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The Minister of State for Defence Procurement (Mr. James Arbuthnot): This is such drivel that it is hardly worth intervening. If the hon. Gentleman were not in a position of supporting the sale, would he find the money to upgrade the properties which need upgrading from somewhere else? In other words, will he commit himself now to spending more on the defence budget?
Mr. Spellar: When Ministers are slightly short on argument, they resort to personal abuse.
Mr. Spellar: "Drivel" seems to me to fall into that category. It is interesting to note that, although the Minister put up a smokescreen, he did not answer my
question. I shall answer his question, but I would be interested in an answer to mine. What percentage of the overall sale will be spent on upgrading the property?
Mr. Arbuthnot: As the hon. Gentleman should be aware, it is not possible to know what percentage of the overall sale proceeds will be spent on the property because we do not yet know what the sale price will be. As I told the Select Committee yesterday, the defence housing executive has estimated that it will cost£100 million to upgrade the property to grade 1 standard. Therefore, the overall sale expectations will be more than the defence housing executive could possibly spend on any property. That was why I described the hon. Gentleman's remarks as drivel.
Mr. Spellar: I thank the Minister for that reply. That figure makes it quite clear that the money that could be released by the sale of surplus properties--much of which is taking place at the moment--could easily cover the cost of repairs. Therefore, the overall sale is unnecessary because repairs could be paid for at the margin. That gives us a clue as to the real business of the sale.
Mr. Arbuthnot: How would the hon. Gentleman pay for it?
Mr. Spellar: There is a problem of communication here.
The MOD has already given instructions for the sale of a number of surplus properties. Undoubtedly, more properties will be declared surplus to requirement. The proceeds would go a considerable way towards paying for the repairs. I said earlier that we accepted the need for the sale of surplus properties. If the Minister believes that the sale of surplus properties will not raise sufficient funds, perhaps, instead of hiding behind commercial confidentiality, he will tell us how much was raised from the sale of surplus properties. However, the number of properties being sold suggests that the MOD might not be getting a very good deal if it had not managed to raise £100 million.
Mr. Frank Cook:
It might help my hon. Friend if I were to inform him that--as I understand it--11,000 voids are available. If they were sold for £10,000 each, which is not a great deal at today's market values, that would raise £110 million, perhaps allowing an extra£10 million for the Conservative party election fund.
Mr. Spellar:
My hon. Friend has put some figures on that, but I would not want to give the Government ideas, as we wish to retain some flexibility within the system. Certainly my hon. Friend has clearly identified that the sale of surplus properties would be sufficient to pay for the rolling programme of repairs.
Let us get down to the real reason for the sale. Its handling gives us a clue. Why did the Secretary of State make a surprise announcement in November and why, with Christmas and the new year intervening, did he require replies by 25 January? That seems an extremely short period. How could one seriously expect considered replies on such a complex project over that period?The sale comprises 60,000 properties over 800 sites. Who would have the resources to evaluate it in that time?
The sale of individual properties is a sweetener, but the real attraction for any bidder is rent payments. The prospectus talks of a guaranteed payment or aggregated market rents, whichever is the higher, and we know what the Government have been doing to market rents. It appears, however, that even that is not enough. Reports in the Financial Times show that the MOD has been asked to consider index-linked payments. And the reason? It is believed that that will enable it to raise the upfront price.
So there we have it in a nutshell. This is not a proper privatisation or a service agreement using private sector skills. There is not even any competing for quality. It is a straightforward sale and lease-back scheme. If it were happening in a company, we would immediately conclude, unless there was a proper reinvestment strategy, that it had cash flow problems. It is a live now, pay later, deal.
I gather that the Minister seemed reluctant yesterday at the meeting of the Select Committee to say who was buying, which is surprising as it has been in nearly every business section of the quality press in the past couple of weeks. It informs us--who knows if it is right, but I suspect that it might be close to the truth--that Nomura bank, Morgan Stanley, Lehman Brothers and ING are buying. A couple of weeks ago, another Secretary of State created considerable fuss about flying the European flag over public buildings for a day. Now, without a murmur from those Ministers, the stars and stripes or the rising sun will be flying over our married quarters estates, airfields, camps and naval bases. It is an extraordinary and disgraceful situation. A previous Tory Prime Minister, Harold Macmillan, talked about selling the family silver. This lot are taking out a second mortgage on the house.
Some procurement decisions need to be mentioned. My hon. Friend the Member for Wentworth (Mr. Hardy) drew attention to the future large aircraft project, which I know is of considerable concern to my hon. Friend the Member for Alyn and Deeside (Mr. Jones). We are receiving confusing messages from across the channel. We and the aircraft industry hope that the Minister can shed some light on the subject, especially the French Government's attitude on development and production of the aircraft, and on their intention to purchase.
I am sure that the Minister heard last week that Volker Ruhe, the German Defence Minister, was speaking encouragingly about the FLA's development. We have also noticed heavy advertising in the defence press from German industry about the FLA. I hope that the Minister will give us further encouragement on that important project and on working more closely generally with the French air force and industry, which is to be welcomed.
We all recognise that, after some difficulties, Eurofighter 2000 is increasingly emerging as a success story, especially in terms of its capabilities. It is a tribute to British and to European industry, but the Government can also take some credit, not only over the work-share issue, but over the partnership with industry.
Since taking on this portfolio and more recently on a visit to Warton, I have been impressed by the substantial co-operation and collaboration between the RAF and equipment manufacturers at all stages. The result seems to be an extremely pilot-friendly aircraft. The Government should be claiming more credit for their role, but perhaps this level of Government sector collaboration is slightly politically incorrect in this Administration and they feel constrained from doing so.
Finally on detailed procurement, will the Minister comment on what appears to be the successful thermal imagery airborne laser designation update on the Jaguar aircraft? We have all read reports on a rapid and cost-effective update. It appears that, again, pilots are heavily involved in the process through the Defence Evaluation and Research Agency. Again, we could be looking at a significant breakthrough in methodology. The House will be interested in such a report from the Minister.
More generally, all Governments must recognise the impact of purchasing decisions on the size and configuration of the defence industry. The joint Trade and Industry and Defence Select Committee report outlined that succinctly. Let us note that report's conclusions:
As the MOD moves towards making key decisions on both aircraft and missile purchases, it must start to develop a view of how those will impact on relationships and the corporate structure of the British and European aerospace industry, as well as our relationship with the United States defence industry. It appears that there may be some divergence of opinion between the MOD and the Department of Trade and Industry on the question of vertical or horizontal integration, but, if it is accepted--and it should be--that there is some urgency about rationalisation, the resolution of this becomes imperative, especially in the light of the rapid consolidation of the United States industry. Labour's policy document "Strategy for a Secure Future" points the way ahead to a more positive and realistic policy.
In that context, I suppose it would be churlish not to congratulate the Government on the decision to proceed with the Tornado upgrade rather than following the option that was trailed of leasing F16s from the United States, but the question that we must ask, as with the
extraordinary saga of the Army field ambulance and the contest between Land Rover and the Austrians, is simple: why were those options considered in the first place? It is no wonder that, when defence manufacturers were giving evidence to the joint Select Committee, they said:
The industry could have gleaned some hope on 23 May 1995 when the then Minister of State for Defence Procurement, the right hon. Member for Kettering(Mr. Freeman), said:
Let us be clear. When we buy abroad without proper reciprocation, we pay twice: once for the equipment and then for the people thrown out of work. Then we pay again because of our reduced ability to sell into third markets, so any national purchasing policy should be mindful of the industrial implications.
That is shown by the case of the defence helicopter flying school. Let us leave on one side whether the privatisation is a good idea and concentrate on the procurement process. It appears evident that all the aircraft options would be from abroad. I accept that that seems to be for straightforward availability reasons. When I asked the Minister what level of offset or industrial participation we would be seeking, I was informed that it was being put out to tender, so industrial participation was not appropriate. I pointed out that the formalities of the contractual relationship would not have deterred the Minister's French counterpart.
I am pleased that the position has been reviewed and that bidders have been advised that industrial participation will be sought. Obviously I am pleased about that, and the Minister can take credit for being open-minded and receptive. The question remains why that was not done in the first place. Why do not the MOD Procurement Executive and Ministers get into the frame of mind to buy British first wherever possible?
Will the Minister take the opportunity to make a statement about the replacement helicopters for transporting the royal family? Will the Westland EH101 be chosen, or will we once again be advertising another country's wares? It is bad enough having Lady Diana charging around in a BMW, without providing a flying advertisement for our competitors.
"Since the Government is the only significant UK purchaser of defence equipment, it cannot ignore the impact of its decisions on the UK's defence industries. We welcome the changes in MOD's attitude towards procurement, such as the greater willingness to take account of the future of MOD's supply base, the move towards partnership relationships with suppliers, the increased emphasis on dual use technologies and the greater emphasis on collaboration within Europe. However, these changes are tending to be reflected in procurement decisions in an ad hoc way, chiefly in the major decisions. Our recommendations are designed to change this, particularly through taking account of industrial interests more systematically, a longer term approach to the retention of capabilities and leading-edge technology, an increased emphasis on the technology base of the defence industries and related civil industries, and recognition of the importance of the defence industries and their technology and skills to the UK economy."
I would especially emphasise the phrase
"particularly through taking account of industrial interests more systematically".
That is reinforced by the recognition in the defence estimates, which state:
"The Department is British Industry's largest single customer. Our procurement decisions can therefore have a significant impact on the shape of the Defence Industry. We recognise the need to take defence industrial factors fully into account in our decision-making and have reviewed our procedures to ensure that this is done systematically as part of our programming and project evaluation process."
That and the paragraphs that follow are all reminiscent of last year's Labour party document "Strategy for a Secure Future" and a considerable move away from previous Government doctrine.
"The UK MOD's procurement policies are seen as verging on the hostile to the indigenous industrial base".
Can we imagine that being said in all seriousness about the American, French or defence ministries and their industrial structures? Perhaps that explains the Minister's facile response on the unsuitability of foreign chartered ships for Operation Purple Star, one of which was a Ukrainian ship which, after it arrived in America, was tied up, and then substantial fines had to be paid to get it repaired.
"The Ministry of Defence needs to continue to give due consideration to the possible consequences of procurement decisions for the defence industrial base."
With his departure, however, we seem to have slipped back again to relying on two legs of the stool--operational effectiveness and price--rather than also considering the third leg of industrial capability.
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