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Mr. Eric Clarke (Midlothian): The Ministry of Defence has given a contract to Racal for radar, and there has been a great deal of disappointment not only in my constituency but in the Lothians generally. That is particularly true because GEC Marconi, through its purchase of Ferranti, has been the leader in radar
equipment for Her Majesty's forces. Is it possible that Racal got the contract because it gave money to the Conservative party?
Mr. Arbuthnot: Although I recognise the hon. Gentleman's stalwart work on behalf of his constituency, I am a bit disappointed that he mentions the treatment of a distinguished defence company in that manner. He implies that those who advise the Ministry of Defence are no more capable of distinguishing proper from improper behaviour than he suggests Ministers are. That is an unworthy suggestion, although I do not think that it is one that he would normally make. I hope that he will reconsider it.
We concluded that value for money should remain the cornerstone of UK procurement policy, and we concluded that competition was critical to the achievement of that objective. We are committed to the benefits of competition, unlike the hon. Member for Warley, West (Mr. Spellar). After his speech last night, I am particularly pleased, and a bit surprised, to see him in the House today.
Competition has inspired innovative design and manufacturing change, driven down prices and improved the performance of defence equipment. By encouraging industry to be more efficient, competition has enhanced the competitiveness of UK industry abroad and has contributed significantly to sales success in foreign markets. In itself, that is a positive contribution to sustaining our defence industrial capabilities.
Dr. Norman A. Godman (Greenock and Port Glasgow):
Has the Ministry of Defence any plans to order replacement vessels for that section of the fleet that is, by and large, concerned with fishery protection duties? Does not the Minister agree that the crews of those vessels perform sterling work, but that in some instances they are crewing aging vessels?
Mr. Arbuthnot:
I appreciate the hon. Gentleman's point. I should like to write to him in detail. That would be a more satisfactory way of responding than answering off the cuff.
We also concluded that we should give more systematic consideration to defence industrial factors in reaching future procurement decisions. We have always taken industrial factors into account in our procurement processes, but we concluded that we needed a more systematic approach, defining more explicitly the criteria against which we assess the benefit of seeking to retain defence industrial capability. We have carried that work forward with the Department of Trade and Industry in recent months, and the equipment announcements made by my right hon. Friend the Secretary of State in July are testimony to the extent to which we have embraced that approach.
Mr. Donald Anderson (Swansea, East):
Is not the Minister saying that, with their new definition of interest, the Government are recognising at last that the market cannot rule on defence procurement, not only because Governments are the major purchasers, but because
Mr. Arbuthnot:
I said that we had always taken industrial factors into account, but that we needed to do so more systematically. Before the hon. Gentleman attacks the benefits and consequences of market forces too strongly, perhaps he ought to clear his remarks with his own Front Benchers, and with the hon. Member for Hartlepool (Mr. Mandelson).
Our approach, along with our continued pursuit of the more commercial procurement policies which have proved so successful in past, will ensure that we can provide our armed forces with capable equipment which represents real value for money. However, we are never complacent, and our procurement practices continue to evolve.
For example, we spend some £1 billion a year on high-volume, low-value items--mainly spare parts--with a large number of firms. That carries a disproportionately large administrative cost compared with the value of the items. We are therefore changing the purchasing process to cut out much of the paper-driven bureaucracy. In particular, in line with best practice in industry, we shall introduce electronic data interchange to handle all the activities between ordering and bill payment.
Mr. Peter Viggers (Gosport):
Before my hon. Friend moves away from the subject of the procurement of sophisticated equipment, I should like to remind him that, 20 years ago, it was decided that three shipbuilders--Vickers, Cammell Laird and Vosper Thorneycroft--should be designated warship builders. In recent years, we have come dangerously near the point at which only one shipbuilder is available. The contract for Fearless and Intrepid was dealt with on a NAPNOC--no acceptable price, no contract--basis. Does my hon. Friend have a view on the ideal number of shipbuilders which should be available to undertake large, sophisticated shipbuilding?
Mr. Arbuthnot:
I am pleased to say that we continue to have a good, competitive shipbuilding market in this country. My hon. Friend implies that the award of the type 23 frigate order to Yarrow may undermine competition in our shipbuilding market. We do not consider that to be true. We have every confidence that Vosper Thornycroft, for example, will continue to be a strong and vibrant shipbuilder able to offer competition into the next millennium. That is why it is part of the consortium to produce the common new generation frigate. I am sure that my hon. Friend will regard that as good news for his constituency and for the interests of defence.
We obviously need to work closely with industry to ensure that we can exchange and share data to our mutual benefit. That will help the introduction of new initiatives such as concurrent engineering on programmes, for which we are seeking to cut the time scales in our procurement process without increasing the risks to the Ministry of Defence.
Over the past year, the Ministry has been working with the Confederation of British Industry to formulate guidelines on how a system of partnering might work in Ministry of Defence procurement, allowing both sides to respond to change, to benefit from innovation, to minimise costs and to maximise service development.
We shall also test all capital expenditure against the framework of the private finance initiative. We do not have no-go areas, and no minimum level of expenditure is set. Inevitably, not all projects will be suitable for the PFI approach, but the Government and industry are interested in exploring options. Deals covered by the initiative worth more than £200 million have already been signed, and £2 billion-worth of further projects is being considered.
The world strategic situation has changed beyond recognition in recent years, and no less is true of the defence industry. Defence remains big business, but defence expenditure cannot support all the manufacturing capacity or jobs that it once did. Industry has had to adapt to a much reduced global market for its products. It must compete ever more vigorously to survive, with new players in the international market seeking the same goals.
Mr. Tam Dalyell (Linlithgow):
Before the Minister leaves the issue of the global market, I should like to ask whether he intends to say anything about the policy on land mines. Does he recognise that General Sir Hugh Beach made a powerful case to the all-party land mine group that any mines exported should be of the detectable type, not the relatively undetectable mines which anaesthetise huge areas of agricultural land in the poorest countries of the world?
Mr. Arbuthnot:
I agree that mines should be detectable. We should like any land mines which continue to exist to be of the self-destructing sort, so that they do not pose the dangers to civilian populations which we have seen throughout the world. That is one reason why we have been in the forefront in providing money--nearly £20 million--for the clearance of land mines throughout the world. It is also why we have embraced the concept of abolishing all land mines.
There is a balance to be drawn between the protection of our forces and the protection of civilian populations throughout the world. We do not believe that civilian populations are at risk from the responsible use of land mines, such as that practised by our forces, but we believe that the benefits of a global ban on land mines--if that can be achieved--outweigh the benefits of land mines in the protection of our forces. We very much hope to find an alternative solution to the protection of our forces in the near future.
Yesterday, the hon. Member for South Shields (Dr. Clark) said that British industry was underperforming. I could hardly believe my ears, but then he said it again. He was quite wrong. British industries have restructured to meet the challenges that I have set out, often doing so before their European counterparts. Our companies are now in a competitive position, reporting growing order books, reducing overheads and healthy profits.
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