HL Deb 25 July 1996 vol 574 cc1576-86
Earl Howe

My Lords, with the leave of the House, I should like to make a Statement about three major defence equipment decisions for the RAF. The Statement is as follows:

"To meet the Royal Air Force's requirement for a conventionally armed stand-off missile, the Government have decided, following the conclusion of a very successful competition, to buy Storm Shadow missiles from British Aerospace Dynamics, subject to the negotiation of satisfactory terms. This decision will provide the Royal Air Force with a highly capable stand-off missile able to mount precision attacks on high priority targets, the need for which was demonstrated in the Gulf War. This decision will give excellent value for money for the taxpayer. It will also cement the recently announced merger of the missile businesses of British Aerospace and Matra of France. This will strengthen British Aerospace's ability to play a leading role in a restructured European industry. The order will directly sustain some 1,600 jobs in our defence industry and work to the full value of the order will be placed with British companies.

"The RAF also requires an advanced air-launched anti-armour weapon to defeat enemy battle tanks and other armoured vehicles and which can be deployed rapidly to and around the battlefield. The Government have decided that, subject to the negotiation of satisfactory contract terms, we will buy Brimstone from GEC Marconi Dynamics to meet this requirement. The company has won this tender in the face of fierce international competition, demonstrating that the UK is at the cutting edge of world missile seeker technology. We believe that the order will directly sustain some 700 jobs in our defence industry and, as with Storm Shadow, British companies will obtain work to the full value of the order.

"The Royal Air Force's maritime patrol fleet provides a key part of the UK's anti-submarine and anti-surface warfare capability. It also contributes significantly to our ability safely to deploy and sustain contingency forces, including the Joint Rapid Deployment Force. In addition to their operations in the North Atlantic, Nimrod aircraft played vital roles in the Gulf War and more recently over the Adriatic, supporting operations in Bosnia. The Nimrod MR2 aircraft have been in service now for a quarter of a century; we need to replace them from the turn of the century.

"The Government have decided to purchase 21 Nimrod 2000 aircraft from British Aerospace, subject to the satisfactory completion of contract negotiations. As prime contractor, British Aerospace will be wholly responsible for systems integration and for the airframe. Rolls-Royce will supply the engine and Racal the radar, while key elements of the mission system will be provided through a strategic partnership between GEC and Boeing. The order will directly sustain around 2,600 UK jobs. Once again, work to the full value of the order will be placed with British companies.

"These three orders have a combined value approaching £4 billion, and will sustain around 5,000 British jobs. They underline the Government's determination to deliver the benefits promised by Front Line First by sustaining and enhancing the fighting strength of our Armed Forces."

My Lords, that concludes the Statement.

3.4 p.m.

Lord Williams of Elvel

My Lords, I am grateful to the noble Earl for reading out the Written Answer that he gave to the noble Lord, Lord Peyton of Yeovil, the text of which was in our hands earlier today. Sometimes the Government seem to forget that this House is a House of Parliament. The announcement of expenditure of £4 billion should have been made in the form of a Statement to this House or preferably to both Houses before another place had risen for the Summer Recess.

Only on Tuesday, the Prime Minister said that the contracts were being carefully evaluated and that an announcement would be made in due course. The House of Commons Defence Committee said that it expected an announcement to be made before the Recess. But I am sure that all noble Lords are surprised by the early editions of the Evening Standard which carry this whole deal—if I may put it like that—in extensive detail. It appears that there was deadlock between the Ministry of Defence and the Treasury, which was keen to secure spending statements. It goes on: The Defence Secretary rushed onto the airwaves today to hail the `tremendous order' ahead of an official Government announcement, expected later in the day". The report goes on to say, and I have no reason to believe that it is wrong: Mr. Heseltine brokered the final deal in a meeting of Ministers in his Whitehall office yesterday, which began at 7 p.m. and finished by 8.30 p.m.". Are we really to suppose that the defence and defence procurement of this country are subject to Cabinet Ministers briefing the press before Parliament has had an opportunity to discuss the matter?

I imagine, since the noble Viscount the Leader of the House was at the Cabinet meeting this morning, that he put up his hand and said, "By the way, the House of Lords is still in Session".

Lord Strathclyde

He was here. He made a speech.

Lord Williams of Elvel

My Lords, he may have been here, as the noble Lord the Chief Whip seems to imply, but I imagine the view was put that Parliament was still in Session; that although the House of Commons had gone into Recess, the House of Lords had not gone into Recess. It would have been proper for the announcement to have been made by a Statement in this House. There have been many occasions when this House has been sitting and the other House has not been sitting and Statements have been made here. It seems to me absurd that we have been treated in this way.

Leaving aside the question of the position of this House—that is an important matter which your Lordships will wish to debate at some time in the future—there is no doubt that the contracts were needed urgently. Indeed, we have been pressing for an announcement on those contracts. If there had not been the dispute between Cabinet Ministers, which was apparently finally resolved by the Deputy Prime Minister yesterday evening, we should have had an announcement earlier. Indeed, in its report the House of Commons Defence Committee stated: We understand that major announcements are due before the summer recess on four major procurement orders, as well as on the Bett report on Manpower, Career and Remuneration Structures". I ask the Minister to confirm that before the House goes into Recess there will be a Statement on the Bett Report on Manpower, Career and Remuneration Structures. If not, it will again be slipped out by Written Answer during the Recess. We all know how government managers run their business.

I do not believe that that is the right way for Parliament to be treated. I do not believe that that is the right way for the UK's future defence requirements to be decided—in open battle, each side putting its own spin on its own arguments between various Ministers in the Cabinet.

Although we welcome these announcements in principle, will the Minister confirm that the RAF asked for 25 rather than 21 Nimrods? Will he then give the House an assurance that the RAF is satisfied that it can carry out its operational requirements with the 21 which appear to be the Treasury pound of flesh that has been cut away from the original requirement of 25?

Will the Minister also confirm that the price of those contracts has already been established? When he said in the Statement that the contracts were subject to satisfactory terms—the press release has somewhat different wording on the matter—will he confirm that the price has at least been agreed and that there is no question of the contracts in some way failing from negotiation of terms?

Finally, will the Minister agree that the Armed Forces have had their full measure of Treasury interference and that the report, which I quoted in our defence debate of 12th July, and to which the noble Earl failed to reply, that the Treasury is still asking the Ministry of Defence to cut its budget for next year by £400 million, is not the case and that if the Treasury is asking that, Mr. Portillo will resist it in the "victorious" way in which he has resisted the Treasury today?

Lord Wallace of Saltaire

My Lords, I welcome the announcement, which ends a period of uncertainty. I too express a certain amount of cynicism about the way in which it has been undertaken and about the undignified bargaining, to say the least, between the Treasury and the Ministry of Defence. Strong rumours have it that the sale of Ministry of Defence housing was used as part of the bartering between the MoD and the Treasury. That is another example of the way in which the Government are selling off long-term assets in order to buy shorter-term assets, or against income. That is most distressing.

I note that the announcement marks a further stage in the closer integration of a UK defence procurement industry with our West European partners in the proposed merger of British Aerospace with Matra. Of course, it is highly desirable that as equipment becomes more expensive and as the size of procurement shrinks we should, as far as possible, move towards common procurement with our closest allies and towards a restructured European industry. In that context, I wish to ask the Minister which other countries are expected to order the advanced air-launched anti-armour weapon and how far that will be a part of the inter-operable system with those of our allies with whom we are most likely to operate. How far will the new Nimrod system be fully inter-operable with those of our allies, in particular around the North Sea, who require and have similar equipment?

Given the inherent and structural inefficiency of the public service, military and civil, about which we have heard today, I am bound to ask the Minister how far further privatisation has been considered in the operation and maintenance of the equipment which is about to be procured. It occurred to me, for example, that the new generation Nimrod might possibly be contracted out to Iceland Air or Aer Lingus under a contract to maintain bases, subject to RAF monitoring. Air Singapore and Malaysian Airlines are, so the Financial Times tells us, the most efficient operators in this sector, but they may be a little far away to undertake such a contract.

Finally, I wish to ask the Minister how much further this takes us towards getting better value for money out of British defence by moving towards closer integration with that of our European partners, which seems to many of us the only effective way forward.

Earl Howe

My Lords, I am grateful to both noble Lords on the Benches opposite for the welcome, if somewhat guarded, that they have given to the announcement. It is somewhat characteristic of the noble Lord, Lord Williams, that he should perform a stately dance around the real issue. The real issue is that this announcement is wonderful news for the RAF, for British industry and for British jobs. It is that upon which your Lordships should focus.

He referred to his disappointment that the announcement should have been left to the end of the parliamentary Session. I agree that it is regrettable that we were not in a position to make the announcement while the other place was still sitting. But I do not believe that anyone would argue that announcements of such important orders for British industry should be held over until another place returns in October. The position is that Parliament has been informed. Your Lordships' House has received the benefit of that announcement. We on this side of the House were only too ready to respond to the wish of your Lordships that we should add to that in the form of the Statement which I have just made.

The noble Lord, Lord Williams, asked specifically about Nimrod and why we did not order 25 aircraft. That matter was looked into very carefully. The Nimrod 2000 is an extremely effective maritime patrol aircraft. Our analysis has shown that a fleet of 21 Nimrod 2000 aircraft, providing a front line of 20 aircraft, will provide the capability required by the RAF to do the job. There is no question of any Treasury cut or anything like that.

The noble Lord asked also about the Bett report. That is not directly related to the announcement which I made but I can tell him that an announcement was made yesterday in relation to that in response to a Written Question both in your Lordships' House and in another place.

The noble Lord, Lord Wallace, asked what were the opportunities and prospects of other countries' purchasing this equipment. It is early days but from experience we have found that if the Ministry of Defence in the UK places an order of that magnitude and importance, other countries around the world tend to sit up and take notice. It is a wonderful tribute to British industry that in fair and open competition, our own companies have come up with leading-edge technology at keenly fought prices to enable us to place the orders in this country.

I suggest that that will rebound to the benefit of this country eventually. British Aerospace has signed an agreement with Boeing and McDonnell Douglas to market new-build Nimrod 2000 aircraft worldwide. Export opportunities will arise also from the strategic partnership being established between GEC and Boeing on the mission system.

The noble Lord, Lord Wallace, referred also the need to have inter-operability. I thoroughly endorse the sentiments that he expressed. He is perfectly right that inter-operability is one of the main thrusts of our work with our NATO allies, both in connection with equipment such as this and, more generally, throughout the three services. I have no doubt that as the contracts are worked out in detail, those aspects will be looked at with great care.

The noble Lord, Lord Williams, referred to press speculation about the defence budget. I should say to him only that it is hardly surprising in what is a very early stage of the public expenditure round that the press should be speculating as it customarily does. It is early days. I am not in a position to tell the noble Lord what will he the outcome but he knows full well that the Government are committed to maintaining the front line. Indeed, that is the thrust and purport of the announcement that I have made. We intend to continue as we have hitherto to ensure that our Armed Forces receive the equipment which they need to do the job.

3.19 p.m.

Lord Boyd-Carpenter

My Lords, I join with the noble Lord, Lord Williams of Elvel, in protesting against the procedure which the Minister and the Government have followed in relation to this matter. It is plainly a Statement of the greatest importance, involving, as it does, major aspects of the defence provision that we are to make for this country in the years ahead. It seems to me to be quite extraordinary that the Government were prepared to announce the contracts by way of a letter to a noble Lord—although that is a very good thing—but that they were not prepared to make a Statement to a House of Parliament which was sitting.

On reflection, I hope that my noble friend will realise that that was an error of judgment. I very much hope that he will indicate that that practice will not be followed in future and that, when a major policy statement has to be made when either House of Parliament is sitting, a Statement will be made to that House embodying the material involved. Otherwise, I take the view that we are disregarding the importance of Parliament and the importance of the Statement and, indeed, undermining the proper working of government.

Earl Howe

My Lords, I am grateful to my noble friend for raising a very proper concern about the way in which announcements of such importance are made to Parliament. My noble friend suggested that the announcement was by way of a letter to an individual noble Lord. In fact, it was not a letter; it was a Written Answer to a Question which my noble friend Lord Peyton had tabled and which will, therefore, appear in today's Hansard. I believe that that reflects the importance that Her Majesty's Government attach to the matter.

It has always been the convention in this House that, if Members on the Benches Opposite wish us to make a Statement on such matters, such a request is most willingly listened to. I need hardly say that we did indeed do so. There is no question of disregarding the importance of Parliament: quite the reverse is the case. I hope that my noble friend will accept that.

Lord Chalfont

My Lords, I am most grateful to whatever arcane processes went on earlier today to enable the Statement to be made to your Lordships' House. It is indeed a Statement of great moment and importance. As other noble Lords have said, it might have been better, had it been possible, to have had a Statement in both Houses, whereupon Members could have acclaimed the sagacity, foresight and wisdom of the Government—a spectacle which is all too rare these days.

I wonder whether there is any truth in the suspicion that some of us have; namely, that the delay was caused partly by the wrangling over the married quarters estate sale and that that was in some way connected with the unfortunate delay over the announcement of these important contracts. However, I believe that too much is perhaps made in press reports—and, indeed, elsewhere—of wrangling, undignified or otherwise, between the Treasury and the Ministry of Defence. There is bound to be that kind of conflict between those two departments in the form of government that we have. Indeed, it would be very surprising if it did not happen.

Having said that, I want to congratulate the Government wholeheartedly on the announcement of these contracts. The Royal Air Force, and indeed the Armed Forces as a whole, need the equipment very badly. It will be good for their efficiency, for their fire power and also for their morale, which will be a very welcome factor in these days. Moreover, it will be good for jobs.

Before I conclude, I should like to draw attention to one aspect of the contracts which has already been mentioned briefly by the noble Lord, Lord Wallace. However, I want to go a little further into it. I have in mind the very international nature and flavour of all the contracts. The British Aerospace bid for CASOM, for example—the stand-off missile—was made with Matra, the French company. Indeed the British Aerospace Storm Shadow, which is the weapon chosen for this purpose, is based on the Matra missile called Apache. GEC Marconi' s Brimstone missile is based, perhaps appropriately, on Rockwell's Hellfire missile and reflects a working relationship between Lockheed Martin and GEC Marconi. As we heard, GEC and Boeing are involved in a strategic partnership as regards the Nimrod maritime patrol aircraft replacement.

All that is extremely interesting. Like the noble Lord, Lord Wallace, I ask the Minister whether it foreshadows a welcome closer integration of alliance defence procurement, not simply on a pan-European basis but on an alliance basis as a whole. It seems to me that in future with missiles and other military equipment becoming more and more sophisticated and more and more expensive, single nation procurement will become a thing of the past. Can the Minister assure us that we are moving towards a rationalisation and integration of alliance defence equipment procurement?

We should congratulate both British Aerospace and GEC on their success in these competitions. As I understand it, British Aerospace beat off six highly competitive international bids and GEC won the two or three other international bids. It has been a great triumph and success for the British defence industry.

As regards the noble Lord, Lord Richard's, comments this morning on the announcement and the suggestion that he had perhaps been part of a filtration process, although the filtration process may have been a little murky, I suggest that the coffee at least is good, strong and invigorating.

I do not speak on behalf of anyone. I apologise now for attempting to intervene earlier as though the Cross-Benchers were a political party of some kind. I must now emphasise that they are not, and that I speak personally. Speaking personally, I congratulate the Secretary of State for Defence and the Government on the announcement of these contracts and on the great success that they will bring both to the Armed Forces and to the British defence industry.

Earl Howe

My Lords, I am most grateful to the noble Lord, Lord Chalfont, for the welcome that he has given to this announcement, and particularly for the warmth of that welcome. He asked me specifically about defence collaboration. It would be no exaggeration to say that this is, in the world of defence procurement, the flavour of the month. As the noble Lord well knows, the rationalisation of the defence industry, particularly on the Continent, is a matter which is very much under the spotlight.

In this country whilst there may, for all I know, be further rationalisation yet to be seen, I think that the activity in that direction will be concentrated in the years ahead with our Continental neighbours across the water. The noble Lord referred to the CASOM missile, Storm Shadow. When we took the decision to purchase that weapon we took all relevant factors into account, including, of course, cost effectiveness, operational effectiveness, risk and defence industrial issues. As I said, it is estimated that the procurement of Storm Shadow will help directly to sustain around 1,600 jobs throughout the UK. Storm Shadow is based upon the Apache missile which has been developed by Matra of France. Apache currently forms the basis of a Franco-German collaborative project. The UK selection of Storm Shadow will enable the proposed joint venture between British Aerospace and Matra to proceed. I believe that is a welcome by-product of this announcement.

On a more general note, I am sure the noble Lord will be aware that what was initially conceived as a Franco-German defence procurement agency will now, as was announced recently, be a Franco-German, UK defence procurement agency. That is a development of which we have high hopes for the future. It is important that we combine forces with our allies in the European part of NATO as well as our United States allies. I believe that that is the start of some interesting things to come.

Baroness Seear

My Lords, will the Minister agree that the inappropriateness with which this matter has been handled is underlined by the fact that most of us heard about it on the "Today" programme, with the inevitable comments from those great experts on defence who run that programme?

Earl Howe

My Lords, this cannot be a unique occasion in that regard. I often wake up in the morning and listen to the radio. I hear things about which I am not aware even though I am supposed to be aware of them; and they turn out to be completely false. At other times there is some nugget of truth within them.

I believe that the time to assess these matters is when the Government actually announce them rather than when broadcasters or journalists speculate upon them.

Lord Kennet

My Lords, perhaps I may take the Minister back over some of the things he said in the Statement and in various answers about the internationality of the contracts. He told us that one contract was buying in American made instrumentation, I think for aircraft. We learned that there was to be a joint marketing arrangement between the British lead producer and a couple of American firms. In his original Statement the Minister said, if I remember aright, that in each case the British firm was to receive payment to the full contract value. Does that mean that in each case there will be a through payment from the British firm to American firms, and indeed French firms, whether for parts of the manufacture or for joint sales deals elsewhere in the world? It is a slightly complicated question. I apologise. But I believe that he knows what I mean.

Earl Howe

My Lords, it is a complex question. I say that because the precise details of how the financial arrangements are to be settled have yet to be decided. They are subject to contractual negotiation. In so far as I am able, I shall write to the noble Lord with those details.

I can only reiterate for the time being that the work to the full value of those contracts will be placed in the UK even though within the contracts there are collaborative joint ventures.

Lord Renton

My Lords, is my noble friend aware that Members of both Houses have been longing to get away from Parliament as early as possible this month because school holidays began some time ago? Whether or not Parliament is sitting, Government have to continue from day to day. Often important decisions have to be made during the long Recess.

As to this decision, is it not perfectly clear that no Statement could have been made even in Answer to a Written Question until all the negotiations had taken place, all the technical decisions taken as a result of them, and an opportunity given to the Cabinet, as it was yesterday, to decide the matter? Are we not fortunate that a copy of the Answer to a Written Question was given to the Leader of the Opposition in your Lordships' House? We should be grateful to him for drawing attention to the fact that it was an important matter; and grateful to my noble friend for having made the Statement.

Perhaps I may ask a few questions about the financial and economic features of the matter. The Minister has told us that there will be £4 billion of expenditure. Can the noble Earl say over what period that will be incurred, and give us a broad idea as to what will be the source of the funds? One hopes that it would not be from an increase in taxation nor much of an increase in the PSBR. However, if the Minister can give us an indication, it would allay the anxieties.

Further, there would surely be an advantage to the balance of payments for this country. Since the manufacturing will take place here to a great extent, we should benefit in that respect as well.

Earl Howe

My Lords, I am grateful to my noble friend who shows his long experience both in your Lordships' House and in government in expressing his views. I entirely agree with them. Procurement decisions of this kind are immensely complex. With orders approaching £4 billion, the Government naturally want to be certain that they can be afforded within the long-term programme for defence. As my right honourable friend the Secretary of State for Defence said, there was a small delay before we announced the orders, but for perfectly understandable reasons. It is fortunate that we have been able to make the announcement to Parliament and to your Lordships' House before the Summer Recess.

The short answer to my noble friend's question on the financial arrangements is that the programmes will be funded from the efficiency and savings measures that the Ministry of Defence has taken and planned for over the past few years in the support area, in the exercise known as Front Line First. When my noble friend the Lord Privy Seal had the responsibilities which I now hold, he announced the exercise to your Lordships' House two years ago. Although expensive, the programmes are affordable within the public expenditure settlement of the Ministry of Defence. I believe that the Government's emphasis on procuring modern equipment and ensuring that our Armed Forces are properly equipped for the tasks which we give them is the right one. The proportion of the Defence Budget that is allocated to equipment is higher now than it has been for many years. Furthermore, it is higher than that of many of our NATO allies. I believe that that fully vindicates the Government's approach. I repeat that it is welcome news to the RAF.

My noble friend also asked about the balance of payments. I endeavoured to cover the point earlier when I referred to the export opportunities that should accrue to British industry as a result of the Government's choice of equipment. It is early days, but we have found through experience that when we in this country order British equipment, the reverberations are not slow to echo through the world and export orders tend to flow. We hope that that will occur in this case.

Lord Elton

My Lords, so much has been said about the genesis of the order that I would like my noble friend to give us the comfort or confirmation of the following. The conduct of government consists of the balancing of the different needs of the British people involving expenditure of money and the different interests represented by various departments, each of which has to argue its case against the central body—the Treasury. As noble Lords opposite will discover, if ever they are successful in getting into office, that balancing always results in fiercely contended arguments. If they become acrimonious, it may have something to do with the fact that it is July. Sometimes that spreads to this House.

Noble Lords should be grateful to my noble friend for the considerable breadth of his knowledge of the subject, with the almost complete absence of messages from the Box to prompt that great knowledge. He displayed and deployed it in its fullness to the Benches opposite of which the noble Lord, Lord Williams, at one stage represented 50 per cent. of the occupants.

Earl Howe

My Lords, I can only express my appreciation to my noble friend for those very kind observations. As he will know, the Government's aim is to keep public expenditure under control, as is perfectly right and proper. That will always be a challenge. But these equipment orders are entirely separate from the annual public expenditure round, which will proceed as it normally does over the months ahead. To refer to the early remarks of the noble Lord, Lord Williams, all that is still to come.

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