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Mr. Hogg : I did not say that ; nor does it stand up to analysis. We have about 2,400 troops in Bosnia. Although that is not a peacekeeping operation in the conventional sense, it is an extremely difficult one. Inevitably, one must pick and choose between operations. About 18 operations are being conducted by United Nations peacekeeping forces at the moment, and we are a party to three or four of them. I do not think that it would be right to participate substantially in more than that number. One has to allocate one's own priorities.
Another point that one needs to make is that a number of other organisations can be involved in peacekeeping. There was a very interesting debate in Rome, in the Conference on Security and Co-operation in Europe, about the circumstances in which the Commonwealth of Independent States, in particular Russian forces, can operate in the CIS under the authority and with the consent of the CSCE.
I agree strongly with the points that were made by my hon. Friend the Member for Dorset, West (Sir J. Spicer) and by my right hon. Friend the Member for Guildford about the need for improved control and command mechanisms. That point was made by the hon. Member for Belfast, South, as well. I agree, too, with the overall conclusion that it would be an error to allocate or to earmark forces on a permanent standby basis to the United Nations. That point received endorsement from my hon. Friend the Member for Upminster (Sir N. Bonsor), the Chairman of the Select Committee.
We should also keep well in mind the importance, where appropriate, of trying to intervene early in developing crises by pre-emptive measures. That is the importance, perhaps, of the missions that have been sent by the CSCE to various countries within the former Soviet Union. It is also the importance of, for example, the appointment of the CSCE high commissioner on minorities or, to take the point of the hon. Member for Newham, North- West (Mr. Banks), the United Nations Commissioner on Human Rights. By pre- emptive action of various kinds it is possible to reduce the risk of conflict.
Mr. Tony Banks : It is very difficult, is it not, to respond rapidly when the Secretary-General has to ask Security Council countries or other countries to provide troops? The whole point of having units on standby and allocated was that the Secretary-General would not have to do that and that the troops could move in very quickly.
Mr. Hogg : That is right up to a point, but the problem that was pointed out by my hon. Friend the Member for Upminster is that it is jolly difficult to know exactly the nature of the requirement on the ground that one will encounter in a rapid deployment. One could have an awful lot of people hanging around doing awfully little and with skills which are not wholly appropriate if one opted for that earmarking or standby approach. I would not commend it, and it would involve substantial control and command arrangements which we simply have not yet come to terms with.
I now refer to some specific points. My right hon. Friend the Member for Guildford expressed grave concern--I understand why--about why our expert was not elected to the advisory committee for administration and budgetary questions. That was a disappointment to us. It is not, however, in any sense fatal to our capacity to influence decisions in that respect, not least because that committee
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advises the fifth committee. As my right hon.dda (Mr. Rogers) did not like our presentation of the accounts--he was supported by the hon. Member for Belfast, South. He has a point, and I will see whether we can do something to improve the accounts. The hon. Member for Rhondda went on to say that the United Nations should intervene more readily in circumstances where national governments are not currently meeting a need in the country involved. That is an important point.To some extent, we have already been pushing the frontiers forward in, for example, north Iraq and south Iraq. However, one must stand back and say that the actions of the United Nations will always represent and reflect to some degree an assessment of strategic interest on the part of countries in the Security Council. There must be genuine interests at stake which engage their concern sufficiently to enable one to rally a consensus around an interventionist policy. Many countries have grave doubts of principle--most notably China and India--about the intervention by the United Nations in the internal affairs of other countries.
Mr. Rogers : I do not understand what the right hon. and learned Gentleman means. Is he saying that, unless there is a specific national interest, Britain will not contribute to peacekeeping activities?
Mr. Hogg : I did not say that. Hon. Members must realise that the Security Council of the United Nations is in a sense an aggregate of independent states which will certainly determine where their national interests lie when deciding how they will vote in the Security Council. That is inevitable and right.
There are many countries where there are grave issues and discords, and serious civil wars, which would justify intervention, if we judged them exclusively on moral terms. However, we will not intervene and there is no pressure to do so. One only has to say "Tadjikistan" to oneself to realise the force of what I am saying. The majority of countries on the Security Council will not wish to deploy troops in Tadjikistan, notwithstanding the fact that the crisis area is a grave one.
The hon. Member for Rhondda--he was supported by my hon. Friend the Member for Upminster--said that there is no real alternative to the United Nations and it is an error to look at alternative institutions. I go a long way with him, but not quite all the way because there are regional organisations that have an important role to play. We should not underestimate that role. The most important organisation in this context is the CSCE in the field of pre-emptive action--I mentioned the appointment of the CSCE High Commissioner of Minorities--and in missions designed to ascertain facts or promote settlements, for example, in Nagorno Karabakh, the Baltic states or Moldova.
Earlier, I referred to the Rome conference. There may be a possibility that the CSCE will be an instrument for approving peacekeeping operations by CIS forces in CIS countries. That matter must still be examined.
I shall answer the question raised by my hon. Friend the Member for Dorset, West about the status of all CIS
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countries. Those countries are all sovereign independent states and we regard them as such. We do not in any sense regard them as part of Russia or as countries over which Russia has some right of intervention. They are absolutely independent states.My right hon. Friend the Member for Arundel (Sir M. Marshall) spoke about Bosnia--and he was right to do so. I agree that the position in Bosnia is likely to get much worse this winter unless there is an early peace agreement. That emphasises the importance of the Geneva talks, the need for Serbs to make greater concessions on land and, above all--having regard to my rather bleak assessment of probabilities--the need to keep humanitarian routes open.
My hon. Friend raised a specific point about war crimes. He said that the republics in the former Yugoslavia should use their own law to try people for war crimes. I agree with that, but one does not need to invoke the Geneva convention ; most people can be tried under the domestic legislation of the individual republic.
My hon. Friend has written to my right hon. Friend the Secretary of State with a proposal that we should start a mission. I have noted what my hon. Friend said--it is an interesting idea. We will certainly look at the suggestion, but I can give no commitments at this stage. I agree with the proposition of the hon. Member for Western Isles (Mr. Macdonald) that the end of the cold war has made intervention easier and I understand the reasons that caused him to say that. I also agree with his broad proposition that we should stick to existing frontiers, notwithstanding the fact that many of them have been drawn in a fairly arbitrary and brutal manner. If we do not stick with those frontiers, what else do we have? To be honest, the principle of self-determination would lead to the fragmentation of the former Soviet Union and much of central and eastern Europe. We must stick to the frontiers, subject to two provisos. First, where there is a genuine agreement of the respective parties to change the frontiers, so be it. It is not for us to stand in the way of genuine agreement. Secondly, I want to pick up one word used by the hon. Gentleman, because I do not know whether he meant it in the sense that it is usually meant. He said that we should "defend" existing frontiers. I start from the proposition that we should stick with existing frontiers, but I do not believe that the international community should go to fight on every occasion.
For example, one only has to consider the case of Azerbaijan and Armenia, which was referred to by my hon. Friend the Member for Dorset, West, to see the truth of this. How many hon. Members think that the international community should go to war with Armenia? Yet so far as we can judge, Armenia has invaded Azerbaijan and expanded the Lutchin corridor substantially. I have that major reservation, although I agree with the hon. Gentleman's broad proposition. The hon. Member for Western Isles and two of his colleagues came to see me about Sarajevo airport. I wish to ensure that we have the maximum use of Sarajevo airport, for all the reasons given by the hon. Gentleman. Following that meeting, I made an inquiry and an RAF officer went to Sarajevo to make a further inspection. We believe that all that can be done is being done to increase the use of the airport. A lot of work is being done on the runway and that is being expedited, but it is a small, ill-equipped airport and the problem is one of handling. To tell the truth, it is much better to rely on road transport when it can be managed,
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although we will try to maximise the use of Sarajevo airport. I disagree with the proposition that we are not doing our best now. My hon. Friend the Member for Upminster made an important speech. I am grateful for his support and I agree with much of what he said. He said that we should not earmark forces for peacekeeping, we need to change the training of forces and we should give a high status to peacekeeping operations.I felt that the hon. Member was a bit unfair about Cyprus. It is true that we have been running down our forces in Cyprus--we still have a considerable number there ; I think the number is 475 troops--but the running down reflected our assessment of diminishing risk. The operation has been continuing for a long time and we must accept that other countries have a burden to carry in this matter and it is not right to look to a continuous United Kingdom presence. To be honest, I do not feel embarrassed about the matter.
The hon. Member for Glasgow, Hillhead (Mr. Galloway) made a number of points. I thank him for his kind words about the Foreign Office staff. They are much appreciated and will be passed on to the staff, even though they come from the hon. Gentleman.
A more important point relates to assets and prisons. Absolutely no deals were made, none whatever. That is not something that we would want to do and we did not do it. On the sequestration of assets, the position is that the United Nations Security Council resolution 778 permits member states to sequestrate Iraqi frozen assets related to proceeds of sale of Iraqi petroleum or petroleum products, paid for by or on behalf of a purchaser on or after 6 August 1990. The Treasury considers that approximately £186,000 of Central Bank of Iraq frozen assets held by the Bank of England related to such proceeds of sale, and the Bank considered, too, that there were no third-party claims against them.
Notice has been given of our intention to transfer--not yet done--to the escrow account, which will be used for a
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variety of purposes. Thirty per cent. goes to the compensation commission and the remainder goes to a variety of purposes, some humanitarian--some probably do not fall strictly under that heading--including food, medicines, the United Nations Special Commission, United Nations guards for convoys and the like. The Iraqi interest section now in the United Kingdom is aware of that intention and has been asked to make its comments.Mention was made of the plight of Iraqis--perfectly true, their plight is awful. It is also perfectly true that, under Security Council resolutions 706 and 712, Saddam Hussein has a capacity to solve that problem. Those resolutions enable him to sell oil to a very substantial value, the proceeds of which will go to a variety of purposes, including the relief of humanitarian suffering in his own country. He has chosen not to do that.
My hon. Friend the Member for Staffordshire, South (Mr. Cormack) was entirely right when he said that it is Saddam Hussein who must take the responsibility for what is happening.
Mr. Galloway rose--
Mr. Hogg : I am afraid that I shall not give way, as I have only one more minute. I apologise.
I shall now comment on what my hon. Friend the Member for Staffordshire, South said about Bosnia. His position is well known and he has held to it consistently. he will forgive me if I say that, broadly speaking, I disagree with him. I particularly disagree when he says that we are all to blame and that it is a disgrace to which we all are party. It is not. It is a disgrace to which the active warring parties are party, not the rest of us. What is more, if one dilutes that proposition, one relieves the warring parties of responsibility. I can see that Mr. Deputy Speaker is about to call me to a stop, so I must finish.
The debate was concluded, and the Question necessary to dispose of the proceedings was deferred, pursuant to paragraph (4) of Standing Order No. 52 (Consideration of estimates).
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Class IV, Vote 2
Aerospace Support
[Relevant documents : The Third Report from the Trade and Industry Committee of Session 1992-93 on the British Aerospace Industry (House of Commons Paper No. 563) and the Fourth Special Report from the Committee of Session 1992-93, containing the Government's Observations thereon (House of Commons Paper No. 945.)]
Motion made, and Question proposed,
That a supplementary sum not exceeding £1,000 be granted to Her Majesty out of the Consolidated Fund to complete or defray the charges which will come in course of payment during the year ending on 31st March 1994 for expenditure by the Department of Trade and Industry on regional development grants, exchange risk and other losses, selective assistance to individual industries and firms, UK contributions arising from its commitments under the International Natural Rubber Agreement, a strategic mineral stockpile, support for the aerospace and shipbuilding industries, assistance to redundant steel and coal workers, for expenditure related to petroleum licensing and royalty, for other payments and for loans to trading funds.
7.32 pm
Mr. Richard Caborn (Sheffield, Central) : It is pleasing to be able to debate the report on aerospace, the third report of the Select Committee on Trade and Industry. I shall put on the record our thanks to our staff, the Clerk, Mr. Gerhold, and his staff, who worked so hard in producing the report, and to our two advisers, Keith Hayward, professor of international relations at Staffordshire university, and Professor Garel Rhys, head of economics at Cardiff business school at the university of Wales. I also thank the Minister for sending me a letter at 6 o'clock this evening in response to some of the questions--I am sure that he is listening--that arose from the Government's reply. I do not think that the Minister takes us further forward on the points that we raised, but if my interpretation is wrong, I have no doubt that he will correct me when he replies later this evening, if he catches your eye, Mr. Deputy Speaker. The aerospace industry is that rarity in the United Kingdom--a high technology industry with added value in which the United Kingdom is one of the world leaders and has a large trade surplus. We have the third largest aerospace industry in the western world. We have one of only three prime manufacturers of civil aero-engines, an airframe company, which has the fifth largest aerospace turnover, and a strong aerospace equipment sector. I am sure that hon. Members will not need reminding of the importance of the British aerospace industry : a turnover of some £10 billion-plus ; a consistently positive trade balance, amounting to £2.5 billion in 1992 ; 9 per cent. of all the United Kingdom's exports of manufactures ; and employment and training of a highly skilled work force. Unfortunately, all that has diminished. There were roughly 250,000 employees in the early 1980s, decreasing to about 150,00 in 1992. There has also been a lot of technology spin-off to other sectors of our industry.
Given the strength of the industry, why was the Select Committee somewhat worried about it? Some argued that the industrial problems which have occurred, including the difficulties encountered by British Aerospace, are the result
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of a severe cyclical downturn in civil aerospace and a longer-term decline in defence sales, which are affecting all our overseas competitors.The real problem is structural. It is to do with the very long time scales in the aerospace industry for developing new products and receiving a return on investment. That is the most distinctive feature of the industry, which underlies the whole of the Select Committee's report. British Aerospace told us that the period from designing an aircraft to recovering the investment can be as long as 20 years, and that the design depends on technology development before that. Time scales are even longer for aero- engines. Dowty gave us an example of propellers based on technology that had taken some 25 years to develop. Dowty also said that it was making supplies for the Spitfire, but that is probably the exception, not the rule. Those long time scales mean that the United Kingdom industry's current position now is the result of investment in the past 20 years or so and does not necessarily mean that all will continue to be well. The industry's future depends on the investment and research in technology acquisition being made now.
There is growing evidence that the United Kingdom industry is losing ground. Between 1980 and 1991, growth in United Kingdom industry turnover-- using constant prices--was only 1.5 per cent., compared with 3.3 per cent. in the United States, 4 per cent. in France, 8 per cent. in Germany and 8.5 per cent. in Japan. In 1991, unfortunately, we were overtaken by France. The industry is worried that its present research and technology acquisition may be insufficient to keep up with its competitors, which receive greater Government assistance.
That was the reason for the Committee's inquiry--to examine the state of the industry and to see whether the worries about its future were justified. We concentrated on civil aerospace, but we are well aware that the civil and defence sectors are, to a large extent, interdependent. The Government replied to our report but, unfortunately, failed to answer many of the main questions raised. Another distinct feature of the aerospace industry is the close involvement of Governments. One obvious reason is the strong defence interests. Another is those long time scales, which make it difficult to finance investment in the usual ways. Another is the belief by Governments that the aerospace industry has a strategic importance as a high-technology industry with spin-offs to other sectors.
Sir Michael Marshall (Arundel) : I congratulate the hon. Gentleman on his Committee and its report. Will he pick up the thread regarding space activity which is mentioned in the report? I recognise that the Committee did not feel able to examine the matter in detail, but it made the point about linkage between aerospace and space, particularly on the technology spin-off, the convergence of civil and military and the need, with the peace dividend, to shift more into space activities. Does he agree that that is something to which the Government should return, even though the Committee was not able to do so?
Mr. Caborn : That is the point. We were not able to investigate that matter. There is a synergy of activity that needs investigating. The hon. Gentleman rightly says that there is a spin-off, which I think is extremely important to the industry. Unfortunately, the Committee did not have time to go into that aspect, although we refer to it in the report. In practice, the international aerospace market is a
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global industry, but it is not a free market. Our industry is competing against heavily subsidised foreign competition, although our Government recognise the distinctiveness of aerospace by providing launch aid for new products and by having a separate civil aircraft research and demonstration programme. We acknowledge that. However, the Government do not do enough to enable our industry, with its acknowledged technical excellence, to compete on equal terms in world markets.Foreign Governments rarely advertise the full extent of the help that they give their aerospace industries, but two points are worth emphasising--the massive state aid assistance towards research and technology acquisition in the United States and the considerable assistance that has built up the German industry. According to the DTI's figures, the German industry has received three times as much launch aid as the UK industry in recent years. That injection of support resulted in Germany's turnover doubling between 1985 and 1989.
It is also interesting to note a document called "Statement of Position of Future Aid for Aviation Research and Technology from the Federal Government", which says :
"The Federal Government sees an efficient German aircraft industry as an important contribution to Germany's economy. It welcomes international and, particularly, European cooperation by the German aircraft industry and its contributions to joint programes. The German aircraft industry can only contribute to competitive European aircraft industry if it maintains and constantly develops its already high level of technology capability A statement of position on future aid for aviation research and technology will be established by early 1994 and a decision will be taken on a concept of aid to aviation research and technology and about the relevant financing."
Let us look at a statement made by the President of the United States entitled "Technology for America's Economic Growth, A New Direction to Build Economic Strength". The main figures in that statement are startling by any standards. Clinton's technology proposals for the period 1994 to 1997 will involve a budget increase of $17 billion. Inevitably, a large proportion of that extra money will find its way into the American aeronautical industry. The Clinton report specificallly calls for
"increasing research on civil aviation technologies, including an examination of the economic, marketing, safety, and noise aspects of advanced aircraft. We will also support advanced in-flight space and ground -based command, navigation, weather prediction, and control systems. US aeronautical, research and development facilities infrastructure such as wind tunnels will also be revitalised." In addition, aerospace companies have been the main beneficiaries of the awards announced thus far under the Clinton technology reinvestment project, the 1993 budget of which was $472 million. Compare that with what happens in this country.
For those reasons, the Committee believes that there is a serious problem and that some changes in policy are needed. Obviously, Government action is not enough on its own. It is essential for the industry to improve its productivity. It is doing so, and we were impressed by its progress. International collaboration is increasingly important as the cost of developing new products rises. We examined a number of collaborative ventures, such as the highly successful one between Rolls-Royce and BMW. However, collaboration and increased productivity are not sufficient to maintain a competitive United Kingdom industry. Unless our firms maintain their technological edge, they will not be able to attract the best
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partners and the best terms for collaboration. I make it clear to the Minister that what we have taken to the negotiating table on all collaborative deals has been not a cheque but our technology. The House should take that seriously.The Committee report focuses on four sectors, the first of which is launch aid for developing new products. That is not a subsidy, as has sometimes been claimed. The money is repayable with interest, as the product is sold. Occasionally, sales have been too low but, at the moment, the Government are receiving more money than they are paying out. According to the DTI, the purpose of launch aid is
"to remedy a deficiency in the market arising from the reluctance or inability of companies or institutions to finance the heavy deployment cost of new aircraft products, since their return is subject to high risk and can be made only over the very long term". Applicants have to demonstrate that a project is commercially and technically viable, that the Government will receive an 8 per cent. return and that, without that aid, the project would not otherwise go ahead.
It is unfortunate, therefore, that, when our report was produced, the Financial Times editorial of 22 July was somewhat ignorant of the facts of launch aid. It said :
"Yesterday it served up a similar recipe for the aerospace sector : a five- fold increase to £100m in government subsidies ; more generous aid to launch new products ; and possible additional hand-outs to help companies convert from military to civil products."
Let me quote the example of Rolls-Royce, which wrote to me yesterday. It said :
"Funds received under this scheme"--
under launch aid--
"are not only repayable, but also carry a requirement to generate a real rate of return for the Government. In the case of Rolls-Royce, the Company has, since 1972, received nearly £500m in launch aid but no new launch aid has been provided after 1986. By the year 2000 we expect to have repaid 660m to the Government. The taxpayer is therefore deriving a significant return from this programme, whilst ensuring that the aerospace industry continues to generate wider economic benefits for the UK in the form of employment and exports." I hope that the author of that Financial Times editorial will take note of what Rolls-Royce says.
Mr. Michael Stern (Bristol, North-West) : The hon. Gentleman is right to say that existing launch aid programmes do not carry the element of subsidy but are set out on purely commercial terms. I hope that he will therefore explain what may have given rise to that editorial--the conclusion of his report, which suggested that terms for the repayment of the launch aid should be drastically eased.
Mr. Caborn : We said that in the context of the wider area in which our aerospace industry is playing. Let us cast an eye at our major European competitors. For example, although the Federal Republic of Germany gives launch aid, it does not demand the return that we demand in the United Kingdom, so that money is fed back into the industry. If the hon. Gentleman cares to read our report carefully, he will find the answer to his question.
We made one major recommendation about launch aid--that the DTI should adopt a more positive attitude towards equipment makers, and should take into account the size and resources of equipment suppliers when assessing whether launch aid was needed. The DTI told us that there was no ban on equipment makers receiving launch aid. However, no equipment maker has done so since 1981. Our evidence showed that the DTI was wrong
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to believe that equipment makers were necessarily much better able to obtain a commercial return within a reasonable time than makers of airframes or aero-engines could. For example, according to the Electronic Engineering Association, it typically takes 10 years for avionics systems to achieve a profit. Market failings apply to equipment as much as to airframes and aero-engines. The Government's reply repeats the arguments that we profoundly disputed.Launch aid for the larger civil aircraft has typically been 50 to 60 per cent., but it is now restricted by the agreement between the EC and the United States to 33 per cent., and it may be reduced further as a result of the negotiations on the general agreement on tariffs and trade--we hope to see an end to them soon. Thus, the direct support on which Europe has concentrated will be severely curtailed.
The Americans responded by providing indirect support instead, in the form of assistance towards research and development. The agreement limits that to 3 per cent. of the civil aircraft industry's annual commercial turnover in the country concerned and to 4 per cent. of the annual commercial turnover of any one firm. However, indirect support is far harder to monitor and control than direct support, so the American industry may have an advantage over European industries.
To be effective, any increase in support for most parts of the aerospace industry will need to be in the form of indirect support for research and technology acquisition. It was particularly fortunate that the DTI's aviation committee produced its national strategic technology acquisition plan, known as NSTAP, shortly before we began our inquiry. The purpose of NSTAP was to identify the technologies that the aviation committee believed United Kingdom industry would need during the next two decades and to sort out priorities.
Category 1 was the technologies on which the industry's future competitive edge will depend, such as advanced wing design. Categories 2 and 3 were less central but still important. Those could, if necessary, be acquired through collaboration whereas category 1 technologies needed to be developed by the United Kingdom alone. I stress that this is an area that is not clear in the report. If we are to take technology to the negotiating table for collaborative deals, category 1 must have the type of support that is rightly demanded by the industry.
NSTAP is not about picking winners but about developing a range of enabling technologies that the United Kingdom industry can incorporate into competitive products. It can be regarded as an early technological foresight exercise.
NSTAP also discusses ways of increasing the effectiveness of research and technology expenditure, such as organising it within a clearly defined national strategy. The Committee attached great importance to NSTAP as a way of maintaining the competitiveness of the United Kingdom's aerospace industry.
NSTAP did not come with a price tag, but the industry's estimate is that it would require £90 million to £100 million a year from the Government over a 10-year period. That sum would need to be matched by an equivalent amount from the industry. That is more likely to be forthcoming for a collaborative effort such as the ones described in NSTAP.
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Unfortunately, that sum compares with only £22.5 million spent on the DTI's civil aircraft research and development programme in the present year. In 1993 prices, £85 million was spent in 1974. One can extrapolate from that information the fact that the current net return to the Treasury from the aerospace industry is the result of the investments made some 10 or 20 years ago. According to Dowty, £90 million to £100 million is the minimum necessary to keep us ahead in the race.We made two linked recommendations--that the Government should make a full assessment of the expenditure on research and technology acquisition that they believe is necessary to maintain the industry's technological competitiveness and that they should increase their funding of aerospace research and technology acquisition to a level that is sufficient to maintain the industry's technological competitiveness. We want the Government to benchmark their funding of the industry against that provided by foreigners. That is not an unreasonable request.
The Government's response has been disappointing. Although they state that they are adopting the priorities set out in NSTAP, they are simply maintaining the existing level of funding. They have failed to reply to our recommendation about assessing how much funding is needed to maintain the industry's competitiveness. They state :
"priorities must be set between the various demands of industry and the economy as a whole."
Of course they must, but how can priorities be set unless the Government have first found out what is needed? Either present funding is sufficient to sustain the industry or it is not. If the Government can show that funding is sufficient, there is no problem. If they cannot, either funding must be increased or we must resign ourselves to the British aerospace industry slowly losing its competitiveness, with all the consequences that that involves. It is essential that we find out what is required to maintain competitiveness so that we know which path the United Kingdom is following.
As to the third major aspect of the report, the Government's greatest impact on the aerospace industry is through defence procurement, and I am pleased to see the Minister here this evening. Our report was chiefly concerned with the civil sector, but all the major United Kingdom companies produce for both civil and defence markets, and much of the technology is common to both. Throughout the world, overheads have tendedce procurement was undertaken without competition through preferred contractors, and development was largely on a cost-plus basis. Since 1983, there has been a more commercial approach, with a much higher proportion of competitively let contracts. That has clearly had advantages. According to the MOD, it has saved not only money but sharpened the defence industry's commercial edge.
That approach was strongly criticised by many of our witnesses and it contrasts strongly with the procurement policies in other industries. The cost-plus approach and competititve tendering are not the only ways of organising procurement ; there is also the partnership approach which is associated most strongly with Rover and Nissan in the car industry. No one suggests that Rover and Nissan are ripped off by their suppliers. They give their suppliers a
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hard time, but it helps them to improve their performance and offers them a long-term relationship, provided they continue to meet standards and targets.Only two weeks ago, my colleagues visited Rover and heard about the change in relation that is now one of the jewels in our manufacturing crown. Only four or five years ago, Rover would get six or seven suppliers around a table, get a big stick, beat them on the head and ask them whether they could reduce their prices by 2p. Instead, they would knock them down by 3p, but Rover had more rejects and defects on motor cars coming off the line. Now Rover and Nissan have long-term relationships and negotiate contracts with their suppliers of between five and 15 years. That brings stability to the industry. The results are not only better and cheaper components for Rover and Nissan but a vastly more competitive motor components industry. One cannot necessarily transfer the same sort of relationship in full to defence procurement, but one might reasonably suspect the MOD to see what it can learn from successful innovations in other areas, and the Committee recommended that it does so instead of leaving it to the National Audit Office to examine its procurement issues. It would be helpful if the Minster would inform the House whether "partnership sourcing" is part of the terms of reference for the NAO examination.
The Committee was also dissatisfied with the way in which the MOD conducts its procurement. In questions to the Minister of State for Defence Procurement and civil servants, it became clear that recommendations made by officials were based solely on the defence aspect, and that other factors, such as the industrial consequence of decisions, were simply drawn to the attention of Ministers. The Minister showed some sympathy with the argument that wider civil interests should be taken into account rather than exclusively military interests. If that is to be done, consideration of the wider issues, such as the long-term strength of related industries such as civil aerospace, should be built into the procurement process from the start, and we recommend accordingly. The Government's reply does little more than describe existing practices.
The fourth major aspect of the Committee's report was a call for the Government
"to set out in much greater detail than hitherto the overall policy framework and view of the industry's future which it intends to guide individual decisions affecting the United Kingdom aerospace industry."
That is nothing to do with the Government interfering in industrial decisions, or extending their role in the industry. It would not necessarily mean any extra spending. We are seeking a more coherent approach by the Government in areas in which they already make decisions-- on research support, launch aid, procurement, international collaboration, export promotion and training.
That would need to be based on a view, developed in consultation with the industry, of where the United Kingdom industry's competitive strengths lie and how they can be maintained and extended. The benefits would be more consistent Government decisions across departmental boundaries, ensuring that limited resources are used to best effect and that the industry knows what to expect from Government.
That was the most inadequate aspect of the Government's reply. It says little more than
"the DTI constantly reviews the issues facing the aerospace sector"
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with various organisations, firms and other Departments. We believe that the evidence discussed in our report showed present practices fall far short of what is needed, and short of what foreign Governments with clear aims and strategies achieve for their aerospace industries. We have pressed the DTI for further consideration of the issue.Another point concerns the further reductions in military expenditure and the conversion of defence resources, especially in technological skills and the use of civil manufacturing. We recommended a study of how British industry can be assisted in the transfer from military to civil manufacture. Unfortunately, the Government said that there was no need for a study and that it should be left for either market forces or Europe to decide.
The United Kingdom aerospace industry has to compete in the market as it is, dominated by Government-backed competitors. There is no free market in aerospace products. The Trade and Industry Select Committee concluded that the United Kingdom industry needed more effective Government help, probably including some increased spending, to enable it to compete on equal terms in world markets. Without that, the industry was likely to lose its technological competitiveness, not in the next year or two, but slowly over the next decade or so. The Government may wish to dispute that, but they have not done so in their reply to our report.
That extra help is needed ; the question is how high it will be on the scale of priorities. Is manufacturing industry, including the aerospace industry, a priority or not? I have no doubt what the answer to that question should be, and I believe that our report points the Government in that direction. If we want to keep the jewel in the crown shining and not tarnished, I suggest that the Government respond to the report's recommendations more positively.
7.59 pm
Mr. John Wilkinson (Ruislip-Northwood) : I must declare a commercial interest. I chair a company which is actively involved in the aerospace industry, so I have a professional concern for its welfare. I have also just concluded a parliamentary industrial fellowship--a post-graduate attachment--with TI. The subject I concentrated on, mostly with Dowty Aerospace, was the future of the aerospace industry at a time of airline recession and defence cuts. The severe downturn in the civil air transport business and the drastic reductions in military budgets have impinged in a most dramatic way upon an industry which is crucial to the economic welfare of our nation and vital for our national security and prosperity.
I believe that the Government have a strategic interest in maintaining the United Kingdom as one of the leading aerospace nations in the western world. They should tailor their policies accordingly and bear five things in mind when constructing that strategy. First, for defence considerations, the Government should remember that we need a truly competitive military aerospace business. Secondly, they should note that rotary wing manufacture is an industry with a future, civil as well as military. Thirdly, we are already in civil air transport construction and need to remain so. Fourthly, we are pre-eminently the western European nation with a world capability in the construction of aero engines. Fifthly, the Government should consider that we neglect space at our peril and that we need to invest more in it. I should add to those five points a sixth--
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consideration of equipment--because, unless we concentrate on those five points, it is likely that we will not have a competitive equipment and component sector.There are two aspects to the civil sector. British Aerospace, which has come to dominate the manufacture or part-manufacture of civil air transports in this country, went through an extraordinary process of expansion in recent years. It followed a process of diversification into all kinds of activities which bore no relation to its core businesses. It was almost as though the company made a Gadarene rush into acquisition, diversification and expansion. Under Mr. Cahill, BAe has now wisely returned to its roots and is focusing on its core businesses. The process of doing so, however, is difficult and painful and it has caused much readjustment within the company. It has been decided that for the smaller range of civil air transports, the regional jet range of four-engine turbo fans based on the 146, a partner should be sought in Taiwan Aerospace. This may or may not come to fruition and it looks much less likely than it did, but BAe should have sought a more appropriate partner, such as Fokker, in good time. Fokker is now part of DASSA, so an opportunity was missed. I hope that we may retain some part of the regional jet market in years to come, but it will not be easy.
Likewise, it will not be easy to retain an important and significant share in the smaller twin-turbo prop market, where there is already significant overcapacity. In its wisdom, BAe is pursuing collaboration with PTN in Indonesia to try to develop complementarily the Jetstream series of aircraft. Indonesia has been working for some time with CASA of Spain. We shall see if the arrangement works out ; I hope that it will. Again, however, it must be said that such readjustments and attempts at new partnerships have come very late in the day.
Mr. George Foulkes (Carrick, Cumnock and Doon Valley) : Is the hon. Gentleman aware that Parliament was lobbied today by the management and workers, with the support of their local authority, of the Jetstream project? They pointed out that it was difficult for Jetstream to compete with some competitors who had an advantage because the subsidies given to them by their Governments were far in excess of the support given by the United Kingdom. Does the hon. Gentleman agree with that delegation that we should give similar support or that we should ensure, through GATT or the European Community, that there is no unfair competition so that Jetstream can compete fairly with the other aircraft?
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