§ [Relevant documents: The Third Report from the Trade and Industry Committee of Session 1992-93 on the British Aerospace Industry (House of Commons Paper No. 563) and the Fourth Special Report from the Committee of Session 1992-93, containing the Government's Observations thereon (House of Commons Paper No. 945.)]
Motion made, and Question proposed,
That a supplementary sum not exceeding £1,000 be granted to Her Majesty out of the Consolidated Fund to complete or defray the charges which will come in course of payment during the year ending on 31st March 1994 for expenditure by the Department of Trade and Industry on regional development grants, exchange risk and other losses, selective assistance to individual industries and firms, UK contributions arising from its commitments under the International Natural Rubber Agreement, a strategic mineral stockpile, support for the aerospace and shipbuilding industries, assistance to redundant steel and coal workers, for expenditure related to petroleum licensing and royalty, for other payments and for loans to trading funds.
§ Mr. Richard Caborn (Sheffield, Central)
It is pleasing to be able to debate the report on aerospace, the third report of the Select Committee on Trade and Industry. I shall put on the record our thanks to our staff, the Clerk, Mr. Gerhold, and his staff, who worked so hard in producing the report, and to our two advisers, Keith Hayward, professor of international relations at Staffordshire university, and Professor Garel Rhys, head of economics at Cardiff business school at the university of Wales. I also thank the Minister for sending me a letter at 6 o'clock this evening in response to some of the questions—I am sure that he is listening—that arose from the Government's reply. I do not think that the Minister takes us further forward on the points that we raised, but if my interpretation is wrong, I have no doubt that he will correct me when he replies later this evening, if he catches your eye, Mr. Deputy Speaker.
The aerospace industry is that rarity in the United Kingdom—a high technology industry with added value in which the United Kingdom is one of the world leaders and has a large trade surplus. We have the third largest aerospace industry in the western world. We have one of only three prime manufacturers of civil aero-engines, an airframe company, which has the fifth largest aerospace turnover, and a strong aerospace equipment sector. I am sure that hon. Members will not need reminding of the importance of the British aerospace industry: a turnover of some £10 billion-plus; a consistently positive trade balance, amounting to £2.5 billion in 1992; 9 per cent. of all the United Kingdom's exports of manufactures; and employment and training of a highly skilled work force. Unfortunately, all that has diminished. There were roughly 250,000 employees in the early 1980s, decreasing to about 150,00 in 1992. There has also been a lot of technology spin-off to other sectors of our industry.
Given the strength of the industry, why was the Select Committee somewhat worried about it? Some argued that the industrial problems which have occurred, including the difficulties encountered by British Aerospace, are the result 744 of a severe cyclical downturn in civil aerospace and a longer-term decline in defence sales, which are affecting all our overseas competitors.
The real problem is structural. It is to do with the very long time scales in the aerospace industry for developing new products and receiving a return on investment. That is the most distinctive feature of the industry, which underlies the whole of the Select Committee's report. British Aerospace told us that the period from designing an aircraft to recovering the investment can be as long as 20 years, and that the design depends on technology development before that. Time scales are even longer for aero-engines. Dowty gave us an example of propellers based on technology that had taken some 25 years to develop. Dowty also said that it was making supplies for the Spitfire, but that is probably the exception, not the rule.
Those long time scales mean that the United Kingdom industry's current position now is the result of investment in the past 20 years or so and does not necessarily mean that all will continue to be well. The industry's future depends on the investment and research in technology acquisition being made now.
There is growing evidence that the United Kingdom industry is losing ground. Between 1980 and 1991, growth in United Kingdom industry turnover—using constant prices—was only 1.5 per cent., compared with 3.3 per cent. in the United States, 4 per cent. in France, 8 per cent. in Germany and 8.5 per cent. in Japan. In 1991, unfortunately, we were overtaken by France. The industry is worried that its present research and technology acquisition may be insufficient to keep up with its competitors, which receive greater Government assistance.
That was the reason for the Committee's inquiry—to examine the state of the industry and to see whether the worries about its future were justified. We concentrated on civil aerospace, but we are well aware that the civil and defence sectors are, to a large extent, interdependent. The Government replied to our report but, unfortunately, failed to answer many of the main questions raised.
Another distinct feature of the aerospace industry is the close involvement of Governments. One obvious reason is the strong defence interests. Another is those long time scales, which make it difficult to finance investment in the usual ways. Another is the belief by Governments that the aerospace industry has a strategic importance as a high-technology industry with spin-offs to other sectors.
§ Sir Michael Marshall (Arundel)
I congratulate the hon. Gentleman on his Committee and its report. Will he pick up the thread regarding space activity which is mentioned in the report? I recognise that the Committee did not feel able to examine the matter in detail, but it made the point about linkage between aerospace and space, particularly on the technology spin-off, the convergence of civil and military and the need, with the peace dividend, to shift more into space activities. Does he agree that that is something to which the Government should return, even though the Committee was not able to do so?
§ Mr. Caborn
That is the point. We were not able to investigate that matter. There is a synergy of activity that needs investigating. The hon. Gentleman rightly says that there is a spin-off, which I think is extremely important to the industry. Unfortunately, the Committee did not have time to go into that aspect, although we refer to it in the report. In practice, the international aerospace market is a 745 global industry, but it is not a free market. Our industry is competing against heavily subsidised foreign competition, although our Government recognise the distinctiveness of aerospace by providing launch aid for new products and by having a separate civil aircraft research and demonstration programme. We acknowledge that. However, the Government do not do enough to enable our industry, with its acknowledged technical excellence, to compete on equal terms in world markets.
Foreign Governments rarely advertise the full extent of the help that they give their aerospace industries, but two points are worth emphasising—the massive state aid assistance towards research and technology acquisition in the United States and the considerable assistance that has built up the German industry. According to the DTI's figures, the German industry has received three times as much launch aid as the UK industry in recent years. That injection of support resulted in Germany's turnover doubling between 1985 and 1989.
It is also interesting to note a document called "Statement of Position of Future Aid for Aviation Research and Technology from the Federal Government", which says:The Federal Government sees an efficient German aircraft industry as an important contribution to Germany's economy. It welcomes international and, particularly, European cooperation by the German aircraft industry and its contributions to joint programes.The German aircraft industry can only contribute to competitive European aircraft industry if it maintains and constantly develops its already high level of technology capability… A statement of position on future aid for aviation research and technology will he established by early 1994 and a decision will be taken on a concept of aid to aviation research and technology and about the relevant financing.
Let us look at a statement made by the President of the United States entitled "Technology for America's Economic Growth, A New Direction to Build Economic Strength". The main figures in that statement are startling by any standards. Clinton's technology proposals for the period 1994 to 1997 will involve a budget increase of $17 billion. Inevitably, a large proportion of that extra money will find its way into the American aeronautical industry. The Clinton report specificallly calls forincreasing research on civil aviation technologies, including an examination of the economic, marketing, safety, and noise aspects of advanced aircraft. We will also support advanced in-flight space and ground-based command, navigation, weather prediction, and control systems. US aeronautical, research and development facilities infrastructure such as wind tunnels will also be revitalised.In addition, aerospace companies have been the main beneficiaries of the awards announced thus far under the Clinton technology reinvestment project, the 1993 budget of which was $472 million. Compare that with what happens in this country.
For those reasons, the Committee believes that there is a serious problem and that some changes in policy are needed. Obviously, Government action is not enough on its own. It is essential for the industry to improve its productivity. It is doing so, and we were impressed by its progress. International collaboration is increasingly important as the cost of developing new products rises.
We examined a number of collaborative ventures, such as the highly successful one between Rolls-Royce and BMW. However, collaboration and increased productivity are not sufficient to maintain a competitive United Kingdom industry. Unless our firms maintain their technological edge, they will not be able to attract the best 746 partners and the best terms for collaboration. I make it clear to the Minister that what we have taken to the negotiating table on all collaborative deals has been not a cheque but our technology. The House should take that seriously.
The Committee report focuses on four sectors, the first of which is launch aid for developing new products. That is not a subsidy, as has sometimes been claimed. The money is repayable with interest, as the product is sold. Occasionally, sales have been too low but, at the moment, the Government are receiving more money than they are paying out. According to the DTI, the purpose of launch aid isto remedy a deficiency in the market arising from the reluctance or inability of companies or institutions to finance the heavy deployment cost of new aircraft products, since their return is subject to high risk and can be made only over the very long term".Applicants have to demonstrate that a project is commercially and technically viable, that the Government will receive an 8 per cent. return and that, without that aid, the project would not otherwise go ahead.
It is unfortunate, therefore, that, when our report was produced, the Financial Times editorial of 22 July was somewhat ignorant of the facts of launch aid. It said:Yesterday it served up a similar recipe for the aerospace sector: a five-fold increase to £100m in government subsidies; more generous aid to launch new products; and possible additional hand-outs to help companies convert from military to civil products.Let me quote the example of Rolls-Royce, which wrote to me yesterday. It said:Funds received under this scheme"—under launch aid—are not only repayable, but also carry a requirement to generate a real rate of return for the Government. In the case of Rolls-Royce, the Company has, since 1972, received nearly £500m in launch aid but no new launch aid has been provided after 1986. By the year 2000 we expect to have repaid 660m to the Government. The taxpayer is therefore deriving a significant return from this programme, whilst ensuring that the aerospace industry continues to generate wider economic benefits for the UK in the form of employment and exports.I hope that the author of that Financial Times editorial will take note of what Rolls-Royce says.
§ Mr. Michael Stern (Bristol, North-West)
The hon. Gentleman is right to say that existing launch aid programmes do not carry the element of subsidy but are set out on purely commercial terms. I hope that he will therefore explain what may have given rise to that editorial —the conclusion of his report, which suggested that terms for the repayment of the launch aid should be drastically eased.
§ Mr. Caborn
We said that in the context of the wider area in which our aerospace industry is playing. Let us cast an eye at our major European competitors. For example, although the Federal Republic of Germany gives launch aid, it does not demand the return that we demand in the United Kingdom, so that money is fed back into the industry. If the hon. Gentleman cares to read our report carefully, he will find the answer to his question.
We made one major recommendation about launch aid—that the DTI should adopt a more positive attitude towards equipment makers, and should take into account the size and resources of equipment suppliers when assessing whether launch aid was needed. The DTI told us that there was no ban on equipment makers receiving launch aid. However, no equipment maker has done so since 1981. Our evidence showed that the DTI was wrong 747 to believe that equipment makers were necessarily much better able to obtain a commercial return within a reasonable time than makers of airframes or aero-engines could. For example, according to the Electronic Engineering Association, it typically takes 10 years for avionics systems to achieve a profit. Market failings apply to equipment as much as to airframes and aero-engines. The Government's reply repeats the arguments that we profoundly disputed.
Launch aid for the larger civil aircraft has typically been 50 to 60 per cent., but it is now restricted by the agreement between the EC and the United States to 33 per cent., and it may be reduced further as a result of the negotiations on the general agreement on tariffs and trade—we hope to see an end to them soon. Thus, the direct support on which Europe has concentrated will be severely curtailed.
The Americans responded by providing indirect support instead, in the form of assistance towards research and development. The agreement limits that to 3 per cent. of the civil aircraft industry's annual commercial turnover in the country concerned and to 4 per cent. of the annual commercial turnover of any one firm. However, indirect support is far harder to monitor and control than direct support, so the American industry may have an advantage over European industries.
To be effective, any increase in support for most parts of the aerospace industry will need to be in the form of indirect support for research and technology acquisition. It was particularly fortunate that the DTI's aviation committee produced its national strategic technology acquisition plan, known as NSTAP, shortly before we began our inquiry. The purpose of NSTAP was to identify the technologies that the aviation committee believed United Kingdom industry would need during the next two decades and to sort out priorities.
Category 1 was the technologies on which the industry's future competitive edge will depend, such as advanced wing design. Categories 2 and 3 were less central but still important. Those could, if necessary, be acquired through collaboration whereas category 1 technologies needed to be developed by the United Kingdom alone. I stress that this is an area that is not clear in the report. If we are to take technology to the negotiating table for collaborative deals, category 1 must have the type of support that is rightly demanded by the industry.
NSTAP is not about picking winners but about developing a range of enabling technologies that the United Kingdom industry can incorporate into competitive products. It can be regarded as an early technological foresight exercise.
NSTAP also discusses ways of increasing the effectiveness of research and technology expenditure, such as organising it within a clearly defined national strategy. The Committee attached great importance to NSTAP as a way of maintaining the competitiveness of the United Kingdom's aerospace industry.
NSTAP did not come with a price tag, but the industry's estimate is that it would require £90 million to £100 million a year from the Government over a 10-year period. That sum would need to be matched by an equivalent amount from the industry. That is more likely to be forthcoming for a collaborative effort such as the ones described in NSTAP.
748 Unfortunately, that sum compares with only £22.5 million spent on the DTI's civil aircraft research and development programme in the present year. In 1993 prices, £85 million was spent in 1974. One can extrapolate from that information the fact that the current net return to the Treasury from the aerospace industry is the result of the investments made some 10 or 20 years ago. According to Dowty, £90 million to £100 million is the minimum necessary to keep us ahead in the race.
We made two linked recommendations—that the Government should make a full assessment of the expenditure on research and technology acquisition that they believe is necessary to maintain the industry's technological competitiveness and that they should increase their funding of aerospace research and technology acquisition to a level that is sufficient to maintain the industry's technological competitiveness. We want the Government to benchmark their funding of the industry against that provided by foreigners. That is not an unreasonable request.
The Government's response has been disappointing. Although they state that they are adopting the priorities set out in NSTAP, they are simply maintaining the existing level of funding. They have failed to reply to our recommendation about assessing how much funding is needed to maintain the industry's competitiveness. They state:priorities must be set between the various demands of industry and the economy as a whole.Of course they must, but how can priorities be set unless the Government have first found out what is needed? Either present funding is sufficient to sustain the industry or it is not.
If the Government can show that funding is sufficient, there is no problem. If they cannot, either funding must be increased or we must resign ourselves to the British aerospace industry slowly losing its competitiveness, with all the consequences that that involves. It is essential that we find out what is required to maintain competitiveness so that we know which path the United Kingdom is following.
As to the third major aspect of the report, the Government's greatest impact on the aerospace industry is through defence procurement, and I am pleased to see the Minister here this evening. Our report was chiefly concerned with the civil sector, but all the major United Kingdom companies produce for both civil and defence markets, and much of the technology is common to both. Throughout the world, overheads have tended to be borne by the military work. We therefore looked closely at the MOD's procurement practices.
Until the early 1980's, much defence procurement was undertaken without competition through preferred contractors, and development was largely on a cost-plus basis. Since 1983, there has been a more commercial approach, with a much higher proportion of competitively let contracts. That has clearly had advantages. According to the MOD, it has saved not only money but sharpened the defence industry's commercial edge.
That approach was strongly criticised by many of our witnesses and it contrasts strongly with the procurement policies in other industries. The cost-plus approach and competititve tendering are not the only ways of organising procurement; there is also the partnership approach which is associated most strongly with Rover and Nissan in the car industry. No one suggests that Rover and Nissan are ripped off by their suppliers. They give their suppliers a 749 hard time, but it helps them to improve their performance and offers them a long-term relationship, provided they continue to meet standards and targets.
Only two weeks ago, my colleagues visited Rover and heard about the change in relation that is now one of the jewels in our manufacturing crown. Only four or five years ago, Rover would get six or seven suppliers around a table, get a big stick, beat them on the head and ask them whether they could reduce their prices by 2p. Instead, they would knock them down by 3p, but Rover had more rejects and defects on motor cars coming off the line. Now Rover and Nissan have long-term relationships and negotiate contracts with their suppliers of between five and 15 years. That brings stability to the industry. The results are not only better and cheaper components for Rover and Nissan but a vastly more competitive motor components industry.
One cannot necessarily transfer the same sort of relationship in full to defence procurement, but one might reasonably suspect the MOD to see what it can learn from successful innovations in other areas, and the Committee recommended that it does so instead of leaving it to the National Audit Office to examine its procurement issues. It would be helpful if the Minster would inform the House whether "partnership sourcing" is part of the terms of reference for the NAO examination.
The Committee was also dissatisfied with the way in which the MOD conducts its procurement. In questions to the Minister of State for Defence Procurement and civil servants, it became clear that recommendations made by officials were based solely on the defence aspect, and that other factors, such as the industrial consequence of decisions, were simply drawn to the attention of Ministers.
The Minister showed some sympathy with the argument that wider civil interests should be taken into account rather than exclusively military interests. If that is to be done, consideration of the wider issues, such as the long-term strength of related industries such as civil aerospace, should be built into the procurement process from the start, and we recommend accordingly. The Government's reply does little more than describe existing practices.
The fourth major aspect of the Committee's report was a call for the Governmentto set out in much greater detail than hitherto the overall policy framework and view of the industry's future which it intends to guide individual decisions affecting the United Kingdom aerospace industry.That is nothing to do with the Government interfering in industrial decisions, or extending their role in the industry. It would not necessarily mean any extra spending. We are seeking a more coherent approach by the Government in areas in which they already make decisions— on research support, launch aid, procurement, international collaboration, export promotion and training.
That would need to be based on a view, developed in consultation with the industry, of where the United Kingdom industry's competitive strengths lie and how they can be maintained and extended. The benefits would be more consistent Government decisions across departmental boundaries, ensuring that limited resources are used to best effect and that the industry knows what to expect from Government.
That was the most inadequate aspect of the Government's reply. It says little more thanthe DTI constantly reviews the issues facing the aerospace sector750 with various organisations, firms and other Departments. We believe that the evidence discussed in our report showed present practices fall far short of what is needed, and short of what foreign Governments with clear aims and strategies achieve for their aerospace industries. We have pressed the DTI for further consideration of the issue.
Another point concerns the further reductions in military expenditure and the conversion of defence resources, especially in technological skills and the use of civil manufacturing. We recommended a study of how British industry can be assisted in the transfer from military to civil manufacture. Unfortunately, the Government said that there was no need for a study and that it should be left for either market forces or Europe to decide.
The United Kingdom aerospace industry has to compete in the market as it is, dominated by Government-backed competitors. There is no free market in aerospace products. The Trade and Industry Select Committee concluded that the United Kingdom industry needed more effective Government help, probably including some increased spending, to enable it to compete on equal terms in world markets. Without that, the industry was likely to lose its technological competitiveness, not in the next year or two, but slowly over the next decade or so. The Government may wish to dispute that, but they have not done so in their reply to our report.
That extra help is needed; the question is how high it will be on the scale of priorities. Is manufacturing industry, including the aerospace industry, a priority or not? I have no doubt what the answer to that question should be, and I believe that our report points the Government in that direction. If we want to keep the jewel in the crown shining and not tarnished, I suggest that the Government respond to the report's recommendations more positively.
§ Mr. John Wilkinson (Ruislip-Northwood)
I must declare a commercial interest. I chair a company which is actively involved in the aerospace industry, so I have a professional concern for its welfare. I have also just concluded a parliamentary industrial fellowship—a post-graduate attachment—with TI. The subject I concentrated on, mostly with Dowty Aerospace, was the future of the aerospace industry at a time of airline recession and defence cuts.
The severe downturn in the civil air transport business and the drastic reductions in military budgets have impinged in a most dramatic way upon an industry which is crucial to the economic welfare of our nation and vital for our national security and prosperity.
I believe that the Government have a strategic interest in maintaining the United Kingdom as one of the leading aerospace nations in the western world. They should tailor their policies accordingly and bear five things in mind when constructing that strategy. First, for defence considerations, the Government should remember that we need a truly competitive military aerospace business. Secondly, they should note that rotary wing manufacture is an industry with a future, civil as well as military. Thirdly, we are already in civil air transport construction and need to remain so. Fourthly, we are pre-eminently the western European nation with a world capability in the construction of aero engines. Fifthly, the Government should consider that we neglect space at our peril and that we need to invest more in it. I should add to those five points a sixth— 751 consideration of equipment—because, unless we concentrate on those five points, it is likely that we will not have a competitive equipment and component sector.
There are two aspects to the civil sector. British Aerospace, which has come to dominate the manufacture or part-manufacture of civil air transports in this country, went through an extraordinary process of expansion in recent years. It followed a process of diversification into all kinds of activities which bore no relation to its core businesses. It was almost as though the company made a Gadarene rush into acquisition, diversification and expansion. Under Mr. Cahill, BAe has now wisely returned to its roots and is focusing on its core businesses. The process of doing so, however, is difficult and painful and it has caused much readjustment within the company.
It has been decided that for the smaller range of civil air transports, the regional jet range of four-engine turbo fans based on the 146, a partner should be sought in Taiwan Aerospace. This may or may not come to fruition and it looks much less likely than it did, but BAe should have sought a more appropriate partner, such as Fokker, in good time. Fokker is now part of DASSA, so an opportunity was missed. I hope that we may retain some part of the regional jet market in years to come, but it will not be easy.
Likewise, it will not be easy to retain an important and significant share in the smaller twin-turbo prop market, where there is already significant overcapacity. In its wisdom, BAe is pursuing collaboration with PTN in Indonesia to try to develop complementarily the Jetstream series of aircraft. Indonesia has been working for some time with CASA of Spain. We shall see if the arrangement works out; I hope that it will. Again, however, it must be said that such readjustments and attempts at new partnerships have come very late in the day.
§ Mr. George Foulkes (Carrick, Cumnock and Doon Valley)
Is the hon. Gentleman aware that Parliament was lobbied today by the management and workers, with the support of their local authority, of the Jetstream project? They pointed out that it was difficult for Jetstream to compete with some competitors who had an advantage because the subsidies given to them by their Governments were far in excess of the support given by the United Kingdom. Does the hon. Gentleman agree with that delegation that we should give similar support or that we should ensure, through GATT or the European Community, that there is no unfair competition so that Jetstream can compete fairly with the other aircraft?
§ Mr. Wilkinson
I take to heart what the hon. Gentleman has said and I share the concerns of the workers at Prestwick, and those who come from his constituency. Like the hon. Gentleman, I want to see what was Scottish Aviation prosper under its new guise and have an assured future. It will be very difficult to ensure genuinely fair competition, however, because nations that are embarking on creating indigenous aircraft industries are bound to give generous support to the easiest part of the industry to develop—the construction of relatively unsophisticated twin-turbo prop aircraft.
I want negotiations through GATT on this matter, as on all others, to prove in the future to have been a success. I cannot say that this area of BAe's business is absolutely secure yet. The company is, however, determined to make 752 it competitive, and I am sure that the workers at Prestwick are working as hard as they ever did to make a success of it. It has good a good product range.
The larger end of the product range is represented by the airbus series of aircraft. Here again, launch aid has proved itself. When I was chairman of my party's aviation committee in the mid-1980s I remember going along to see my right hon. Friend, Mrs. Thatcher, with the past committee chairmen to argue for launch aid for the A320. She replied, "Oh John, it will never work. Boeing will dominate the market. Why should we waste our time on things like that?"—or words to that effect.
We managed, however, with the support and encouragement of the Labour party and that of Lord Varley, then an Opposition Front-Bench spokesman, to table an early-day motion which commanded the support of nearly half the membership of the House. As a result, we persuaded Her Majesty's Treasury to invest £220 million in launch aid. The A320 sold more aircraft off the drawing board than any airliner in west European history.
The purpose behind this anecdotal account is to show that there genuinely is a worthwhile role for launch aid. When those responsible for the airbus come to build a really big aircraft to compete with or to succeed the jumbo, the new aircraft could be a worthwhile candidate for launch aid.
What worries me about the military side of business is the way in which the European fighter aircraft programme has absorbed such a large proportion of the Government's defence budget for development. For understandable reasons, the first flight will probably be two years late and the entry into service will be some four years late. I compare that with the achievements of Avions Marcel Dassault which is building its Rafale aircraft on its own and has already got several prototypes in the air for the French air force and for the French fleet air arm.
I am also interested in the progress of the Swedish Saab JAS39 programme. I know that BAe has a marketing agreement with Saab for the aircraft and that it is lending its expertise, especially in the development of the flight control system. However, for the next generation of combat aircraft, I wonder whether we should have four-nation programmes again. They are complicated to manage and extremely political in nature.
Also, if a programme such as the EFA consumes such a disproportionate part of what used to be known as the Air Force's budget and is now the MOD's budget for air systems, it has a negative impact on important equipments which are at least as important as the platforms. For example, a stand-off weapon for Tornado has been in mind for many years and still has not come to fruition. The RAF needs an intelligent anti-armour weapon, especially as the MLRS 3 has been cancelled.
Britain's defence has been degraded by the fact that we cannot afford, at least in the immediate future, to deploy a medium surface-to-air missile to replace the Bloodhound. I also gather that the mid-life update of the Tornado to the GR4 standard will not be as comprehensive as would otherwise have been the case. In future, I hope that we shall not invest such a vast amount in mega-projects but will consider them more carefully.
§ Mr. Keith Mans (Wyre)
Does my hon. Friend agree that, although the first flight of the Eurofighter 2000 has been somewhat delayed, first flights of previous aircraft have also been delayed and it is therefore not outside the 753 band that one would expect? Despite the fact that the Eurofighter has not yet flown, the in-service date from the French air force for Rafale is after that of Eurofighter, in 2001, and the Rafale aircraft will be more expensive and inferior to the EFA.
§ Mr. Wilkinson
All those things may or may not be true. I hope they are, because I like to see projects in which the British have a leading role proving to be the best. The projects must be the best because, if we are deploying a front-line fighter/attack aircraft, it must do its job against a potentially well-equipped adversary. For good military and industrial reasons, I hope that what my hon. Friend—who has considerable experience and professional wisdom in those matters—said is true. Nevertheless, I feel bound to inject a note of caution.
In a relatively short time, we shall also need an enhancement of our air transport force. We have all recognised the importance to our aid efforts and to our military deployments of the Herculese C130 aircraft which are in service with the RAF. They are wonderful work horses, but they cannot go on for ever. There must be a limit to the process of refurbishment. There is an improved version of the C130—the J version—available to the RAF. Were it selected, it would benefit British industry because the RAF would be the launch customer and a number of British suppliers such as Dowty Rotol for the propellers, Westland Aerospace for the nacelles, Smiths, Lucas and Marshalls of Cambridge would benefit. More than that, we would get a transport into service which was much more cost effective than the existing version of the Hercules.
I hope that the Government will recognise these facts and will not let themselves be diverted into thinking about what may or may not come into service in the next century—future large aircraft, or whatever. I doubt whether the Ministry of Defence has the money to invest development funding in a strategic turbo fan transport of the FLA category.
One has only to consider the problems McDonnell Douglas has had with the C17, which is badly over budget, late and performing below specification. Since we took the Belfast out of service many years ago, we have not invested in a strategic long-range transport aircraft. We have not bought C5s or C141s. Instead, when needed, we have chartered civil Belfasts and used them for military purposes. Can the decision on the Hercules C130 be postponed any longer? I do not think that it should be.
Nor should we postpone for too long important decisions which affect the future of our rotary wing aircraft constructor Westland. There are two major programmes vital to the future of the company—first, the selection of an attack helicopter for the Army and I hope for the Royal Marines too, and I say that advisedly; and a new support helicopter for the Royal Air Force. The Secretary of State for Defence has announced that he intends, as I understand it, to buy a mix of EH 10l support helicopters and additional Chinook helicopters. We shall certainly need them and the attack helicopters soon because wherever our troops are deployed —whether in peacekeeping operations as we debated earlier or otherwise—we always need more helicopters.
The aero engine business is important to our future as an industrial and engineering nation. It is remarkable how we have stayed in the big league for so many years and how competitive Rolls-Royce plc has remained, even after the trauma of the failure of the company in 1971. Rolls-Royce 754 plc now has a range of products which have important niches in their respective markets —for example, the Trent for big long-range twin jets, the Tay for the medium-range civil transports and long-range business aircraft, the EJ200 for the European fighter aircraft and other military programmes, the RTM 322 for helicopters or for potential business aircraft use, and the BMW-Rolls-Royce 700 series of collaborative engines for medium-range transports.
Rolls-Royce plc needs to be sustained because it is of strategic importance to Britain. I do not know whether it will come to an arrangement with Pratt and Whitney or how it sees its commercial future. However, it is crucial for our national defence and our engineering capacity that we stay in the aero engine business. If Rolls-Royce plc asks the Government for launch aid for programmes which it believes to be commercially viable, I hope that its request will be sympathetically received.
One also ought to bear in mind that the market for spares continues for 25 to 30 years after an engine has gone out of production. For example, spares for the Dart, the Spey, the Avon and the Tyne are still being manufactured. Engines such as the Adour, the RB199 and the Pegasus will serve the spares businesses for many years to come.
Looking back at the development of our aircraft industry over the past generation, the decision which I believe to be most fatal for the welfare of the space business in Britain was the one to opt out of the launcher business. You will remember, Madam Deputy Speaker, that in the mid-1960s we had in Blue Streak a launcher which could have provided the main launch facility for Europe for decades to come. Instead we unilaterally decided to get out of the business.
Aerospatiale, CNES—the French national space agency—and the French Government decided to support the Ariane series of launchers, and very good business they have proved. In space, we have concentrated more on telecommunications, remote sensing and so on. This is an appropriate field. It is good business and it is worth while. But as other nations such as Japan, China and India all recognise the importance of space, we shall need to invest more.
I congratulate the Select Committee on its timely report. I am pleased that the Government have given a thoughtful reply to its recommendations. I am delighted that my hon. Friend the Minister of State for Defence Procurement should have taken time to share the debate with us. It is in the interests of our country that the Ministry of Defence and the Department of Trade and Industry work together to support an industry of such crucial commercial and strategic significance.
§ Madam Deputy Speaker (Dame Janet Fookes)
Order. It is self-evident that many hon. Members want to speak in the debate tonight. We do not have a great deal of time. I ask hon. Members who catch my eye early to exercise considerable restraint. Otherwise, there will be many disappointed Members.
§ Mr. Ken Eastham (Manchester, Blackley)
I find this a rather refreshing debate. It is unusual because, for a change, we are speaking about industry. So often, we find 755 ourselves discussing insurance, finance and housing, but on this rare occasion we are talking about making things—things that we can make well and sell abroad.
Tonight, we are talking about something we are really good at. One thing that we are good at is the aerospace industry. As far as it goes, our industry is the best in Europe. The only major competitor is America, so we can sell our goods abroad. This debate is not about begging or about pleading for something to which we are not entitled. Many of us feel that the aerospace industry is entitled to more consideration from the Government. Unfortunately, it does not have it.
I remember reading a newspaper headline after a report of the Select Committee on Trade and Industry was published. It said, "DTI snubs Select Committee on the conclusions of its report." The Trade and Industry Select Committee has achieved a unanimous report. It is to be congratulated on the way in which it has gone about it. The industry is also to be congratulated because it had co-operated in a non-political way with a sincere desire to improve British capability and profitability.
It is a great pity that we have received little encouragement so far. I plead with Ministers urgently to review their thinking. The aerospace industry is one of the few success industries. If the United Kingdom aerospace industry failed, some of our competitors, such as Germany, France and others, would be delighted. It would mean less competition for them. They would become more and more prosperous and we would gradually wither away.
Even the Government have talked recently about the need to improve our industrial base. The Prime Minister and other Ministers have said that. That is somewhat belated, but we who come from industry are delighted that, at last, industry is being recognised. Even the Engineering Employers Federation raised its hands in despair 12 months ago and said that not enough was being done for the engineering industry.
I am sad to have to tell the House tonight that only last week in my area, Ferranti—a well-known company—was on the point of closure. Several hundred highly skilled jobs could be lost, mainly in the north-west. The nation can ill afford to lose those highly skilled people. They would lose their job through no fault of their own. It is not a case of their incompetence, lack of skill or lack of competitiveness. On this occasion, it was just a case of bad management. That is a fact. Those hundreds of jobs are now to be smashed.
It is also a fact that the aerospace industry has been contracting at a tidy old pace. About 27,000 jobs have gone. I should like to impress on the Government that unless they do something radical, that contraction will accelerate. We shall lose one of the finest industrial winners that we have.
I should like to underline a few special issues. The first is GATT. I sincerely believe that we must not give the United States aerospace industry more favourable terms than other countries. We already know that the United States heavily subsidises its aricraft industry. It has a massive defence industry which is far bigger than any aircraft defence industry in any other country in the world. It has the largest space industry and a massive satellite empire. That is all high-tech industry which we know is 756 being spilled into the American aircraft industry. For those reasons, we must be extremely careful when we negotiate with the Americans in the GATT round.
Another issue is national strategic technology acquisition. I understand that the Treasury is receiving £30 million net cash in launch aid for the A320. Yet it is deplorable to report that the civil aviation fund is being cut. That is not a sign of progress. Those are some of the damning facts that have to be faced up to.
The hon. Member for Ruislip-Northwood (Mr. Wilkinson) referred to the need to develop the European future large aircraft. There may be a debate about whether we should enter that industry. I believe that we cannot afford not to. At present, America has a monopoly in very large aircraft. We must attempt to stop world monopoly of, say, the American Hercules. The only way in which we can do that is to apply ourselves, along with other European countries, to producing the goods.
It is no good saying that we cannot, or should not do it. The same was said about the airbus. People said that it would not work. I am not a little Englander, but I believe that our engineering is as good as any in the world. Therefore, I do not believe that we cannot develop a large aircraft. We can do it if our engineering skills are given the chance. If we embarked on such a project, we would also avoid heavy import costs. It affects the balance of payments when one makes massive purchases of such aircraft. There is no doubt that such purchases will continue.
My next subject is export credits. We have not supported industry very well and for proof of the pudding one has only to make comparisons with the favourable terms that Germany and France have been able to offer, which mean that we are not playing on a level playing field. We have been greatly disadvantaged and there is no doubt that, owing to certain changes, such as the end of the cold war, the market is declining and will become far more aggressive. We can, therefore, justify additional help from the Government.
If the Department of Trade and Industry had offered more support we would have gained a larger market share. For example, we could have built a larger proportion of the airbus if the DTI had given more assistance; we got the wings. We are grateful for that, as it has been a money spinner. However, some people have no doubt that it we had been more determined and had had the courage to invest more, we could have had a bigger share of the cake and made more of a very successful aircraft than just the wings.
One final plea is that we must remember that the aerospace industry is highly technical and that the staff in it need quality training. If we are to be world leaders we must place more emphasis on high-tech skills and spend some money on them.
I do not think that any hon. Member has mentioned that we must also remember the industry's hundreds of equipment suppliers and their sub-contractors. Thousands of supply jobs will be at stake outside the aerospace companies if there is any further contraction in the industry. Time is not on our side. We must make some decisions now. We cannot put it off, or say that we will think about it at the turn of the century. By that time, it will be too late and other countries will have wiped our industry out. We must decide whether we are to have a British 757 aerospace industry. I predict that if we do not take that decision, our aerospace industry will become just another British engineering graveyard.
§ Mr. Keith Mans (Wyre)
I am pleased that we have had the opportunity to discuss the aerospace industry and I associate myself with the remarks of the hon. Member for Sheffield, Central (Mr. Caborn), who opened the debate. I agree with him that the industry has been a world beater. It contributes 9 per cent. of out total manufacturing exports, valued at £7.7 billion last year. In addition, our industry is 30 per cent. more efficient than the German industry at manufacturing aircraft. It operates at the frontiers of science in a number of different areas of technology and that is well established by three articles in the most recent edition of the journal of the Royal Aeronautical Society.
The first article deals with the YF22—the latest American fighter—and reflects the advances in two areas in which aviation has led other industries—the lightness and strength of materials. Those advances will be taken a stage further by Eurofighter 2000—an aircraft which will be 85 per cent. non-metal. While it is the same size as Tornado—an aircraft which illustrates the previous generation of technology—it is none the less 30 per cent. lighter and considerably stronger. For good measure, its radar signature is 50 per cent. less than that of the Tornado. Despite all those advances, in real terms, the aircraft is cheaper than the Tornado. Those new materials and the techniques used to produce them economically will have an ever-widening use in commercial aircraft—as has happened with the previous advances in military technology that have transferred directly to commercial aircraft—and in many other industries.
The second article described fly-by-wire systems, which are designed to make aircraft lighter, but also to improve their reliability and to reduce pilot error. In aircraft today, the controls are operated by touch, but in future they might even be operated by sight. Those advances are at the forefront of technology. Britain is again ahead, or at least abreast, of the world. The new systems require highly complicated software, which is constantly testing the frontiers of artificial intelligence. The systems that are being tested for aircraft today will have applications in a wide range of industrial processes tomorrow, as the interface between man and machine becomes even more sophisticated.
The third article describes jet engine development, where increased thrust aligned with efficiency and reliability—to say nothing of aviation's constant need for lightness and strength—are driving engine designers to look for even more esoteric material and production techniques, to allow higher temperatures at the back end of the engines, while increasing mass flow at the front. As hon. Members have said, Rolls-Royce has been at the forefront of those developments, especially in the development of the wide-core fan, which has revolutionised compressor development. The company has also developed turbine blades that allow even higher inlet temperatures. The developments are vital to Rolls-Royce if it is to continue to sell engines in the same numbers.
Another illustration of the advanced nature of the aircraft industry is to be found in management techniques. Here I must differ with my hon. Friend the Member for 758 Ruislip-Northwood (Mr. Wilkinson). Any development is highly expensive and, therefore, partnerships are the order of the day. That means that design teams in different countries, speaking different languages, have to communicate effectively with each other. That is taken to the ultimate in the production of the Eurofighter 2000, where one wing is produced by the Italians and the other is a combination of British and Spanish manufacture. I hope that we shall see it fly successfully within the first quarter of next year.
The techniques used to allow such management practices to be successful have a direct bearing on some other industries, as they, too, find that the only way to fund the development of new products is through partnerships with companies in other countries. Because it is operating at the frontiers of science, the development of new aircraft and air systems is highly expensive. In the past, Governments have been intimately involved in such developments—not always successfully—but it is worth pointing out that, during the 1950s, 1960s, 1970s and early 1980s, the British Government's involvement in many developments had a direct bearing on the size and strength of the aircraft and component industry today.
The aerospace industry is a long-term industry. Investments 20, 15 or 10 years ago have a direct bearing on the number of people employed and the wealth created today and on revenues to the Exchequer. Even Concorde, which in pure cash terms was not a commercial success, has allowed our component and avionics industries to remain at the forefront of today's techonology. That has meant considerable export success during the past decade for many companies, contributing much more back to the Treasury in tax revenues than was expended on the development of Concorde.
Many other countries recognise the need to foster and develop their aircraft industries. I noticed in The Times on Saturday that the French balance of payments surplus last month almost accurately reflected our deficit. That is in no small way due to the whole-hearted commitment to aviation of the French. They have built up an industry that was almost non-existent after the second world war into one that is slightly larger than ours today, a fact made clear by the hon. Member for Sheffield, Central.
The Americans, too, have recognised the importance of the aircraft industry and have funded virtually all their civilian programmes through research and development contracts for similar military projets. Other countries, particularly in the developing world and around the Pacific rim, also want to create and develop their aerospace industries. It might seem strange that so many countries wish to do that, bearing in mind the high cost and poor returns in the short term. The reasons are twofold: first, they recognise the long-term nature of the industry—aircraft produced today are likely to be in service in 20 or 30 years' time; and, secondly, the cost of maintaining and supplying them with spares many times exceeds their original price.
Nothing illustrates the long-term nature of the industry better than the British Government's decision in 1971 to pull out of the Airbus consortium. As a result, now that we are back in we have only 20 per cent. rather than 33 per cent. of the content of any of the aircraft produced by that consortium. That means a smaller British contribution than would otherwise have been the case. When we consider the number of aircraft that the Airbus consortium has sold, 759 which runs into thousands, that fact alone partly explains the balance of payments difference between France and Britain.
The need to support the aviation industry is recognised even by the general agreement on tariffs and trade, which allows Governments to contribute up to 33 per cent. of the launch aid for new aerospace projects. The point is simple: even if we sign the GATT, no one should be under the misapprehension that it will allow us to trade on a level playing field with others that want us to become involved in aerospace activities if we do not continue to be involved in launch aid and support our industry.
We must recognise the strategic importance of the aerospace industry to this country. That means not that we should initiate state-run projects but that the DTI should get behind developments that help aerospace companies in this country to maintain their position in the world. That will mean supporting new development and research in all sorts of areas, particularly those that I mentioned earlier. It means encouraging partnerships between different companies to produce specific aircraft or series of aircraft, as well as the provision of launch aid.
As the hon. Member for Sheffield, Central said, there is much evidence of the support that the Americans are giving their jet engine industry, amounting to some $760 million a year. What is even more significant about that amount is that some of the money being provided to launch the G-90 engine produced by General Electric—the direct rival of the Rolls-Royce Trent—is being provided by the European Community through the link between General Electric and the French engine company, SNECMA.
It is therefore no surprise that the decision taken by British Airways a year or two ago to buy that engine was based on the better price that GE could offer compared with Rolls-Royce, largely because of the subsidy that it received not only from the American Government but from the European Community. That example shows clearly the importance of the British Government getting right behind Rolls-Royce in this highly competitive jet engine industry, which will mean wealth creation, tax revenues and jobs running well into the next century.
That is true also for commercial aircraft. Because the Americans can no longer cross-subsidise, to the extent that they have in the past, civilian projects from military technology, they will directly subsidise commercial aircraft. Indeed, President Clinton has said as much in a number of speeches.
§ Mr. Stephen Day (Cheadle)
My hon. Friend will be aware that the Woodford plant of British Aerospace, where it builds the 146, is in my constituency. The company is looking to the future, with a deal with Taiwan and further development on the 146. Does he agree that it is essential, should the Taiwan deal not go through—we all hope and are fairly confident that it will, but have our doubts because we cannot be certain—that the company should have a chance to look for other partners because of the expertise and efficiency at the plant and the sacrifices made to produce an efficient manufacturing base at Woodford? Does he agree that, in those circumstances, it is essential that the Government ensure that such plants survive to be competitive in the future?
§ Mr. Mans
I agree with my hon. Friend to the extent that, if the regional jet series of aircraft produced by British Aerospace are to be successful in the future, they will need to look for partners outside this country. In that context, the British Government should get behind industries that are looking for partners to ensure that projects like the regional jet series continue, and continue to sell well abroad.
Another point that must be recognised relates to the reduced contribution that defence budgets, particularly ours, will make to research and development. In the past, we have partly gone down the American road of funding development through the defence vote. That is bound to be reduced in the future and it is, therefore, important that the DTI takes a more active role in that area, in partnership with the Ministry of Defence. Military and civilian development of aircraft have always run together, but now the burden of developing new products will fall increasingly on the commercial side. One way forward has already been pioneered in America, where partnership deals between companies and Government push along together developments that benefit both and have military and civilian objectives.
That can be taken a stage further. In the early 1980s, we produced an aircraft called the European aircraft prototype as a technology demonstrator for Eurofighter. We now have an opportunity in relation to the future large aircraft project. Here, I differ somewhat with the view expressed by my hon. Friend the Member for Ruislip-Northwood and believe that we must at least get the RAF to put a spec forward to that consortium to say what they want, so that the consortium can at least see whether its proposals meet the RAF's needs.
In that area, there is a possibility of providing a similar technology demonstrator to get industry and Governments together to see whether an aircraft to meet the needs of the different air forces in Europe for tactical and medium-range transport can be produced on this side of the Atlantic.
The DTI has a reasonable record of supporting the aerospace industry, at least until the mid-1980s. Its support in the future will become even more vital, as the industry becomes even more competitive. Without it, one of our few remaining world-class industries is likely to go slowly into decline. That has ramifications well beyond aerospace.
As the Select Committee report says, we need an overall policy framework for the industry. The DTI needs to spell out clearly its strategic thinking towards the industry. If it does that and supports the industry in the future, as it did before 1986, there is a fair chance that the aerospace industry will remain at the forefront of technology and continue to contribute handsomely both to our exports and to Exchequer revenues.
§ Mr. Nigel Jones (Cheltenham)
I welcome this opportunity to debate the crucial aerospace industry. I pay tribute to the Chairman and members of the Select Committee for producing such a readable and worthwhile report.
A few weeks ago, during the conference season, the Prime Minister made some encouraging comments about manufacturing industry. He said:We want British industry to be the best … Manufacturing industry is one of our greatest national assets … Compete on a level basis with the rest of the world … Make pounds for the UK; don't make dollars for other people … Sell abroad and buy at home.761 We should all have been encouraged by those statements. I certainly was. At last, I thought, the Government have realised the importance of manufacturing industry, and aerospace in particular, to the future of Britain.
I was encouraged by the report produced by the Select Committee into the British aerospace industry. It hit several nails on their respective heads. The industry is vital to Britain as an exporter and an employer. Aerospace is a net contributor to the balance of trade of some £2.5 billion a year. It is one of those high-value-added industries where Britain has enjoyed—and still enjoys in certain areas—the world lead.
As we have heard, Britain's aerospace industry is the third largest in the world behind the dominant United States and just behind France. However, competition is tough and becoming tougher. To survive in world markets the industry must stay ahead of the competition—and to do that requires huge amounts of investment in research and in technology acquisition.
The Convention of Scottish Local Authorities, which lobbied Parliament today, points out that British manufacturers are competing to sell our aircraft in an overcrowded market. They are competing against manufacturers from Brazil, France, Italy, the United States, Canada, Korea, Spain, Germany, Holland and Sweden, all of which are in direct receipt of Government support.
Our competitors understand that competition is fierce. In October, Germany announced an eight-point strategic programme for the improvement of basic conditions for aerospace in Germany. The United States Federal Government are investing billions of dollars in aerospace and they are increasing their support. NASA's 1994 aeronautical research and development programme is up by 18 per cent. to more than $1 billion. The United States Defence Department spends $37 billion, of which more than 50 per cent. is applicable to aerospace technologies. The dual-use technology budget in 1994 is $964 million, linking the best of America's defence and commercial sectors. As we have already heard, President Clinton has announced an additional $17 billion of support for technology between 1994 and 1997.
The most worrying feature of the aerospace industry is that it is widely believed that Japan has taken the strategic decision to produce an entire aircraft by 2015. Only a fool would bet against it achieving that aim, bearing in mind its success in world markets with cars, televisions, videos, hi-fi and computers. Other competitors are also building up their aerospace industries—for example, Taiwan and Indonesia.
With the background of the Select Committee report and after hearing the Prime Minister's encouraging words, I awaited the Budget with great interest. I hoped that, at last, the Government would take responsibility for mapping out a strategy for the future support of the aerospace industry. That is important because exactly the opposite has happened during recent years. Since 1974, Government support under the civil aircraft research and demonstration programme for the aerospace industry has fallen in real terms, on 1993 figures, from £87 million per year to £20 million per year.
Yet what happened in the Budget? Nothing. There was no vision for the future, no statement of direction, no tangible support for the industry—it was as though those who spoke at the conference were different people from those who speak in this House. Frankly, that is of great 762 concern to those who work in the industry and to those of us who represent constituencies with a long tradition of involvement in aerospace.
There was a time when Government felt and demonstrated responsibility for the future of industries in Britain. By any standard, aerospace is one of our key industries. As I have already said, it is one of the few that has a positive effect on the balance of payments —more than £2.5 billion. It also employs large numbers of skilled people in well-paid, high-value-added jobs. Sadly, during recent years the number of people employed has fallen and is continuing to fall—35,000 jobs have been lost since 1985.
Part of that reduction is due to improvements in productivity and the use of technology in the design and manufacturing process. However, part is also due to the lack of direction and Government support for an industry that is becoming increasingly competitive worldwide. The Government are not supporting our aerospace industry in the same way as the Governments of our major competitors are supporting their industries in the USA, France, Germany, Canada and, increasingly, the far east.
The Select Committee's report supported the view of the Department of Trade and Industry's aviation committee on what needs to be done to maintain the industry's technological competitiveness. That was set out by the aviation committee in the form of a national strategic technology acquisition plan—NSTAP—which the Minister accepted on 20 July. The key recommendation of the Select Committee's report was recommendation 19—
§ Mr. Adam Ingram (East Kilbride)
The hon. Gentleman said that the Minister accepted the NSTAP report on 20 July. It might be better if he corrected that statement and said that the principle was accepted—the Government have still not said how the recommendations in the report are to be funded.
§ Mr. Jones
I accept what the hon. Gentleman says. In fact, the former president of the Bristol chamber of commerce, Alex Ewens, wrote in the Western Daily Press on 19 November:The DTI has decided to adopt the principles of NSTAP, but has said nothing about how it is to be funded.Recommendation 19 of the Select Committee report states:The Government should set out in much greater detail than hitherto the overall policy framework and view of the industry's future which it intends to guide individual decisions affecting the UK aerospace industry.That recommendation and, indeed, the whole report was welcomed by the industry. Sir Barry Duxbury, director of the Society of British Aerospace Companies—the SBAC—the trade association for the aerospace industry, said in a news release dated 21 July 1993:This report proves that parliamentarians across the political spectrum are keen to take a long-term view of manufacturing industry. It also proves that the House of Commons does want to address the important issues that will determine our country's ability to pay for its social aspirations.Sadly, following the Government's response to the Committee's report, Sir Barry issued another SBAC release on 10 November stating:I must say that the Government's response to recommendation 19 was particularly disappointing. This recommendation urged the Government to set out in much greater detail than hitherto, its overall policy framework and view of the industry's 763 future—in other words, to spell out clearly the strategic thinking, analysis and prioritisation which should guide its policies. Yet the response implied an absence of strategic thinking.Those were Sir Barry's words, not mine—but I agree.
Britain has some excellent aerospace companies. British Aerospace is by far the largest, Rolls-Royce make the best engines in the world, and there are leading equipment suppliers such as Smiths Industries and Dowty—which have operations in and near my constituency. Dowty supplies the landing gear for the European airbus and won the contract for the A320 in 1983. Supply began three years later in 1986, and repair and overhaul is expected to start in 1994. It is likely that that aircraft will still be flying in 2025 or even 2030.
The Dowty A320 landing gear contract demonstrates the long life of aerospace projects—in that case, 40 years. I am making the point that investment this year will not bring a payback for many years. The Government have a role to play in helping projects through launch aid at the front end of a project, in the research and development years.
The Government should put into action the report's recommendations in full, increase the limited amount of support given to British aerospace companies so that they enjoy a level playing field in competition against countries in which Government support is more extensive, and extend launch aid to the equipment sector. That last point is important because equipment suppliers have been discouraged from applying for launch aid in the past. On page 69 of volume 2 of the report, Dowty states in evidence:Dowty did not apply for launch aid for its landing gear on the A330-340 in a formal way because we were consistently informed by the DTI that it would not be forthcoming.Why not?
Aerospace is a global industry. British companies, to succeed in world markets, must innovate and stay ahead of the competition. Although we need to join with our European partners to tackle ambitious projects such as the BFLA so that British companies retain a slice of world business now and in future, and while I welcome the recent link between Dowty and Messier Bugatti, British companies can—with the right support—create wealth and jobs for Britain into the next century.
My right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) introduced the Liberal Democrat alternative to the Budget one week before the Chancellor introduced his Budget. That of my friend mapped out hope for the future and included £400 million in support for scientific research. Part of that was earmarked for aerospace support.
Last Friday, I met Graham Lockyer, managing director of Dowty Aerospace Landing Gear. He estimates that the aerospace industry needs £100 million of support annually, which is rather more than the Government are providing this year. The industry is not asking for cash handouts or to be featherbedded, but wants a flow of orders so that it can produce a flow of supply.
I agree with the hon. Member for Ruislip-Northwood (Mr. Wilkinson) that the Government should make up their mind on the replacement for the Hercules transport fleet. British companies such as Westland of Yeovil and Dowty Propellers in Cheltenham have already won contracts to supply key equipment to Lockheed for the C130J, one of 764 the options. Many British Hercules aircraft are aging after decades in service and it is not fair that our service men should be expected to make do with aircraft of old design that have done sterling service for as long as 30 years.
The aerospace industry is not just about jobs today but about job and wealth creation well into the next century. The Government are placing that future in jeopardy. All the warning lights are red, with the fierce and increasing competition from abroad, the high and increasing cost of new products, and a slowdown in orders. This year, for the first time, design engineers have been made redundant. Once design teams are lost, it is virtually impossible to put them back together—and highly expensive if one can.
Aerospace is a global business and the people who work in it are extremely mobile. If there are no jobs for them in Britain, they will go abroad. If they see no long-term future for the industry in Britain, they will go abroad for good. There are competitors who would love to recruit designers from Britain because they are the best in the world. They would be recruiting not just the skills of our people but the world-leading knowledge that they gained in our companies. That would make it even more difficult for British firms to compete.
I urge the Government to act on all 19 of the Committee's recommendations. If they fail to do so, there is a danger that our aerospace industry will contract, jobs will continue to be lost, and we shall suffer a deteriorating balance of payments. I am critical of the Chancellor's Budget. Where were the measures to create wealth for five, 10 or 15 years down the track? We must encourage those companies which are at the leading edge of technology. We must train people to become the designers and the engineers of the future, and they must know that there is a secure, well-paid career ahead of them.
We must face up to the future and invest now; otherwise the future will be bleak. If we fail to act now, I fear that the historians of the next century will write of the British Government of the 1990s: "Where was the strategy? Where was the vision?"
§ 9.5 pm
§ Mr. Phil Gallie (Ayr)
I congratulate the Select Committee on Trade and Industry on a wide-ranging and deep analysis of the aerospace industry and welcome many of the Government's responses. I will pick up in particular three of the recommendations and responses which affect Jetstream aircraft. The company operates from my constituency in Prestwick and was referred to earlier by my hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson).
Jetstream employs 2,600 people at Prestwick. Redundancy notices have been issued to some 460, and a further 130 site contractors are also to go. The situation perhaps reflects the realities of the marketplace and Jetstream, which designs and builds turboprop regional jet aircraft, does not try to hide behind the difficulties of the marketplace. Its preference, without a doubt, is for free markets. However, even with the GATT talks coming to what we all hope will be a successful conclusion, it is unlikely that freedom of the marketplace will be a consequence of that conclusion.
Three major projects are produced by Jetstream, to which I will initially relate my comments on recommendation 8 of the report. One of the projects is the Jetstream 31, which is a real trailblazer: it is a 19-seater aircraft, is the 765 market leader worldwide and has taken up 36 per cent. of the 12 to 19-seat aircraft market. That has led Jetstream to develop Jetstream 41. It is a 29-seater and it was certificated in record time from the date of its announcement. Jetstream 41 has left the company's rival Dornier, which proposed a similar aircraft at the same time as British Aersospace, standing at the blocks.
Jetstream 41 offers a plane which can meet all the performance criteria of its competitors in speed, range and payload and, above all, meet them at what is recognised to be the lowest cost on the market—the lowest cost without a substantial subsidy. It has real potential. The Jetstream 41 and 31 programmes have received some Government support. Some £11 million has been given through regional selective assistance, regional development and training grants. However, there have been almost 400 sales, which has provided earnings of about $2 billion.
That means that Jetstream has paid to the Exchequer in taxes some £64 million, which, when the £11 million grant is taken into account, leaves it as a net contributor to the British economy accounting for some £53 million. That does not take account of the wealth that has been generated in Ayrshire, in Scotland generally and throughout the United Kingdom. Many companies throughout the United Kingdom assist and supply the Jetstream projects.
Recently, Jetstream failed to win an order from Sky West, an American company, for some 20 aircraft. That was despite the fact that it was recognised that the Jetstream product was liable to have the lowest cost. The competitor, Embraer of Brazil, used the Proex system of subsidy and was able to discount its aircraft by between 12 and 15 per cent. Its aircraft were thus $1 million cheaper than anything Jetstream could possibly compete with.
That brings me to recommendation 8 of the report. There is a suggestion that the United Kingdom Government should make comparisons between the levels of subsidies offered here and those offered overseas. In the example to which I referred, that would be very helpful.
§ Mr. Foulkes
Is the hon. Gentleman aware that, for once, I agree with everything that he has said? I hope that that does not upset him too much and does not do him too much harm back home. Does he agree that he and all Ayrshire Members made those points when they met the Minister for Industry? Does he also accept that we were all a little disappointed by the lack of urgency that the Minister brought to the point? Will the hon. Gentleman join me in hoping that the Minister for Industry has now appreciated the seriousness of the situation in Prestwick and that he will deal with these matters rather more vigorously in his reply tonight than he dealt with them at our meeting last month?
§ Mr. Gallie
The hon. Gentleman may agree with all that I have said today, but I will hold back a little my total agreement with him on the issue. I was slightly disappointed by some of the things that my right hon. Friend the Minister for Industry said to me on that occasion. However, when I spoke to him later, he gave me assurances and said that he would meet the managing director of Jetstream. He assured me that if he received additional information, the issues would be addressed positively. I have every confidence that my right hon. Friend will do that in due course. I accept that it was necessary to provide additional information.
766 Let us consider the facts behind the Brazilian offer in respect of Embraer. The salt is rubbed in when I discover that we have been providing technical aid to Brazil through our overseas aid programmes and through international debt write-off. Ministers must consider that aspect. I am in favour of overseas aid, but it must be provided reasonably. I do not expect it to bounce back and kick us in the teeth, as it has on this occasion. I am concerned about the fact that a further order of 20 aircraft is probably coming up. I hope that my right hon. Friend the Minster will address that issue and ensure that the same conditions do not prevail the next time round.
Prestwick has recently taken on the advanced turbo-prop programme. It picked up a considerable number of problems, but the designers are coming to grips with them. Indeed, British Airways has commended those designers on the way in which they have tackled some of the long-standing problems of the ATP. The intention is to turn the ATP into the new Jetstream 61 which will compete—and I am confident will beat—the ATR 72, which has the majority market share in the 60-seater market.
The Government have provided assistance through regional aid through the Scottish Office. To date, no payments have been made, but with the successful transfer of the ATP to Prestwick, I believe that that payment is now due. When we consider the range of aircraft that Jetstream needs to build if it is to stay in that sector of the market, it is clear that there are gaps in the 50-seater and 70-seater ranges. In those respects, Jetstream needs, and is looking for, partners. At the same time, it will need assistance with launch aid, about which we have heard much tonight.
I now refer to recommendation 10. We are aware that launch aid is dependent on GATT, which suggests that a third of relevant costs can be met in launch aid provision. That reflects one third of the costs associated with the development of aircraft above the 100-seater range. One can compare the development costs and profitability of smaller aircraft. Larger aircraft are restricted to one third support payments. I query whether it would be possible, under existing arrangements, to go above one third launch aid support for aircraft beneath the 100-seater range. That would be a great benefit to Jetstream.
When we consider the potential market for aircraft in that range, we must acknowledge that any money brought forward initially by Government support for projects such as the Jetstream 61 and 51 and, some day, the 71 will be well spent if the returns are as good as they have been in respect of the Jetstream 31 and 41. I am confident that, with the knowledge, capability and design expertise in Jetstream at Prestwick, such good returns can certainly be achieved.
Recommendation 13 of the Trade and Industry Select Committee report refers to the Ministry of Defence procurement programme. I was particularly pleased to see my hon. Friend the Minister of State for Defence Procurement here. Not long ago, he met me and the managing director of Jetstream to consider the Department's trainer provision, currently T30s and T31s.
§ Mr. Brian Donohoe (Cunninghame, South)
Has anything come of that meeting with the Minister of State for Defence Procurement, given that it is the wish of the Jetstream management and the work force that an order be placed by the Ministry of Defence to replace old aircraft?
§ Mr. Gallie
I thank the hon. Gentleman for that intervention. Ministry of Defence officials have met people 767 from Jetstream at Prestwick to discuss those issues. A paper was tabled which laid down what Jetstream considered to be some long-term financial advantages. I am not aware of the final conclusions, but I should like at least to think that the Ministry of Defence and Jetstream can find a solution that will benefit them both.
On free trade, Britain cannot be unilateralist. Therefore, I again refer to my first point and ask my right hon. Friend the Minister for Industry to analyse every aspect of the subsidies which operate in the international aviation market and ensure that Jetstream can compete on a level playing field.
My right hon. and learned Friend the Chancellor mentioned a 20-seater aircraft tax exemption to be applied to travellers within the United Kingdom. Given the current situation, and given the sort of aircraft that service the highlands and islands, it would be reasonable to extend that tax relief to 70-seater aircraft. That, above all, would help Jetstream with its excellent project.
My final point relates to the export credit guarantees on Jetstream 31 and 41 aircraft. If the time elements of seven and 10 years were extended to 12 years, it would be a great boost to the excellent products manufactured by Jetstream at Prestwick.
§ Mr. Adam Ingram (East Kilbride)
I am only the second member of the Select Committee to participate in this debate. I echo the sentiments of my hon. Friend the Member for Sheffield, Central (Mr. Caborn) and pay tribute to the clerks and staff of the Committee, and to the specialist advisers. Undoubtedly, they assisted us in producing a report that has been warmly welcomed by everyone connected with the aerospace industry, other than the Department of Trade and Industry.
Given the time scale I now face, I hope to comment on the Government's response to the report. It is interesting to note that not one Tory member of the Select Committee is present in the House tonight. It is also interesting to note that Scottish National party Members are not present either, although more than 8,000 manufacturing jobs in Scotland are tied up in the aerospace industry.
The British aerospace industry is vital to UK plc. It is one of the high-value industries and is a major contributor to employment in a high-skill, high-wage sector, exports and technology. More important, the industry is vital to the regions of the United Kingdom. Until last year, Rolls-Royce was the largest manufacturing employer in my constituency of East Kilbride. It has now gone down the pecking list to become the second largest manufacturing employer. It has dropped thousands of jobs over the years.
I do not have time to go into the background of Rolls-Royce, but it is no exaggeration to say that there is extreme nervousness among the work force at East Kilbride and the sister plant at Hillingdon in Glasgow. Certainly, the work force are critical of the company but they have a certain understanding of the dilemma and difficulties that it faces. However, the workers do not have confidence in the Government and the way in which they approach such a crucial industry.
If my hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) had spoken in the debate, 768 he would have referred to the situation at British Aerospace at Prestwick. I am sure that he would have made a similar comment about the Rolls-Royce workers in Glasgow and East Kilbride. Those workers have no confidence whatever in the Government. They know that the industry is doing its best and the company is fighting hard in a competitive market without the Government's support.
We have a lot to be proud of in Britain's aerospace industry, but we have more to be concerned about for the future. Engineers do not live on history alone. One message game across loud and clear in all the evidence given by aerospace manufacturers in the United Kingdom and the main suppliers—there is a need for a coherent Government strategy for the aerospace industry if the country's relative international strength in aerospace technology is to survive beyond the end of this decade and into the next century.
Every company that gave evidence to the Committee—Rolls-Royce, British Aerospace, Short Brothers, GEC, Dowty, Westland, the major trade associations, the Electronic Engineering Association and the Society of British Aerospace Companies—highlighted the growing concern about the near crisis in the industry.
There is no doubt that the industry is suffering, and will continue to suffer, because of the Government-created UK recession, the international recession and the effects of the massive and largely unpredictable downturn in defence expenditure world-wide. Uniquely among our competitors, that suffering is compounded in the United Kingdom industry by an indifferent and unsupportive Government. The Americans, French, Germans, Japanese and the emerging aerospace economies in Taiwan, Indonesia and Brazil all have the active support of their Governments. Those Governments recognise the long-term planning and investment horizons, which are an integral feature of aerospace technology, and assist their home-based companies accordingly. It is only in the United Kingdom that the view remains within Government that they should have a hands-off approach and that the market should dictate the future developments of this most strategic of industries.
The difference in strategy between, say, the United Kingdom and the United States could not be more stark. The DTI and the Government dither about what to do with the Select Committee report and the fears and worries of the British aerospace industry, while at the same time cutting the support that they give the industry. Compare that with the United States aerospace industry. One of the first steps of the incoming Clinton Government was to lay down a revised technology and investment plan, committing more than $17 billion for the period 1994 to 1997. The bulk of that will be of direct benefit to the United States aerospace industry. By comparison, our Government are cutting support to one of our crucial industries.
In its evidence to the Committee, Shorts, which I mentioned earlier, highlighted the difference in approach between this country and competitor countries. It told the Committee that it knows, from particular collaborative projects in which it has been involved, that significantly higher levels of financial assistance are available in the Netherlands, France, Germany, Spain, Canada and Japan than are available to it.
§ Mr. Ingram
No. The hon. Gentleman took enough time, and I am not going to give him more time.
I am sure that the chief executive of Dowty spoke for the whole United Kingdom aerospace industry when he told the Committee that the company was up against not just competitors but other Governments.
The tragedy is that the United Kingdom Government are rapidly becoming one of those Governments that the United Kingdom industry is up against. It is for that reason that the Committee laid down its 19 recommendations. The report was unanimous. There was a Conservative majority on the Committee and 19 recommendations set out what the Committee thought was necessary for the future of the United Kingdom aerospace industry.
The recommendations fell into two main categories. The first concerned the need for public money to be allocated to the industry. That public investment should be targeted in two key areas—implementation of the national strategic technology acquisition plan, which my hon. Friend the Member for Sheffield, Central spoke of in detail, and an improved allocation of launch aid for specific projects.
The other key area dealt with the need for a coherent strategy. I shall make two brief points about NSTAP and launch aid. NSTAP is not an over-ambitious concept, nor is it greedy in its demand for public funds. It is calling for £1 billion to be invested in this strategic industry over 10 years. I see the grocer on the Government Front Bench smiling. The Minister does not understand how important investment in those industries is. That request for investment would be matched by the industry itself. It must be set against the $17 billion which was mentioned earlier, and which has been laid down for a four-year period in the United States.
Given the time constraints on me, I shall conclude by saying that I wanted to mention in detail the letters that Rolls-Royce sent to members of the Committee and to hon. Members who are interested in the industry. However, I draw the Minister's attention to a letter that refers to the importance of the recommendations in relation to the NSTAP report and to launch aid. Rolls-Royce is not a company with its hands out, greedily dipping into the taxpayer's pocket. It contributed greatly to the well-being of the country. If the Minister has not already read that letter, it would be well worth him taking the time to do so.
Another comment was made about the Select Committee's report. Recommendation 19 set out a request, which was not over-radical, for a coherent strategy for the industry. The response from the Minister and the DTI was nothing short of scandalous. It is worth repeating a quote about that response. It is little wonder that Sir Barry Duxbury of the Society of British Aerospace Companies retorted:Yet the response implied an absence of strategic thinking.That absence has major implications for tens of thousands of manufacturing jobs. If the Government do not decide soon what they will do, we shall not have an industry left that is able to compete with the best in the rest of the world. We have only a short time scale in which to do that. I shall listen carefully to the Minister's reply to the Select Committee report.
§ Mr. Roy Beggs (Antrim, East)
I congratulate the Chairman and members of the Committee on their excellent report. The maintenance of a successful United 770 Kingdom aerospace industry is of even greater importance to Northern Ireland than it is to Great Britain, although that importance has been outlined by hon. Members with constituency interests on the mainland.
Short's of Belfast is the oldest aircraft manufacturing company in the world. It was founded by the three Short brothers at the beginning of the century. It was in Government ownership from 1943 until it was privatised in 1989 and then acquired by Bombardier. Since privatisation, almost £200 million has been invested in a programme of re-equipping and modernisation. That programme is nearing completion. Annual sales have doubled. The company has returned to profitability and, as Northern Ireland's largest employer, with more than 7,000 employees and approximately 3,000 jobs among local suppliers, its growth reflects Short's success.
The company manufactures the Short's Tucano military trainer under licence and designs and manufactures aircraft components and structures for Boeing, Rolls-Royce, British Aerospace, Fokker, Lear Jet, Canadair and others. Most of Short's business is based on international collaboration with other Bombardier aerospace companies, including a partnership with Fokker and Deutsche Aerospace on the Fokker 100 aircrft, joint ventures with Hurel-Dubois for engine nacelles and with Thompson in missiles. The design and manufacture of guided weapons systems for very short-range air defence remains a profitable aspect of Short's business.
Since privatisation, the company has made rapid progress as a result of focused investment and radically improved manufacturing processes. Its competitiveness and capability within the aerospace industry has never been better. The company is in a sound position to cope with the recession in the commercial aircraft industry and the decline in military orders, but today's strength could be threatened in the long term unless there is closer co-operation between the Government and the British aerospace industry as a whole in the immediate future.
The United Kingdom industry is crying out for a national plan to maintain the United Kingdom's technological advantage. Adequate levels of Government support for research and development, launch aid and other investments is essential to safeguard the industry in the future. The investment programme at Short's, the process improvements, freedom to harness the skills, effort and enthusiasm of the work force and competitiveness in a commercial environment have made Short's the best cost producer in the Bombardier aerospace empire. Since privatisation, the company is putting more and more business into Northern Ireland through its local support development progamme.
I have some questions for the Minister. Have the Department of Trade and Industry and the Ministry of Defence got the same level of commitment as the United Kingdom aerospace industry to maintaining that industry at the leading edge and in a position of strength in world markets? Have the DTI, the MOD and the Treasury reached an agreement yet with the United Kingdom aerospace industry on the long-term future plans for that industry? Do the Government accept that there should be a national technology acquisition plan? What proposals does the DTI have to support and encourage the United Kingdom aerospace industry to continue to invest, even through recession, in new project development and new 771 technology acquisition to prevent our international competitors from achieving advantage through their on-going investment programmes?
§ Mr. Derek Fatchett (Leeds, Central)
I also congratulate my hon. Friend the Member for Sheffield, Central (Mr. Caborn) and his Committee on producing the unanimous report. Those of us who have sat through the whole debate have seen that unanimity reflected in every comment. It will not be unique that the only discordant voices will be from the Government Benches, when all the arguments made by the Minister's hon. Friends and my hon. Friends will be ignored and the Government's line that it should all be left to market forces will be repeated.
My hon. Friend the Member for Manchester, Blackley (Mr. Eastham) made two important points, about the GATT negotations and about the aerospace industry. I am sure that all hon. Members feel that we need transparency in the aerospace industry—particularly in view of the American subsidies—or the European industry will be placed at a considerable disadvantage. I hope that the Government, through the European Union, will take a strong line on that.
My hon. Friend the Member for Blackley also mentioned the skills needed in the aerospace industry and those that have already been developed. A key aspect of this important industry is not just its contribution to the balance of payments or that it is a high-tech industry, but that it is one of the most highly skilled industries in the country, if not the highest. Some 40 per cent. of the country's skilled and technical personnel are employed in the aerospace or aerospace-related industry. We cannot afford to lose that skilled manpower and investment, and my hon. Friend was right to draw that to our attention.
The hon. Member for Ayre (Mr. Gallie) made a cogent case for public intervetion and mentioned the spin-off that it has for the public and private sectors. It is a rare occasion, but his contribution is worth another look. I suggest that he reads it again, because he will find that, instead of somebody who strongly believes in the market, he is sombody who believes strongly in public intervention.
The hon. Member for Ayr made a very strong case for Jetstream showed his concern for it. His concern is shared by my hon. Friends the Members for Carrick, Cumnock and Doon Valley (Mr. Foulkes) and for Cunninghame, South (Mr. Donohoe). They also support the Committee's recommendation in relation to launch aid and the need for public expenditure in that respect.
Two key issues came out of the debate. The first was defence procurement and the extent to which the aerospace industry relies on it. In paragraph 108 of the Select Committee's report, an unnamed witness from GEC made comments which strongly sum up the arguments in favour of some system of defence diversification:if we are not careful, almost a classic recipe for eventual run-down and decline of the aerospace industry, because the Ministry of Defence is, in aerospace terms, the main procurer/buyer without having the responsibility for the health of the industry. The DTI, of course, has responsibility for the health but has not got the clout to actually do anything about it.That summarises the problem between our commitment to defence and the rundown in defence expenditure. The hon. 772 Member for Ruislip-Northwood (Mr. Wilkinson) made an interesting contribution about defence procurement and the role for the Government, but, along with every other speaker, he recognised the important point that defence expenditure will decline in the future.
When one compares the comments made to the Select Committee by a representative of GEC with the response from the Minister, it is clear that there is a great gulf between the attitude expressed by one of our leading companies and that of the Government. The Minister said that matters should simply be left to the market. He said it was up to individual companies to sort out their own futures.
No one would accuse GEC of being a socialist organisation or of being anti-market. It is clear, however, that that company has recognised something that the Government are either too blind or too stupid to see, because it appreciates that the Government have a role to play if we are to keep the skills and technology that are tied up in the aerospace industry. President Clinton and other Heads of Government have recognised that, but our Government believe that matters should simply be left to the market.
I hope that, even at this late hour, the Minister for Industry will recognise that the Government should make a different response to the calls from industry and that they should recognise the importance of skills and technology. At the end of the debate, perhaps the right hon. Gentleman will say to my hon. Friend the Member for Sheffield, Central and all those who supported him in the Select Committee and in the House tonight, that the Government accept their responsibility to help those companies that rely on defence orders to diversify their skills and technologies into new civilian-based activities.
The first issue to consider is defence procurement and its future. The second issue is the role of the Government and their responsibilities. My hon. Friend the Member for East Kilbride (Mr. Ingram) was right to say that our defence industry competes not only against other foreign industries, but against their Governments. The key issue that we must recognise is that, as my hon. Friend said, this is a global industry in which the players are not simply companies, because in every other country the players are companies and Governments working together.
The key passage in the Select Committee report is contained in four paragraphs on pages 38 and 39 that discuss the role of Government support. It is worth reminding ourselves that that report is an all-party document and that its recommendations are unanimous. Each of them suggests to the Government that there must be greater public support for various activities relating to the aerospace industry. The reasons set out in those four paragraphs are understood by everyone except the Minister. Everyone else is aware that the British aerospace industry, in common with every other aerospace industry, needs long-term investment in research and development. The financial market cannot satisfy those needs, so the answer must be for the Government to adopt a more proactive role. Labour and Conservative members of the Select Committee recognised the need for additional expenditure.
Apart from funding, hon. Members have also identified another problem that confronts British industry and British aerospace industries in particular. Those industries suffer from one other crucial weakness: they simply do not know 773 where the Government are going strategically. There is no clear definition of the relationship between Government and industry.
I know that that may come as a surprise to you, Madam Speaker. I also know that you read widely, and I am sure that you read the publication of the President of the Board of Trade on politics and industry, which appeared when he was going around the rubber chicken circuit, running his campaign against the then Prime Minister. The right hon. Gentleman said in that work that the aerospace industry was the key industry that Government had to support and with which they should define a proper role.
That is the view of the President of the Board of Trade. Unfortunately, he did not seem to have gone from one office to another in the Department of Trade and Industry to explain that role to the Minister of State who is now responsible. It is so clear and frustrating and comes out in the evidence and conclusions of the Select Committee report, that British industrialists do not know what the Government expect or what they can expect of the Government. We often hear the phrase that we need a level playing field. The Government cannot define the playing field because they feel that they have no responsibility in that direction. We and the Select Committee want the Government to play a clear role in defining their purpose and function in relation to the aerospace industry.
Many questions have been raised, which the Minister would like to answer. What I should like to hear from the Minister—crucial and sadly lacking in any contribution that he makes to this or any other debate—is agreement that we need a strategic view and a vision of partnership between Government and industry and a recognition that that would help and assist an important industry such as British Aerospace. The Committee report has set that out and it is now up to Ministers to live up to that challenge. I fear that they will fail yet again.
§ The Minister for Industry (Mr. Tim Sainsbury)
I shall begin with three lots of congratulations. First, I congratulate and thank the Select Committee on Trade and Industry on the painstaking and thorough work in its report on the aerospace industry. In the comments that the Committee made on the Government's response, I was pleased to see that we have made "a useful beginning" in translating its recommendations into action. I know that Select Committees are not always so generous to the Government, and for a moment in tonight's debate I thought that that generosity was slipping away. I also congratulate all hon. Members on both sides of the House who have spoken. I hope that what they said has reaffirmed the importance that the House attaches to the industry.
Thirdly, I congratulate the industry itself. In 1992, in the midst of one of the worst downturns in the civil and military aerospace industry since the war, United Kingdom companies continued to perform well with sales of over £10 billion, exports worth £7 billion and a positive balance of trade of well over £2 billion, and was one of the major sources of employment with more than 137,000 employees.
As the hon. Member for Manchester, Blackley (Mr. Eastham) said, it is something that we are really good at. Plenty of companies in the sector are good examples of world leaders— British Aerospace in military technology and the design of large and advanced wings, Rolls-Royce 774 plc across a whole range of civil and military engines, GEC, Westland and, as the hon. Member for Antrim, East (Mr. Beggs) mentioned, Short's, a company that I have visited on more than one occasion and one that has transformed to become among the world leaders in its field.
However, as hon. Members have said, there are problems. There have been job losses and the industry has recently suffered. I share the concern that has been stressed about those who have lost their jobs. Nevertheless, those losses must be placed in context. No person or business is entirely immune to market conditions. That even includes the mighty Boeing company, which recently announced production cuts that will lead to job losses of 3,000 now and of 27,000 by the middle of next year.
§ Mr. Barry Jones (Alyn and Deeside)
Will the Minister say whether the airbus issue has been withdrawn from the GATT talks tonight? Will he tell the House what the latest situation is, as I have a big constituency say in that decision?
§ Mr. Sainsbury
I know of the hon. Gentleman's constituency interest. I shall come to the GATT situation later. I have been in the House for three years and I do not know how up to date I will be—[Interruption.] I am sorry, I meant three hours: the situation is changing hourly, not just yearly.
Hon. Members will know of many other job losses throughout the world in the industry— times are hard. However, I do not believe that they will remain so for ever or even for long. In those circumstances, obviously the industry must ensure that it emerges from the recession lean, fit and ready to take on the challenges and opportunities of the longer-term growth in the market.
The primary responsibility lies with the industry to restructure, forge international alliances, plan for the future, benchmark itself against its leading competitors and ensure that it operates at peak efficiency. Governments can help by getting the economic climate right, emphasising the need for competitiveness and establishing sensible rules governing world trade such as GATT. Ultimately it is for the industry to ensure its own future by effective management.
There has been a lot of talk today about the overall policy framework. Indeed, much of the Select Committee's work has been to look at what the Government's role is or should be. In its recommendation 19, the Committee asked the Government to set out our overall policy framework in more detail. If the Government are to have a sensible understanding with the aerospace industry of where our and their priorities lies there must be adequate communication between us. Helping United Kingdom business to compete in world markets is our shared objective. Therefore, we shall continue our close dialogue with companies, trade associations and the people of the industry. Within that framework, industry can make clear to us its priorities.
However, we do not believe that it would be sensible for the Government to make a once and for all strategic statement. After all, the Government are not the key player.
§ Mr. Sainsbury
No. I must press on. Time is limited. The Government have a responsibility to set a climate in which industry can prosper by their economic and fiscal policies, by establishing a free and open trade regime and, 775 in industries such as aerospace where the market finds it difficult to respond to all the industry's needs, by taking specific measures such as launch aid and the civil aircraft research and demonstration programme. It is for industry to take the lead in ensuring that it can win in world markets.
The hon. Member for Sheffield, Central (Mr. Caborn) and several other hon. Members referred to the national strategic technology acquisition plan. The Committee's report placed a great deal of weight on it. The plan was produced by the aviation committee—a useful committee set up to advise the Government. The document is extremely useful and to some extent groundbreaking, as I hope that I made clear last July when I adopted the technological priorities which it contains on behalf of my Department.
By producing the NSTAP when it did, the aeronautics industry has led the way in carrying through the approach to technology foresight and the prioritisation of research and technology which was set out in the Government's science and engineering technology White Paper "Realising our Potential". That is not to say that NSTAP is a simple and self-sufficient list of instructions which one needs only to follow closely to guarantee immediate technological enlightenment.
Although the plan is a detailed and thorough document, a considerable amount of work is needed if it is to be applied in practice. First, the generic categories that it represents are to be broken down into more specific areas of direct application. Secondly, those categories need to be mapped on to the research effort that is already going on, especially in industry, my Department, the Ministry of Defence, the Civil Aviation Authority, the Science and Engineering Research Council, academia and Europe.
Until we are clear about the range of current activity, we cannot identify the gaps and overlaps that may be limiting the effectiveness of our efforts in research and technology acquisition. Such painstaking work is an essential prerequisite in assessing whether extra effort is needed.
In order to achieve this, a working group involving industry, the Department of Trade and Industry, the Ministry of Defence, SERC and the Office of Science and Technology is carrying out pilot studies which are intended to refine the analysis in the NSTAP. That involves taking three category 1 technologies, assessing industry's needs in the light of commercial opportunities, relative priorities and benefits to the United Kingdom, and matching the results against existing industry and public sector programmes. Those studies will take some months, after which we can judge the best way to proceed.
§ Mr. Sainsbury
I cannot give way, as time is limited, if the hon. Gentleman will excuse me.
That is not to say that NSTAP has only had an influence in the world of theory and not in the real world. The priorities set out in the plan have served as a guide in the selection of the project to be supported under the second CARAD programme. Those priorities are also helping to define the areas that should be emphasised under the European Community framework 4 programme.
By its very nature, research and technology acquisition does not normally allow for a precise identification of the 776 appropriate level of resource for any given project. If I may explain by example; we might be seeking to identify an alloy with certain properties. We could have one team in one lab working on the research part time, or several teams in several laboratories working full time. One cannot know in advance whether the first or the second team will arrive at the right answer. The pharmaceutical industry is a good example of that.
However, in CARAD we are not dealing with just one project but a range. My Department's second and third year CARAD programme was rigorously assessed to ensure a clear focus on the priorities that have been identified by the industry. It must be for Government to determine the priorities between the various demands of industry and the economy as a whole and, therefore, the resources to be allocated to CARAD.
We take fully into account the importance of the industry, the range of priorities that have been identified, the importance of maintaining our technological competitiveness and the very substantial resources being devoted to research and development for the aerospace industry by that industry, the Ministry of Defence and other publicly funded science and technology programmes in Whitehall, the science base and Europe.
It is against that background that I have to tell the House that I do not believe that any reliable or precise estimate can be made of the right level of public support for research and technology acquisition. It is a matter of judgment in the light of all the circumstances and subject to regular review as those circumstances change. Indeed, the very process of review, involving close liaison between my Department, the industry and other organisations, is building the partnership that we need to bring the NSTAP priorities to fruition and hence to influence the research priorities in industry, Whitehall, defence, the science base and Europe.
In the limited time available I do not intend to comment directly on the Government's role as a customer. That is a matter for my right hon. Friend the Secretary of State for Defence. However, as hon. Members will have seen, my hon. Friend the Minister of State for Defence Procurement has been present and has noted what has been said.
Some hon. Members have spoken—notably the hon. Member for Leeds, Central (Mr. Fatchett)—as if the Government did nothing for the industry. So I make no apology for running once again through the support that the industry already enjoys, since it is the envy of many other equally significant sectors.
Since 1979, we have made available more than £1.5 billion in launch aid, regional development grants and support for research and development programmes. The Export Credits Guarantee Department has provided £735 million in export credit guarantees during the past three years. Launch aid is unique to the aerospace industry, which is the only sector with its own dedicated DTI research budget. The House should recognise the considerable scale of support that the industry has had and continues to enjoy.
The GATT Uruguay round has been mentioned and it is reaching what seems to be a nail-biting conclusion. We have been actively working, through the EC and directly, to press for more equitable and comprehensive disciplines on the trade in civil aircraft, their engines and equipment.
My hon. Friend the Member for Ayr (Mr. Gallie) mentioned Jetstream. I know that he takes a great interest in that company and I look forward to meeting him and the 777 managing director later this week. Jetstream has made it clear that job losses were necessary to improve productivity, reduce costs and reflect present demand. Prestwick has benefited from previous Government assistance and substantial regional selective assistance is on offer from the Scottish Office for future development. Jetstream's current problems arise from the weakness in the market and the world-wide overcapacity and not from the lack of Government support. They are seeking a more international, collaborative partner to put their business on a sounder footing, and we are supporting the company when asked to do so.
My hon. Friend the Member for Ayr mentioned the subsidies received by others. We must act, within international rules, to challenge subsidies offered to overseas competitors. That does not always bring quick results. Jetstream met my Department last week to discuss its evidence and we are continuing to discuss how best to pursue the matter.
At the start of my speech I paid tribute to the industry. It has received considerable support from the Government and we shall continue to support it. It is one of our leading exports; it provides employment throughout the country; and it stands at the leading edge of technology. We should celebrate its success, and I am pleased to do so tonight.
I apologise to those hon. Members who have made points to which I have not responded. I shall read the debate and I hope to respond to them in writing. I apologise for the shortness of time and I am grateful to those hon. Members who contributed to the debate.
§ It being Ten o'clock, MADAM SPEAKER interrupted the proceedings, and the Question necessary to dispose of the proceedings was deferred, pursuant to paragraph (4) of Standing Order No. 52 (Consideration of estimates).
§ MADAM SPEAKER, pursuant to paragraph (5) of Standing Order No. 52 (Consideration of estimates), put the deferred Questions on Supplementary Estimates, 1993–94 (Class II, Vote 2 and Class IV, Vote 2).