Draft Defence Science and Technology Laboratory Trading Fund Order 2001

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Dr. Moonie: May I clarify that? The DDA is not going into NewDERA; it is being taken into central MOD. That is important, and we have guaranteed that we shall continue to fund the DDA.

Mr. Key: The Minister has anticipated my question. We all know that parliamentary answers can be drafted with obfuscation in mind. Some of us may have done that inadvertently when we were Ministers, but the answer to the hon. Member for Dunfermline, West (Ms Squire) on 16 January is a masterpiece. She had asked the Secretary of State to make a statement on the future of the Defence Diversification Agency.

The Minister replied on behalf of the Secretary of State, and his long and detailed answer stated:

``We remain fully committed to defence diversification''.

It continued:

``Since the DDA currently operates as part of DERA, some reorganisation over the next few months is inevitable. Responsibility for the agency, we propose will be transferred from DERA to MOD headquarters, from where it would continue to facilitate the achievement of our defence diversification objectives. It would ensure that opportunities for `spin-out', and also the `spin-in' of civil technology to the MOD, are disseminated and exploited, and that industry is assisted with its own diversification planning. A major part of diversification activities would in future be undertaken from within NewDERA and DSTL, by existing DDA staff operating from their current locations, continuing the work that they do now, and transferred to NewDERA and DSTL for that purpose.''—[Official Report, 16 January 2001; Vol. 361, c. 143W.]

How can staff be ``transferred . . . for that purpose'' to where they are already? The explanation is as clear as mud. There are a mere 14 weeks to vesting day of the company, and the future of DDA needs clarification. I am not trying to be difficult or to make smart legalistic points; I am simply saying that, on reading that answer, any reasonable member of the public—let alone a DERA employee—would ask what the Dickens was going on.

Another issue on which we need more answers is NewDERA's involvement in manufacturing, about which the Defence Committee questioned Baroness Symons. In question 178 of the Defence Committee's report, the hon. Member for Ipswich (Mr. Cann) made the following point:

``The New DERA will not be involved in manufacturing but the MoD says''

that it will be a

```systems integrator'. How do you separate manufacturing from being a system integrator when most manufacturing nowadays is systems integration?''

Sir John Chisholm, chief executive of DERA, replied:

``I do agree that manufacturing is one of these things that is getting to be you know it when you see it. New DERA will not, it will be a rather foolish thing to enter into, it will not be making aeroplanes or ships or tanks or anything that looks anything like that. What we have in New DERA is a very considerable systems engineering capability. I distinguish between systems engineering and systems integration.''

The hon. Member for Ipswich said:

``I am a layman and I do not understand that.''

I have a great deal of sympathy with the hon. Gentleman. Sir John replied:

``Well, systems engineering is an intellectual activity to do with providing advice and understanding how systems work as a totality and helping those who are involved in the building of systems to help them understand how the totality of what needs to be assembled can best be done.''

That seems a pretty good definition of a prime contractor, such as Lockheed Martin. Although the Merlin helicopter was made by GKN Westland, Lockheed Martin was the prime contractor.

Sir John was unable to explain exactly what he meant by systems integration, because Baroness Symons interrupted. In question 180, she said:

``We have to winnow out the definition. Industry has to comment on the definition that we will have to reach with them and that is work still in progress.''

Mr. Howarth: Sir John was saying that NewDERA will be into systems engineering rather than systems integration, which is an activity carried out by many other UK companies. Given that there is only a short step between systems engineering and systems integration, industry is concerned that NewDERA could easily become an immediate competitor. Is my hon. Friend aware of that concern?

Mr. Key: My hon. Friend is right. We have a duty to probe the Minister. Consultations were on-going and certainly had not been concluded by 28 February. It is now only 22 March, yet apparently everything done and dusted, signed and sealed with industry, so we are supposed to be able confidently to go ahead with the order. It is only 14 weeks until vesting day. My hon. Friend is right. Will the Minister please give a direct answer to a simple question? Have industry and the MOD agreed a definition of manufacturing, and will the MOD permit NewDERA to be a systems integrator? That is a key point.

My next point concerns restrictions on foreign ownership of NewDERA. On 28 February, in the Defence Committee, question 52 was put to the Minister for Defence Procurement by the hon. Member for Crawley (Laura Moffatt), who asked:

``I want to explore the issues of who will be interested in New DERA? Where will the strategic partner, or shareholders who may want to buy into this project come from? Baroness Symons, will there be any constraints on who will be interested, say, from foreign investors?''

The Minister replied:

``Yes. We shall want to have some constraints upon ownership and foreign ownership. There will certainly be limitations on share ownerships in a way that will be familiar to people who know about the golden share arrangements. We have not worked out what those limitations will be, but I think that at the moment we would wish to consider that that would be part of our overall thinking. As to who is interested, a number of organisations have been in touch expressing an interest, from a whole variety of—''

At that point, the Chairman interrupted to say, ``Countries?'', and the Minister replied:

``Yes, I think there has been some overseas interest.''

Once again, we are walking in the dark. We do not know what will be the limitations on foreign ownership of NewDERA. Has the Minister worked out exactly what those limitations will be? If members of the Committee do not know that, it is difficult for us to make a serious judgment about whether to approve the order.

I should be grateful if the Minister would clarify another point that interests many people outside—that is, the concern that has been expressed by the European Commission, especially about the golden share and the whole process by which NewDERA and DSTL will operate under their new trading funds. What contact has the Minister had with the Commission, and what has it said about the matter in terms of competition policy?

Will DSTL remain as a trading fund? It is core to the MOD's responsibilities, and matters of national interest and security are at stake. We do not wish to see DSTL sold off in any way. That is a touchstone. The Government of my noble Friend Baroness Thatcher decided not to make any attempt to privatise DERA, and that view was shared by my right hon. Friend the Member for Huntingdon (Mr. Major) and his Government. They felt that any such attempt to divide DERA would destroy the totality of its assets and expertise. In seeking to privatise it, the Government have gone against Baroness Thatcher. If they are determined to proceed, and we cannot stop them, we must know that there is an irreducible core that they will not seek to privatise.

By far the most important element of the matter is the people whose lives and expertise are at stake. We remain concerned about the scientific expertise that is being dispersed and broken up. DERA has always worked in the way in which the best Government institutions have worked—by networking. A person who knows that someone else is doing similar work in another part of the organisation can pick up the phone and talk to that person. That is all over. Now, specific restrictions are in place. People in DERA organisations who have been talking to each other for years are now forbidden to do so. People from Fort Halstead can turn up to a meeting at Farnborough, only to be told that they must go home again because an American is present, and the Americans have said that they cannot have a meeting with DSTL at which a member of NewDERA is present. I am concerned about such matters. The debate is, ultimately, about the future of Britain's forces, and the kit available to them.

Will the Minister reassure me that the staff side and trade unions are satisfied with pension arrangements? We must return from the great and grand vision of DERA's future to the daily, practical issues facing the 12,500 people whose lives are being changed, and their dependants. They did not join a private sector company. They chose to go into public service, from the best possible motives. Now, their lives are being disrupted. Many years' experience of privatisation has taught us how important such things are. The party that is now in government made sure that we knew about such disruption, and the experience was not comfortable.

In turn, I want to make things uncomfortable for the Minister by asking him to reassure me that the pension arrangements that he has made for his employees in DERA are the best possible, and have been agreed with the National Audit Office and with the staff and trade unions. I know that we cannot stop the processes that are taking place, but it is our business to ask questions on behalf of the country's entire defence community.

10.41 am

Mr. Howarth: I am delighted to take part in the debate, and I first declare an interest. Like my hon. Friend the Member for Salisbury (Mr. Key), I have many DERA employees in my constituency. DERA's headquarters at Farnborough, where about 2,500 people are employed, is in the centre of my constituency. I also have a direct interest, as I am an honorary member of the DERA Aero club, the oldest military flying club in the UK. I am one of about 12 members who are not employees of DERA or the MOD. I do not wish to put my membership of that august organisation in jeopardy by being hypercritical of the Minister, who might seek revenge on me. He suggested earlier this week that he might seek revenge for my slightly churlish response to his announcement about investment in new service accommodation.

I am surprised that no representative of the Liberal Democrats is present. The issue under discussion goes to the heart of the defence of the UK. Ensuring the defence of the realm is the first responsibility of Members of Parliament. The absence of Liberal Democrats suggests the priority that they attach to that. However, Conservative Members are here in force.

Like my hon. Friend the Member for Salisbury, I am concerned that the matter is being discussed in Committee by only a few hon. Members. I am not sure, Mr. Stevenson, whether any Labour Back Bencher has sought to catch your eye. This is a major privatisation project. That it is not being discussed on the Floor of the House is odd, unusual and even slightly contemptuous of the House. Many hon. Members with DERA operations in their constituencies have raised concerns about them. My hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson) secured an Adjournment debate on the subject recently. Hon. Members who do not have a constituency interest nevertheless—

 

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Prepared 22 March 2001