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Mr. Michael Moore (Berwickshire, Roxburgh and Selkirk) (LD): I begin by echoing the tribute that the right hon. Member for Edinburgh, East (Dr. Strang) paid to the late Rachel Squire, who is sadly missed in all parts of the House not simply because she was an acknowledged defence expert and someone whom the House listened to on the subject, but because she worked unfailingly on a range of activities on her constituents' behalf for many years. She is sadly missed indeed.

I echo the tributes that both Front-Bench spokesmen paid to the bravery of our armed forces, and I repeat the condolences expressed to the families of those who recently lost their lives. I endorse the observations made about the care of, and needs of, those who have fought on this country's behalf and been seriously injured. We owe them a great duty of care.

This is an extremely important debate for many different reasons. Defence procurement remains one of the largest areas of Government spending, and we are at a crucial moment in the development of some major projects. Tributes have already been paid to the fact that the Typhoon is now in service, and I hope to deal with that issue and with some of the observations made by the right hon. Member for Edinburgh, East. Yesterday saw the launch of HMS Daring at Glasgow's Scotstoun shipyard. Unlike some other Members, I was unable to be present. The closest I got was a very impressive website broadcast, which showed much of what was going on. But whether one was there or one saw it in virtual reality, it is a fantastic achievement and a great sign of the manner in which we are gearing up our capability.

As others have said, we have entered a very important phase in the development of the next generation of armoured fighting vehicles. We hope that some indication of the decisions taken on carriers, and on the replacement of the nuclear deterrent, will be given sooner rather than later, but the most important issue in the context of this debate is the defence industrial strategy, which was published just before Christmas. It has been introduced at an extremely challenging time for our armed forces and the industries that support them. In every debate on these matters, the House acknowledges the new world security environment and the huge demands placed on our armed forces, to whom we consistently and properly pay tribute. The changes and challenges facing the country and our service personnel have a major impact on the defence industry, which also faces its own challenges as globalisation and financial pressures keep shareholders and management teams focused.

Certain key principles need to be remembered in the debate. The requirements of national security are paramount, and we must ensure that our armed forces have the most appropriate equipment and support so that they can do all that we ask of them. In addition, that equipment and support must be supplied on time and at best value for money for the taxpayer. Recent experience in Iraq showed the perils of mistakes in the latter respect, and the hon. Member for Aldershot
 
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(Mr. Howarth) has already gone into detail about how NAO reports have regularly documented longer-term failings in procurement.

The defence industrial strategy is ambitious, and is clearly an attempt to tackle some of the legacies of certain projects and the process of defence procurement. Symbolically, it has got off to a good start, being delivered on time and to a demanding time scale, and it has been well received by industry and many commentators. We support the principle of identifying the key industrial capabilities necessary to underpin national security, and recognise that the transformation of the industrial base is a consequence of that approach. However, we also acknowledge that serious issues will be thrown up as a result. Some questions remain unresolved in the strategy paper, and we hope that we can return to the subject as more detail is fleshed out in the course of the year.

I shall focus on some of the key themes in the strategy document, and national sovereignty may be one of the most fundamental principles at stake. There is already significant use of non-British suppliers, and there will be more in the future. Even nominally British suppliers are increasingly global and answer to shareholders and stakeholders beyond these shores.

The UK is at the heart of the north Atlantic and European industries. That is an ideal position that should be exploited, and we therefore join others in welcoming the recent EU code of conduct on defence procurement. We hope that it will help in many of the ways already identified by the hon. Member for Aldershot.

National sovereignty will arise as an issue on many occasions but, as has already been noted in the debate, the most pressing context at the moment is the joint combat aircraft. Quite properly, the Government have made robust public statements about the need for access to the intellectual property underpinning the JAC, and that approach has been repeated today.

Britain is a senior partner in the project, so we must have the capability to service and upgrade the planes throughout their lifetimes. Budgetary pressures in the US, and that country's quadrennial defence review, may be squeezing the options just now, but they cannot override that fundamental principle. The Government's determination and the apparent intransigence of the Americans mean that it is important that all parties in this House unite in support of Government efforts to sort out the problem. However, we need assurances that credible alternatives are being planned, as the right hon. Member for North-East Hampshire (Mr. Arbuthnot), the Chairman of the Defence Committee, suggested in an intervention. Moreover, the Americans must appreciate that those alternatives will be implemented if we cannot resolve the present difficulties satisfactorily.

The Defence Committee has already highlighted the dangers of a capability gap if the JCA were not available to us on the right terms. That would be a massive blow to the defence strategy, and to this country's ability to deliver its defence objectives.

Cost and value for money are also real issues on this programme and across all other procurement projects. The new strategy is a serious attempt to tackle the well-documented problems. It seems more focused on key capabilities, and transformation of the industrial base is
 
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welcome and substantially changes the equation on value for money considerations. Sustaining capability in key sectors will mean consolidation and a reduction in competition, as set out in the defence industrial strategy. In BAE Systems we have clearly created what used to be known, not always flatteringly, as a national champion. It has welcomed the strategy and the clarity that it brings. Coupled with the series of recent announcements about carriers and armoured fighting vehicles it can begin to see how the strategy makes sense for the company. As a world class company of vital importance in both industrial and defence terms, that is a welcome reaction.

Surely, though, the key to these new arrangements, specifically the partnering arrangements, will be their transparency and openness. There has not always been the easiest of relationships between the Ministry of Defence and BAE, so no doubt both sides will welcome the intent to achieve greater transparency and openness in their dealings. For taxpayers it is vital that the MOD has the access it needs to BAE to ensure value for money. Parliament, too, must have confidence that at the very least our key Committees, whether on defence or public accounts, backed up by the National Audit Office will share in that new openness and transparency. Of course, somewhere in the background the Treasury will have something to say.

In all these dealings we have to take account of commercial confidentiality. That will become an increasingly important issue where competition is not a driver in the market, so who determines what is commercially confident will be crucial. We must make sure that we have some independent mechanism for scrutinising projects when they go under that heading. We have already seen, in relation to Typhoon, the cloak of confidentiality coming down over the latest cost performance on the project and the arrangement to sell aircraft to the Saudis. We all understand the realities, but we must have confidence that people independent of the main parties involved in the contracts can scrutinise and pass judgment on what is now a fundamental starting point for the new strategy. There is talk of demanding partnered relationships in the document, and we must hope that that will prove to be true.

The transformation of industry's relationship with Government is only one aspect of the new strategy. A key driver is to shift from a focus on the creation of platforms to one on systems. The complexity of network-enabled capability was demonstrated by the launch of HMS Daring yesterday, which was a helpful illustration. If the carriers go ahead, they will take this to a whole new level. For the next decade there will be good times on the Clyde, the Forth and in many other places. The principle of creating one national shipbuilder may be the inevitable outcome of procurement demands, but as yet there is not much detail to go on. Like others, we want to see that fleshed out. What scale of consolidation is envisaged in creating the new ShipCo and what diversification is anticipated for areas where the next decade may be a feast, but beyond which may be a famine, is not yet clear and we would appreciate understanding how the Government's thinking is developing on that.
 
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The switch to greater emphasis on systems and their integration offers great challenges and opportunities to British industry, as does the welcome shift to looking at through-life costs, rather than the initial substantial outlay on ships and aircraft. Similarly, stressing the importance of lifetime capability management—a phrase the Minister used earlier—through ongoing support and upgrades is absolutely crucial if many of the mistakes and cost overruns of the past are to be avoided. In that respect, the comments made by the right hon. Member for Edinburgh, East about the skills in Edinburgh are very important for Typhoon.

We must hope that, whatever industrial structure emerges, it will give plenty of scope for ongoing innovation, much of which comes, in this country, from small and medium-sized enterprises, which need to be encouraged and not put off by the consolidation that goes on around them. SMEs have an important role to play in strategy, which is one of the areas where the biggest concerns have been expressed. Further work is promised on the technology priorities, but as the flotation of Qinetiq is under way, it is a strange omission from the strategy. We must hope that the further work that is spelt out will be completed quickly and we will have a further opportunity to consider it.

When we debated defence in the UK back in November, I raised with the Minister the flotation of Qinetiq. I stressed that we supported it as an excellent company with world class achievements and that we did not oppose the privatisation. However, it is fair to say that the manner of the privatisation has raised some serious issues. I appreciate that the Minister wrote to me after that debate, although much of what he could say was constrained by the inevitable secrecy ahead of the flotation.

We still do not have very many answers on the original part sell-off to Carlyle, not least regarding the tax arrangements and the controls on asset-stripping. We also need further details about the relationship with the most important customer—the Ministry of Defence—and about who may be allowed to own the company in future.

We welcome the decision of the National Audit Office to investigate the sale. The website makes it clear that it will be a wide-ranging investigation, covering everything from the choice of privatisation strategy to whether the deal is likely to meet its requirements. The flotation goes to the heart of the debate on the key principles of national security and value for money for the taxpayer, and we will examine the NAO's report very carefully when it is published.

Other hon. Members have pointed out that the NAO has its work cut out keeping track of the current procurement programme. Many of the main problems have already been aired and I will not repeat them, but I echo the dismay about past performance and lack of progress on key developments such as the carriers. I hope that at some point we will get some clarification about Typhoon and some more insight into the arrangements that have been made to sell some to the Saudis.

The right hon. Member for Edinburgh, East said that during the election we made it clear that we did not support the development of the project to tranche 3. We took that decision at the time, based on the information
 
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that was available to us and the uncertainty about the future development of other options. That seemed sensible to us, given the way in which the joint combat aircraft was developing. The Minister said today that doubt remains about the next tranche and about the joint combat aircraft. We want to watch those developments carefully and it is incumbent on all of us to reconsider our position if the realities change around us.

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