§ Mr. Warrenasked the Secretary of State for Defence if it remains the policy of Her Majesty's Government that account is taken of the indirect value to Her Majesty's Government of the recycling of tax and national insurance implicit in the United Kingdom goods and services content of bids for defence contracts and that this is deducted from the gross sum of the bids when comparing them with those submitted by foreign bidders; and if he will make a statement.
§ Mr. Lee[pursuant to his reply, 25 November 1983, c. 331]: It is not Government practice to take account of tax and national insurance flowbacks in comparing tenders from United Kingdom and overseas contractors because the Government consider that the acceptance of United Kingdom tenders which are internationally uncompetitive does not lead to a sustainable increase in employment in the economy as a whole. It is accepted that there may be short term employment benefits in particular sectors of the defence industry, but the adverse effects of uncompetitive purchases on the economy through higher public sector borrowing, interest rates, rate of inflation or the exchange rate lead to increases in unemployment in other areas which negate the assumed flowback benefits.
Defence procurement decisions are nevertheless taken in the light of the associated defence, technological, industrial and other factors. More information is set out in open government document 83/01 "Value For Money in Defence Procurement". On overseas purchases I refer my hon. Friend to the answer given to the hon. Member for Bolton, South-East (Mr. Young) on 5 December 1983.—[Vol. 50, c. 28.]