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Mr. Gerald Howarth: I am grateful to the right hon. Gentleman for making a point that I made. Is he aware of other armed forces that have a significant capability in that sphere? He singled out the United States; is he aware of anybody else with that capability who could protect our carrier force?

Mr. George: If we look at the Russians, I am not certain about the extent to which they will be alongside us, although progress and reconciliation has been spectacular. When I think of the significant navies, I am not certain about the equipment or reliability even of some of our allies. The hon. Gentleman draws attention to a point that we need to consider.

At paragraph 93 of the Committee's report, we stated:

"We recognise that there is a rationale for not upgrading the Sea Harrier, and withdrawing it early from service."

We talked about the caveats, and concluded:

"There are, then, a lot of pieces that must all fall into place before the Sea Harrier's demise can be regarded with at least some confidence. The MoD must ensure that none are missing. We will be following this process very closely."

The House can draw its own conclusions from that.

Our report touched on all sorts of things, including the A400M, about which we all know the details. We concluded:

"Currently, therefore, the MoD finds itself in an enviable position. But if the A400M continues to struggle the secret will be to know when it would be better to deal with someone else."

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That is not elegant language, but it is very clear. I hope that everything will come right, but there are technical problems. Our allies will deliver their financial and technical support and expertise, but a point may be reached—although I hope that it is not reached—at which the MOD will have to take some very difficult decisions. Ultimately, it is in the business of delivering to our armed forces that which they want, and that which is affordable in the right numbers. The warning must be made clearly to our European partners that they must deliver or there are clear alternatives.

We talked about the MOD being beset with collaboration difficulties with both the BVRAAM and the A400M programme. We said:

"It must continue to push its partners on both to show a stronger commitment and remind them that there are other options for the UK if the contract negotiations for these programmes continue to struggle."

I will not go into the debate about how much our defence budget is increasing. I have seen the briefing, and, although I am not particularly numerate—like my colleague the hon. Member for Aldershot, who is grinning at me as he knows that we are similarly bedevilled by lack of statistical competence—there is, of course, a rise in expenditure, the extent of which we will be anxious to evaluate when the time comes. The fact that there have been two increases in the last three years, after a period of unrelieved and stark decline, is very welcome. I hope that the evaluation that the Defence Committee will make will bear out more or less what the Government are arguing—that the increase has been reasonably substantial.

I mentioned at the beginning of my speech that, since the second world war, and, I am sure, since the days of procuring bows and arrows—[Interruption.] We procured very good bows and arrows to fight the French, and very good archers to fire them. That was one of the successes. As a fellow Welshman, my hon. Friend the Member for Vale of Glamorgan (Mr. Smith) knows exactly what I am saying. Even the supply of swords in the 18th century was a disaster because they snapped. Procurement has persistently been a problem, so the strategic defence review of 1998 made another attempt to try to achieve what has hitherto eluded Governments—efficient procurement.

The Select Committee on Defence evaluated the smart procurement initiative and we said that the fact that there was such an initiative was a

"tacit recognition of the failure of some of the past attempts to secure improvement through similar means."

We were reasonably sympathetic to the initiative, but we said:

"The MoD will need to take deliberate steps to ensure its ability to detect in good time those projects going badly wrong under the more flexible and delegated regime envisaged under smart procurement."

We recognised that the initiative was designed to bring about improvements and reforms, and we wished the MOD well.

In 1999, in a report on the common new generation frigate programme, we commented on the problems of European collaboration. With an incredible lack of drama, we said of the Horizon programme that the

"story of European collaborative ventures is not particularly inspiring".

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We could have put it much more strongly.

In 2000, in our report entitled "Major Procurement Projects", we considered procurement equipment programmes and concluded:

"There are . . . some early signs of a more imaginative and robust approach emerging, and these offer a glimpse of what improvements the initiative may be able to provide."

In 2001, our report on the MOD's annual reporting cycle said:

"Despite the difficulty in reconciling the MoD's performance data, the results do indicate satisfactory performance against targets for cost overruns, if not on delays."

So there was some progress there.

The National Audit Office's "Major Projects Report 2001" was mentioned earlier. Paragraph 4 on page 2 states:

"Our overall conclusions are that, there is evidence of continued improved cost control, that delays are beginning to be brought under control, and although the proportion has fallen slightly (from 98 per cent. to 93 per cent.), the Department is still expecting to meet the majority of the technical requirements of customers."

Therefore, there are early signs that progress is being made, but it is far too early to be absolutely certain that the system is becoming much more efficient. If that happens, it will take place over the next five to 10 years.

The debate has suggested that there is not much between us. A budget of 2.5 or 2.6 per cent. is realistic in the circumstances, and some welcome increases have been wrung out of the Treasury. Should the security environment deteriorate, I hope that the budget would increase in response. However, we must recognise that, among many other problems, it is difficult to procure anything in less than 15 years unless we are prepared to buy off the shelf. Even the United States does not have a limitless capacity to crank out aircraft and other equipment simply because its strongest ally wants that equipment suddenly because of a deteriorating environment.

The budget increase is welcome, and we will reflect on it. We should give a partial pat on the back to Ministers, the Defence Procurement Agency, the MOD and all concerned. A hearty pat on the back is better than the knife between the shoulder blades with which they are more cognisant. I hope that progress will continue, because the taxpayers requires weapons that are necessary and that can be delivered while the services want systems that work. There are good signs that the interests of Parliament, the taxpayer and the military can be reconciled. We must work towards that end.

We on the Defence Committee will continue to be frank and critical when necessary and supportive when we can. We hope that some of our recommendations will find their way through the labyrinth towards effective decision making. Perhaps the Select Committee system will come of age and will be seen not as a reluctant partner that must be tolerated but more constructively as something that can assist the MOD to undertake its tasks more effectively. As a former permanent secretary in the MOD and now, I am delighted to say, an adviser to the Committee has said, "The better you are as a Committee, the better we have to be." I hope that the Committee can improve its performance and that that, directly or indirectly, will help the MOD to improve its performance, so that people outside shout "Hallelujah".

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7.16 pm

Mr. David Laws (Yeovil): I begin with the issue that the Minister first mentioned—the MOD budget and the change that the spending review has made. Without that budget, there is no procurement. The tensions in the budget over the past 10 or 15 years have been behind the pressures on the procurement budget that have been experienced in that time and over the life of this Government.

We were led to believe by the Chancellor of the Exchequer's statement on Monday that the MOD had received a rather generous settlement. Indeed, the MOD had an unusually early mention in his statement as if to flag up the priority that it had received in the spending review. Then we received confirmation of the importance that the Government put on the issue in the joint press release that was issued by the Chancellor and the Secretary of State for Defence. It was headed, "Gordon Brown announces billions extra for defence", and it quoted the Secretary of State for Defence as saying:

"This is an excellent settlement for defence."

I will not use the word "spin", because I do not identify the Minister as a spinner. However, the Chancellor has a reputation in his Budget and spending statements of not needing always to be taken at face value. We therefore need to compare the reality of the Government's announcement on Monday with the figures that have been released.

The right hon. Member for Walsall, South (Mr. George) said that the Defence Committee would consider this issue, so perhaps I should draw his attention to the Government's document on the spending review that was published on Monday. Table 1.3 helpfully gives all the annual growth rates in real terms of every single Department over the period of the spending review. We would, of course, expect the big public service Departments—the Departments responsible for education, health, crime and transport—to be at the top. We would not necessarily expect the MOD to have a comparable budget increase. However, we discover that not only are those Departments doing better than the MOD but, as the hon. Member for Aldershot (Mr. Howarth) pointed out, other Departments surprisingly outshine the MOD by a long way. They include the Department for Culture, Media and Sport, the Foreign and Commonwealth Office, the Lord Chancellor's Department, the Office of the Deputy Prime Minister and the Chancellor's Department itself. In fact, only one of the Departments listed in the table—the Department for Work and Pensions—has an annual growth rate of expenditure less than that of the Ministry of Defence. If we add the changes to annually managed expenditure, which are not reflected in the table but will form part of the budget of the Department for Work and Pensions, we discover that the Ministry of Defence has had the smallest real increase in the spending review.

I do not ignore the fact that the background to the problem is a 15-year period in which we saw a sharp contraction of the defence budget. I do not fail to acknowledge that the Secretary of State has halted that decline in this and the last spending review. However, no one should be under any illusions, and the Government should not create the illusion, that that will create slack in the budget or that pressure on the procurement budget will ease. The settlement will lock in the decline in the defence

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budget and the decline in capability that went with it. Expenditure this year and over the period of the spending review will increase by 1.2 per cent. in real terms, but much of the Minister's budget is for pay as well as procurement. As those tend to increase above inflation, the extent of the challenge that the Ministry faces becomes clear.

When I intervened on the Minister, he was not surefooted in his response. I asked what he thought about today's evidence to the Treasury Committee from two distinguished Treasury officials, Mr. Sharples, a friend of the Prime Minister and head of public expenditure at the Treasury, and his colleague, Mr. Macpherson. They confirmed something that is clear if we flick to page 167 of the spending review document: expenditure by the Ministry of Defence will be less in real terms in every year of the spending review than its expenditure last year. I hope that that puts into context the nature of the budget challenges that face the Ministry and the fact that we still have difficult procurement issues to address.

I am not asking the Minister to rely only on the spending statement or on the Treasury officials to support my case. I have the same briefing document on expenditure as the hon. Member for Aldershot, which confirms the figures to which he drew our attention. It also shows that if we use the base year of 2001–02, the budget falls over the following four years by just over £300 million. The average annual real change is, therefore, a fall of 0.3 per cent.

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