§ 2.50 p.m.
§ Order of the Day for the Second Reading read.
§ THE MINISTER OF DEFENCE FOR THE ROYAL AIR FORCE (LORD SHACKLETON)
My Lords, I beg to move that this Bill be now read a second time. The purpose of the Bill is to give effect to arrangements, already publicised at very great length, for financing the Government's programme of purchases of American aircraft. Although the facts are well-known, and have frequently been discussed both here and in another place, I think it will be for the convenience of the House if I briefly summarise the process which led the Government to introduce this Bill.
Your Lordships will be aware that the present programme for the purchase of American aircraft was arrived at in three stages. First, under the Conservative Administration a decision was taken to equip the Fleet Air Arm with the Phantom F 4K fighter instead of, as had previously been planned, the P 1154. The second stage in the process was the decision, announced in February last year, to cancel the P 1154 and the short take-off tactical freighter for the Royal Air Force and to purchase instead the P 1127, the Phantom F 4M, and the Lockheed C 130—the Hercules. During negotiations with the American Government for the purchase of the C 130 and F 4M, the Government also arranged that the American Government would make available to us credit facilities to cover the dollar costs of these new purchases. It was later agreed, and announced in August last year, that 1258 these credit facilities should be extended to cover the Naval Phantoms ordered by the previous Administration.
The third and final stage in the process was completed early this year, and announced in the Defence White Paper. It entailed, following the decision to cancel the TSR 2, the adoption in its place of a programme entailing the use of a small force of American F 111A aircraft in the tactical reconnaissance and strike rôle. Initially this force would be supplemented by V-bombers used, again, in the tactical reconnaissance and strike rôle. Later, the V-bombers would be phased out and replaced by the Anglo-French variable geometry aircraft.
The Government's reshaping of the Military Aircraft Programme had two main objectives—to relieve the burden on the economy, and to ensure that the Services obtained the aircraft they needed on time. As noble Lords will recall, in the case of two aircraft, the P 1154 and the short take-off tactical transport aircraft, there was great anxiety as to the dates at which they would come into service. Inevitably there has been controversy about so far-reaching and radical a set of decisions, but what we are discussing to-day is not so much the decisions themselves, as the manner in which they will be financed, and in particular the manner of minimising the effect of the decisions on the balance of payments, and this will no doubt give the noble Lord, Lord St. Oswald, an opportunity to pursue the subject which he attempted to pursue last week.
Let me first deal with the balance-of-payments point. It has been announced in another place that, over the next ten years, the total American aircraft programme—that is the 66 C 130s, 200-odd Phantoms for the Navy and the Royal Air Force, and 50 F 111As, together with their supporting equipment, dollar running costs, and interest payments, will cost in all £660 million over the ten years beginning April 1, 1966. Before allowing for interest payments, the total is £570 million. This is a formidable sum, some-think like twice the cost of the smaller corresponding dollar programme of the previous Government. This programme included, as your Lordships will be aware, not only the Naval F 4Ks, but about £25 million in dollar components for the TSR 2.
1259 We tackled this prospective dollar burden in three ways. First, by the credit arrangements, which I will come to later. Secondly by reviewing the other major dollar element in the Defence programme—the Polaris submarine and deciding to reduce the planned force from five to four. Thirdly, we sought to step up our exports of arms to offset the dollar bill, and, as your Lordships will be aware, we concluded arrangements with the United States Government for American procurement in this country, and for Anglo-American co-operative sales overseas which we expect to result in receipts of £240 million in overseas currencies. Before allowing for the effect of the credit arrangement, the result of these adjustments was to put us, in terms of dollars, into a position not very much worse than that from which we started. The average additional dollar burden of the new programme was well under £10 million a year, as compared with the Conservative Government's programme.
In domestic terms, of course, the benefits were enormous, and I want to stress that we achieved, as the Defence White Paper pointed out, savings of £1,200 million over the aircraft programme as a whole over the ten-year period. That point, however, is not immediately relevant to the purpose of the Bill, but I think it is none the less worth making. We had to face at the same time the impact of this dollar burden in return for this very great gain. The central feature of the new programme was that very heavy liabilities would arise during the next two or three years, when balance-of-payments pressures would inevitably be severe, and indeed it was a mark of the previous Government's defence plans that similar heavy burdens would have fallen to be met in the next few years. We were therefore very glad to conclude with the United States Government an arrangement under which the capital value of the aircraft now to be purchased, including the Naval Phantoms, would be made the subject of seven-year loans at the moderate rate of interest of 4¾ per cent. These loan arrangements will enable us to spread out the dollar burden in such a way that payments up to and including 1968 will be kept small, with the bulk of repayments falling in the period between 1968 and about 1977.
1260 The price we pay for spreading out the burden in this way is interest totalling about £90 million.
In all, therefore, by the time we have added in the interest, we face an additional dollar burden averaging about £16 million a year in consequence of these far-reaching decisions which on the other side will reduce the call on domestic resources in respect of arms production by an average of about £140 million a year—£1,400 million over the ten-year period. This £1,400 million represents facilities, skills and resources which we are able to divert to other parts of industry, making a contribution to the health of the economy, either by reducing the demand for imports or by directly increasing exports of manufactured goods. The purpose of the Bill now before your Lordships is to extend the Treasury's powers to borrow so that we can take advantage of the credit facilities negotiated with the Americans, and to make it possible to use the borrowed money to relieve Votes on which payments for the aircraft and their equipment will be made.
The need for legislation arises because the advances which the American Government are making to us to enable us to meet bills for the aircraft are specifically linked with progress payments made to the manufacturers. Although the Treasury has general powers to borrow in the course of its management of the National Debt, these powers do not enable the proceeds of such borrowing to be appropriated in aid of specific expenditure on Votes. These are the main reasons why legislation is being sought.
I should like now briefly to explain the mechanics of the process by which the money will be borrowed and accounted for and the process by which it will be paid back. I will then run briefly through the provisions of this small but rather technical Bill. As work goes ahead on the orders we have placed, the United States Department of Defence will make progress payments to American manufacturers. The money for these progress payments will be provided by periodical borrowings by the United Kingdom in the United States.
In parallel with this borrowing transaction in the United States, the Treasury, under the provisions of the Bill, will be required to lend money to the Ministries 1261 of Defence and Aviation, and these lendings will be shown as appropriations in aid of Votes presented to Parliament. In this way each year's borrowings will be submitted for Parliamentary scrutiny.
An example of this part of the process appears in the Ministry of Aviation's Vote 9—which sets out very clearly how the process works, and it is a difficult one to follow—which, although only a token Vote for £1,000, sets before Parliament the full extent of our expected borrowings in the current financial year.
In due course, the Exchequer will become liable to make interest payments and repayment of capital on the borrowings in the United States. The first such payment will fall due, we expect, at the end of the current financial year. Here again, a procedure is being adopted under which the Exchequer's repayments are mirrored in Votes which are subject to Parliamentary scrutiny, although in this case, of course, the sums involved are not token sums. These are the real sums of repayment. New subheads appear in the 1966–67 Estimates providing for loan repayments on the Votes of the Departments which would otherwise normally be paying cash for the equipment concerned. An example is Air Vote 7H, which provides for a repayment of £1.9 million in December, 1966. The impact of these arrangements will be that the cost of the aircraft falls on the Defence Budget at the same time that the burden of paying for them falls on the economy as a whole.
My Lords, may I just ask the noble Lord to make one point clear? Am I to understand from that that the burden on the Defence Budget is pushed forward—in other words, the Defence Budget in the immediate future becomes artificially low and further forward it is swollen by paying for the aeroplanes we have had earlier?
§ LORD SHACKLETON
The noble Lord is quite right, though possibly I would not have chosen the terms he employed. This is indeed the whole purpose of the exercise, to produce a stable flow of payments over a period of years. Although certain repayments will begin at once, it is in fact thanks to the line of credit spread evenly, and the actual charge to the Vote will arise only at the moment when the repayment is made.
1262 So the noble Lord is entirely correct. This is the purpose of this particular operation. It is to produce a much more stable budgeting process over a period of years. As the noble Lord will recall, I did mention earlier that there was a very jagged and erratic Defence Budget before this arrangement was made. There was to be a very heavy increase in the early 1970s, and this was part of the situation the present Government had to deal with when they came into office. The provisions of the Bill will now, I hope, in the light of this explanation, be a little clearer.
Clause 1(1) authorises the Treasury over a period running until March, 1972, to issue sums not exceeding £430 million out of the Consolidated Fund to be applied as appropriations-in-aid of monies provided by Parliament for the purchase of American aircraft and for associated expenditure including dollar research and development costs. The figure of £430 million is expected to cover the capital cost of the Hercules—Phantom—F111 programme as now planned. Subsection (2) is designed to ensure that the transactions are kept under full Parliamentary control. The Treasury cannot lend any part of the £430 million to the Supply Departments unless the related expenditure has been approved in Estimates. The final subsection of Clause 1 authorises the Treasury to make the borrowings necessary for the purpose of financing these issues from the Consolidated Fund to the Votes of the Supply Departments. In fact the necessary finance will, as your Lordships are aware, be provided by dollar borrowings, and the National Loans Act 1939 specifically provides for overseas borrowings of this sort.
Clause 2 of the Bill regulates the repayment arrangements. The first subsection provides for the repayment of the Treasury by the Supply Departments, together with appropriate amounts of interest. The second subsection authorises the Treasury to use these receipts to redeem debt and pay interest charges. It is intended in the present case, of course, that receipts both of d reprincipal and interest from the Supply Departments will balance payments of interest anpayments of capital under the American credit arrangements.
The wording of this clause of the Bill is in line with that of previous Acts, 1263 such as the Armed Forces (Housing Loans) Acts. These are, if I may call them so, the basically simple provisions of the Bill. Under it the Government expect to derive the advantages I have earlier explained. It is a vital link in the process by which we shall provide our Forces with the equipment they need, at the time they need it, and at a price which the economy can bear. I therefore commend the Bill to the House, and beg to move.
§ Moved, That the Bill be now read 2a.—(Lord Shackleton.)
§ 3.9 p.m.
LORD ST. OSWALD
My Lords, I understand that this is the first opportunity anyone has had to congratulate the noble Lord on his Privy Counsellorship. There is certainly nobody I would rather congratulate, and I am sure he knows how sincere that is. This being a Money Bill, this Second Reading debate is the only opportunity it provides to your Lordships' House to point out the Government's follies, illusions and contradictions in their struggle to justify the huge dollar expenditure they have incurred, part of which, and only part of which, is to be mot by Treasury borrowing provided for in this Bill.
This Bill, although the noble Lord put his usual brilliant gloss upon it, is about buying American aircraft in preference to British aircraft. It will enable us to borrow part of the money—about two-thirds of the total as yet admitted—to buy the Phantom, the Hercules and the F 111A from the United States, and I am acidly aware that we shall not be paying back these particular millions until the noble Lords opposite and their colleagues are no longer bearing the responsibility of raising the money.
I shall be speaking to-day with all three of these aircraft in mind but with reference mainly to the F 111. I asked earlier this month, as I ask again now, how the Government expect this limited force of 50 F 111As to perform the enormous task set them, even if it be limited to the Far East, from the time they are first placed in service until that still elastic date when the Anglo-French V.G. aircraft take over part of their rôle—that is to say, the F 111 rôle; the reconnaissance rôle, as I under- 1264 stand it, remaining with them. Here I would once again put a question which the noble Lord did not answer on the earlier occasion. Will the F 111 be expected to continue in a reconnaissance rôle beyond the time of the introduction of the V.G.aircraft, which so far as I know is not going to be given a reconnaissance capability.
All this has a direct bearing on the purport of this Bill because we suspect—and we have strong circumstantial cause to suspect—that this is only the thin end of the dollar wedge, and the advertised number of F 111s and, of course also the advertised recorded cost, are no more than the first gastronomic sniff, offered to the General Dynamics Corporation, of the British market now spread before them—
LORD ST. OSWALD
Sniff. "What a banquet!" they must be saying to themselves, and what a banquet it may prove to be! Let me catalogue some of the things which this force of so far fledgling aircraft, which the noble Lord himself has to-day called a small force, would be required to perform, supplemented by some V-bombers, retained in service beyond their expected retirement age.
A most careful reading of the speeches of the Secretary of State of March 7 and 8 suggests that these will have to do the work of the whole carrier force, which he has classified as "sacred cows". Three or four squadrons will be maintained in the Far East, half of them able to operate for reconnaissance. In addition, we shall have minor bases in Bahrein, Mesirah and Gan; and, if we are working with the Australians, in Darwin and Cocos, giving us coverage over the whole Middle East and Southern Asia and East Africa. Some will also be kept in Britain partly for training and partly in order that their aircrews may be rotated properly. In the Far East they will be required, according to the Secretary of State to provide protection for the fleet, for shipping and presumably also for land forces, in any operation, offensive or defensive, from such bases as we may have. They will have to be able to destroy the enemy's offensive forces, possibly against highly sophisticated defences, and at extreme ranges.
1265 I have not mentioned wastage, and I concede that the Minister may not wish to make estimates of this wastage. But we have to face the fact that this immense operational burden is to be placed upon a total force of 50 planes, including those held in Britain. In all this I have still not mentioned the rôle which these aircraft, I understand, will have as our intended nuclear deterrent East of Suez. This plane, which has not yet begun to be adapted for use by the Royal Air Force will not only have to be a jack-of-all-trades, but will be comparable to that man described by Henry Vaughan, for whom "God ordered motion, but ordained no rest." I confess that it strains my imagination to believe that this order will fill our requirements over the period envisaged, however spacious the "flight envelope" of which the noble Lord spoke earlier this month. I am not criticising its versatility, in which he has such confidence: what I am questioning is the number. I put it to the noble Lord and to the Government, that either they are banking on a withdrawal from the Far East, unpredicted in the White Paper, or they are intending to buy more of those planes for many more millions of dollars, without the courage to say so—an action which, of course, would make the offset ploy look pretty silly.
Let me be absolutely plain as to what I am inviting the noble Lord to say, so that he does not feel encouraged to give me, out of the generosity of his nature, three completely unconnected, unrequested pieces of information in response to the one requested. What I think he should be able to say, to be consistent with previous statements, is that without our commitments in the world being any further reduced than is specified in the White Paper, and with no additional buying of F 111s, these 50 aircraft, to be in service by the end of 1969 or the beginning of 1970, will be able to fulfil the whole task assigned to them, and to fulfil it until they are superseded.
He may feel bound by precedent to say just that. But in that case, I have to observe that, in our view, he would be offering so sickly a hostage to fortune that he might do better to wring its neck here and now. We shall watch the fate of that hostage with some sympathy, a sympathy which will, of course, extend 1266 to the noble Lord himself. I turn to the matter of cost.
§ LORD SHACKLETON
My Lords, would the noble Lord tell me the three unrequested bits of information he does not want me to give him?
LORD ST. OSWALD
My Lords, I am speaking now of the past. I am drawing on my experience of the stratagem which is normally employed by the noble Lord and his colleagues.
I turn to the matter of cost. What cannot be questioned is that this Bill adds £430 million to the debit side of our balance of payments, without losing sight of the fact that the current or advertised dollar cost of the F 111A, the Phantom and C 130 tots up to £660 million, as indeed the noble Lord told us to-day. We on this side of the House have never said that it is wrong in itself to buy foreign aircraft; indeed, we found it necessary to buy the Phantom, at one point, for the Royal Navy.
But what the Government are doing is quite incomparable in scale and consequence. As an act of deliberate policy they have cancelled every British major future aircraft project which existed when they came into office, and have made us entirely dependent on America. The Government, and the Defence Ministers in particular, are understandably, and rather endearingly, sensitive about this, as we saw in our small debate twelve days ago. They cry out in exculpation, "Look what a saving we have made for the nation!" This cry was repeated by the noble Lord to-day. I am going to question whether it represents any kind of saving whatever.
By the definition of Ministers themselves, the F 111A is a stopgap. The noble Lord's Parliamentary Secretary the other day said that the F 111A was "intended primarily to tide us over an operational gap". At the end of that gap, on a date still unknown, the Anglo-French V.G. aircraft comes into service. But what this means is that for a decade—that is, during the 'seventies—we pay for two separate aircraft to take the place of one. I am thinking now of the TSR 2. We have been told how much the F 111A is to cost, at least in terms of the basic aircraft, though I am far from clear on what the follow-up cost may be, despite 1267 the noble Lord's opiate words earlier this month. We do not know what the V.G. plane will cost, but I am told that it is certainly likely to be more than the TSR 2. So instead of one bill, paid to our own manufacturers, for a plane which would have lasted throughout the 'seventies and been the envy of the world, we shall be paying two vast bills, one of them in dollars, to protect our interests during the same period. What sort of saving is this? It is a further load upon our balance of payments, a bonus to the American aircraft industry and a karate blow to our own. The noble Lord is somehow able to see this as an "enormous domestic benefit", to quote his words to-day.
It is still worse than all that, and I hope that the House, and the noble Lord, Lord Shackleton, in particular, will pay attention to another aspect. In our 1966 survey of the 'seventies this is what is most menacing and most damaging in the Government's action and decisions. As we enter the 'seventies, we in this country shall find ourselves required to meet two huge bills at the same time. We shall be paying back the enormous debt on these American aircraft, part of which is being approved in this Bill; and we shall at the same time be called upon for the heavy so far unpublished and perhaps uncalculated development cost of the V.G. aircraft. These will be the twin peaks rearing themselves against the economic skyline of the seventies. As I have said, the economic mountaineers who will have to scale these peaks will not come from the Party or from among the Ministers who are now creating this great barrier which will face the nation after their departure from office. These also are not the words which the noble Lord chose to use this afternoon. They tell the same sad story as he told, in somewhat starker terms.
Mr. Healey has described the offset arrangement as "unique in history" but he then sets about weakening, if not totally destroying, that claim, or seeing part of it destroyed by a few home truths uncovered by the Opposition. One of the inner weaknesses of this claim was revealed by Mr. Healey, for instance, in a speech on May 11 to which the noble Lord and I both listened. I wonder if the noble Lord noticed this weakness.
1268 On that occasion Mr. Healey, proudly or desperately—and with present Ministers it is often hard to tell which—included in this "unique" offset arrangement the dollars spent by United States forces in Britain. Of course, there is nothing either unique or novel in United States forces spending dollars in this country: they have been doing it for years. What is unique and novel is the nerve of a Government of Great Britain pretending that this is a wheeze "which they have thought up on the British taxpayers' behalf. It is meant to excuse that staggering and, as we still say, totally unnecessary increase in dollar expenditure on military aircraft which this country is capable of designing and building better than the Americans, or was capable at the time the present Government came into power. In fact, in this Ministers have not achieved or invented, still less negotiated, any formula to ease the burden on the balance of payments or on the British taxpayer. Their scriptwriters have merely invented a new name for something which existed all along.
In mitigation of this particular piece of attempted legerdemain, it seems clear that the Secretary of State was taken aback when he discovered that the Americans were going to insist on the inclusion of this local expenditure in the offset arrangements—and he has sought to make a virtue of necessity or, more precisely, a virtue of subordination. That was not, it appears, the only tough stipulation upon which the Americans insisted. What I think the noble Lord might confess to-day—and no one could do it more gracefully—is that he and his colleagues have tried to put an entirely false glamour upon a form of dollar recovery which existed in the natural state of affairs.
As regards the "new" offset, this already bedraggled feather which Ministers pretend to wear so jauntily in their caps, it is most unhappily obvious that Mr. Denis Healey was bewildered and bested by Mr. McNamara at every turn. First of all he was jumped into including the so-called "collaborative sales" with third countries within an offset which was clearly understood at first to comprise direct dealings with the United States. And when he dusted himself down from that he found that the Saudi Arabian deal worth £100 million, or perhaps a great deal more, was to be 1269 retrospectively included in the collaborative bracket. So far we have two pigs in separate pokes. The direct sales are not "ensured," as Mr. Healey claimed in Parliament and on the hustings, and I congratulate the noble Lord to-day on being rather more modest. He used the phrase "we expect", not "we have ensured." These sales have to be won. In the so-called collaborative sales—the other section which represents two-thirds of the whole offset—there is indeed a very queer kind of collaboration, to judge by total experience up to now.
In closing, I am going to ask the noble Lord in paraphrase a question which he did not choose to answer earlier this month. The Secretary of State is on record as saying on May 11 this year:We could not have made the offer to the Saudis without American co-operation.And, seconds later, that:We could not have made the offer, never mind have won the contract, without American co-operation."—[OFFICIAL REPORT, Commons, Vol. 728 (No. 18), col. 476; 11/5/66.]The description I have been given, which has been published in the Press and referred to already in Parliament, is in total contradiction to this claim. It compels us to question the whole value, and even the sincerity, of the collaborative arrangement. So long as this question remains alive, it must damage the Government. I regard it as a typical instance of my charity to the noble Lord that I am giving him the opportunity to contradict this version of events. This is the account as given to me. So far from being "enabled to tender" by the American Government, the British sales team had been in active negotiation in Rhayad before the collaborative deals were ever mentioned, and at the point where the British contract was virtually accepted, a drastic last-minute attempt was made to snap it from us.
The noble Lord may tell me—and I hope he can—that I am totally mistaken; but if it is so, he has to say so. Is it or is it not true that during the time our negotiations were proceeding a powerful American sales team, mainly from Lockheeds, were also present attempting to sell the American Starfighter to displace our Lightnings? Is it true that when, despite this intervention by a powerful persistent competitor from America, our contract had been agreed 1270 for signing by both sides, this competitors' team was suddenly powerfully reinforced by Mr. David Rockefeller, among others, from the United States; that it called on the Saudi Defence Minister with an entirely new offer, cutting the previous offer of the Star-fighter by no less than 70 million dollars; that it was accompanied by the American Chargé d' Affaires in Rhayad and that it bore a persuasive message from President Johnson? If the noble Lord cannot deny this, if it should be true, if this is what the Americans mean and what the noble Lord accepts as "standing back", then it seems a pity that Mr. Cassius Clay did not interpret it in the same way, when our Mr. Cooper let loose his left hook last Saturday night.
§ 3.30 p.m.
§ LORD BROCKWAY
My Lords, I think in one respect a welcome should be given to this Bill by all sides of the House. Whatever may be the ultimate effect of the agreement with the American Government, this is a borrowing Bill and, as such, it might have been regarded as within the powers of the Treasury to carry out these provisions under the National Loans Act 1939 without reference to the Houses of Parliament. I appreciate the fact that the Government took the view that this Bill is so significant that the Houses of Parliament should have the democratic opportunity to discuss these provisions and to decide upon them.
I wish to quote from the speech which the Chief Secretary to the Treasury delivered in another place on May 11 last. I quote from column 488 [Vol. 728] of the OFFICIAL REPORT, and he spoke as follows:…where such borrowing is, as in the present case, earmarked for specific expenditure, it would be unrealistic to regard the transaction simply as a loan; for in fact what is really happening is the acquisition of certain American aircraft by means of a loan and it is surely proper that the House should be enabled to exercise the same powers of control over expenditure as if the aircraft were being bought out of money voted by the House.It is true that the passing of the necessary legislation inevitably consumes valuable Parliamentary time, but I feel sure that in this all-important field of Supply the House must act in such a way as fully to preserve its rights vis-á-vis the Government of the day. It is in this spirit that the Government, 1271 rather than attempting to rely on their general borrowing powers, have introduced the Bill.I want to express approval of that democratic attitude. I suppose the best tribute to it would be to speak with the freedom in this discussion which the Government themselves have invited.
The Government propose in this measure to acquire for the Navy and the Royal Air Force three aircraft—the C 130 Hercules transport, the Phantom, and the F 111A. These are to be acquired at the tremendous cost of £450 million. Of this sum £20 million has already been borrowed and does not come within the terms of this Bill. The Bill itself refers only to £430 million. This sum will be spent during the six years ending March 31, 1972, and will be financed by borrowing from America at 4¾ per cent. repayable by 1978.
I had proposed to make three brief comments upon the provisions of the Bill. I am led to add one by the, as always, entertaining, provocative and contributory speech which has been given by the spokesman on the Opposition Front Bench. He referred to the effort of American armament firms, backed by the American Government, to try to get the British Government to give orders for American products. Perhaps the House will excuse me for saying that, although I have written fourteen books, only two have been best sellers, and I am quite convinced that they were good sellers because of their titles rather than their contents. One was called The Bloody Traffic; the other Death Pays a Dividend, and I am quite sure that most people thought they were buying a thriller. In a sense it was a thriller, but it was an exposure of the machinations of the armament firms in their use of Governments.
I do not have the least doubt that the spokesman for the Opposition is correct to-day, in saying that the representatives of American armament firms have been using their influence, backed by their own Government, to secure orders from our Government, exactly as our armament firms in all countries of the world are seeking to obtain the acceptance of orders—I am shocked to say this when we have a Minister for Disarmament—by a super-salesman who is going to act on behalf of the Government in this respect.
1272 I welcome what the noble Lord has said about American firms, but I ask him to look a little further at the investigations which have been made into the machinations of other firms. He will find, particularly from the inquiry which was made in America itself, that our armament firms in this country are just as guilty in this matter as any American firms can be.
The three points that I wish particularly to raise are these. I want, again, to submit to this Government that they cannot proceed with their vast armament programme and fulfil their own programme for social progress—for educational progress, health progress, housing progress and community development. I recognise at once—and I praise the Government forthis—that they are reducing expenditure on arms production by about £140 million over the next ten years. But expenditure on armaments in this country still stands at £2,000 million annually. This country cannot afford that, not only because of the difficulty of its own economy but because it means that social progress will be stayed. I am continually surprised, when emphasis is repeatedly laid on the necessity for economy, that so little attention is paid to the possibility of cutting our defence costs. I ask the Government once again to look very seriously at the proportion of their expenditure upon armaments and upon social progress.
The second point I want to make is this. I want to give a warning—and perhaps I may even have the support of the spokesman for the Opposition in this respect—about the dependence on the American Government which this Bill reflects. We cannot be self-reliant while there is this dependence upon America for arms. Our defence expenditure is justified on the ground that Britain should remain a Power of world influence, but what world influence are we going to have if our arms are dependent upon America and its Government? What independence can we pursue in our foreign policy if our arms are so tied to the American Government?
I want to ask this question, and I am asking something which was asked by the noble Lord. If these aircraft are held to be necessary, one wonders why the British aircraft industry is not in a position to produce them. During the last sixteen years the British aircraft 1273 industry has received something like £4,000 million of public money. We have been pouring that into our British aircraft firms, but now we have to ask the American Government and American aircraft firms to supply us with the aircraft which are supposed to be necessary. If the Government are accurate in their view that the British aircraft industry could not supply the aircraft which they need, then it is time there was a very thorough inquiry into the whole organisation of our aircraft industry.
The third point which I want to put to the Minister is this. Armaments are a reflection of foreign policy, and the F 111A is to serve particularly as a tactical strike aircraft for theatres of war East of Suez. Many of us dislike the East-of-Suez policy. I do not intend to pursue that issue to-day, because one had an opportunity in the Foreign Affairs debate some days ago. But, in considering the Bill which is now before this House, we are entitled to make a very relevant point.
The fifty F 111A aircraft are to be bought for delivery by January, 1970. Is it really contemplated that there will be no easing of the situation East of Suez by that date? Is there any provision—and I ask the Minister this very specifically, because it was asked in another place and it was not answered—for the modification or the cancellation of this contract with the American Government if an easing of the position east of Suez justifies it? I want to submit to the Government that there are hopeful signs of such an easing. The phased military withdrawal from Aden is to begin in six months. The peace talks between Indonesia and Malaysia are to begin, and they give the hope of releasing 55,000 British troops. One cannot contemplate the hideous war in Vietnam continuing until 1970. One has reason to hope that, by then, China may be brought into the United Nations.
The whole situation in South-East Asia must change if progress is to be made towards peace; and, if that progress is made towards peace, what provision is made in this Bill for modifying this contract with the American Government or for cancelling it in the circumstances which may develop? The Minister has to-day promised that the amounts borrowed from the United States will be 1274 subject to Parliamentary scrutiny each year, but can he say that, if conditions in South-East Asia change, as one hopes they may, and of which there is some promise, there are provisions for modifying or terminating this contract? My Lords, I regret this Bill and the necessity which the Government claim for it. I ask that, at least, if this claimed necessity becomes less or disappears, the Government will be in a position to terminate an agreement which I regard as humiliating to our country and dangerous to the cause of peace.
§ 3.43 p.m.
THE EARL OF SELKIRK
My Lords, may I ask the noble Lord two questions before he replies? This Bill arranges for loans for, I think, two-thirds of the total cost. What assurance can the noble Lord give that that figure really is the total cost? I think £660 million was the figure the noble Lord mentioned. There is an enormous number of factors one can consider which might very well alter that cost considerably—the cost of labour, modifications, spares or replacements. I do not need to test the imagination very far to see what could happen. I imagine that a great many of these factors cannot be covered entirely. I must, of course, accept that. But could the noble Lord tell us how much he thinks really is covered? We have heard a good many stories of the rising costs of aeroplanes, and I do not suppose that these aeroplanes which we are now buying from the United States of America are utterly exceptional. We should be interested to know the degree of assurance which the noble Lord has.
The second question I would ask is this. When we make contracts overseas, what assurance have we that they are (a) in competition with the United States and (b) in collaboration with the United States? This is really rather a dangerous position to be in. It might lead to some quite nasty feeling between ourselves and the United States unless we make it clear just where we stand. Which is this contract. Does it fall on one side or does it fall on the other? We must remember that the United States themselves have a considerable balance-of-payments problem which causes them considerable anxiety. I put these two questions because I should very much like to know how far the Government are able to give us a clear 1275 picture on both these points. So far as my intelligence is able to discern, they have not been extremely clear up to the present time.
§ 3.46 p.m.
§ LORD SHACKLETON
My Lords, this is a short debate, but I have been asked many questions and I will try to deal with most of them. I appreciate that, being a Money Bill, the opportunities of discussing the Bill on Committee are restricted, although most of the points which the noble Lord made would not have been appropriate for the Committee stage, either. But I have no quarrel with him to-day on the speech he made beyond saying that I thought it was a bit of a travesty of the facts. I will try to deal with some of his points, but if I miss any he is very free to interrupt me and I will try to answer them. First, however—this is perhaps ungracious of me—may I say that I very much appreciate his personnal remark with regard to myself? He knows, also, that I appreciate his good opinion—on matters, perhaps, other than the one we are debating to-day.
My Lords, let me first of all correct one point. The noble Lord referred to the F 111 as being an aircraft intended to play the rôle of nuclear deterrent East of Suez. Indeed, it was quite clear that the noble Lord thought the F 111 was going to do every single job that the Air Force and, indeed, the carriers are now called on to perform. I want to repeat what the purpose of the F 111 is, because it has unquestionably given rise to the greatest controversy. It is a strike-reconnaissance aircraft. It is intended primarily to provide reconnaissance, but, equally, with a formidable conventional strike capacity, it will provide the sort of conventional deterrent that our existing aircraft are already providing. I have already paid tribute to the fact that, in preventing the Indonesian war escalating into something rather hotter, I believe the threat of the V-bombers in a conventional role has played a very important part. In saying this, I am not suggesting that the Air Force has done it alone, but this is one of the traditional uses of air power.
But the noble Lord was quite wrong in saying that if we had stuck to the TSR 2 we should have been enabled to avoid two huge bills for the F 111 and the Anglo-French variable geometry aircraft.
1276 The truth, I am sorry to say, is a good deal less dramatic than this. The two huge bills together are smaller than the one bill for the TSR 2. The noble Lord forgets—he may never have known this—that the Anglo-French V.G. aircraft was in the programme before the TSR 2 was cancelled. It was always intended. Admittedly, it had not gone as far as it has now, but it had figured as part of the long-term costings. What the new programme will do is to make much better use of, and put much greater emphasis on, the variable geometry aircraft which we had always hoped to develop. But, of course, the F 111 aircraft will continue.
It is always very difficult, when using phrases like "small buy", "stop-gap" and so on, and it may be—I will give this to the noble Lord—that although the F 111 is in a sense being bought as a stop-gap until the Anglo-French variable geometry aircraft comes along, it has certain qualities that the Anglo-French variable geometry aircraft will not have. It w ill have a very much greater range and, I think, will be particularly valuable in the reconnaissance rôle—although, of course, the Anglo-French variable geometry aircraft, like any aircraft, will have a reconnaissance capacity. At the moment we are using Canberras; there are Hunter reconnaissance aircraft and Phantoms also will be operating in a reconnaissance rôle. But in putting forward the mix of aircraft that will exist in the early 1970s, one sees that we shall have an initial mix of Phantoms, F 111s and V-bombers. In due course, as the Anglo-French variable geometry aircraft comes in, the V-bombers will be phased out, and thereafter it is possible that the Phantoms that the Air Force are going to have in the ground strike, fighter strike, rôle will be replaced by variable geometry aircraft and may move into the fighter rôle. This is a very complex series of mixes.
The noble Lord asked me whether I thought this force of 50 F 111s would be enough; on the other hand, my noble friend Lord Brockway asked whether, if we achieve a more peaceful situation—which is something we all hope—we need them at all. I think the Government position is somewhere between the two. I am sure all noble Lords would agree that we should much rather not have to 1277 spend money on armaments, whether we are building them ourselves or buying them abroad. But the best view the Government can take of this—we have, of course, the benefit of a great deal of advice; I am not passing the buck to them; but we can only look at this matter in terms of the military situations we foresee—is that we think this will fulfil the rôle. But, clearly, there are circumstances which one can imagine when forces are inadequate. If I may say so, the noble Lord's Government left us with inadequate forces for the situation we are having to meet to-day. The degree of stretch that confronts the Armed Forces is a very serious problem. When I took over my post as Minister of Defence for the Royal Air Force I was struck by two things: one, how small was the Air Force; and, two, the fact that we had certain aircraft allegedly coming along which were not going to arrive in time. I except the TSR 2 from this; but certainly, so far as the P 1154 and the transport aircraft are concerned, they were not arriving in time to meet the needs of the Forces.
LORD ST. OSWALD
My Lords, I do not want to intervene to make pedantic or Party points or debating points; but for one thing the noble Lord says that he found the Air Force small. It is notable that he is now making it very much smaller. But with regard to the coming-in of the variable geometry aircraft, of course I knew it was within our plans; it was, indeed, the brain-child of our mutual friend Mr. Julian Amery. But there would not have been this hurry to bring it in; we could have afforded—which we cannot afford now—for the length of time for development to be longer than the noble Lord is counting upon now. I believe, on the best authority that I have from colleagues who were in power at that time and who were closely concerned in it, that it was the intention that the TSR 2 should see us—and there were to be 158 of them—through the 1970's and then the variable geometry aircraft should take over.
§ LORD SHACKLETON
My Lords, there would have been no prospect of Anglo-French collaboration if we did not want the variable geometry aircraft until the late 1980's.
LORD ST. OSWALD
My Lords, this is not true. They were going to have the first ones. I am afraid it is now the noble Lord who makes a debating point.
§ LORD SHACKLETON
Certainly they were going to have the first ones; but, in fact, in pure timing—and the great difficulty, as the noble Earl, Lord Jellicoe, will agree, and I am not making a Party point, is in matching time—it is easier to match. I was saying that in the programme, before we cancelled the TSR 2, the Anglo-French variable geometry aircraft was provided for within the long-term costings at a date not significantly different from that at which it is coming in now. It may come in one or two years earlier. Even that is not certain.
The noble Lord said that I was making the Air Force smaller. I am making it larger. My noble friend Lord Brockway may not welcome this, but in fact the Air Force is, if anything, going to be much larger very much sooner, because certain aircraft which were "pie in the sky" to the noble Lord's Government will be replaced by aircraft that exist. This brings me to the point of the noble Earl, Lord Selkirk, on the question of possible escalation—
My Lords, since the noble Lord introduced my name into the discussion, may I ask this: whether he is making the R.A.F. bigger or smaller, will he agree that he and his Government are making the Fleet Air Arm a great deal smaller? Would he not agree that the Anglo-French vertical geometry aircraft might have suited the requirements of the Fleet Air Arm in this middle period of the 1970s?
§ LORD SHACKLETON
My Lords, I was dealing with the inaccurate statement by the noble Lord, Lord St. Oswald. I do not propose again to go over the whole of the arguments on the question of the carriers. I can only say that there are noble Lords of the Party opposite as well as of this side who realise that it was not cost-effective in the late 1970s. But I must try not to be provocative or we shall get deeply involved.
I should like to take the point of the noble Earl, Lord Selkirk, on the question of the possible escalation of costs on the basis of the three aircraft concerned.
1279 First, the C 130, as the noble Earl knows, already exists. It is a well tried aircraft, and although we are getting the later mark, we have, in fact, a satisfactory price arrangement. We shall be charged the average price that the United States Air Force is paying for it; and the longer the run, the less danger of increase. Although I must concede that there is always the danger of an increase of cost in relation to labour and materials, these are not the significant and worrying aspects of cost-escalation in the aircraft industry field. It is essentially in the extra cost of research and development and the extra cost of a more complicated or difficult form of manufacture. Therefore there is no reason for alarm with regard to either the C 130 or the Phantom.
In regard to the F 111—I have said this before and I do not want to labour it—there is a ceiling price which is approximately £2.1 million. The price the Air Force will pay for the aircraft will again he the average price paid by the U.S.A.F. within that ceiling; with, however, an increase up to £2.5 million. The latter part is only an estimate; but I hope there will be a precise price fixed in relation to research and development and the incorporation of certain British equipment. The margin for error here is pretty small.
I can only say that although I agree, as will all noble Lords, that confident statements in this field have in the past all too often been belied, I am as confident as it is possible to be about any group of aircraft, and I am infinitely more confident than I could have been about certain other types of aircraft in the past. I hope I have met the noble Lord as far as I can on this particular point. I am choosing my words "off the cuff" as carefully as I can.
LORD ST. OSWALD
The noble Lord is being confident—and we are not seeking to undermine his confidence—on the cost of basic aircraft. But he has been speaking now specifically of the basic aircraft and he mentioned the adaption necessary for the R.A.F. What he has not mentioned is the follow-up—that is to say, the spares and replacements—and this is really very important. As he knows and as we all know who 1280 have had to deal with these and other subjects, this can rise astronomically.
THE EARL OF SELKIRK
My Lords, I asked, really, for the whole range. May I have one question on this subject?—I am most grateful to the noble Lord for making the point. With a new aero-plane, there may well be very big modifications. In fact there are bound to be modifications, whether big or small. Do these come under the ceiling, or what happens? I should like to have some idea. There are many other things.
§ LORD SHACKLETON
The noble Earl is referring to the new aeroplanes and I imagine this primarily arises in relation to the F 111.
§ LORD SHACKLETON
My Lords, I must concede straight away that the extra cost of fitting the Spey to the, Phantom is very high indeed, and this is already allowed for in the cost. But in relation to the F 111 there is a ceiling price beyond which, so far as we are concerned regarding the basic American aircraft, the price should not go. I concede that there is always the possibility of a small increase in relation to labour or material costs, but this could not be significant. In any case, we have this ceiling. I did not know that I had been specifically asked about spares, but on this we have an agreement—I am now talking of follow-up spares, because the initial order covers the initial supply of spares, spare engines and a good deal of equipment—under which we shall thereafter work through the American co-operative logistic system and will pay the same price as the United States Air Force.
§ LORD SHACKLETON
Well, my Lords, the point is that I think the United States Air Force, in relation to this particular deal, have been more successful in avoiding paying through their nose than the Royal Air Force were under the previous Government. It is because there is a degree of contractual reliability, 1281 and heavy penalties which are employed by the United States Government in these matters, that we have this confidence.
I think I have gone as far as I can. The noble Earl said he was anxious not to weaken my confidence. I am happy to say that he has not weakened my confidence in this matter. The noble Lord, Lord St. Oswald, in referring to our two bites of the cherry, rather questioned the wisdom of pushing forward expenditure in this way, and he said this might fall—unlikely though this prospect is, but we live in a democracy and we must face this possibility—on a Government other than the present one. This, of course, was the unfortunate position that the present Government found themselves in. I have explained to your Lordships that we found an extremely unbalanced Defence budget, and the most striking thing about it was the height of the peaks in the 1970s, the degree and the almost erratic shape of the Defence budgeting, and the very heavy charges which would have fallen in the 1970s, particularly, if I may say so, in relation to the Phantoms which the noble Earl, Lord Jellicoe, was buying for the Royal Navy.
I do not want to go into all the complexities of finance—
§ LORD SHACKLETON
—discounted cash flow techniques, and so on, but I would assure the noble Lord there are strong and sound reasons for pushing this expenditure forward. What is does particularly do is provide an even impact on the Defence budget, and in this context it makes sense not to introduce the variable geometry aircraft until the mid-1970s, if we can make do with the V-bombers until then; and it is our view that we can in fact do so.
My Lords, I am conscious that on this small Bill I have already taken a lot of time, and hardly answered any of the noble Lord's points. I think I have dealt with some of his main points. I would say, that his statement that we had cancelled every major aircraft project was, I think, not a very fair one. We have admitted, and noble Lords opposite are entitled to point to it, that we have cancelled certain major aircraft projects; that was due, if I may say so, to the folly 1282 of the previous Administration in failing I to make the right estimating, but I appreciate the difficulties in which they were in the matter. But, of course, there is a very considerable load on the aircraft industry at the moment, with the V.G. aircraft and the Jaguar coming along. I would say that there are excellent prospects, but the lesson which we have had to learn, which we had to learn so painfully, and which we learned through the bitter experience of the previous Government, is that in this sphere of the very sophisticated military aircraft—and this is a point for the noble Lord, Lord Brockway—we cannot "go it alone" and we can no longer rely on wholly producing these aircraft ourselves.
The noble Lord also referred to the offset agreement and he asked me certain questions to which I will try to give as frank answers as I can. He asked me whether Lockheeds were pressing very hard to sell the Starfighter right up to the end, and was Mr. David Rockefeller assisting them? Although I do not quite see what the special significance of that is, the answer is, Yes. I fully accept this. On the subject of this alleged message from President Johnson, I cannot comment, I do not think it would be suitable for me to comment even if I knew the answer. I would ask the noble Lord not to press me on this. There are, presumably, two stories around. I can only give the facts as I know them and I have inquired very deeply into this. The simple fact, as I understand this—and I believe this to be so—is that in October last year the Saudi-Arabian Government had expressed their readiness to accept an all-American offer to meet the whole of their air defence requirements. The noble Lord has one set of information and I have another, I suspect that mine is better than his. If he does not think so, we can only disagree. I can only state the facts as I know them.
If the United States Government had proceeded on that basis, as they could have done, it would have been the end of British chances of participating in the deal, beyond a few small and insignificant items; and at this point it was clear, as my right honourable friend the Minister of Aviation said in another place, that there was no hope of an all-British sale. Had it not been for the United States agreement to support the joint U.K.-U.S. programme, this could not have 1283 come off. But it was always made clear that it would not be possible to withdraw the all-American proposal which had, up till then, found favour with the Saudi-Arabian Government. Therefore, while I do not dispute most of the noble Lord's facts and I should think that they are substantially correct, the important factor in this is that there were two offers made—and here again one does not wish to embarrass the United States Government, either—one of which was a joint offer and had the strong support of the American Government; and in fact it was this joint effort that was accepted.
Nothing I say on this depreciates the efforts of the firms, the Ministry of Aviation, the salesmen or of anyone else. This was a tremendous combined effort in which everybody played his part. Even the Royal Air Force, as I should like to say, has given very considerable help in making these deals possible. So I think there is room for misunderstanding, and I can only say to the noble Lord that the facts I have given are the facts as I have myself been able to establish them.
LORD ST. OSWALD
My Lords, I am just as reluctant to embarrass the noble Lord as he is to embarrass the American Government, and he has been extremely frank and certainly as frank as I could have wished. There is one more thing arising from this which has puzzled many people, and that is why we were unable to make an effort, which we should have expected to be a successful effort, to obtain the deal with Jordan, considering our close association with Jordan over the years, which followed by a few weeks or months the Saudi-Arabian deal.
§ LORD SHACKLETON
The fact is, I agree, that we did not get it; but there are none the less a number of other deals which we hope we shall be able to enter into in the future.
I hope I have answered most of the noble Lord's main points. If there are any I have not answered, I shall be happy to deal with them, but I think I have dealt with them pretty broadly.
1284 I do not know whether I answered the second point made by the noble Earl, Lord Selkirk. He raised the difficult matter of defining what is a collaborative sales agreement. This is a matter on which clearly there is room for that very misunderstanding to which the noble Earl referred. This must depend on a measure of good will and a measure of co-operation. In such dealings as I have had, or that my colleagues or, indeed, officials have had, with the United States Government, certainly there has been room for hard bargaining and disagreement. I hope that no serious disagreements will arise, but it is difficult to dot the i's completely.
THE EARL OF SELKIRK
My Lords, that means that we shall not know officially whether the contract has been gained in collaboration or in competition. I think this is a very fertile source of Anglo-American irritation.
§ LORD SHACKLETON
The noble Earl says that we shall not know officially. I take it that he means: is there any fixed criterion? It is arguable, and if we accepted Lord St. Oswald's version alone, without the additional information I have given, this could be said to be done in competition. But it was a joint effort. I can only say that I hope it will be apparent whether we have collaborated or competed. In this particular case, I am satisfied that it was a collaborative effort.
I should like to turn to the speech of my noble friend Lord Brockway. I am glad that he appreciates the correctness of the Government's action in putting this important Defence expenditure fairly and squarely under Parliamentary control. Unfortunately, I, too, must have been misled by the title of my noble friend's book, otherwise I should have been better informed if I had read Death Pays a Dividend, without thinking that it was just a detective story. I would only say this to my noble friend. He said that he wished we could use British aircraft, and at the same time he attacked the appointment of the Head of Defence Sales, and attacked the sales of defence equipment. If there is one sure way of ensuring that we have to buy Defence equipment from America, it is by refraining from trying to sell our own Defence equipment abroad. I am sure that the 1285 noble Lord, if he stands on those two points, is condemned in logic on both. The rôle of the Head of Defence Sales (and this is not the time to go into it at too great length), and indeed the purpose of selling Defence equipment abroad, is, first of all, to ensure that our friends and allies are supplied with the equipment they need. At the same time, it is of great importance, because there is a large amount of British industrial skills tied up in the Defence industry, and a great deal of civilian industry (we may regret this at the moment) derives strength from the Defence industries and the skills and development that go into them.
This argument I am using is not an argument against a progressive move towards disarmament. Indeed, we should all like to see a much greater measure of disarmament. But when we are faced with the world as it is to-day, and while the Government follow the present policy, which I believe has the broad support of the majority of people in the country, we have to see that our forces are properly equipped. Unfortunately, we have found that in relation to certain expensive advanced aircraft projects the cost of developing was more than we alone could afford. This was the story of the TSR 2 tragedy. In the circumstances, the cheapest solution was for us to buy American. But in the long run, we shall need the British aircraft industry, and we hope to continue to develop it in collaboration with Europe, and it will be necessary for us to sell Defence equipment abroad, not only on our own behalf, but on behalf of the French, unless we are to hand over the whole of this activity either to the United States or to the Russians.
I was asked whether there was any provision in this Bill, or in any other way, for cutting off the purchase of these aircraft. Certainly there is no such provision in this Bill, and it would be inappropriate that there should be. This is a Bill which is intended to give the Government powers to borrow the necessary money. If, in the event, they do not need to borrow the money, then they need not do so. It is always possible to cancel any Defence programme, as both this Government and the previous Government know all too well, so many having been cancelled. But it is apt to be an expensive business, and even if conditions 1286 East of Suez greatly improve, as we all hope they will, particularly in regard to confrontation—this will be a most welcome relief to our Forces and will lead to economies—the fact still remains that, to the best of our judgment, we shall need this sort of military capacity in the world in the 1970s. If there is a radical change over the next few years, it may be that we shall be able to think again. I am afraid I have given a general answer to my noble friend, but I hope that none the less I have answered him sufficiently.
§ LORD CARRINGTON
My Lords, before the noble Lord sits down, may I ask him this question? He is asking in this Bill for a great deal of money, and he was critical of the Conservative Government's estimate on Defence expenditure in the 1970s. Can he tell the House whether the Estimates, which no doubt have been made for ten years or more ahead, show that the Defence Estimate will be kept under the £2,000 million on 1964 prices? In the light of what he has already said, if he says "Yes" I shall not believe him. If he says that he is confident, then I shall think his confidence misplaced.
§ LORD SHACKLETON
In the circumstances, there is no point in my commenting on what the noble Lord has said. He has made his point.
§ LORD SHACKLETON
The fatal thing is that the Opposition are insatiable. We give them information of a kind which they never gave us, and they want more. I hope that your Lordships will give this Bill a Second Reading, and I commend it to the House.
§ On Question, Bill read 2a; Committee negatived.