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Mr. David Jamieson (Plymouth, Devonport): Will the Minister tell the House how, by closing the supply stores at Exeter and Wrangaton, and by the partial closure of Devonport, the Royal Navy is best served by having those supplies sent from Portsmouth, which is 170 miles away? Is there some hidden agenda whereby he intends to run down or close the naval base at Devonport?

Mr. Freeman: No, absolutely none at all. The hon. Gentleman, I am sure, appreciates the difference between slow-moving stores--those that are required perhaps at a week or even a month's notice when a ship comes in for a planned refit, in which case they should be held in a centralised location--and the stores that are needed when a ship comes in, for example, after sea training off Portland, which may need a new generator and needs it now. If it comes in to Devonport, the Navy will have the available stores at the dockside. Therefore, the items that are fast moving, in urgent need, will be available at the ports.

Mr. Jamieson indicated dissent .

Mr. Freeman: The hon. Gentleman shakes his head, but I can assure him that the Navy take an even greater interest than I do in ensuring that the spares and stores are available for the ships when they are needed.

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Plans to move the Flag Officer Scotland, Northern England and Northern Ireland and his non-operational staff from Pitreavie to Faslane by April 1996 were announced last year, and I have announced today, in the form of a written answer, that the Government also intend to relocate FOSNNI's operational headquarters to Faslane in the same time frame. Consultation on those proposals have been under way for several months, but having weighed all the representations most carefully, it has been decided to proceed with the relocation, which will save some £22 million over the next 10 years.

I am pleased to be able to say that we have already reached agreement with Fife Enterprise to release a small area of the Pitreavie site for inward investment purposes, and the rest of the site will be similarly disposed of after April next year. In that way, the economic impact of the decision will be substantially offset, to the benefit of the local community and the Ministry of Defence employees affected.

I now outline the key principles that affect our procurement policy. It is time that we put on the record the elements of a modern procurement policy, which faces very different circumstances from the ones which Sir Peter Levene, as Chief of Defence Procurement, found almost 10 years ago when he revolutionised the way in which we acquire equipment. To maintain our Navy in the years ahead, we need a fully appropriate procurement policy, to which I now turn. The first policy objective is for the United Kingdom to retain a capability to build warship hulls and to retain as far as possible a choice of yard for each class of vessel. But there is, understandably, more warship building capacity in the United Kingdom than can be sustained by Ministry of Defence requirements alone. That means that yards must now turn to new markets if they are to survive in their present form, and it remains our aim to secure the opening of the European market for warship building on a fair and equitable basis. Winning export orders will not get easier. In general, a reduction in the perceived threat and universal pressure on defence spending has resulted in declining opportunities to supply new build warship hulls, and a greater number of naval hulls may ultimately be built in the yards of previous customers.

The over-capacity among warship builders has, of course, had its casualties, as in the case of Swan Hunter. Swans had a strong tradition of supplying the Royal Navy with quality ships, and, in keeping with its excellent track record, completed the type 23 frigates Westminster, Northumberland and Richmond to a very high standard in what were difficult circumstances. That excellent record is testimony to the work force's commitment, and will no doubt assist the receivers in their future drive to find a buyer for the yard's main shipbuilding facility at Wallsend.

I am confident that sufficient capacity still remains for the Ministry of Defence in warship building. Our competition policy has been successful and our latest ships represent excellent value for money. As in the rest of the equipment programme, if competition proves impracticable, we would continue to seek value for money, through pursuing what we call "no acceptable

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price, no contract" arrangements, pricing non-competitive contracts at the outset and in such a way as to promote efficiency.

Mr. Hutton: The Minister said that it would be the Government's policy to retain a capability to build hulls. What about fitting out? Is it the Government's policy that the fitting out of vessels will also be retained in the United Kingdom?

Mr. Freeman: If the hon. Gentleman will bear with me, when I conclude I will deal with project Horizon and answer that question specifically, because I draw a distinction between hulls and equipment. The hull accounts for perhaps 10 to 15 per cent. of the total cost of a warship. The equipment that goes in is the expensive part. Even for a Royal Air Force modern fighter, 50 per cent. of the cost is in the avionics alone.

The second policy objective is to ensure that warship building and refitting are in the private rather than the public sector. The royal dockyards at Devonport and Rosyth continue to benefit from the refitting arrangements announced in June 1993 by my right hon. and learned Friend the Secretary of State for Defence.

Both dockyards continue to receive a regular allocation of work from the naval refitting programme, and additionally, both have been successful in securing work from the unallocated programme, in competition with other ship repair companies. In that way, Devonport Management Ltd. has secured contracts for the refits of HMS Cornwall and HMS Birmingham, and Babcock Rosyth Defence Ltd. has recently won the competition to extend the life of the Royal Fleet Auxiliary vessel Sir Bedivere.

Following the announcement in October 1993 of the Government's intention to seek tenders from the private sector for the sale of the royal dockyards as separate and independent commercial entities, invitations to submit initial tenders were issued in July last year. As I announced on 23 November last year, we have received initial tenders from Devonport Management Ltd. for Devonport dockyard, and from Babcock International Group for Rosyth dockyard.

Those initial proposals have been evaluated, and invitations to single tender to those companies have now been issued, with final tenders due before Easter. I cannot rule out at this stage other options for future dockyard management, but we continue to believe that privatisation on the right terms will give value for money, and for the taxpayer within the future framework of fleet support. These are complex undertakings, which will involve detailed contractual negotiations, but we expect to be in a position to make final decisions by the summer.

Our third policy objective is to meet the operational requirements of the armed forces in a way that achieves the best value for money for the taxpayer. As a result of the Government's competition and open procurement policies, the UK defence industry is strong and highly competitive at home and overseas. It would soon lose its place in world markets that have generated an average of £5,000 million-worth of export orders a year over the past five years--that is the average rate of orders--if we resorted to protectionism, or abandoned the principle of value for money for the customer.

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When assessing the available options, however, Ministers must take account of the wider implications that procurement decisions will have. Some decisions may have consequences for the future availability of competition, and could in extreme cases even bring into question the continued existence of a viable industrial sector, with consequential effects on employment in the United Kingdom. Defence Ministers therefore give due consideration to the possible consequences of any procurement decision for the defence industrial base.

Fourthly, we need to consider security of supply; but that need not imply production in the United Kingdom. It is difficult to envisage future circumstances in which Britain would act militarily without the support of allies, or when all overseas supplies were unavailable. British and French companies are currently discussing a possible link in ammunition production. We shall need to take a view in due course on whatever proposals may emerge, but in principle we would not consider production- sharing in an Anglo-French industrial collaboration a fundamental threat to our security of supply. Fifthly, we are alert to the possibility that a militarily important technology might be put at risk as a result of a procurement decision, but we have not found that to be a problem so far. There has undoubtedly been a significant reduction in the capacity of the UK defence industry, but that has not led to any significant loss of capability. It is not essential to retain a domestic capability in every area of defence technology, but in a number of instances--for military reasons--we would not be prepared to buy from overseas, provided that an indigenous capability could be sustained at an acceptable cost.

Before a Front-Bench spokesman asks me to name those key technologies, let me say that, if I did so, we should be at a disadvantage in terms of retaining procurement value for money for the taxpayer.

Sixthly and finally--I apologise for going into the subject at such length, but I consider it important--we need to accept and pursue collaboration in defence research and procurement with our allies in Europe and the United States, for sound economic reasons. Some restructuring of industry is inevitable, given declining defence budgets, the increasing costs of high- technology development programmes and the competition from a rationalised United States defence industry.

If UK companies are thinking about alliances and mergers--as, of course, many are--they would do well not to confine their attention to other UK companies alone. I am pleased to note that many are entering into joint ventures and co-operative arrangements with companies in both Europe and the United States.

There is no doubt that such cross-border alliances will be a vital component in meeting our future defence needs. Collaboration is an economic necessity, and as a result of our efforts to promote wider armaments co- operation with other nations, we are currently collaborating on some 45 projects at various stages of the procurement cycle--the largest being the European fighter and Project Horizon. The keys to successful collaboration in the future must lie in the agreement of a standard requirement, a sensible industrial structure and maximum use of competition within the collaborating countries, at the very least.

I want to make special reference to Project Horizon, on which the United Kingdom is currently collaborating with France and Italy. The programme will provide the Royal Navy with a new anti-air warfare warship in the early

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years of the next century to replace our 12 type 42 destroyers. The programme memorandum of understanding for the ship was signed on 11 July 1994. The principal anti-air missile system will be subject to a separate memorandum of understanding when the three partners have reached an agreement with industry on a compliant, cost-effective solution; I expect that to happen soon.

The Horizon trinational project office is based in London, and staff there from the three nations have already embarked on important preliminary steps that include the issuing of invitations to tender for the design definition of the ship and its combat management system. An international joint venture company comprising companies from all three nations will act as prime contractor for design and build of the three firsts of class--one for each nation. That involves the hull of the ship.

The Horizon project combines the essential ingredients for effective collaborative procurement. The three nations have agreed a common requirement, with only minor national exceptions; the industrial structure is sound; and--here I refer to the point made by the hon. Member for Barrow in Furness (Mr. Hutton)--the components of the warship will be ordered following international competition. I do not limit that competition to the three participating nations. All that benefits both the Royal Navy and the taxpayer.

It has been a busy and challenging 12 months for our senior service, but I know that I carry the House with me when I say that, once again, the men and women of the Royal Navy, and the civilians who support them, have acquitted themselves superbly. They have been a credit to themselves and, indeed, to the nation as a whole. 4.55 pm

Mr. Derek Fatchett (Leeds, Central): Unlike the Minister of State, I have not returned to this annual debate as almost a recidivist; I am here in my present capacity for the first time.

I welcomed some of the Minister's comments, and the way in which he set out the roles performed by the Royal Navy. It is always interesting to hear them set out, and their extensive nature described. The Minister did that in his opening remarks, and he was right to suggest that the Navy's important functions in the Adriatic and Somalia, for instance--and its other United Nations functions--are making an important contribution to both peacemaking and peacekeeping throughout the world.

I am sure that every Opposition Member wishes to be associated with the Minister's closing thanks to all in the services who have made those tasks possible, and fulfilled them so effectively.

I particularly welcomed what the Minister said about procurement. I shall deal with some of it later in my speech.

Reading reports of Royal Navy debates held in previous years, I was struck by the fact that--regardless of the political position that hon. Members may adopt on a number of other issues--there seems to be a genuine consensus on the specific theme of defence debates, whether it is the Royal Navy, the Royal Air Force or the Army. That is largely understandable, because defence debates are part of the national and international debate about what is happening to our forces--and those of other countries--in the post-cold war period.

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The hon. Member for Upminster (Sir N. Bonsor), who chairs the Defence Select Committee so effectively, will be very familiar with the remarks that I am about to quote. In his contribution to last year's debate and in his Select Committee's 1993 report, he summed up the anxiety felt by hon. Members on both sides of the House about the future shape, activities and functions of the Royal Navy. He seems to have the ability to write in language that I suspect will attract one or two newspaper headlines. I do not object to that; I think that it does not do a bad job in warming up what may sometimes be seen as rather a tedious issue. The hon. Gentleman has brought to the Select Committee the same sort of approach that Judge Tumim has brought to the Prison Service: I mean that as a compliment.

In the Select Committee report, the hon. Gentleman concluded: "It appears self-evident to us that matching resources to tasks is becoming increasingly fraught, stretching both crews and vessels to unwise levels even during peacetime. It is evident that, in the event of full-scale war, the Royal Navy would be incapable of defending our sea-routes on which we depend for both trade and the movement of our Armed Forces. It is our view that this shortcoming poses a serious, and potentially fatal, threat to the long term security of this country."

That view, expressed by an all-party Committee, has been reflected in debates both before and after the report's publication. The hon. Gentleman used different language to make exactly the same point in the closing words of his contribution to last year's Royal Navy debate. He said:

"We must look to the long-term future with a possibility that we shall need a strong united Nato and a British contributory force in the Army, the Navy and the Air Force capable of carrying out a role in an all-out war against us. It is the finding of the Defence Select Committee that our Navy is not strong enough properly to fulfil such a role."--[ Official Report , 17 February 1994; Vol. 237, c. 1105.] That has been the backcloth, and I shall return to those key arguments later in my speech. There has been broad agreement across the House that resources must match commitments and that we must engage in a broad debate on how we bring those two sides of the equation together.

At the end of his speech, the Minister mentioned the need for teamwork and co-operation. He pointed out that, like good industry, all our forces depend on developing teamwork. It is an essential part of the esprit de corps of the services' efficiency. The Navy is no exception in that respect. We are concerned about the extent to which the management of the Ministry of Defence can undermine the armed forces' confidence and sense of purpose. The Ministry is about leadership and a sense of direction and, if those are lacking, morale can fall, if not collapse, in certain circumstances.

The National Audit Office, the Public Accounts Committee and my hon. Friend the Member for South Shields (Dr. Clark) have all drawn attention to the important issue of waste and inefficiency in the Ministry of Defence. [Interruption.] I know that parliamentary private secretaries take a Trappist vow, but the word that the hon. Member for Norfolk, North-West has just uttered is absolutely correct: that waste is "disgraceful".

The catalogue is substantial, and includes the fact that £1 billion was spent on Upholder submarines. No function was defined for those submarines, which are now for sale. A further £7.2 million was spent on the Government's

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favourite friends--consultants--who were brought in at Rosyth and Devonport. That money was wasted because the consultants could find only one horse to run in the race.

Dr. Reid: That is not bad for £7.2 million.

Mr. Fatchett: As my hon. Friend says, that is not bad for £7.2 million.

Other problems have emerged. My hon. Friend the Member for Plymouth, Devonport (Mr. Jamieson) has come up with a lovely Spanish practice that seems to exist in the Ministry of Defence. At one time, trade union practices were criticised, but we have found such a practice in the Ministry of Defence.

It concerns the housing trust which the Ministry was to establish. I suspect that many of my constituents would love such a job--all the freedom and a salary to go with it. In response to my hon. Friend's questions, replies from the Minister of State for the Armed Services show that the chief executive of that housing trust, which does nothing because it has no role, is on a three-year contract worth £240,000. In addition, he has an efficiency bonus totalling £600,000. I presume that, if one starts with no houses, one cannot mismanage the housing stock, so he will qualify for that bonus.

The Royal Naval engineering college at Manadon in Plymouth is now up for sale, and I have before me the glossy brochure produced by the estate agent. If anyone is looking for a cheap property, this may be the answer. It has a number of bedrooms and a range of facilities. We know that it is up to date because, in recent years, the Ministry of Defence spent nearly £3 million on modernising it. In line with the new traditions in the Ministry, I understand that, in the ward room, £20,000 was spent on carpets. We have no figure yet for the amount spent on curtains, but I am sure that they are up to traditional Ministry of Defence standards. There are many other examples of that process of waste in the Ministry of Defence.

Significantly, a statement made last week about the air vice-marshal was not made in this Chamber by the Secretary of State, and no ministerial or civil service responsibility was taken for the waste and inefficiency in that Department. Is it not time that a sense of values returned to our public life, and people responsible for decisions carried the can when those went wrong?

Mr. Mackinlay: If it had happened in a Labour-controlled council, we would have heard about it.

Mr. Fatchett: My hon. Friend is absolutely right, but he knows that no Labour-controlled council could waste money on that scale, even if it tried.

Morale is damaged as a result of that wastefulness.

Mr. Andrew Robathan (Blaby): I apologise to the hon. Gentleman for not having heard his whole speech but, on the latter point, may I point out that, for two years, I was a councillor on Hammersmith and Fulham council, which is Labour-controlled. The hon. Gentleman is absolutely wrong, because it was wasting money like it was going out of fashion.

Mr. Fatchett: I am delighted with that intervention, as I note that the hon. Gentleman does not try to support the Ministry of Defence. Clearly, that was beyond even his substantial talents.

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I noticed that, in opening the debate, the Minister did not refer to the pay, conditions and job losses of those who work in the Navy. It is worth while putting on record what has happened over recent years.

Numbers have dropped substantially, but that drop appears to have taken place differentially. In 1979, the last year of the last Labour Government, 72,500 people were employed in the Navy. The figure is now 54,000--a loss of 18,000. During that period, the number of officers has dropped by 8.4 per cent., and the number of ratings by 25 per cent. So when the burden of redundancy has been divided in the Royal Navy, as in other services, those at the bottom have, yet again, taken the brunt. We now have an officer:ratings ratio that is substantially less efficient than it was 15 years ago.

What has happened on pay? One might think that the Royal Navy is based on esprit de corps, the principle of equality which even the Prime Minister in last week's Question Time said he accepts. That principle of equality may be shown in terms of pay. The figures, which the Minister did not defend, show that, in the period 1978-94, the top two ranks in the Navy have enjoyed pay increases of 15 to 18 per cent., while the bottom two ranks have suffered pay cuts in real terms of 13 to 14 per cent. The gap has widened not just in society as a whole but within our armed forces, and it is simply not acceptable.

The Minister discussed the importance of civilian forces, and how the Ministry of Defence civil service backs up the role performed by our armed forces. He was right to make those comments, and, at one stage, he related them to this week's decision to close the naval stores at Eaglescliffe, Exeter and Wrangaton, with 1,000 job losses. When the Minister said that everything would be done to provide jobs for those people, I thought that, if that were said to the 1,000 people whose jobs are now at stake, their response would be cynical, given the Government's record. They have heard it before, it never happens, and there is no reason to believe that it will happen on this occasion.

A recent report produced by the hon. Member for Upminster on the Ministry of Defence naval stores was a damning indictment on the process of management within the Ministry of Defence. The first page sets out a catalogue of failed consultations and the inability of the Ministry of Defence to talk to its trade unions and civil servants, or listen to others.

The Select Committee yet again damned the Government's proposals in strong language. The conclusion of that all-party,

Conservative-dominated Select Committee was critical of the way in which the MOD handled these matters. It stated:

"The procedure by which the conclusion was reached was fundamentally flawed".

Does not that describe the Government, not just in defence policy but in a whole range of issues? They do not understand the word "consultation". If ever it passes their lips, its application is fundamentally flawed. When the hon. Member for Plymouth, Sutton (Mr. Streeter) feels that he has a promise that he can take to the bank in relation to the 1,000 people who have lost their jobs, he should think again of the fundamental flaw in that consultation process.

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Mr. Streeter: Is it still the Labour party's policy to reduce so- called waste in the armed forces by decreasing the defence budget by 30 per cent.?

Mr. Fatchett: I thought that that intervention would come up. I am delighted that it has, because I have with me yet further evidence of the great inefficiency of Conservative central office--a brief that it prepared on 5 October 1994. The hon. Gentleman probably does not read everything that comes out of central office. I can understand that; it is perfectly acceptable. I confess to the hon. Gentleman that I do not read everything that comes out of Walworth road. If that damages my future promotion chances, I shall put it on the record and just put my hand up.

The document, which no doubt the hon. Gentleman used with enthusiasm--I can imagine the press releases going off to radio stations in Devon and newspapers in Plymouth--sets out a series of Labour's new expenditure commitments, so I read it with interest. Central office always accuses Labour of taking money out of the defence budget, so I assumed that there would be a minus figure for defence, and that the hon. Gentleman would be right.

I know that central office likes to do its research on an accurate, honest and fair basis. Its document does not show a minus figure; it states that Labour will increase its defence expenditure. It has got Labour adding to its defence commitment. I am an innocent man in this respect. I believe what comes out of central office. It says that expenditure is going up.

Mr. Streeter: The hon. Gentleman made a bit of a hash of answering my question. Will he please tell us what Labour's policy is? Will it cut defence expenditure by 30 per cent.--yes or no?

Mr. Fatchett: The hon. Gentleman should read the central office record. Labour's position is simply the position at the 1992 election.

Mr. Andrew Hargreaves (Birmingham, Hall Green): What about the 30 per cent. reduction, and the Labour party conference vote?

Mr. Fatchett: Our manifesto is very clear. During the excitement of the next election, I shall ensure that the hon. Gentleman receives a copy of the manifesto, which will clearly show him and the country that Labour will commit the resources that are necessary to maintain this country's defence.

The hon. Member for Sutton was so myopic in his intervention. He failed to recall the comments of the Minister at the beginning of his speech, when he said that, since 1989, this Conservative Government had cut 25 per cent. out of the defence budget. The hon. Gentleman should get the facts and listen to his own Minister.

Mr. Colvin: Will the hon. Gentleman take this opportunity to acknowledge that the 25 per cent. reduction is entirely consistent with the expenditure of our North Atlantic Treaty Organisation allies?

Mr. Fatchett: I have no reason to say otherwise. The only exception- -I am not advocating this as a policy, or the hon. Member for Sutton would get too excited and read it in another way--is France, which has gone in the other direction and made some increases in defence

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expenditure. The hon. Member for Romsey and Waterside (Mr. Colvin) was correct about the general trend among our NATO allies. I have spent some time considering MOD mismanagement. It is right to do so. That wasted money should be available for our troops and for our front-line functions. It is not available, simply because of the Government's mismanagement.

I should like to discuss an important issue that the Minister raised. He is right to say that, without an efficient industrial base, we cannot support our defence requirements. The two go hand in glove. I was delighted to hear him say that Britain's industrial future will be taken into account when procurement decisions are taken. I congratulate him on that. He has shifted the Government's ground. We welcome that. They are going much more in the direction that we have been advocating for some time. It would be churlish of us not to congratulate the Minister now that he is moving towards our ground.

I welcome the decision taken in the past 12 months--not by the MOD, but by the Department of Trade and Industry--to refer the British Aerospace and GEC bids for VSEL to the Monopolies and Mergers Commission. That is the right decision. Again, we asked for it. It is crucial that national and defence interests should be taken into account by the MMC. The Government should recognise, as they did on that occasion, that leaving everything to the market is not the best way of securing Britain's defence interests and its industry. In the past few years under this Conservative Government, a significant shift and decline has taken place in our manufacturing base. Highly skilled jobs that are important for our industrial future have been lost in our defence-related industries. There has been a significant decline. We need to recognise that, and to fit that into procurement policy.

When the Minister talked about the three requirements of procurement policy, he raised questions as well as provided answers. He talked about a need for a standard requirement in terms of procurement and of the item under question. He talked about the need for an industrial base and for competition. He also referred to an industrial dimension. He will recognise --perhaps the Minister of State for the Armed Forces will comment on this in winding up--that a substantial restructuring of defence industries is taking place in Europe and in the United States of America. We must decide to what extent that restructuring will be assisted in any way by Government, or whether it will be left to the market.

We must also decide whether that restructuring will be undertaken on a UK- Atlantic basis, on a UK-only basis, or as part of broader European integration. If so, are we moving into common European procurement? What does that mean in terms of the Government's wish for competition? Does it mean substantial restructuring of the defence industries, with only one capability in each European Union country--Germany undertaking one function, the UK another, and France another? Is that the Government's objective? A common procurement policy poses real and substantial dangers to Britain's industry. We need to discuss them.

In winding up, the Minister should make abundantly clear the Government's intentions in relation to Britain's industry and, in particular, to the relationship with Europe. I know that it is difficult for Conservative Members to

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raise the issue of Europe without getting into great difficulties, but key issues exist here and they must be dealt with for the sake of British jobs, British industry and British companies. We need to hear what Ministers are thinking. They should not be frightened of their own Back Benchers: they need to face up to those issues.

Mr. Freeman: I hope that I did not confuse the hon. Gentleman. I tried to set out clearly our present procurement policies. Collaboration within Europe is a separate issue from Government funding of restructuring or diversification--call it what you will--within the United Kingdom industrial base.

Our policy is clear: that is a matter for industry, and not for the taxpayer. We have no intention of funding a diversification agency, as is being tried in the United States, because we do not believe that that is the most efficient way forward. It is for industry to make its own decisions about either looking for more exports or rationalising production, and it has been successful in doing that. Will the hon. Gentleman set out clearly whether any future Labour Government would commit additional funds, separate from Konver--the European Union funding programme, with which the hon. Gentleman will be familiar--for conversion of the defence manufacturing base? If so, how much?

Mr. Fatchett: The right hon. Gentleman has raised an interesting point about diversification, and I will answer it. However, I should like to tease out of the Minister the view that he expressed in the early part of that intervention.

I believe that the Minister said that it is not the Government's responsibility to use taxpayers' money to help restructure industry--I would not want to misquote him. I understand that: the Government may have a role, but not in terms of making available taxpayers' money. The Government have accepted that, because of their decision to refer the VSEL case to the Monopolies and Mergers Commission.

I want to tease from the Minister the extent to which the Government see themselves as having a responsibility to restructure Britain's defence industries, either in line with some European process or in another way which sees Britain standing alone, or perhaps in some alliances across the Atlantic with United States companies. That is the important issue. In that way, the Government would be using not taxpayers' money but their own good offices. I want to know what the Government's direction is.

Mr. Freeman: Perhaps I can help the hon. Gentleman. Clearly the Government are involved in the restructuring of British industry, not in terms of directing what GEC, British Aerospace or Rolls-Royce should do-- that must be for industry--but as the procurer and the spender of upwards of £10 billion of research, development and procurement moneys. Clearly, the Government's procurement policies must have an effect on the industrial base.

The hon. Gentleman will wish to read my comments at his leisure, but I did say that, if Governments--the procurers--collaborate on a European basis, they can require competition at the industrial level. That

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competition on a European scale will lead inevitably to the restructuring of the European defence manufacturing base.

Mr. Fatchett: We have opened up an interesting area of debate, and I suspect that the Minister and I could spend some time discussing it. I am delighted that the Minister has pushed the Government's policy along substantially towards a recognition that there might be a need for something called an industrial policy. I wish that we could transfer this Minister to the Department of Trade and Industry, where his comments are much needed and could be important for the future.

I am sure that the Minister would not wish me to avoid reference to diversification. I recognise that there is an important responsibility to assist the process of change. It can be played out in different ways. The Government have had a minimal role in that process, and have left most of it to the market. They could play a more active role in terms of dual-use technology and looking for ways in which the process of change could be helped.

That is why we have talked about the need for a defence diversification agency. We have always recognised that it would be a slim body, and that its funding would not be substantial, but it would change the climate and culture, and try to ensure that companies that have had a long-standing relationship with the Ministry of Defence could look for new markets and operate in new ways. It would be a culture-changing agency, and it is crucial. The Merchant Navy is crucial to the success of the Royal Navy. It is often overlooked in these debates. In 1982, talking about the Falklands, Admiral Sir John Fieldhouse said:

"I cannot state often enough or too clearly how important has been the Merchant Navy's contribution to our efforts. Without the ships taken up from trade the operation could not have been undertaken and I hope that this message is clearly understood by the British nation."

It might have been understood by the British nation, but I wonder whether it has been understood by the Government. Since 1980, the level of tonnage on merchant shipping for the United Kingdom has fallen to a third of the level 15 years ago. That is a substantial decline. There are those on both sides of the House who raise serious questions about whether the Merchant Navy could fulfil again the functions that it has fulfilled in the Gulf--at substantial cost--and in the Falklands.

In last year's debate, the then Minister, now the Chief Secretary to the Treasury, said, with all the dynamic nature of his market approach to politics, that the Government would keep an eye on the Merchant Navy. If he did that, he would see that it has declined both in size and in the contribution that it could make.

The Minister who opened the debate today is more active, more of an interventionist. I look to him to make sure not just that he keeps an eye on the Merchant Navy but that he recognises the contribution that it has made, and could make in the future. [Interruption.] My hon. Friend the Member for Motherwell, North (Dr. Reid) said that, with that reference, the Minister could be the new Chief Secretary. When looking at last year's debate, I noticed that the winding-up speech was made by the present Chief Secretary, and the debate was opened by the current chairman of the Conservative party. I do not know

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whether that is seen as promotion within the Conservative party nowadays. However, I must tell both the current Ministers that one great possibility is open to them if they join the Cabinet--they no longer seem to be bound by collective responsibility. They will be able to speak freely on all the issues that are important to them. Some of the broader arguments have run through all these debates over the years. They include the questions of commitment and resources. As politicians--the Government in particular, because they have a greater responsibility--we have missed an opportunity to engage in an important debate for Britain in terms of a cold war world. We have seen a clear threat disappear, but we have not clearly defined our new roles. I must tell the Defence Ministers that "Options for Change" and "Front Line First" have not engaged in that exercise. There is a strong criticism that the conclusions of those studies were Treasury-led rather than foreign policy- led, and we need to ensure that we work out our foreign policy options and requirements. Defence is the support of those requirements and options. That is why the Opposition have been arguing consistently for a full defence review.

That argument has a great deal of intellectual weight and merit. Our view is supported by people in the services, those who used to be in the services and academics who understand the issues. All those individuals understand that we need to put together three crucial aspects--our future foreign policy role, the defence requirements to fulfil that role, and the industrial base to ensure that we can do it. A future Labour Government will engage in that full defence review, because that is the way for the future.

There is an element of cheek in the Secretary of State and his Ministers-- the salami Ministers from the Ministry of Defence--saying that Labour would mean uncertainty for our armed forces. I think that everyone in the armed forces agrees that if, in the desperate months in the run-up to the next election, the Government are faced with the choice of cutting public expenditure on defence and offering tax cuts, they will go for tax cuts. That is the greatest uncertainty for our defence forces. Only Labour offers a clear policy.

Our defence forces--the Royal Navy and others--would benefit from a stable Government with a clear majority and a sense of purpose. Only Labour can offer that on defence. The Chief Secretary, whom I quoted earlier, said that, if defence was not safe in the hands of a Tory Government, that Government were nothing. I think that he was right on both counts: defence is not safe in the hands of this Government, and the Government are nothing. The electorate know that, and the Government will be out of office soon.

5.30 pm

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