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Mr. John Smith: Does the hon. Gentleman agree that the overall judgment of the NAO report was that the operation was a logistical success and that we deployed into theatre in half the time that it took 10 years ago in the first Iraq war?

Mr. Howarth: Of course I accept that, but I cannot ignore—the House and the country would not want me to—the criticisms that have been made. Those specific and detailed criticisms go to the heart of the Government's thinking about the planning for the operations. In the world of realpolitik, we understand that it is necessary for a party to carry its Back Benchers with it, but the armed forces must not be sacrificed, and their safety not imperilled, by the political imperative of the Government of the day who are unwilling to face up to their Back Benchers, who might be hostile to military action. The result is that the troops do not get the kit that they want or do not get it in time.

Mr. Keetch: Is not another example of the point that the hon. Gentleman is making the large number of urgent operational requirement orders that were placed in the run-up to the Iraq war? That clearly shows that forces were being sent without being properly equipped. It is worth remembering that this was not a war that occurred suddenly, like the first Gulf war or the Falklands war. This was a war of our timing, which should not have been started until our forces were ready to begin the conflict properly.

Mr. Howarth: The hon. Gentleman reinforces my point and I am grateful to him for doing so, particularly as he comes from a slightly different position on these matters. What he says about urgent operational requirements, which amounted to about £500 million, also illustrates the point. However, the National Audit Office was right to say that it would not be reasonable to expect any Government to have on the shelves, ready to use, equipment for 50,000 troops in the Arctic, the desert, temperate climates and so on. We must be reasonable; taxpayers' money is at stake.

Only last month the Public Accounts Committee published a highly critical report on the Government's management of their 20 largest projects. That report, based on the equally damning NAO 2003 major projects report, cited cost overruns of £3.1 billion and an average delay of 18 months across the 20 largest projects. The Defence Committee described the performance of the Defence Procurement Agency as "woeful". On the cost increases, the Committee concluded:

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I am sure the House would agree. How are those cost overruns to be funded? From cuts elsewhere? If so, it is incumbent on the Minister to tell us where.

Since the Government came to power, spending on defence has fallen both in real terms and as a share of gross domestic product.

Mr. Davidson : Would it not be helpful to point out to the House that the largest cost overruns were on projects inherited from the previous Conservative Government?

Mr. Howarth: The hon. Gentleman will have to wait for what I am about to say on that topic.

Mr. Davidson: That is a yes, then.

Mr. Howarth: The hon. Gentleman will hear the answer.

Despite the claims made by the Minister in his opening speech about how much more is being spent on defence by the Labour Government—I leave aside the extensive extra commitments to which they have subjected our armed forces—defence spending in 2004–05 will be almost £1 billion less in real terms than it was in 1995–96. Defence expenditure was then 3 per cent. of GDP. By 2005–06 it is set to fall to 2.3 per cent. of GDP, resulting in reductions in equipment, platforms, manpower and overall funding to the front line.

Demands on our frontline forces are far greater than envisaged by the strategic defence review, and the message from the White Paper is that those demands are likely to increase. The White Paper is littered with modern MOD-speak such as "capabilities-based approach" and "effects-based warfare", terms deployed in today's debate by the Minister. Those are a cloak to mask the cuts resulting from decisions made in No. 11 Downing street. We have been warning that such cuts would lead to dangerous capability gaps and place our front-line forces at risk. We cited the withdrawal of the Sea Harrier as an obvious example.

The First Sea Lord said:

That accords with the point made by my hon. Friend the Member for Croydon, South (Richard Ottaway). We have also raised serious concerns about the repeated claims by the Secretary of State that numbers no longer count and that it is capabilities that are important; again, a point made by the Minister. But no one unit of capability can ever be in two places at once. The First Sea Lord has been honest about the risks that the Government are running. As he told the latest issue of Warship World in respect of the Government's proposed 20 per cent. cut in the number of destroyers and frigates:

that is, destroyer/frigate force—

That is precisely what the Minister was doing in his opening address.
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The Defence Committee endorsed the concerns expressed by the First Sea Lord and from the Conservative Benches. The Committee stated on page 9 of its report:

We agree. That is why our commitment to spend £2.7 billion more on the front line than the Government are spending will allow us to ensure that our armed forces are fully funded.

It is appalling that the Minister left his Prime Minister so exposed to my right hon. and learned Friend the Leader of the Opposition the other day, when the Prime Minister was clearly unaware of the announcement made by my right hon. Friend the shadow Chancellor and my hon. Friend the shadow Secretary of State for Defence. It was extremely neglectful of Ministers in the Ministry of Defence to leave the Prime Minister so obviously ignorant and in danger of misleading the House, but perhaps that is no surprise coming from the current Secretary of State, who is fairly cavalier about such things.

Mr. Ingram: I recognise the headline figures that the hon. Gentleman is bandying around. If £1.1 billion is to be funded from cuts elsewhere in Government programmes, will he tell us where? If £1.6 billion is to be taken out of defence expenditure, on top of the £2.8 billion efficiency changes that we are making, that means a £4.4 billion cut in defence activity. Will he give an indication of where that extra £1.6 billion-worth reduction in activities is to come from?

Mr. Howarth: The debate is about procurement issues, but let me address the Minister's comments. The James committee, led by an experienced businessman with a fantastic track record of turning round ailing businesses—he would be hugely advantageous to the Government—identified substantial savings across other Departments, of which £1.1 billion, I assure the right hon. Gentleman, is a drop in the ocean. The Government cannot stomach the fact that they are making so-called efficiency savings, but nobody else can make efficiency savings beyond those that they have identified. I can tell the right hon. Gentleman that we have done our sums. The figures are in the public domain and we stand by them. I assure him that we will be able to fund all that we intend to do for our armed forces, which will be significantly more than the Government are prepared to do.

Perhaps the Minister could answer a point on the annual report and accounts of the Defence Procurement Agency. In 2003–04 capital commitments amount to £14 billion in round figures, contracted but not provided for; £14 billion of commitments for which the Government have no money. So we are taking no lessons from them. The Conservative party is determined to ensure that our armed forces are properly funded for the tasks that we give them.

It is six years since the Government introduced their policy of smart acquisition and the results of the policy have been, at best, mixed. The Chief of Defence
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Procurement, Sir Peter Spencer, told the Defence Committee earlier this year that of the seven aims of smart acquisition, only one had been met. The Committee accordingly concluded:

That is pretty damning stuff, and it is easy to see why the Minister felt stung by the vehemence of the charges and felt constrained to respond so vehemently just now to the Committee.

However, the MOD has itself admitted that smart acquisition has not been applied in the way that was envisaged on some of the newer projects, and that it has failed to bring the anticipated improvements to legacy projects, to which the hon. Member for Glasgow, Pollok (Mr. Davidson) just referred. It is not the Committee with which Ministers should be taking issue; rather it is their own chief of defence procurement. It was Sir Peter who predicted that this year's accounts were likely to present another problem year.

The problem with smart acquisition is not so much the policy itself but its implementation. The Government's failure properly to implement their own policy has meant that some of the potential savings, which could have been achieved through improved management of risk, through life management and a partnership with industry, have not been achieved, and it is to those key areas that I wish to turn.

On risk management, the Public Accounts Committee concluded:

Much more needs to be done to manage risk. The SDR sets out that 15 per cent. of a project's budget should be spent prior to the key decision-making point, known in the trade as main gate, to try to reduce that risk. However, smart acquisition projects have seen only 4.4 per cent. of their total budget being spent prior to main gate, well short of that target of 15 per cent. that the Government have set themselves.

The Minister has just told us that the Government have taken that message on board, and we welcome that, but they are a long way short of achieving the objective that they themselves have set. It is no good their bleating on that the problems are exclusively with projects started by the last Conservative Government, because Sir Peter admitted last week that one of the reasons smart acquisition projects had not encountered difficulties similar to those of the so-called legacy projects was that they were in the relatively early stages, and could well run into problems later in the procurement cycle when such difficulties traditionally arose. So the answer to the hon. Member for Glasgow, Pollok is that the jury is out on his Government's own projects. We wait to see whether the Government fulfil their own commitments.

Part of the solution is to ensure that there is adequate research funding. However, the amount spent on research has been falling since the Government came to power. At £450 million, the current research budget is less than half the total research budget in 1990. We acknowledge that the culture around the DPA is
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increasingly one of risk-aversion—not fear—to which the Defence Committee drew attention, as officials seek to limit the risk of a kick in the backside by the NAO, the PAC and the Select Committee. It must be given some leeway to explore the possibilities of science, without feeling at every point that it may be kicked. I hope that we can share that aim with the Government. This is not a criticism of the Government, but a criticism of the system, and together we must find ways to address that, so that the DPA scientists can do their job without feeling that if they fail at the cutting edge of technology, they will be kicked in the backside, because that is not the answer.

There are serious issues here. Rolls-Royce tells me that unless it has some support for the hot-end development of its aero-engines, it could shift the company out of the United Kingdom. That is a serious issue to which I urge Ministers to pay attention. If Rolls-Royce were to move out of the UK, I suspect that there would be an uproar; not an attack on the company, which is answerable to its shareholders, but an attack on the Government who allowed that to happen.

There continue to be great concerns about the future of Qinetiq, in which, as the Minister knows, I have a vested interest as its headquarters are in my constituency. My hon. Friend the shadow Secretary of State for Defence fully shares my concerns on that front. The Minister must face the fact that being starved of resources for the development of new technology is driving business to the United States, where Qinetiq's minority shareholder, Carlyle, is based. Once the business is in the United States, we then face the difficulties of repatriating the benefit of that development work to the United Kingdom, thanks to the operation of the international traffic in arms regulations in the United States, to which the Minister referred.

Another issue of concern was raised at the weekend in The Observer, although for that reason I naturally take it with a pinch of salt. Ministers should come to the House and tell us their policy on the whole issue of defence research. If it is true that there are people who now believe that it is not worth working in the defence sector and that they should hawk around the world their experience and the knowledge that they have gained from working in UK secret defence establishments, that is a serious issue that we need to address.

The MOD defines through life management as

In May last year the NAO released its report on through life management at the MOD. It found that the MOD and DPA had been slow to recognise its potential benefits and were not doing enough to achieve effective through life management. In particular, the NAO had criticisms of the interface between the DPA and the Defence Logistics Organisation, such as incompatible information technology systems and different financial reporting systems.

The inability to transfer a project seamlessly between those two organisations was preventing the MOD from achieving a genuine through life approach. The next Conservative Government will take steps to ensure that the DPA becomes a much leaner organisation, and that
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the relationship between it and the DLO is such that major capital projects in particular are managed through their life without an artificial interruption as they pass from one organisation to the other.

The NAO described progress as "patchy", and said that the almost complete absence of a role for the second customer and for the supplier following a project's entry into service demonstrated that the MOD had not taken it on board that it required an attitudinal change in project management. Failure to integrate into the process the services that will be using the equipment, and the industry that builds and supplies that equipment, means that the process of delivering military capability will be incomplete.

Another key to achieving the aims of smart acquisition is developing a mature partnership with industry, with both sides working together from a project's inception through to the completion of its service life. Government and industry need to be honest with each other on costs, capability and time issues. I agree with the Minister. This is not simply a matter for the Government; industry has a role to play here. It involves setting achievable budgets and in-service dates. If the Government set a budget that is too low simply to gain Treasury approval, or industry gave a low estimate in order to win a contract, the result would be escalating costs later in the process. Equally, if for political reasons the Government set an unrealistic in-service date and industry accepted such an estimate, the result would be time slippages.

However, recent experience tells us that such a relationship is not yet developing. Despite what the Minister said, there have been repeated reports of difficulties between BAE Systems and the MOD. In their extraordinary rejection of the Defence Committee report, the Government said:

I partly agree with that. On the other hand, the Committee was right to point out that it is incumbent on the customer to work with industry. Again, I agree with what the Minister said earlier in reply to the hon. Member for Torridge and West Devon (Mr. Burnett) about providing a clear programme of stability for industry in so far as that is compatible with the requirements of the Treasury. But that has now become an imperative. We can no longer continue with peaks and troughs in the British defence industry.

The Minister knows that there is a fantastic warship building programme. The question is whether we have the skills to undertake that programme. We have feast or famine, and we cannot go on like that. If we are to maintain a defence industrial base in this country, we must find a way to even out that stream of income for business, something to which the Conservative party is absolutely committed.

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