Expenditure and Procurement Policy (Hansard, 25 February 1981)

§ Mr. Nott

My letter to the hon. Gentleman is reproduced belowThank you for sending me a copy of the letter of 6th February which you received from Mr. A. Southern, Production Director of Magnesium Elektron Ltd. I am afraid that Mr. Southern has got most of his facts wrong. First, on the question of defence expenditure, I would draw your and his attention to the statement that I made in the House on 20 389W January. You will see from that that we are not in fact reducing defence expenditure. On the contrary, our expenditure on defence in the coming financial year is expected to be of the order of £12¼ billion, representing a real increase of about 8 per cent. since the Government took office, and a much higher proportion of GDP spent on defence than by any of our main European allies, and close to the proportion spent by the United States. It remains the Government's determination to give a very high priority to defence, and our aim to continue, from the revised 1981–82 base line, an annual increase in defence expenditure in real terms in the region of 3 per cent.; and we spend a bigger proportion of our defence budget on major equipment than any other NATO country. These are very real achievements but they do not mean that adjustments are not required in the defence programme. Some of the changes I announced on 20 January followed from the normal annual appraisal of the programme, others from the decision taken last November to slow down the rate of growth in defence spending next year as part of the effort to reduce the total of public expenditure. The effect of this is not a cut but rather a slight reduction in the planned rate of growth by a very small part of our overall defence effort; and I have sought to achieve the necessary savings as far as possible by accelerating the phasing out of some older equipment, the deferment rather than the cancellation of equipment procurement, the trimming of works and training programmes, and further reduction of overheads. With so much of the programme already committed, it is not easy to make adjustments quickly, but the changes that have had to be made were selected to ensure the maximum possible maintenance of our defence industrial and technological capabilities and to cause the least difficulty consistent with our defence aims and financial circumstances. Nor is it by any means true, as Mr. Southern says, that when consideration is given to purchasing equipment from abroad the Defence Procurement Office's decisions are made simply on the basis of the cheapest negotiable price or that employment, industrial and technological factors are ignored in reaching decisions whether to purchase in this country or abroad. On the contrary, overseas purchases are an exception, approved only after most rigorous scrutiny of all factors, and only where the British product fails by a substantial margin on grounds of cost, performance or timescale. In fact, in recent years about 75 per cent. of our defence equipment expenditure has gone to national contracts placed with British industry; our share of collaborative projects has taken another 15 per cent.; and only 10 per cent. is spent on contracts placed overseas where there has been good reason to do so. Our expenditure with British industry will amount to nearly £4½ billion this year. This is a substantial real increase over last year, and in cash terms is nearly £ 1,000 million more. Defence can hardly be criticised for failing to support British industry. Finally, Mr. Southern mentioned the Trident programme as an example of work which might have gone to British industry. I am afraid that to develop and produce in this country an alternative ballistic missile with an equivalent operational capability would have been a great deal more costly and have involved much more uncertainly than adopting the proven Trident system, particularly as we left this area of technology in the early 1960s. Nor would it have made economic sense to set up a production line to manufacture Trident under licence given the very small production run. Despite that, we estimate that at least 70 per cent. of the total cost of the Trident programme will be spent in this country on submarines, on warheads and on capital construction. In short, we buy British whenever it is practicable and reasonable to do so, but we cannot afford to pay significantly over the odds simply in order to buy British, and it is consequently just as important now as ever before—indeed, if anything, more so—for our defence industry, and our industry as a whole, to maintain an effective competitiveness in the world market. (signed) John Nott.