter into this calculation. I will return presently to the point about money which has already been spent this year.

The sum of £430 million is expected to cover the dollar capital element of the American aircraft, together with their associated weapons and specialised equipment and the initial lay-in of spares which come with the aircraft when new. It will also meet dollar expenditure on research and development and the training of aircrews and maintenance personnel.

The figure does not include interest on the loan at what I regard as the very satisfactory rate of 4¾ per cent., nor does it include the dollar cost of spares replacements, as opposed to the initial purchase, which will be paid for in cash. The total dollar cost over the next 10 years works out at £660 million, as quoted in HANSARD of 4th March, 1966. This includes the £17½ million already borrowed, which, I believe, is the figure to which the hon. Member for Aldershot (Sir E. Errington) has referred.

The Military Aircraft (Loans) Bill, which is before us tonight, could not be introduced earlier because its full implications could not have been explained to the House until the Defence Review was completed and until, in particular, the final decision had been made on the F111A. However, no additional dollar expenditure has been incurred, nor has there been any extra burden on the taxpayer as a result of this necessary delay, since the whole of the £17½ million involved was borrowed under a special arrangement, details of which have already been published.

That was done under the National Loans Act, 1939. We considered that for this big purchase special arrangements had to be made to bring it into the purview of the House annually, through the Estimates, but for the £17½ million, or approximately 50 million dollars, arrangements were made with the American Government and the Export Import Bank at the same rate of interest. Details of these were published recently.

Mr. John Hall

This is an important point. I understand that the £17½ million which has already been committed and to which the hon. Gentleman has drawn attention was borrowed under the National Loans Act, 1939. I thought, however, that this kind of money could not be found under that Act and that the whole reason for the Bill was that it could not be done in that way. How, therefore, are we able to meet this expenditure under the 1939 Act?

Mr. Rees

The greater part of the expenditure—the large sums involved—will in future be dealt with in this way. The £17½ million was dealt with in this manner in order to aid the balance of payments in the short run this year, and there is nothing under the National Loans Act, 1939, to prevent this. The Bill has been introduced to enable the House to have control over the large expenditure every year. The Bill is concerned only with the £430 million as payments ranking for credit terms. We expect to borrow this in periodical instalments between now and 31st March, 1972. The repayments on each individual borrowing will be spread over the seven-year period immediately following the borrowing transaction.

My right hon. Friend has already given a clear explanation of the detailed working of the Bill. I suggest that any points of detail would better be left to the Committee stage. At this point I would merely re-emphasise that the Bill makes provision for Parliamentary control in the way suggested and explained by my right hon. Friend. It will, therefore, be seen that the Bill is concerned with the important financial problem of avoiding the over-burdening of the balance of payments in the years to come.

Mr. R. Carr

Can the hon. Gentleman confirm that the balance of £230 million between the £430 million dealt with in the Bill and the total dollar cost of £660 million has to be paid for in cash as the liability arises and is not dealt with on credit at all?

Mr. Rees

I am not sure that I understand the way in which the right hon. Gentleman puts it. Let me put it another way. The repayment of each individual sum of money which will be borrowed every year for the purchase of aircraft will be spread over the seven-year period following. So the borrowing of the first amount of money for the period 1966–67 will be spread over until 1974. Each one will go forward over a seven-year period in that way.

Mr. John Hall

This is rather complicated. I thought that the hon. Gentleman was going on to the question of spares. He said that these figures included the spares that were delivered with the aircraft and that future spares would have to be paid for in cash. This does not quite answer the point raised by my right hon. Friend earlier. Is there any guarantee about the prices which will be charged for future spares?

Mr. Rees

I shall come to that. I have made a note of all the questions and I hope to deal with them all in the course of the next 21 minutes. The hon. Gentleman can nudge me nearer the end of that time if I have missed them.

I must now turn to some of the wider questions. Although, as I said, the main decisions have been taken, I can quite understand that, despite the fact that we have had a year of debate on this subject, right hon. and hon. Gentlemen opposite are anxious to return to matters which are of great importance.

Sir E. Errington

I should like to press the hon. Gentleman as to what has happened between the £430 million that we are dealing with and the £660 million—that is, £230 million. One might lose that, but I do not know quite what has happened to it.

Mr. Rees

Our credit terms are on the £430 million. That is what the Bill is about. This is our borrowing from the American Government. The other has to be paid for in the normal fashion, because there is no credit arrangement for it. As the right hon. Gentleman properly pointed out in his opening speech, the £430 million is only part of the total sum involved in the purchase of American aircraft, and there is credit only for the £430 million.

I want to make one point straight away, speaking for the first time as Under-Secretary of State for Defence for the Royal Air Force. I should like to re-emphasise a point that was made very strongly by the Prime Minister in February, 1965. He said: The first duty of any Government of any party is to ensure that the nation's defences are adequate and effective, that the nation's security is fully defended. This means that if this House as a matter of defence or foreign policy, puts British Service men into the field, or into the air, to fulfil national commitments, those who take up those burdens must have the right to feel that they are adequately equipped."—[OFFICIAL. REPORT, 2nd February, 1965; Vol. 705, c. 930.] It has been one of our prime aims in the Defence Review to give effect to this, and I believe we have now enabled the Royal Air Force for the first time in many years to see the way ahead clearly and to know for certain it will have the equipment it needs to carry out its commitments. I shall return to that point in a moment. It is a most important one.

Having said that, we must also avoid the danger, and recognise it, of aiming too high in planning the future military aircraft programme and aiming for aircraft which are very desirable but not absolutely necessary for the rôles in which it is planned to use them. This inevitably leads to two consequences. One is that the aircraft take so long to develop that there is an unacceptably protracted period during which the Royal Air Force has to struggle on with obsolescent types; the other is that the aircraft, when they eventually reach the production line, are so costly that they face the Government with an unenviable choice, either to allow defence costs to rise far beyond what the country can sensibly afford, or else to cut the size of the front line to the point where it is no longer viable.

When the Labour Government came to power we found we had inherited a programme which suffered from both these defects, and we set ourselves the task of remedying them. We are convinced we were right to grasp this nettle, and I believe, also, that the electorate agreed with us.

As my right hon. Friend the Secretary of State for Defence has said, the major savings resulting from the Defence Review will arise almost entirely from changes in our equipment programme, and the biggest saving will be in the Navy and the Royal Air Force aircraft programme, from which we shall save £1,200 million over the next 10 years.

Much has been said tonight by hon. Members on both sides of the House about the effect on the aircraft industry. To achieve savings of this order of £1,200 million we have had to cancel projects in which the British aircraft industry had placed high hopes. These decisions were taken only with the deepest reluctance, but the plain fact is—and this came out clearly in the Plowden Report—that we cannot as a nation afford to go in for expensive aircraft development projects unless there are good prospects for exports and the possibility of spreading development costs over a much larger number of aircraft than our industry could expect to sell just to the Government.

We have also accepted the view of the Plowden Committee—and this deals with a point raised by my hon. Friend the Member for Glasgow, Govan (Mr. Rankin) and my hon. Friend the Member for Feltham—that the most promising future for the aircraft industry dies in collaboration with other countries, especially other European countries. This is particularly the case with aircraft of a highly sophisticated character, such as the Anglo-French VG aircraft, but it also applies to less sophisticated aircraft such as the Jaguar, where the wider sales prospects should result in a viable production line. It is thus a crucial feature—I emphasise this—of our aircraft programme that it prepares the way for these two important Anglo-French projects, which fit in so well with what the Plowden Committee had in mind for the future.

Mr. Stephen Hastings (Mid-Bedfordshire)

Can the hon. Gentleman tell the House what the market is for the Anglo-French VG project, and what rôle is envisaged for these aircraft in the Royal Air Force?

Mr. Rees

I will come to the rôle of these aircraft in a moment.

The effects of these cancellations on the aircraft industry have so far borne out our predictions and not the predictions of hon. and right hon. Gentlemen on the other side of the House. There has been no large-scale unemployment. Aircraft factories have been closed, but this should make possible the redeployment of resources, both financial and of skilled manpower, to other industries where they are badly needed, and the aircraft industry has been able to devote a fair part of its capacity to other uses including work on the Maritime Comet, the P1127, the Spey engine for the Phantom, the Anglo-French collaborative projects, and the Saudi Arabian order. It seems clear that the very gloomy predictions made in some quarters are not being realised, and they certainly were not borne out at Preston.

The right hon. Gentleman raised the point of pressure on British contractors to include components of United States manufacture so as to raise the dollar content in the price of the aircraft. I can deny categorically that there is any such pressure. In one or two isolated instances, a British contractor building to an American design may buy a few components from the American licencer so as to meet a delivery date, but that would be a matter for his commercial judgment. Generally speaking the items incorporated in these aircraft are entirely British, particularly in the case of the Phantom, where they account for 46 per cent. of its value.

I want to turn now to the consequences of our decisions for the R.A.F., which is the prime responsibility of my right hon. Friend the Secretary of State. In so doing, I wish to emphasise that the savings on the R.A.F.'s aircraft programme are not being achieved by giving the R.A.F. equipment which is inadequate for its task. On the contrary, it will gain to the extent that we are speeding up the provision of new equipment for certain essential military rôles.

Taking transport aircraft first, hon. Members will know that the R.A.F. still has to rely to a very large extent on the vintage Hastings and Beverley, which are unacceptably limited in speed, range and performance. The first Hastings saw R.A.F. service in 1949, and the first Beverley in 1956. If we were still looking to the HS681 as a replacement, the R.A.F. would have had to make do with these old aircraft until 1971 or 1972, for it was not until then that the HS681 could possibly have been introduced. The C130, on the other hand, will be introduced next year. It is urgently needed now. The R.A.F.'s tasks in the Zambian oil airlift operation would have been much simpler had the C130 been available.

Even when 1972 is at last reached, we do not believe that the R.A.F. will greatly miss the additional capability of the HS681. As my predecessor, my hon. Friend the Under-Secretary of State for Scotland, told the House, we have made a careful analysis of all the available airstrips in the various parts of the world where we are likely to operate with the C130, and we are convinced that it would be a perfectly satisfactory aircraft for the kind of task that the R.A.F. will want it to perform. Since we can buy three C130s for the price of one HS681, that is a classic example of the point that I tried to make earlier about not aiming too high.

Mr. McMaster

I hope that the hon. Gentleman will deal with the point that I raised about the possibility of using the Belfast for that purpose—and with Shorts.

Mr. Rees

The hon. Gentleman will forgive me if I do not go into the wider point about Shorts. As far as the Belfast is concerned, we can get three C130s at a fixed price for one Belfast. That is an important aspect and one which my right hon. Friend the Secretary of State has to bear very much in mind.

So much for transport aircraft. I should like to go into the aircraft programme fairly fully, because that is the aspect of the Bill tonight that matters to the R.A.F. The Government as a whole have wider considerations to bear in mind, but my right hon. Friend's responsibility and, indirectly, my own is to see that we do not send British Service men into a task for which they have not adequate equipment. That is something about which I feel very strongly.

Turning now to fighter ground attack aircraft, we find the same story. The P1154 would have been an excellent aircraft, but there was no chance of getting it until 1972. Meanwhile, the R.A.F. would have had to struggle on with the obsolescent Hunter, which would have been in service for no less than 18 years and be inadequate in almost every respect.

The major reason for our decision to go for the Phantom and the P1127 instead of the P1154 was simply that we could not accept leaving the Royal Air Force dependent on the Hunter for such a period. The Phantom will now be coming into service in 1968—I emphasise that date—and the P1127 in 1969. These two complementary aircraft will together fulfil the rôle which had been in mind for the P1154—the Phantom with its supersonic performance, extremely good weapon-carrying capability, and so on, and the P1127 with its vertical take-off and short take-off capability for close support to the Army. The P1127 will he employed during its life in the ground attack rôle with the Army, and the Phantom will be employed in this rôle until 1973–74, when it will be transferred to the air defence rôle and replaced in the ground attack rôle by the Anglo-French Jaguar which will then be coming into service.

The Jaguar will be a light-weight supersonic aircraft for training as well as for ground attack. It will be a versatile aircraft, and its dual rôle, combined with its joint development, should enable us to obtain the maximum benefit from large production orders which my hon. Friend the Member for Govan, mentioned. Thus, the Phantom will not only close the operational gap earlier than would have been possible, but will pave the way—and we regard this as of great significance—towards the introduction of this important collaborative project.

Incidentally—and I emphasise a point which has been made a number of times tonight—to describe the version of the Phantom which we are buying as an American aircraft is to some extent a misnomer, since 46 per cent. of it will be of British origin. The greater part of this is the Spey engine, which, while of itself a little more expensive than the U.S. engine, gives a better performance, and is therefore likely to add to the length of the Phantom's operational life.

Now I turn to the strike-reconnaissance rôle of the F111A, and to many of the questions which were asked tonight. Our decision to cancel the TSR2 and to purchase 50 F111As was taken basically on cost grounds. There has been much discussion on this over the past year or 18 months, but whether one is arguing about unit cost, or programme cost—whichever basis is taken there is much room for argument and discussion—the F111A comes out on top. It was a cost-effective decision which was taken.

The requirement is to replace the Canberra in the reconnaissance and tactical strike rôles, in the latter case essentially as a conventional deterrent. As the Defence Review progressed, it became clear that the V-bomber force would be operationally acceptable in the tactical rôle, for which it will be available once the Polaris submarines are in service, until the Anglo-French variable geometry aircraft became available in about 1974, provided that a comparatively small number of tactical strike reconnaissance aircraft were available by about 1970 to penetrate the most sophisticated opposition.

We certainly could not accept the suggestion of the right hon. Member for Wolverhampton, South-West (Mr. Powell), or that of his right hon. Friend who talked about incredibility concerning the number of 50 F111As. The right hon. Member for Wolverhampton, South-West said that by the mid-1970s the F111A force would virtually have wasted out. This question has been looked at most carefully, and while I cannot say on what annual wastage rate our calculations were based, I assure the House that we shall be able to maintain the front-line force until well after the V-bombers have been replaced by the variable geometry aircraft.

A point which I should like to emphasise is that the accident rate in the R.A.F., I am very pleased to say, improves with every year. It is a credit to the pilots, and it is a great credit also to the servicing carried out on aircraft in the Royal Air Force.

Mr. R. J. Maxwell-Hyslop (Tiverton)

British aircraft.

Mr. Rees

The hon. Gentleman says "British aircraft". Anyone would think that if one buys another aircraft one is knocking the British industry. All other considerations have to be taken into account.

Mr. Maxwell-Hyslop

rose—

Mr. Rees

I hope that the hon. Gentleman will not mind my not giving way, but I have only five minutes in which to complete my speech.

It will be seen that the keystone of our future aircraft programme will be the Anglo-French variable geometry aircraft. The F111A is intended primarily to tide us over an operational gap. The hon. Member asked a number of questions about this and I want to get these in before I finish. He asked whether we were satisfied that the total of £430 million provided in the Bill was enough to cover all our needs. The answer is that while there never can be any absolute certainty in these matters, as he will recall, we have a great deal more reason for confidence in this case than we have had with any other advanced military aircraft that we have ever ordered in the past. We have a ceiling price for the basic aircraft. This insures us against price escalation over the bulk of the capital cost and we hope soon to negotiate a ceiling price for the modifications needed to bring the aircraft to the Royal Air Force standard of configuration.

Secondly, we have agreed that we will not, in respect of any items in the programme, pay more than the average price paid by the United States Government. This deals with the hon. Member's fear that any unforeseen research and development cost might be offloaded by the United States on to the price of spares, although the spares in general will not be financed by the loan arrangements, as I pointed out earlier.

The hon. Member asked how we would stand in the event of cancellation, and suggested that the Skybolt decision, over which he and his hon. Friends were so grievously disappointed, might be repeated. I want to make it clear that there is no parallel at all. At the time of abandonment, Skybolt was not an approved and funded United States Government project. The money spent on it, by the United States standards, was marginal. The F111A project is not only approved and funded but is well on the way to completion. Orders for several hundred aircraft have been placed. Cancellation is therefore only the remotest possibility but certainly by the time we start disbursing significant sums on the aircraft any prospect of a general cancellation will be negligible. But we considered it proper to include in our arrangement with the Americans provision for a proper joint review of the British Government's position even in this remote possibility.

I now turn to the problems connected with the F111A, and here I must point out that there has been a great deal of mix-up between the FB111 and the F111A. The F111A is the aircraft that we are buying. We believe that any problems that existed are being solved, and we have every confidence in the project. That is the way that we look forward to the future.

I have mentioned briefly the contractual arrangements that have been made. I will now turn briefly, in the last few minutes, to the Bill and the balance of payments. The main object of the Bill is to avoid overburdening the balance of payments in the particularly critical next two or three years. The total dollar expenditure resulting from the new programme will amount to £660 million over the next ten years. After taking credit for the reduced Polaris programme and for the offset purchases that we have already discussed, this works out at only £165 million more than the programme of the Conservative Administration, of which £90 million is interest.

I was asked a number of questions about this and about Jordan. In connection with Jordan, the offset arrangement is for 10 years. It takes three to make a collaborative sale. Not all negotiations that are opened will be fruitful, but we are confident that in the long run the scheme will come to fruition in the way that we have suggested. Up to 1969–70 dollar expenditure will not be very different from that which would have been incurred under the old programme, because the naval Phantoms were to have been bought for cash.

In short, the major decisions on our aircraft purchases have been taken. The purpose of the Bill is a financial one. It is a good Bill, which is in line with the aircraft decisions of the Government in the last 18 months. We have come to terms with the military aircraft problems. We are providing the aircraft when the Royal Air Force want them, and we are also looking at the needs of the aircraft industry. We have been right on this. We are right on the Bill this evening.

Mr. R. Carr

Can the hon. Gentleman deny the rumours that have been referred to in connection with Lockheed representatives going to Rhayad with the support of the American Embassy?

Mr. Rees

I have not been able to check on this, but it should be borne in mind that at the least, if the American Lockheed company went to Jeddah, or wherever else it may be, the American military attachè, out of courtesy, would have had to accompany it. I have not been able to look into this, but I do not think that it is for me to comment on the subject.

10 p.m.

Mr. Tam Dalyell (West Lothian)

Normally, one takes the rough with the smooth in being called and does not take advantage of exempted business, but on this occasion I make no apology for taking advantage of exempted business to make a short speech—not necessarily because of the weight of what I am going to say, but because I think that it is deeply wrong that, in a debate of this kind, scheduled for three hours, back-benchers should have had a total of 62 minutes, or roughly a third of that time.

I wish to congratulate my hon. Friend the Under-Secretary of State on his very full explanation of this complicated subject. However, there are three questions which I should like to put to him. When he talks of a guarantee, if prices rise, could we have rather more of an explanation on this question? This was raised by the right hon. Member for Mitcham (Mr. R. Carr) and some of us have a feeling that, in certain aspects of the Bill, there is something of an open-ended contract. What I am asking for is details of the contractual agreement, particularly in relation to spares, after first replacement.

My hon. Friend used the phrase "the initial lay-in of spares". Precisely what does this initial lay-in mean? Does it mean a certain allocation? Does it mean the first spares? What is meant by the "heavy extra costs" of research and development? In his speech, which was spoken at a very fast rate, my hon. Friend made reference to clauses involving research and development contracts. As those of us who were guests of the General Dynamics Corporation of the United States when its representatives were over here will know, there is no doubt that those research and development items could escalate into a major cost.

The question I put to my hon. Friend, therefore, is, precisely what are the terms of the contract as they concern research and development costs? To be specific, supposing it is found that the developments in Britain in inertial navigation techniques or fire control systems turn out, as they may, to be rather better than those in the United States. What are the terms of contract which will allow British manufacturers of fire control systems or inertial navigation techniques to have them fitted into any F111A which we buy?

Finally, there is another question. Supposing that over the next few years our commitments themselves change, what happens then to the contractual agreement? Some of us hope very much that, within two or three years, we will have a saner relationship with the Indonesians. We hope that our relationship with Jakarta will be much better. We hope that there might be a basic change in our relationships over the Singapore base. The world may look very different, from a defence point of view, in 1968, from how it looks in 1966. Perhaps, as our commitments change—east of Suez or elsewhere in the world—our defence needs will change.

I wish to ask my hon. Friend about something which he cut short at the end of his speech, namely, what are the terms of contract in the event of the British Government wishing to have some kind of a cancellation? If matters change in the Far East and we establish a different relationship with Indonesia or any other country, we want to be clear how our commitments are tailored to our needs in terms of the contract we are discussing. Do we have to pay for aircraft which, in certain eventualities, we may not require? At least, this question is worthy of an answer.

I am sticking narrowly to the Bill, and passing no kind of judgment. I have spoken in foreign affairs debates and there are other times to raise various matters of Far East policy. But tonight I offer no apology for asking precisely what the terms of contract are and just what we are letting ourselves in for in the event of a change in policy.

10.5 p.m.

Mr. Albert Booth (Barrow-in-Furness)

Hon. Members opposite have referred to the position of draughtsmen affected by aircraft cancellations involved in this programme. I speak as a member of the Draughtsmen's and Allied Technicians' Association and feel, therefore, that I must make it clear that draughtsmen look at this problem not only in the light of cancellations which have taken place in the last year or two and of the wisdom or otherwise of engaging in a deal involving hundreds of millions of pounds with the United States, but also in the light of all the cancellations that have taken place over the last 15 years.

This problem started for the draughtsmen in the time of the post-war Labour Government, but it grew very much. I remind the House that it was in 1951 that the Sturgeon anti-submarine aircraft was cancelled. In 1952, the Brabazon transport was cancelled and this was followed by the DH fighter aircraft in 1952, the developed Hawker Hunter in 1953 and the Princess transport in 1954. But 1955 was a bumper year. Cancellations then included the Vickers military transport, the Swift fighter reconnaissance aircraft, the Swift photographic reconnaissance aircraft, the Swift crescent wing fighter, and the Avro rocket interceptor. The rate slowed down in 1956 when we had cancellation only of the thin-wing Javelin.

In 1957, we had the cancellation of the Fairey supersonic fighter, bomber and naval interceptor, and in 1958 the Orion turbo-prop engine. In 1959, there was cancellation of the Scorpion rocket engine, in 1960 the Spectre rocket engine, in 1962 the rotodyne helicopter, and in 1963 the steel supersonic research plane.

If I do not continue with the list and give all the cancellations, it is not because I do not wish to mention the aircraft cancelled by this Government, or because I may have a party bias in the matter—I have plenty of party bias. It is because those already mentioned should be sufficient for my case.

Mr. William Baxter (West Stirlingshire)

Would my hon. Friend be prepared to accept the hope—

Mr. Speaker

Order. If the hon. Gentleman will turn towards the Chair, the Official Reporter may hear it.

Mr. Baxter

I am sorry, Mr. Speaker. I ask my hon. Friend whether he would express the hope and the expectation that the aircraft involved in the Bill may be cancelled, also.

Mr. Booth

I am not prepared to express such hopes at this stage. Consideration of that involves certain wider issues.

I have not included in the list the cancellations of missiles, which reaches a formidable total.

I must put it to the House just what a demoralising effect a list of cancellations like this has on draughtsmen and allied technicians. The day may well be gone already when a man can take individual pride in having created something, but the day is coming when a man can take greater pride in team efforts in building highly sophisticated pieces of machinery. Just as men take a pride in seeing a ship they have built go down the slipway, so the draughtsmen and designers take an equal pride when seeing a plane on which they have been working take off and fly successfully for the first time.

It does not take much imagination to realise how hard it is to maintain enthusiasm when one is working on the drawings and designs of a project which one feels may be cancelled in the next week or two. This is one of the effects of the cancellations, cancellations which have led us to the point tonight of debating the borrowing of a large sum from America to buy American planes.

Despite all the cancellations I have mentioned, in the period 1958 to 1964 Great Britain never failed to export less than £88 million worth of airframes and engines each year. Sometimes the figure was much higher. This is an ideal field for Britain to increase its exports because these products involve the maximum amount of labour and the minimum amount of raw materials. We are not likely to increase our exports if we are, at this stage, borrowing £430 million to buy the work of the American aircraft industry.

First, every military airframe we design and develop is a flying test-bed. This cannot be over-emphasised. In these frames is the most advanced forms of electronic equipment, the very latest types of computers, the latest forms of hydraulic equipment and the most advanced metallurgy. This knowledge is unobtainable in practically any other form at the moment and it is knowledge which must result in enormous civil benefits.

Secondly—and this is elementary—foreign customers are not likely to buy British when they see British buying American. They are likely to take the attitude, "If Britain thinks it is wise to buy United States' planes, it must think that American planes are better than British ones."

It is wrong of hon. Gentlemen opposite to point out the problems that exist in the F111 as a flying machine. There are problems, and this is undeniable. However, it is a very advanced variable sweep plane and it is almost inevitable that any plane of this type will have problems. If one waits until those problems are all ironed out before deciding whether or not to buy, one might wait a very long time indeed. It is almost inevitable, because of the rate at which aviation is progressing, that problems will exist and a decision to buy must be taken before all of them are ironed out. If the Americans are at good at ironing out problems as they are at selling their planes, they will he ironed out very quickly indeed because when the Americans come here to sell they come like an army invading—and a very successful army at that.

Although this is to some extent against the case I am making, it is also true that the F111 will probably be available—or can be available—before the Anglo-French Spey-Mirage could be. However, against this one must remember that we are proposing to buy Fills because of the cancellation of the TSR2.

The TSR2 was damned on grounds of enormous costs, but those were costs which anybody with sufficient knowledge of design and development in the aircraft industry could have foreseen. The specification under which the TSR2 was being built was so tight and advanced that it was inevitable that its cost would rocket. It is, therefore, not fair to hold up the F111 as a cheaper alternative when it was not made to the same specification as the TSR2. It is alleged in the industry that the specification has been altered to admit the F111 as an alternative.

Much the same thing can be said of the Hawker-Siddeley 681. That was cancelled, and we have been told tonight that in its place there is an order for the Lockheed C130. The C130 does not meet the specification to which the Hawker-Siddeley 681 was being built. It is appreciably smaller in freight hold dimensions. The hon. Member for Belfast, East (Mr. McMaster) suggested the Belfast as an alternative. It has been pointed out the Belfast is three times as dear, but what has not been pointed out is that the Belfast has a far higher payload and far greater range.

Such factors have to be taken into account when comparing costs. When we are buying American aircraft on grounds of cost we must compare like with like. It is not fair to say that we are buying them because they are cheaper when we do not look at whether they come up to the specifications to which the British planes they are meant to replace are designed. That is one of the industry's serious criticisms.

It would not be fair for me to criticise my own Front Bench if I were to do it in a way that suggested that it was possible at this stage to overcome at one fell swoop the effect on the country's economy or military capabity of all those cancellations I have mentioned. That would be impossible. But, to recover from the detrimental effect of those cancellations on the industry, we must realise one or two things.

We must realise, and realise quickly, that if we are to welcome a reduction in our armaments costs, we have to accept, if that is to be done without detrimental effect, a very serious limitation of our military commitments. That is essential. I cannot believe that the country wants to concel any British arms contracts merely to take up American ones, where it would be detrimental in any way to our economy. Two actions should flow from the reduction of British military commitment, on which is based the cost of our arms programme. One is the development of the U.N. peace-keeping rôle. If we are to reduce our own rôle, that is essential. Secondly, we should strengthen our economy with the reduction of our military expenditure.

Military advisers have very limited horizons, and, goodness knows, this country, under more than one Government, has suffered from them. It was probably a Japanese military adviser who advocated the use of suicide planes, and thought that even a limited military objective justified throwing away a plane and a pilot. I sincerely hope that we shall not have a Minister who becomes a suicide pilot of the British economy in order to gain the short-term objective of a higher military capability.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Committee of the whole House.—[Mr. Gourlay.]

Committee Tomorrow.