HL Deb 08 December 1994 vol 559 cc1060-78

6.17 p.m.

The Earl of Selborne rose to move, That this House takes note of the Report of the Science and Technology Committee on the Defence Research Agency (3rd Report, HL Paper 24).

The noble Earl said: My Lords, perhaps I may say at the outset how grateful was the sub-committee to be able to benefit from the co-option of two noble Lords with considerable knowledge of the Defence Research Agency—my noble friend Lord Trefgarne, who was in the Ministry of Defence at the time of its inception and the noble and gallant Lord, Lord Craig of Radley, from whose expertise we benefited enormously. We were helped greatly by our two specialist advisers, Professor Frank Hartley and Professor Philip Gummett. I must pay tribute also to our Clerk, David Batt, for his crucial contribution.

It was true in my case (and it was possibly true in the case of some other members of the committee) that we were not all familiar with the DRA and its role. Let me say immediately that we were all impressed by the quality of its science and its management. The DRA, as at present constituted, is one of the largest employers of science in the country with 5,000 scientists and a turnover of £795 million. All but 9 per cent. of its work is conducted by the Ministry of Defence. It is a wholly owned agency of the Ministry.

Our report was published in July before the Government produced Front Line First, a report on the outcome of the defence cost studies; and as the Government's response to our report states, the report has major implications for the future structure of the agency.

As an outcome of those proposals, it is likely that the DRA will be brought together into a single executive agency with all the other MoD non-nuclear science and technology organisations. That has happened since the publication of our report and I shall deal with it no more.

The DRA was formed in 1991 by amalgamating four research establishments which had formidable reputations. The agency acquired trading fund status in 1993. Our report draws attention to the record of achievement of those defence research establishments and how important it has been for the agency to maintain the reputation and momentum in order to retain battle-winning technological advantage. That has been against the background of reducing cost and changing unpredictable risks.

This advantage gained in the past by the provision of technological excellence must now be achieved on greatly reduced funds. The DRA is undergoing a programmed fall in work from the Ministry of Defence of 15 per cent. between 1993 and 1996. That involves the closing of sites, the restructuring of support activities and other cost-cutting measures. At the same time, in common with much other publicly funded work, a market testing programme is being implemented in phases whereby all the work which the DRA carries out for the Defence Procurement Executive of the Ministry will be market tested by 1997. That puts the management of the agency under considerable pressure.

Against these constraints, the DRA has initiated a number of what we describe as positive thrusts into the commercial world by developing closer links with industry through its Pathfinder programme, strategic alignment and dual use technology centres. We recognise that, in spite of its name, research is only one of the agency's two main functions. Sir Ronald Oxburgh pointed out that perhaps its more important role is to be able to offer technical advice to the Ministry. To that end, it engages in strategic and applied research and project support. Its raison d'etre—its justification—is that it must acquire and retain an expertise to be able to offer expert advice to the Ministry.

The opportunity to contribute to wealth creation by supporting industry or by expanding its own intellectual property base must not be allowed to detract from its central role by providing a core of technical advice, however important this role might appear to be to industry or, indeed, to other parts of Government. That draws attention to a second serious constraint if the first constraint is funding. Much as the DRA might like to maximise its income, and under its trading fund status it is expected to act commercially, this must always be done in a way that is compatible with the Ministry's requirements. After all, the Ministry is the owner of the agency.

As a wholly owned subsidiary with no mandate to spend money on areas which do not benefit the defence of the country, there are real difficulties in fulfilling the more commercial role that is expected of the agency. To make a difficult situation worse, funding from the DTI is declining. Our report draws attention to the near elimination of DTI grants to Malvern, for example. This puts the DRA into a difficult situation. It is required to meet some very precise targets, yet does not benefit from an equally strong obligation on its shareholder and regulator, the Ministry of Defence.

However, we greatly welcome the increased funding that is to be channelled through the deputy chief scientific adviser. We believe that that will lead to a greater element of stability. If we were critical of the efforts made by the Ministry of Defence to develop its relationship with the DRA it was because we were anxious about the short-term nature of some of the appointments that fulfil the role of customer. That leads to a lack of continuity. That is not true of the deputy chief scientific adviser and his group, who provide a welcome element of stability. In so far as the proportion of funding to the DRA will be increased through this route, we welcome it.

We also drew attention to the concept of the Fraser figure, which we explain in the report, and we believe that the concept needs further development within the Ministry. The DRA needs guidance on the Ministry's long-term requirements. In so far as the Ministry, for reasons which I have acknowledged, is unable to assist adequately in the promotion of wealth creation projects, it must consider closer collaboration with the Office of Science and Technology so that the opportunities to support our industry and to contribute to wealth creation are more effectively exploited. We acknowledge the role of the Office of Science and Technology in the area of defence research in the Technology Foresight programme, which it supervises, and in Forward Look.

In a report published last year on priorities for the science base, we made a recommendation that the chief scientific adviser be empowered to expose any inconsistencies in the science plans of departments. We believe that is an obvious example. For reasons of accountability, it is understandable that the Ministry of Defence cannot put as much into wealth creation as perhaps last year's White Paper suggested. We believe that the Office of Science and Technology has a greater input to make in the agency and we recognise that the Ministry of Defence is bound to be protective of its territory.

We looked with interest at the examples of the United States, France and elsewhere where interdepartmental difficulties do not inhibit the development of wealth creating enterprises in defence research establishments—at least not to the same extent. I am sure that the level of parliamentary accountability is different and that it is no good expecting systems that work in one country to be transplanted to another. The concept of economic security is one that the Americans have been able to use to justify the greater flexibility of funding within Ministry of Defence research establishments.

I have dealt at some length with the difficulties and point out that an opportunity to review this delicate relationship within government will occur when the framework document for the DRA is reviewed in 1998. Of course, the Office of Science and Technology will be involved in that review. However, that seems rather a long time to wait.

Having dealt with some of the difficulties encountered by the DRA in fostering industrial links, we were nevertheless impressed by the Pathfinder programme and the concept of dual use technology centres. Since the publication of our report two more such centres have been funded and we greatly welcome that. Both dual use technology centres and Pathfinder programmes will, no doubt, evolve as a track record is established. In particular, we should like to see the Pathfinder programme made more accessible to small manufacturing enterprises.

I have been able to refer only in outline to a few of the recommendations in our report. I wish to emphasise that we believe that before yet more scientists are made redundant and, above all, before unique facilities are lost, we should think carefully about the contribution that these facilities and scientists could make to underpin future economic security.

We believe that the quality of science within the DRA is too high to put at risk and requires some equally high quality solutions from government in order to ensure that we make the best possible use of this expertise. I beg to move.

Moved, That this House takes note of the Report of the Science and Technology Committee on the Defence Research Agency (3rd Report, HL Paper 24).—(The Earl of Selborne.)

6.28 p.m.

Lord Carver

My Lords, I should make clear from the start the fact that I am no longer a member of the Science and Technology Committee and am therefore in no way associated with the report. I congratulate the noble Earl and his committee on having produced an interesting and valuable report which illuminates the problems that the Defence Research Agency faces and those that have been created by its formation. The report does not attempt to gloss over the fact that there are unsatisfactory elements in the anomalous situation in which the agency has been placed: its dependence on and tight control by the Ministry of Defence; its remit to contribute as much as possible to fields other than defence, in particular, those considered to be in the national interest; and the demand that it should earn revenue by doing so, affecting its relations with other government departments, with industry, with which in some cases it is competing, and with other research organisations. There is also a delicate problem concerned with relations with similar organisations in allied countries.

The Government's response, published three days ago, underlines those problems. Their defensive arguments, complacently protesting that all the conflicting demands and loyalties can be, are being and will be reconciled in a satisfactory way, illustrate in a repetitive fashion the anomalies inherent in the attempt to make the defence research and development establishments fulfil a number of conflicting purposes.

It would seem to me that the committee had some difficulty in finding solutions to these problems. I doubt whether the noble Earl, its chairman, would claim that its recommendations go very far towards solving them, although they may do something to alleviate them. I believe that that is so because they are not radical enough, and do not go to the heart of the matter. The committee has perhaps been constrained by its acceptance that, as the report states: the various structural reorganisations to which the DRA has been subjected in the past few years call for a period of consolidation and stability". 'The heart of the matter is that the requirement for re-equipment of our Armed Forces over the foreseeable future does not justify the maintenance of defence research and development establishments of the size and nature of those now left in the DRA. They were built up and endowed with many of their valuable assets in the Second World War. Although much reduced since then, they are out of proportion to the future requirement, certainly in terms of the quantity of equipment which would be produced in this country; and it is not acceptable to justify their existence on the basis of their contribution to the arms export industry.

Because that is the case, the pressure, clearly recognised in the report and in the Government's response, is that greater emphasis should be given to their potential contribution to other fields of national life, particularly to industry, and to their cost to the taxpayer being offset by sale of their services. That produces conflicting demands and loyalties and many other problems, some of which I have already mentioned. The report clearly acknowledges them. Although its recommendations edge in the direction of loosening the Ministry of Defence's tight control and of associating other government departments with the agency, notably the Department of Trade and Industry and the Office of Science and Technology, it treads warily and in my view does not go far enough. The report, in paragraphs 2.34 and 5.14, to which the noble Earl referred, recommends a close study of French and American defence research as examples of directing it towards wider national interests than just the support of a national defence equipment programme. I would urge a study of the German method. As I understand it, the Germans have no defence research establishments as such, controlled by their defence ministry. Their armed forces depend upon a combination of research carried out by their prestigious civil scientific institutes, such as the Max Planck, which also serve industry and other national objectives, and development carried out by the armament firms themselves. One must of course make allowance for all the differences which exist between how science is organised, supported and financed in this country and how it is done in Germany. Nevertheless I believe that a close study of the German solution, which is no less successful than the French and American both in developing military equipment and in supporting broad national objectives, would repay a very careful study.

If we were to move in that direction, my proposal would be to split up the Defence Research Agency into its former four establishments—the Royal Signals and Radar Establishment, the Admiralty Research Establishment, the Royal Aircraft Establishment and the Royal Armament Research and Development Establishment—and detach them, with the probable exception of RARDE, from the Ministry of Defence. The agency, as it now is and as the Ministry of Defence plans it to be, is an uneasy amalgam of establishments of different natures and objectives. I would then convert RSRE at Malvern into a National Electronics Institute, RAE at Farnborough into a National Aerospace Institute and most of ARE into a National Maritime Institute, some elements of it perhaps being absorbed by the Electronics and Aerospace Institutes. In my view, those institutes should have close links with a specific university: perhaps Cambridge for electronics; London, particularly Imperial College, for aerospace; and Southampton for maritime. They should also offer shared use on a commercial basis of some of their assets with other research organisations, as has recently been agreed in the case of the ship testing tanks at Haslar between the former Admiralty Research Establishment and British Maritime Technology Ltd. I would envisage those three institutes coming under the aegis of the Engineering and Physical Sciences Research Council.

Parts of RARDE might be amalgamated with other institutes: the former Fighting Vehicle Research and Development Establishment perhaps with what is now the Transport Research Agency; but the weapons and ammunition side, formerly Fort Halstead, should probably remain a Ministry of Defence establishment.

I believe that such a fundamental reorganisation would provide a solution to the problems to which the recommendations of the report, in my view, offer only palliative alleviations. It is unrealistic today, and will be more so in the future, to think of a defence procurement programme based on national research and development and national production. The quantities are too small, the cost too high and the industrial base too narrow. We need to seek a European procurement programme, backed by high quality national science, supporting a thriving British electronic, aerospace, maritime and general engineering industry, working in a European context.

That was the message that the Minister for Defence Procurement gave forcefully yesterday in his address to the Defence Manufacturers Association. I suggest that he should try to persuade his right honourable friend the Defence Secretary to apply it to the Defence Research Agency.

6.37 p.m.

Lord Trefgarne

My Lords, I had the honour to serve on the committee whose report your Lordships are now considering. I wish to start by paying tribute to our chairman, my noble friend Lord Selborne, for the wise and effective way in which he guided our deliberations and which I believe is reflected in the report which we have produced.

I have listened with interest to the speech of the noble and gallant Lord, Lord Carver. I wish that we had had an opportunity, during the course of our deliberations, to know the noble and gallant Lord's views so that they could perhaps have been tested, examined and considered more than they were.

I am wholly supportive of the report which your Lordships are considering. However, there is one matter which is not wholly removed from what the noble and gallant Lord has been talking about today to which I should like to refer; that is, the possibility in due course, of moving the Defence Research Agency into the private sector.

We were not charged with considering that proposition. There was no particular support for it among the members of the committee and, indeed, when the Minister, my right honourable friend Mr. Aitken, came to speak to us, he made it clear that there were no government plans for such a move. I am told that the Government's response to our report—and I am sorry to say that my copy arrived only today and I have not yet had an opportunity to study it—refers also to the fact that there are no present government plans for that particular course of action. But I believe that some of the difficulties to which the noble and gallant Lord, Lord Carver, has just referred, which are real and which were identified in our report, would be overcome by moving the Defence Research Agency into the private sector.

Having said that, I agree also with the conclusion which the committee reached to the effect that the DRA has been subjected to all sorts of reorganisations and changes in recent years and now would not be the time for a move into the private sector. The agency deserves and is entitled to a period of consolidation. I recognise the fact that the noble and gallant Lord did not think that that was wholly desirable. However, I certainly believe that to be desirable as, indeed, did the committee.

However, when that period is over in, say, two, three or even four years from now, I believe that it would be right to revisit the question of whether or not the DRA should be privatised. As the noble and gallant Lord said, the fact is that the capacity of the DRA at present exceeds that which can usefully be fully employed by the Ministry of Defence. I am very much attached to the thought that the excellent resources and facilities available within the DRA ought to be more widely available to our national effort in terms of generating more and better technologies for use not only for military purposes, but also for civil purposes, to a much greater extent than they are at present.

As I said, the committee was not charged with examining whether or not the DRA should be privatised; nor, therefore, did we reach any particular, immediate conclusions on that point. But I should like to see the question of the ownership of the DRA revisited after a period of consolidation. I hope that the Government will find it possible to do so.

6.41 p.m.

Lord Craig of Radley

My Lords, this was my first experience of a Select Committee, at least of sitting at the round end of a Select Committee table. I am most grateful for the friendly support that I received from the chairman, the noble Earl, Lord Selborne and from the rest of the committee. As the noble Earl mentioned, the topic of our investigation was not unfamiliar to me. I had some involvement with the work done in the Ministry of Defence which led Ministers to amalgamate the research establishments into the DRA, and the subsequent introduction of a trading fund in 1993. Following the collapse of the Soviet threat, it was also clear that the MoD's research requirements would need to be scrutinised most thoroughly against the background of the post cold war world.

Change in any large and complex organisation is never easy. Those involved in the formation of the DRA faced a double whammy: the amalgamations and restructuring of the former research establishments and the downward pressures on their future budgets. Some argue that in periods of peace and retrenchment, expenditure on the strategic research programme should not be curtailed. Indeed, the Statement on the Defence Estimates 1994 (CM2550 at page 64) said: The need to retain battle winning technological advantage is as pressing now as it has ever been in the context of changing unpredictable risks". If such aspirations are to be realised, it is not only a matter of money but of staff with the right background and motivation to deliver on good ideas. With that in mind, and the unprecedented changes which had already taken place in forming the DRA with its trading fund, our committee called for a period of consolidation and stability. Indeed, several of our witnesses stressed that need.

It was, therefore, with no little surprise that I read in the Defence Costs Study report, Front Line First, issued in July 1994 after our review had been completed, that savings estimated at £12 million a year could be expected, subject to further work (I note the reservation implicit in that phrase) if the DRA principles were applied as widely as possible to other MoD organisations which provide scientific and technological services.

It is a fundamental precept of scientific experiment that to get a proper evaluation the introduction of too many variables at the same time will almost certainly distort the conclusions. Fifteen months' experience of the DRA with its trading fund seems perilously short to conclude that it is not only a goer in its present form but that it will be able to absorb new resources and organisations immediately with cost savings and no adverse effects. It was an unfortunate matter of timing that our committee could be given no hint in MoD evidence of such further major changes. Time will tell whether the MoD has got that right or has fallen once more into the trap of piling change upon change to such an extent that quality of output cannot be sustained.

There is just one other aspect of our report that I should like to touch on. We concluded from evidence that Treasury rules place an unnecessarily high burden upon the DRA. I understand that the 6 per cent. risk-free target rate of return set by the Secretary of State for Defence is the same as applied across other government trading funds. They say that it provides a necessary commercial discipline. At the same time, the DRA is said to be free to charge what it deems appropriate for its facilities, provided that it does not disadvantage the MoD. Is there not some inconsistency in those approaches? Why should the DRA be grouped with every other trading fund? Should it not be treated on its own merits? We are told that the DRA is free, but only so long as it charges—at least—what the MoD says it must. Treasury and MoD rules seem to be inflexible, and not always in the best commercial and wealth-creating interests that we would all like to see from the DRA.

The DRA enterprise fund should be developed to give both the encouragement and the wherewithal to exploit the considerable financial potential of the DRA. While the MoD as sole owner of the DRA must be given priority, and every effort made to meet the MoD's legitimate requirements, it should also be possible for the chief executive and his team to seek to enhance the national wealth-creating potential which lies within the DRA. That may be difficult to achieve in a meaningful way if the MoD insists that any capacity surplus to defence needs must be removed. The DRA seems to be between a rock and the hard place.

Finally, the DRA and its predecessor research establishments have been through a period of unprecedented change, financially, organisationally and functionally. I hope that no "Johnny come lately" will feel that the DRA needs to be reviewed yet again in the near future; for example—and I note what the noble Lord, Lord Trefgarne, said—with a view to privatisation or further restructuring. The agency needs stability to set itself on its new course, to allow time to assess properly the success of the new arrangements and, above all, to allow the scientists and others who have been so personally affected by so much upheaval to plan ahead for their families and themselves. If not, morale and quality of output could be badly hit.

6.48 p.m.

Lord Redesdale

My Lords, I welcome the opportunity to make a few brief comments about the report. I should also like to say that I welcome the Government's reply; indeed, it is extremely comprehensive. However, the area that I most welcome about the Government's reply can be found at the end of paragraph 3. I know that the noble Lord, Lord Trefgarne, will not agree with me in that respect, but I think that those words are most important. They read: There continue to be no plans for privatisation". Like many members of the committee, I believe that privatisation of the Defence Research Agency will not be in the best interests of the country.

When I was considering my speech, I realised that many noble Lords would speak in great detail. As many speakers were members of the committee and know a great deal about the subject, I should like to discuss a few areas that concerned the committee over all.

While thinking about the speech I would make in this debate I received the Defence Research Agency's annual report 1993–94. It is quite an exciting document. The first section of it reads very much like an episode of "Tomorrow's World". I say that with no disrespect at all. The document shows how the Defence Research Agency is at the cutting edge of advanced technologies. I was particularly interested in the work being done on light emission from silicon.

The document almost states why the reforms we are discussing were undertaken. The Defence Research Agency carries out exciting research. The 10 per cent. of it which is directly outside the MoD's control can be used for wealth creation and for the benefit of the country. The report describes the vast areas of expertise that are covered by the Defence Research Agency and many areas which are not limited just to defence.

The second section of the report lists the enormous changes that have taken place within the Defence Research Agency. I believe that these changes are mostly for the good. However, I have one or two points to add on this matter. I believe that one of the driving forces behind the changes is efficiency. But there is a slight dichotomy as regards pushing for efficiency in research. On the one hand one is trying to limit the money being spent and on the other one is trying to achieve as much with the research as possible.

I have talked with the noble Baroness, Lady Hilton of Eggardon, about the role of efficiency within the DRA. I believe we share the view that one area that has been particularly discussed is that of blue sky research. While there is a strong push for efficiency, that will cut down on the eventual returns from blue sky research. Also, as the research becomes more specialised, that could lead to short-termism. Although I realise that often few benefits are to be gained from pouring vast amounts of money into research without a direct aim in mind, I believe that one area that has to be carefully monitored is that short-termism might become an in-built factor in all the research undertaken by the Defence Research Agency.

I also wish to discuss intellectual property rights. I believe strongly that there is no reason why the country should not benefit from any revenue that may accrue from this work and that intellectual property rights should fund other areas of the Defence Research Agency. However, I disagree with the Government's response in one respect. I believe that, if at all possible, intellectual property rights should be sold to British companies below the rate of return that would normally be expected if they can show that such a course would create jobs in this country and add to the manufacturing base. I believe that that is an important point. One may forget that a small loss of a few million pounds in intellectual property rights could be compensated for if a factory could be established in this country to produce goods as a result of acquiring the intellectual property rights.

I also wish to mention the Treasury rules, as did the noble and gallant Lord, Lord Craig of Radley. They can be inflexible. It seems to be a case of taking from one pocket and putting into another. The Treasury can push for more stringent controls of the Defence Research Agency. However, it is a publicly funded company, and if it can be shown that reducing the Treasury rate of return would benefit the country, I do not believe that one should necessarily have to stick to the 6 per cent. figure, which is an artificial creation.

I wish to end by considering the role of stability. I shall quote from the Defence Research Agency report and the statement of the chief executive, Mr. John Chisholm: After two years of preparation, 1993/94 saw the Defence Research Agency launched as a fully trading organisation. It has proved a daunting but so far successful task. The mechanics of making an enterprise of more than 10,000 highly skilled individuals into a disciplined trading entity were sufficiently challenging in themselves; to achieve that transformation while retaining the focus4 and innovation from DRA's staff has been a rare and important task. Despite many difficulties, some of them relatively major, that task has been by and large accomplished". There have been massive changes in the Defence Research Agency. I wish to mirror some of the views that have been expressed already by stating that I believe a period of time needs to be set aside to see what effect those changes have had. It would seem to me to be short-sighted to try to attempt major changes in the short term. I believe that a period of stability of perhaps more than two or four years —perhaps six or eight years—should be instituted so that the effects of these changes can be seen. Then, if any further changes are necessary, they can be implemented with the benefit of wisdom.

6.57 p.m.

Lord Graham of Edmonton

My Lords, I begin by extending the apologies of my noble friend Lord Williams, who, as the Minister will know, takes a keen interest in these matters but is unfortunately unable to be here. However, that provided me with the opportunity —in fact the necessity—to do a bit more reading than I might otherwise have done. I must confess that I am an ex-Royal Marine, corporal PLY X112 105, 1943. Ever since then I have taken an interest in defence matters and, on behalf of my party, I have spoken on defence matters from time to time in the past. Therefore it was a pleasure for me to have to do the necessary reading to equip myself for this debate.

I share the commendations of all of us not only to the noble Earl, Lord Selborne, but also to members of his Committee. The Minister normally expresses his gratitude to those colleagues in the House who have served him and the House. He will want to say how grateful we all are to the Committee not merely because it has done a thoroughly worthwhile job but also because it has given the Minister an opportunity to comment on this matter.

The noble Lord, Lord Redesdale, referred to the Ministry's response. There is no need for me to go over the report when the Minister will no doubt do that. If what we have in the report is the response from the Government, that will be the response that we are given from the Government Minister. The debate provides us with an opportunity to state our views before we hear the Minister's response. I certainly hope that he can give a more encouraging response than some previous responses have been. What we have here is an impressive document which has been painstakingly—but I believe expertly and dispassionately—assembled. One hears a great deal about interests, for example Members' interests and declarable interests. "Vested interest" are certainly not dirty words to me.

There has been an impressive investigation into a national asset. Those of us who have been in the House and in politics for a long time, and indeed those individuals whose careers are at stake, recognise that there has been a revolution both in the management and the structure of many hitherto well-established public services. Therefore, I do not believe that there will be any argument about the need for a review.

I listened carefully to the noble and gallant Lord, Lord Carver. He not only told us what is right with the report. He impressed me with the fact that not only had he read the report but he had analysed it, and he presented his ideas on how it could be improved. I am sure that the noble Earl, Lord Selborne, and his committee, will be grateful for that, because it is all grist to the mill.

However, I wish to emphasise immediately a view contrary to that expressed by the noble Lord, Lord Trefgarne. The Government and the Minister have stated repeatedly that they have no plans at present to privatise the industry. The noble Lord nevertheless took the opportunity to say that while he accepted that for the moment, perhaps in two, three or four years' time the question should be revisited. I hesitate to believe that an organisation which has been in turmoil and suffered trauma over the past few years will welcome the fact that, as it is getting to grips with a new role, it can look forward to its entrails being examined yet again in two, three or four years' time. Therefore, I hope that the Minister will be a little more kind to those whose careers are affected and will say that, in the context of the changes, he and his colleagues fully expect the new arrangements to be a success. If they are not successful, then of course the Minister and his colleagues will consider alternatives.

I was very impressed to learn that the DRA is not merely defence oriented or an organisation with a defence capability. There are a number of ways in which an organisation which is established for a limited purpose may develop expertise and then may become a competitor. I understand the delicacy of that situation. There may be resentment. However, I see nothing wrong in a mix of civil and public resources and businesses if it produces a good match. I am very encouraged by that aspect of the report.

Recommendation 4.24 on page 32 states: We consider that Treasury rules place an unnecessarily high burden upon DRA. The current target rates of return appear unrealistic, and we consider that DRA should be able to charge customers at marginal costs where appropriate; to do otherwise would place the future of many unique and vital facilities in the United Kingdom in jeopardy". The committee has had the benefit of hearing the witnesses and questioning them. They have used their great expertise, and their political nous. If it is their view that the present rules could place many unique and vital facilities in the United Kingdom in jeopardy, I should like the Minister either to put that in context or to reassure those who are affected. It would be a nonsense if that were to happen in pursuit of dogma. The noble Lord, Lord Redesdale, also mentioned that point.

It would be in the national interest if there were an understanding or some flexibility in these matters. The noble Earl, Lord Selborne, said that before many more scientists are made redundant and before there is a loss of more unique facilities, one ought to pause and reflect on whether that is necessary. He also said that one must tecognise that in the context of the defence of the realm we do not want to find ourselves in a few years' time in a position in which either those facilities have to be recreated or we have to obtain the facilities from other agencies, not only in this country but from abroad.

One of my complaints about this Government is that far too often, in a cavalier fashion, they will sell facilities of this kind in order to boost the Exchequer and provide opportunities for tax cuts. I come from the Enfield and Edmonton area. I believe that the noble Lord, Lord Trefgarne, was the Minister at the time of the sale of the ordnance factories. I find it astounding that the Government keep so few of their eggs in the basket of public ownership. I believe that selling our assets in that way is completely wrong.

Therefore I should be grateful if the Minister could give some reassurance in respect of stability.

In paragraph 5.6 on page 33 the committee recommends that the Government's Chief Scientific Adviser should be: specifically empowered to expose any practices which impede closer links between civil and military science and technology". Perhaps the Minister or the noble Earl, Lord Selborne, can tell us what they have in mind which may cause them to worry about practices which impede such closer links. Are we talking in terms of civil servants and those who guide them resisting the possibility of moving into the civil field? Are we talking in terms of a fight to the last ditch? The noble and gallant Lord, Lord Carver, impressed me with the need to be flexible in these matters. Therefore, I should be grateful if the Minister or the noble Earl, Lord Selborne, could reassure me. I believe that we need a mix of establishments and expertise linking civil and military science.

I was very impressed by the remark in the government report dealing with the need for the DRA to seek work from other government departments, some of which have research budgets significantly greater than the MoD's, as well as from the private sector". Will the Minister indicate to what extent there is co-ordination at government level to ensure that initiatives are not inhibited due to vested interests in other departments?

Perhaps I may give an example from my own experience. A colleague of mine worked for the Coal Board. He was in charge of a body called Minestone Executive, whose function was to sell colliery spoil. That was useful for aggregate. It was not first-class aggregate but second-class aggregate which could be used in, for example, road building. An organisation which was nationally owned had difficulty in selling its product because contracts existed between other departments and other contractors which were not owned by the nation. There was clearly a commercial nexus.

Therefore, I should like the Minister, when he replies, to pay particular attention to paragraph 9 on page 2 of the government report and assure us that the facilities and expertise which rest in the agency are capable of being used by others without too much difficulty.

I was reassured by the words of the noble Earl, Lord Selborne. I noted the reference in the report to the decline in DTI funding. The noble Earl seemed to lay great store on an alternative, secondary source of funding. Perhaps he may say when he replies how he is assured that money is available from that other source.

Reference has been made to short termism, a subject of which the Minister is well aware. We are talking about a vital public interest in every sense of the word. The Minister and I will differ on our attitudes in general to the public and private sectors. However, I believe that the DRA needs to be protected. The agency must not disintegrate for short-term reasons, with parts of it sold off. Five thousand scientists and many other employees who serve the nation well are involved.

I had intended to say how useful the report is for people such as myself. I read it with a great deal of interest. However, perhaps I may say to the noble Earl, Lord Selborne, and others that paragraph 2.22 on page 17 almost put me off. It states: DRA already seeks European (EC and non-EC) collaboration, involving itself in EC Framework Programme projects and in EUCLID, BRITE/EURAM, ESPRIT, SCIENCE, and MAST". We are supposed to understand that. It seems gobbledegook. The report is full of initials. This report clearly has a great value to those people who prepared it; they will use it. But it could be improved if so many initials were not used. However, the House is indebted to the noble Earl, Lord Selborne, and to those who contributed to the report. On this side of the Chamber, we pay a warm tribute to their work and look forward to the continuation of the valuable national service given by those men and women.

7.12 p.m.

Lord Henley

My Lords, the noble Lord the Opposition Chief Whip says that we often differ, and he is certainly right. However, there is one matter on which I am in full agreement with him: it is regarding the problems with and frequency of acronyms. As one who has only recently come to the Ministry of Defence, I am having great difficulties in getting to know and understand the vast number of acronyms which proliferate in that department.

I had also hoped on this occasion to be able to agree with the noble Lord on one other matter. He, like me, always welcomes brevity in speeches. I had thought for the first time ever that I would be able to congratulate every speaker in an untimed debate on keeping their speeches to within 10 minutes. However, the noble Lord himself broke that rule. I shall seek to keep within 10 minutes myself; but I do not know whether I can. I shall certainly not respond at the same length as our response which was published last week, to which other noble Lords have referred.

I start by extending my thanks to the noble Earl, Lord Selborne, for calling this debate on the Select Committee's report and offering my thanks to him, the members of the committee and its staff for their work in producing the report. I wish to say how grateful I am for the tribute that he paid to the Defence Research Agency and the excellence of its work.

As the House is aware, the publication of the committee's report coincided with the publication of our own report, Front Line First, which included a proposal to enlarge the DRA. We have been engaged in considering that proposal. As I have already mentioned, our response to the Select Committee's report was published this week.

I think that I would reject the allegations from the noble and gallant Lord, Lord Carver—for whom I have the greatest respect—that the report was complacent. I rest to some extent on the remarks of the noble Lord, Lord Redesdale, who welcomed the report. I hope that he will offer a similar welcome to other announcements that my department may make from time to time.

We value the scrutiny given by the Select Committee to the DRA's role in the relationship between the agency and the department. We are pleased that the committee speaks highly of the DRA management and staff to the extent that it considers achievable the DRA's aim for international pre-eminence. We were disappointed, however, that similar acknowledgement was not given to the efforts made within my department to develop that relationship. The DRA is our principal scientific and technical knowledge base, and as its principle customer my department uses the trading fund regime to derive the best value for money from that knowledge base for the taxpayer's benefit. This will be even more the case when the trading fund is enlarged, and new streamlined procedures governing our relationship will help the DRA to plan ahead and improve the cost-effectiveness of the research programme.

The relationship between the DRA and its MoD customers is one of a trusted partnership in which the DRA has substantial knowledge of our future equipment needs and joins with us in planning the research programme. The Front Line First proposals on the restructuring of the MoD research programme into corporate research and contract research will allow us and the DRA to build a more coherent research programme to the benefit of my department and the wider economy.

Obviously I understand the committee's call—it was referred to by my noble friend Lord Selborne and the noble and gallant Lord, Lord Craig of Radley—for a period of consolidation and stability in the DRA's affairs. I have to say that there was no case to exempt the DRA from the rigours of the Defence Costs Study which looked at all aspects of support to the front line. We are determined to drive down costs to the taxpayer. The broad framework of the DRA structure and operating processes will remain in place.

The proposal in Front Line First, as my noble friend Lord Selborne, made clear, is to bring together the DRA, the Chemical and Biological Defence Establishment, the Defence Operational Analysis Centre, the Director of Test and Evaluation, and other MoD scientific staff into a single, enlarged executive agency. This will enhance the ability of those organisations to meet, through the existing trading fund, the demands placed on them by my department. The proposal in principle has been the subject of consultation with the trade unions and nothing in the comments received on the consultative document leads us to believe that it is not right to go ahead and prepare to launch the enlarged agency on 1st April next year. Nor do I believe that that will affect the stability of the DRA.

No evidence has been presented in favour of privatising the DRA—a matter to which my noble friend Lord Trefgarne referred. The Front Line First report—I believe that my noble friend mentioned it—specifically recommended that it should not be a candidate for privatisation. Indeed, in his evidence to the committee, the then Minister for Defence Procurement, my right honourable friend Mr. Jonathan Aitken urged caution in the light of our international commitments. However, I can assure my noble friend Lord Trefgarne that those are matters which should be and will be kept under review. Should it be a suitable candidate for privatisation in the future, that is certainly a matter that we can look to. However, I must express the caution that my right honourable friend expressed in his evidence to the committee: that it is certainly not a matter for the immediate or foreseeable future.

We welcome the importance that the committee attaches to the wealth-creating activity of the DRA. Last year's White Paper on science, engineering and technology, Realising Our Potential, emphasised the Government's commitment to harnessing all publicly funded science and technology more effectively to support wealth creation and improve the quality of life. The DRA has an important role in delivering our increased efforts to realise the wealth creation potential of its research and development activities. I can give an assurance to the House that the DRA is working closely with both the Office of Science and Technology and the DTI to take forward its wealth creation initiatives. The exchange of information with the civil sector is an important part of that process.

We rejected the idea that was advocated in the report and repeated both by my noble friend and by the noble and gallant Lord, Lord Carver. Lord Carver went on to suggest looking at the German solution to these problems. Certainly, again, as someone who is new to the department that is something—without making any commitments—that I would be more than willing to do. As I said, we rejected the idea in the report that the Office of Science and Technology and the DTI should share in ownership of the DRA, as that would undermine ministerial accountability without creating any clear benefits.

However, my department will invite the Government's Chief Scientific Adviser, Sir William Stewart, to become an external member of the Defence Research Agency Council.

Perhaps I may say a word or two about the Treasury rules that were referred to by the noble and gallant Lord, Lord Craig, the noble Lord, Lord Graham, and, I believe, the noble Lord, Lord Redesdale. We reject the contention that such rules place an unnecessarily high burden on the DRA. The present 6 per cent. target rate of return set by the Secretary of State as owner of the DRA is the same risk-free rate that applies across similar Government trading funds and provides the necessary commercial discipline. The DRA is free to charge what it considers appropriate for its facilities provided that it does not disadvantage the Ministry of Defence. It is merely constrained by the willingness and ability of its customers collectively to pay the full cost. I do not accept the noble and gallant Lord's arguments that those are contradictory. Nor do I accept the argument that those impose excessive constraints.

We also consider that the—

Lord Trefgarne

My Lords, I wonder if I may intervene. I hope my noble friend understands that the views to which he just referred and rejected so firmly were held almost universally throughout the committee, not just by my noble and gallant friend Lord Craig.

Lord Henley

Obviously, my Lords, I take note particularly of what the noble and gallant Lord, Lord Craig, said, and also of what the committee said. If my noble friend—a former colleague on this Front Bench—also forcefully makes those remarks, I will take even greater note of them. I am afraid, however, that I do not accept the arguments that have been put forward. I hope that my noble friend will therefore bear with me in that respect.

We also consider that the present arrangements provide sufficient commercial freedom for the DRA to contribute to the activities of British industry more widely. The important issue is for the DRA to use these effectively without affecting its capacity to meet the needs of the Ministry of Defence and the Armed Forces. The "trusted partnership" allows the agency to identify how the research programme might be modified to meet its wider remit while still meeting the MoD's needs.

In conclusion, perhaps I may remind the House that the Ministry of Defence is concerned first with defence objectives. That is our prime role. We require that the DRA should support that objective. However, such a mutually beneficial relationship does not rule out a wider remit for the agency, and we believe that within the overall defence framework it is possible for the DRA to operate flexibly and to make a very real contribution to the wider role of wealth creation. These are objectives that this Government support, and we shall continue to encourage in what has undoubtedly become a flagship among agencies for service delivery and efficiency.

7.23 p.m.

The Earl of Selborne

My Lords, I thank all those who have contributed to what I have found to be a very interesting debate, and I thank particularly my noble friend the Minister for his contribution and for the government response to our report.

Perhaps I may very briefly—because indeed the brevity of the speeches throughout this debate has been exemplary—make two or three points. In his stimulating contribution, the noble and gallant Lord, Lord Carver, referred to the German model. I think the committee would have had a lot of sympathy with that had we produced the report in 1991 or thereabouts. Instead, we are looking at the DRA four years into its existence, and that is very different. If the radical solution of which the noble and gallant Lord urges at least consideration and which he feels we should have looked at more carefully had been the answer, it should have been an answer four years ago, not now. We looked very carefully at the quality of the science and the need to try to ensure that that science delivers relevant research, particularly for its own purposes and the Ministry of Defence. We were not sure that yet another uprooting would be helpful.

My noble friend Lord Trefgarne referred to the issue of privatisation and seemed to imply that there was a self-denying ordinance on the committee not to look at this issue. That is far from the case. A number of people gave evidence on the ownership of the agency, and that was mainly in terms of whether it should remain in the ownership of the Ministry of Defence. Our terms of reference were as wide as you like: we were simply conducting an inquiry into the Defence Research Agency. This is very much a case of the dog that did not bark. Very few people referred to privatisation— although it is true that the Minister himself did so. And Sir Peter Kemp in his written evidence reminded us that at the time when the DRA was created privatisation had been quite a live issue. However, throughout all the written evidence that we received—and it was a large amount—there simply was no request for privatisation. That is why we did not take that line of inquiry very far.

Lastly, a very forceful and valid point was made by the noble Lord, Lord Graham of Edmonton, when he referred politely to the "Alphabet soup" throughout this report. I refer the noble Lord to page 41 where, I am horrified to count, the number of acronyms comes to 60. I am afraid that that is the culture in which the Ministry of Defence lives. The noble Lord will remember from his days in the services just how widespread initials were, and they remain so. All I can say is that he read out to great effect one particularly awful paragraph. However, if he looks, for instance, at what SCIENCE (which you would think was a perfectly good word) really means—it is referred to on page 41—he will realise that in real life it is even worse than as an acronym, so perhaps we were wise to keep to the acronym in that respect.

The noble Lord asked me to refer to another point, and perhaps with your Lordships' indulgence I may briefly do so. If the DTI is not funding the research establishments within the Defence Research Agency as much as we would wish—and it is not—we look then to the Office of Science and Technology. The problem with the Office of Science and Technology is that it does not have the money. Nevertheless, it was set up two (or is it three?) years ago with the remit to try to co-ordinate research throughout government. We believe that there is a job to be done. I listened with great interest to what my noble friend the Minister said. I still believe that perhaps his ministry and the Office of Science and Technology could look carefully at this point. I therefore obviously welcome the appointment of Sir William Stewart to which my noble friend referred.

On Question, Motion agreed to.

House adjourned at twenty-seven minutes past seven o'clock.