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Rev. Martin Smyth (Belfast, South): We understand the Prime Minister's reticence about giving all the answers that some of us would like. We all congratulate him and those who have been doing positive work in debt relief and care, including an education programme in Nigeria, Kenya and Uganda which is largely led by a nurse from Northern Ireland and the Fellowship of Christian Students.

What steps does the Prime Minister think will be taken to quicken the approach of the 11 countries that could have been in the programme, as there seems to be a delay somewhere along the line, as was obvious from his statement? Does he agree that perhaps the most wealthy country in the world could do more? Allowing for the fact that individuals have done wonderful things, quite frankly there is something wrong when newspaper reports say that America will not be able to meet the Kyoto targets because of its own industrial needs.

The Prime Minister: The hon. Gentleman is right: a lot more could and should be done. To be fair to America, it is rarely President Clinton who blocks progress, but elements in Congress and the Senate.

There is a good chance that we can get the 11 countries through by the end of the year. We are working closely with those countries to get in order all the bits and pieces that need to be in order, so that the decision point can be reached. As I said, debt has been relieved in the first nine countries, and people going to Bolivia, Uganda and so on are already seeing the difference that that makes. Incidentally, the hon. Gentleman is quite right to pay tribute to the programme led by the nurse from Northern Ireland. It is one of the best programmes that we have, and she has done a fantastic job.

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Spending Review (Defence)

4.17 pm

The Secretary of State for Defence (Mr. Geoffrey Hoon): My right hon. Friend the Chancellor of the Exchequer announced substantial additional provision for defence in his statement to the House on 18 July, which marked the end of a long period of decline in the size of the defence budget, following the end of the cold war. For the first time in almost 15 years, the Ministry of Defence is committed to modest real-terms growth in each of the next three years.

The settlement provides substantial additional funding for defence in the current year. There will be an extra £200 million from the reserve to help meet pressures on the defence budget, and in particular to help address the main equipment lessons learned from the Kosovo campaign. For the next financial year, the Ministry's budget will increase by £427 million over the level previously planned, which means an increase of some 1.9 per cent. Overall, the settlement will provide £1,250 million of new money for defence, on top of an allowance for inflation.

This substantial injection of additional cash ensures that we will have the amount needed to deliver the major programme of modernisation set out in the strategic defence review, to invest in the new equipment required to ensure that our armed forces build on their enviable record of professionalism and success, and to improve their living and working conditions.

The settlement sends an important signal about the Government's intention to sustain the capabilities of the armed forces. This country has taken a leading role in NATO adaptation and in arguing for the development of European defence capabilities. The additional provision demonstrates that we continue to take those responsibilities seriously.

The settlement shows that we are also serious in our determination to look after service personnel and their families. I was delighted to be able to announce last week, with my right hon. Friend the Secretary of State for Social Security, a new policy on pensions for life, ensuring that in future war widows who remarry will retain the attributable benefits that they receive from the armed forces pensions scheme.

On the equipment front, I made a statement to the House on 16 May about the Government's plans to acquire new strategic lift aircraft and air-to-air missiles for Eurofighter. With this settlement, we will be investing in further new capabilities, not only increasing our own defence capacity but contributing to the improvement of those of NATO and Europe. In particular, our analysis of operations in Kosovo identified a number of important equipment capability lessons. The highest priority among those is the need for improvements in our ability to attack targets with precision, to bomb in all weather conditions and to improve the security of our communications.

In March I announced trials to integrate Maverick anti-armour missiles on Harrier GR7 aircraft, and for enhanced security for air-to-air communications on key aircraft types, including the Harrier GR7 and the Tornado GR4. Those trials have been progressing well. Subject to their satisfactory conclusion, and to satisfactory contract negotiations, we will therefore be proceeding with the procurement of Maverick missiles. Maverick is a proven,

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off-the-shelf precision guided missile that will greatly improve our capability to attack both mobile and static targets by day and by night. We can procure those missiles quickly and we expect to have an operational capability by the end of the year.

The air-to-air communications trials are almost complete. We will now go ahead with fitting the systems to a range of aircraft. Additionally, we have decided to procure as soon as possible a new precision guided all-weather bombing capability for the RAF. Global positioning satellite technology will allow us to overcome problems such as those caused by poor weather during the Kosovo campaign.

Early action on those decisions has been made possible by the provision of new money for defence. Let us be clear why the country is now able to invest more in defence: it did not come about by chance, but because the Government kept to tough spending limits while we stabilised the economy, sorted out the public finances, helped people back to work by a process of welfare reform, made tough choices and saw them through. All that helped to create the platform of stability on which we can now build the necessary investment for the future.

The settlement also confirmed another key element of our previous plans. Subject to the satisfactory conclusion of the public-private partnership for the Defence Evaluation and Research Agency, the defence budget will benefit from the receipt of a further £250 million in the next financial year. I can confirm today that we have decided to proceed with that public-private partnership.

In July 1998, as part of the strategic defence review, the Government concluded that the future for DERA could best be secured by harnessing the opportunities offered by a public-private partnership. That approach will give DERA the freedom to flourish, to develop its business and to exploit the wealth of knowledge that it has built over the years to the benefit of the wider UK economy. Those new opportunities should have a positive impact on job prospects, and the organisation will be capable of attracting and retaining staff with expertise in areas that are also in demand from other private sector companies.

On 17 April, I announced a period of consultation on a document describing our proposals. Stakeholders, including the Defence Committee, have acknowledged the improvements that we have made over earlier proposals. They have welcomed our willingness to listen to their views. The overall response has been positive, with the majority of stakeholders recognising the need for change and endorsing our proposals as a sensible way forward. The US Administration have also welcomed our new approach.

Consequently, we have concluded that we should proceed with the core competence model set out in the consultation document, separating those functions that are best performed within a private sector company and those that are best performed wholly within government. About three quarters of the current DERA will be moved to the private sector through a flotation that we will try to achieve in 2001. The terms and conditions of staff will be protected by the TUPE--transfer of undertakings and protection of employment--regulations.

Just under 3,000 staff will be retained within the Ministry of Defence to carry out research in key areas and provide a high-level overview of defence science

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and technology, in-house impartial advice and the management of international research collaboration. The elements retained will include sensitive programmes and sectors such as the chemical and biological defence sector based at Porton Down, most of the Centre for Defence Analysis and the defence radiological protection service.

The retained DERA will therefore continue to perform a number of critical functions for the Government. It will be a world-class organisation offering rewarding career opportunities within the Ministry of Defence and the wider civil service. We envisage that retained DERA will continue, for the time being, under the existing trading fund arrangements.

We are confident that the principles underlying core competence are right, but we also recognise that there is more detailed work to be carried out during implementation. We will continue to consult our stakeholders closely, to ensure that any concerns are fully considered. Our timetable envisages that separation between the two parts will be achieved by the end of the year; we will then conduct a rigorous period of shadow operation to demonstrate that both organisations and their supporting infrastructure are robust and will perform as expected. As we identified in the consultation document, our preference is to seek a flotation on the stock market as soon as its potential is suitably developed and we can ensure best value for the taxpayer. We will keep open the option of seeking a strategic partner for the business as an intermediate step.

DERA is also home to the Defence Diversification Agency, which was established to take forward our commitment to strengthening links between civil and military technology. We remain fully committed to ensuring that the objectives set for the DDA are met, and we are currently reviewing how best to take forward its role in the light of the PPP process. Throughout that process, we have remained committed to the objective of ensuring the best possible future for DERA and for defence science and technology. We now have a way forward that is both workable and good for DERA, for the Ministry of Defence and for the wider UK economy; it will offer value for money to the taxpayer while ensuring that the Government and our armed forces retain access to leading edge technology.

The spending review was good for defence, good for the armed forces and good for the country. Our decision on DERA will build on that to ensure that we capitalise on a vital national asset, both ensuring the maximum benefit for defence in future and allowing our scientific expertise to develop and flourish in the wider market. I commend those decisions to the House.

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