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Mr. Ingram: The hon. Gentleman raises an important point. We are in close touch with the South
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African Government and we propose to send out—when they are ready to accept it—a study team to look at the implications of the proposed legislation. We take the matter seriously and are working to reach the best conclusion with the South African Government, who are good friends of ours.

Dr. Fox: Notwithstanding the Minister’s answer, we need to know what the Government intend to do if it is decided that it is no longer possible for South African personnel to serve in the UK Army. Will we offer them citizenship or simply accept a decline in Army numbers? What impact will there be on other Commonwealth serving personnel? It is a live issue and we need further details.

I want to say a few words about the UK defence industry, defence employment and procurement. Too often we forget just how important the defence industry is for the United Kingdom. The UK is the world’s second largest defence exporter after the US. The 2004 Oxford Economic Forecasting report for the Defence Industries Council showed that, in 2002, defence exports totalled some £4.1 billion and contributed some £2.8 billion to the balance of trade against a deficit of £8.7 billion.

Regional employment and the impact of defence spending is particularly felt in the north-west, Scotland and my own region of the south-west. In 2004, the value of defence aerospace exports alone amounted to almost £6 billion, and of the top 100 companies defined globally by defence revenue, 10 are UK based: BAE Systems, Rolls Royce, QinetiQ, Smiths Group, VT Group, Cobham, GKN Group, Babcocks, Ultra Electronics Holdings and Meggitt. Those are businesses that the UK should be proud of.

In the south-west, not least in the Bristol area, and in the north-west, which I visited this week, there is, of course, a keen interest in defence procurement issues.

Mr. Kevan Jones rose—

Dr. Fox: In the north-east, as the hon. Member for North Durham (Mr. Jones) is no doubt about tell me, there is also a keen interest in those issues and their likely effects on employment. I believe that nowadays not even the most unreconstructed trade union leader believes that the role of the MOD should be to create jobs in the defence industry. There is a keen awareness that the best way to maintain jobs is to develop quality products that fulfil the needs of our armed forces and that exportability is key to work force stability and preferable to public money being used for labour market reasons rather than defence capability alone.

The Government are to be commended for the defence industrial strategy and the work done by Lord Drayson, which has made an important contribution to the debate about future procurement— [Interruption.] No, there is no but. There will always be a tension between the need to maintain sovereign capability and the need to provide value for money for taxpayers. There is a balance to be struck between those who say that we must make everything in the UK to guarantee our total sovereignty and those who say
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that we should buy everything off the shelf in order to lower the cost to taxpayers.

The answer to the problem was to some extent laid out in the defence industrial strategy. Clearly, we need to maintain sovereign capability in areas that are vital to our long-term defence. I believe that areas such as submarines and avionics clearly fall into that territory, although, as was mentioned earlier, the joint strike fighter is a case where we are looking to a partnership with the US for the shared technology for what will probably be the last manned fighter that we build. That may provide a useful model for the UK’s future procurement strategy. On the other hand, it would be nonsense to say that body armour or trucks fall into the category of sovereign capability. In those and other areas, it makes sense to buy equipment off the shelf and ensure that it is made speedily available to our forces, rather than to invest in programmes in what would effectively be reinventing the wheel.

Looking ahead to the necessary procurement processes and the strategic threats that we are likely to face, the priorities for a future Conservative Government would be capability, interoperability, adaptability and exportability. We actually wish to see an expansion of Britain’s defence exports because that is the best guarantee of long-term sustainable jobs, but for my Treasury colleagues, there are also potential benefits to the taxpayer in a well thought out procurement programme. Let me provide two examples.

The Hawk, developed under MOD funding in the 1970s, cost a total of £1.2 billion for development and production. Subsequently, more than 800 were sold around the world to customers including the US navy, Australia, Switzerland and South Africa. The value to the UK economy amounted to more than six times the initial cost and the estimate of the return to the Treasury for those exports was about twice the initial outlay. That meant benefits to our defence base, benefits to our armed forces and benefits to our taxpayers.

Linda Gilroy: I share the hon. Gentleman’s concern about exportability, not least because of the supply chain in the south-west. Does he agree with and welcome what the Government said in their response to the Select Committee about small and medium-sized enterprises and their work with the defence supply network? That should ensure that, as well as the large industries, the small businesses also prosper. Many of them are the employers in our area.

Dr. Fox: The hon. Lady is exactly right. Small businesses are the bedrock of our economy and whenever we can help them, we should. Now is an appropriate time to pay tribute to the large number of small defence businesses in the UK. They are often niche businesses, and they are vital not only to the economic well-being of the country, but to our research and development base and the well-being of much larger companies inside and outside this country. The hon. Lady might want to get in touch with the Chancellor of the Exchequer to ask why he was so harsh in the Budget with the income and taxation of small businesses.

Harry Cohen (Leyton and Wanstead) (Lab): Will the hon. Gentleman give way?

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Dr. Fox: No, not for the moment.

Another example is the Tornado. The cost of development and production to the UK was about £7 billion, while exports to Saudi Arabia under Government-to-Government arrangements based around the Tornado have been worth some £40 billion to the UK economy over the past 20 years.

Not only does a healthy defence sector provide the UK with a high defence capability, but it provides a strong R and D platform for Britain’s other industries, and it can maintain prosperity for the individuals in the industry and for taxpayers as well. However, a poorly thought through programme can be expensive to both industry and the taxpayer. We will be looking for major improvements in the procurement process as part of our review of defence and security policy.

Mr. Kevan Jones: I totally agree with support for the British defence industry, but can the hon. Gentleman explain why his party is playing politics with issues around arms exports to Saudi Arabia? We also had a ludicrous debate in this place about the export of radar systems to Tanzania. That is clearly playing politics with the issue and possibly damaging UK jobs.

Dr. Fox: I not only refute but resent the implication of that question. Conservative Members have never played politics with that particular issue in any way and would never seek to undermine either the security or the prosperity of this country. The hon. Gentleman might want to have a word with the leader writers of The Guardian.

The final matter I want to deal with is energy as a security issue. There is now broad agreement about the environmental consequences of our addiction to oil and gas, but there are other immediate reasons to reduce our dependence on fossil fuels. Foremost is our national security. In the years ahead, national security, economic security and energy security will become increasingly synonymous. Our addiction to oil and gas means that we are increasingly dependent on the stability of producer nations to ensure continuity of supply. Additionally, we are increasingly exposed to the risk that these nations will use the supply of energy as a tool of foreign policy. Such “resource nationalism” has already become a cause of alarm in certain vulnerable states. We need look only at the actions of Russia towards the Baltic States, Ukraine or Belarus to see the phenomenon in action.

There are two reasons why energy security has become a more urgent problem for the UK. The first is our increasing dependency on energy imports. Last year we became a net importer of gas and we are set to become a net importer of oil by 2010. Secondly, globalisation has brought a downside as well as an upside. I refer to our sophisticated interdependence and our inability to insulate ourselves from sudden downturns or disasters elsewhere. We are all competing for the same natural resources to feed our economies and we are more vulnerable to interruption of supply—either due to problems with supply itself or with distribution. The House can debate the global economy on a wider basis, but I believe that we have not yet developed the structures necessary to deal with the downside risk exposure that it brings.

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I shall focus briefly on Iran and Russia in relation to the military aspects of that particular threat. The United States Central Command—CENTCOM—military command in the middle east watches Iran very carefully. A recent report stated:

We know that, potentially, Iran is capable of internationalising any dispute by blocking the straits of Hormuz, for example.

All that is troubling and has been debated before, but what should be even more troubling to the House is the extent to which we have funded this defence capability. Iran’s oil revenue has risen from $23.7 billion in 2003 to $47 billion in 2005. That economic windfall enabled the Iranian regime to undertake a spending spree on defence. Its defence budget has gone up greatly and it has purchased missile technology and small vessels in particular. Following assistance from North Korea, China and Russia, many analysts now consider Iran to be increasingly self-sufficient in the production of ballistic missiles. Obviously, that capability has received increased attention as a result of the country’s nuclear ambition.

Over the past five years, Europe alone has pumped $50 billion into the economy of Iran and an astonishing $232 billion into countries of the former Soviet Union—mainly Russia. Those are the figures for spending on crude oil alone; they do not even take into account financial transfers resulting from the sale of gas or petroleum products. For every $1 increase in the price of a barrel of oil, an extra $1 billion goes into the Kremlin coffers. That windfall has been used in both Russia and Iran to finance military build-up.

In other words, we in the west are in a security Catch-22. Our dependence on oil means that we cannot avoid paying whatever price is demanded of us, which leads to huge financial flows out from our economy into the economies of oil producers, some of which might be hostile to us, and the money then finances a defence build-up. That situation is part of the threat that this country faces, so we need to understand and deal with it as a matter of urgency before it becomes even more detrimental to our national security. We believe that dealing with the situation should be the responsibility not of the EU, but of NATO, for the prime reason that that would bring Norway and Turkey into the process at a time when Turkey especially feels alienated.

As I said earlier, this country has benefited from a largely bipartisan approach on defence. Although there have been minor differences between the parties on the way in which we carry out the defence of our country, we seldom disagree about strategic issues. The Government will continue to get our support when we believe that they are doing the right thing, as they have done on Afghanistan, notably, and Iraq. However, if we are to defend our country successfully in the future, we must ensure that the welfare problems relating to our service personnel and their families are properly addressed and that procurement is dealt with sensibly and more efficiently. Operationally, we must understand that we cannot continue
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to overstretch our armed forces as we are doing now. We cannot continue to fight the battles in theatre that we are fighting without putting in place sufficient investment to ensure that we are able to carry out our mission successfully and guarantee the safety of the troops who put their lives and limbs on the line for the security of this country.

1.42 pm

Sarah McCarthy-Fry (Portsmouth, North) (Lab/Co-op): As we heard from the speeches of the Minister and the hon. Member for Woodspring (Dr. Fox), defence in the UK offers us myriad themes to discuss. I want to talk about the defence industry in the UK for two reasons: first, a reducing number of people in the UK have any experience of armed service, so the defence industry is many people’s closest link to defence in the UK; and, secondly, this gives me another opportunity to raise points about the naval base review and Portsmouth naval base.

I want to consider defence procurement by focusing on how we get the best value for money and maximise the resources going to our front-line servicemen and women. After all, roughly two thirds of last year’s defence budget was spent on defence procurement and logistics. I represent a naval constituency in which much of the local economy depends on defence. Significant numbers of serving and ex-serving naval personnel live in my constituency and 10 per cent. of our residents depend on the defence industry.

The naval base in my constituency is under threat as a result of the naval base review. I will not go into a great amount of detail because I have raised the matter in debates in both the Chamber and Westminster Hall, with support from the hon. Members for New Forest, East (Dr. Lewis) and for Portsmouth, South (Mr. Hancock). However, I want to make a comment in the wider context of defence procurement. I have said before in the House that value for money in the public sector means economy, efficiency and effectiveness. Economy means not paying £5 for something that can be bought for £3. Efficiency means getting the most out of resources without waste or duplication, while effectiveness is about delivering on goals and strategic objectives. I wholeheartedly agree with that, but in the case of the naval base review, I want to ensure that we do not sacrifice our effectiveness—our strategic military objectives—for the sake of some superficial perceived efficiency. It might look very attractive on the face of it to close one of our three naval bases to avoid duplication, but I think that I have demonstrated on many occasions, as have my colleagues, that that is a short-sighted, short-term proposal. I hope that the Ministry of Defence and the Navy board, especially, will consider all the factors involved in the costs of running our naval bases and not just the headline figures. In particular, they should consider the synergies obtained by co-locating the defence industry close to the naval bases and the partnerships that have built up between the MOD and industry.

When considering defence procurement, we are looking at very long life cycles. There can be up to 60 years between an initial concept and something going out of service, so we need long-term vision and
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planning for the future. We also need to ensure that there is maximum flexibility, which, in my view, means retaining the three naval bases that we have. That does not mean that we should leave things exactly as they are. We all know that there is huge scope for cost savings and efficiencies in our naval bases, but they should take place in the existing locations.

While such an approach is financially and militarily right, I also think that it is right for the people who live in the cities and towns that house our naval bases. This country owes a debt to cities such as Portsmouth and Plymouth. I have lived in Portsmouth all my life, as have several generations of my family before me, and I am conscious of my city’s vulnerability as a military target. It suffered disproportionate damage during the second world war and the rebuilding took years. Perhaps that is why I do not take national security and defence lightly. I do not look at the issue through rose-coloured glasses, but take a realistic and pragmatic view. I am always conscious that many of my constituents have put their lives on the line—and continue to do so—for us and our country, as have all our servicemen and women.

Earlier this year, I had the privilege of being accepted on to the armed forces parliamentary scheme with the Navy. As part of that scheme, I have so far spent three days at sea—and been seasick—on HMS Illustrious. I went up in a Merlin helicopter and sat at the controls of a Sea Harrier at RNAS Culdrose, and I spent two days looking at our submarine and nuclear deterrent capability at Faslane. All those visits were exciting and interesting, but the best part of all of them was the chance to sit and chat with sailors of all ranks and to hear from them what they wanted from the Government and the MOD. I heard loud and clear that we need a balanced defence force, with well-resourced conventional forces that are backed up by a nuclear deterrent. Like me, those men and women do not look at life through rose-coloured glasses. They see the reality of protecting our national security.

Like everyone in the Chamber, I look forward to a world with no nuclear weapons—I am totally committed to achieving that. However, that is not going to happen overnight, or by the UK unilaterally divesting itself of its nuclear weapons. That was why I supported the decision to start the process of procuring a replacement for our Vanguard submarines, which carry the Trident nuclear weapons.

I sat through the whole Trident debate. I had hoped to have the opportunity to make a contribution, but there were too many speakers. I am sure that all hon. Members will be relieved to hear that they will not be subjected to the speech that I would have made on Trident if I had been called. However, there are a few pertinent points that I would like to make, especially about the length of the procurement process and the consequences of delays in the process.

Mr. Arbuthnot: The hon. Lady touched briefly on the way in which the naval base review might affect personnel in Portsmouth. Before she goes much further into the nuclear debate, will she, as a Hampshire Member, consider the situation for the spouses of serving personnel? If the naval base were to move from Portsmouth, all the spouses based around Portsmouth who wanted to stay in their jobs might persuade their spouses to leave the services, which could have a very bad result for the future of the Navy.

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Sarah McCarthy-Fry: I could not agree more. Given that 50 per cent. of the entire naval married quarters are in the Portsmouth area, that would be a very real problem. The people serving on ships to whom I spoke said that if they had to move up to Scotland or down to Plymouth, they would leave the Navy. I am saying nothing to denigrate Scotland or Plymouth, but merely expressing the view of the people living in the Portsmouth area to whom I spoke.

In the Trident debate we discussed an amendment that advocated a delay in decision making, and my worry was that some hon. Members seemed to think that it was a risk-free option—a way of putting off a difficult decision. That seemed to me then, and it seems to me now, to demonstrate a misunderstanding of the process of defence procurement and the time scales involved. The latest possible in-service date for the Vanguard submarines is 2024, and we heard that that is already extending their life by five years. In my view, that is risky in itself, but we did not hear too much about it in the debate. The latest expert advice suggests that it will take 17 years to design, build and deploy a new submarine, and it does not take an arithmetical genius to work back and say that we need to start work on the new design in 2007.

Dr. Fox: Does the hon. Lady accept that one of the risks of delay is that we lose the skills base that we require to keep some of these capabilities in the United Kingdom?

Sarah McCarthy-Fry: Again, I find myself agreeing. It is most important that we ensure that we maintain that skills base because, if we delay and lose it, we could find that we were unable to build the submarines here in this country, which would be a great shame.

Mr. Kevan Jones: Does my hon. Friend agree that those on the Liberal Democrat Benches who publicly argued against Trident but voted for the delay would have jeopardised not only that skills base but the careers of many of her constituents?

Sarah McCarthy-Fry: I agree. The dangers inherent in that delay are very important.

Some people made the point that the Vanguard submarines took only 14 years to procure, but what was missed by many people is that that did not include the time taken to do the initial concept work, and that can easily take three years.

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