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Westminster Hall

Wednesday 17 October 2007

[Sir Nicholas Winterton in the Chair]

Defence Exports

Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Roy.]

9.30 am

Sir Nicholas Winterton (in the Chair): The House is rightly concentrating on defence, with a debate in the main Chamber last week and another debate yesterday. The hon. Member for Newbury (Mr. Benyon) has secured an important debate here in Westminster Hall today.

Mr. Richard Benyon (Newbury) (Con): It is a great pleasure to serve under your watchful eye this morning, Sir Nicholas. I also welcome the Minister to his place. I suspect that the Ministry of Defence and the Department for Business, Enterprise and Regulatory Reform had a battle to decide which would reply to the debate. It is a matter of huge regret that the Minister’s Department lost but, nevertheless, in a personal sense, it is good to see him here.

The Prime Minister, in his leadership acceptance speech, said:

We all welcomed that statement. Today, we have an opportunity to hold the Government to account for what I believe is the classically bad decision to close the Defence Export Services Organisation and move its residual role to another Department. On 25 July—the day before parliament rose for the recess—the Prime Minister went very much against what he said in his speech by sneaking out a written statement of just 19 lines that brought to an end 40 years of successful Government support for our defence export sector. Some people will call me naive, but I hope for some answers from the Minister this morning about the closure of DESO.

I chose the subject of this debate carefully, as I want to point out how damaging the decision is, and what impact it will have on the future of defence exports. I want to know what was going on in the Prime Minister’s head—I think that we all do from time to time—that led him to do such damage to such a successful brand. And let us be assured: the brand is dead. Whatever arises from DESO’s ashes, the perception in the marketplace is that Britain is out of the game. The best people are leaving to work in the private sector and there is a general belief in the marketplace that the British Government want nothing to do with defence exports. I noticed how happy some organisations opposed to the arms trade were with the decision, and there was talk of parties being held after the announcement. However, I submit that their joy should be short-lived.

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Dr. Julian Lewis (New Forest, East) (Con): One group of people who, I am sure, are delighted at the decision are members of the Liberal Democrat party, who have always been enemies of defence exports, no matter how legitimate and proper. Has my hon. Friend any idea why there is not a single Liberal Democrat present in the debate—not even their spokesman?

Mr. Benyon: I suspect that they have other things on their mind at the moment, but they should not delight in the decision. Perhaps they mistakenly believe that stopping arms sales and defence exports from this country will somehow improve the situation around the world. Countries such as Russia and China are salivating at the prospect of expanding their defence export sales at our expense. The consequence will be an expanded manufacturing base in those countries which, unlike us, do not care much about the question of to whom they sell arms. That is the great mistake of the Liberal Democrats and others opposed to the arms trade.

David Taylor (North-West Leicestershire) (Lab/Co-op): Does the hon. Gentleman acknowledge the fact that it is possible to rejoice in the imminent demise of DESO without necessarily being against defence exports as such, and does he accept the estimate made by many reputable economists that the section of the economy linked to defence exports is less than 0.2 per cent.—less than one job in 500? That is not exactly a body blow to the British economy, is it?

Mr. Benyon: That is one of the most dangerous and complacent views that I have heard on the whole issue. I have constituents working for small companies of 25 people that depend on DESO when they go abroad. Those companies do not have a large marketing department. They do not know how the economy and marketplace work in some countries. They go straight to the post. If the hon. Gentleman thinks that £5 billion a year of arms sales and defence exports is insignificant to the economy, I urge him to consider the tax take from those companies, and what the effect will be on hospitals, police and public services in his constituency.

The debate is intended to draw out from the Minister important answers to important questions: why the Prime Minister took the decision, and why it was dealt with in such an underhand and incompetent way. The decision came only a few days after the Prime Minister called for government to be more open and accountable. I cannot think of a decision that was more closed or more designed to avoid being held to account. It came less than 10 days after an advertisement appeared in The Sunday Times advertising the post of director of DESO. Why was the decision made without any provision for what would fill the vacuum created by DESO’s demise? At the very least, one would expect the most basic measures to be in place for what was to come post-DESO.

Internal briefing documents for staff about that extraordinary decision are flying around Whitehall and Westminster. They are in question-and-answer form, and some of them have fallen into my hands and my colleagues’ hands. The answer to one question is:

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Another question asks:

The answers states that that is “to be decided.” The answer to the question of whether staff will

is that that will be

Another question asks:

Importantly—and this relates to the point made by the hon. Member for North-West Leicestershire (David Taylor)—the answer, again, is that that is “to be decided.” The question of what will happen to the DESO first secretaries overseas, too, is “to be decided.” What an extraordinary decision from a Government who claim to be competent, open and accountable. How extraordinary to make a major change to a Department and to have nothing in place—nothing; a vacuum.

Why was there no consultation with industry? In a debate last week, several Members quoted letters from large companies—one was from the managing director of BAE Systems—and companies such as Thales. Many other letters in circulation have come to my attention. Why was there no consultation with the unions, as required under civil service codes? For the past few days, I have been talking to the unions, and I can find no evidence of any formal briefings, discussions or consultations about what transfers will take place or under what conditions DESO employees will be employed in any new organisation. More importantly, why was there no consultation with Ministers? I think that the House deserves to know when the Secretaries of State for Defence and for Business, Enterprise and Regulatory Reform were informed of the decision. I would that that happened on or around 25 July, and that it was as much a surprise for them as it was for the rest of us.

Why was the decision taken in a manner designed to prevent proper parliamentary scrutiny? The House, the industry and its hundreds of thousands of employees, as well as the dedicated staff at DESO, deserve answers. I do not wish to prejudge the Minister, but I must warn him that it would be contemptible if in his reply he simply dished out the usual blandishments and non-answers about how DESO has done excellent work in the past. We know about that, and accept that it is a remarkable organisation.

David Taylor: The announcement did not relate to the end of the British defence industry; it related to the imminent demise of DESO, which employs about 450 staff in London and overseas, including 200 who work on Government-to-Government contracts. If a large employer of, say 1,000, 2,000 or 5,000 employees had their operating base closed by Government edict, the hon. Gentleman would expect a statement to the House and consultation at the highest level, but we are talking about 450 jobs, and those people will be readily redeployed in other areas of Government industry.

Mr. Benyon: I hope to prove to the hon. Gentleman that his view is mistaken. It is of fundamental importance that DESO should remain part of the
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MOD. He is right: we are talking about only 400 or so people, but there are much wider implications for the economy as a whole.

Mr. Crispin Blunt (Reigate) (Con): I congratulate my hon. Friend on securing the debate. The intervention from the hon. Member for North-West Leicestershire (David Taylor) betrays a lack of understanding of the specialist requirements of defence exports, which are an extremely complicated area of business to manage. They are of fundamental importance not only to our economy, but to the armed forces, because a successful British defence export base supports our forces and ensures that they have more kit than they would otherwise have for the requisite defence budget.

Sir Nicholas Winterton (in the Chair): Order. Interventions should be brief, so the hon. Gentleman should bring his remarks to a fairly speedy conclusion.

Mr. Blunt: I am grateful to you, Sir Nicholas. I congratulate my hon. Friend on securing the debate and I look forward to the Minister’s reply.

Mr. Benyon: I am grateful to my hon. Friend for putting more eloquently than I could have done the argument I was about to make in response to the point made by the hon. Member for North-West Leicestershire.

I hope that the Minister will not claim that defence exports would be better served by operating within UK Trade and Investment. The Minister knows that nobody outside the Prime Minister’s narrow circle and one or two Labour Back Benchers believes that that is the case. To take up the point made by my hon. Friend, as of this weekend, the DESO website—I suspect that the announcement will not be there in a few hours’ time—says with a pride which, I am sure is matched by that of the dedicated DESO staff, that it gives

It says that it supports the “MOD’s defence diplomacy efforts” and its “partnerships and alliances”. It says that it offers “security building measures” and promotes

Those are four good reasons—key strategic reasons—for keeping DESO, or that Government discipline, in the MOD.

The Government support all exporters through their agencies, but defence exporters need support from the MOD, mainly because they sell to overseas defence ministries. DESO’s website states that it is


Mr. Nicholas Soames (Mid-Sussex) (Con): My hon. Friend should remember in his excellent speech that the point of DESO was that it was separate from the various dud organisations that have promoted—allegedly—British exports overseas under Governments of both parties. Such organisations were monstrous bureaucracies, but DESO was lean, extremely fit, and accomplished. That is why it attracted the Prime Minister’s opprobrium.

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Mr. Benyon: My hon. Friend has huge experience in this field and I hope that he will contribute more to the debate, but he is absolutely right. We are talking about a highly technical economic activity and it is vital both that it is linked to service personnel, who understand the equipment that DESO helps to sell, and that there is hands-on use of the equipment in the field.

The DESO website states that its activities

My hon. Friend is right that DESO is a lean organisation. It does not operate under the leaden hand of departmental organisations that seek to help business but which sometimes have the opposite effect.

DESO has 460 staff worldwide and about 200 in the UK—that number is falling rapidly—and has an annual net budget of £16 million, which is paltry in terms of MOD spending. However, it assisted with £500 million-worth of sales last year and contributed massively to the value of defence exports, which averaged £5 billion. The DESO brand is trusted around the world, which has helped to place Britain second only to the United States in defence exports.

David Taylor: The hon. Gentleman said that DESO is a trusted brand. Does he believe that that trust was damaged by the organisation’s involvement in the al-Yamamah deal with Saudi Arabia? That deal inflicted its most recent casualty yesterday when the chief executive of BAE Systems departed early.

Mr. Benyon: The hon. Gentleman ought to do more research. The MOD Saudi Arabian projects organisation—MODSAP—handled that deal on a Government-to-Government basis. The deal was not as he alleges. I shall address his point more broadly, because I believe that the al-Yamamah deal is partly responsible for the bizarre decision on DESO.

Mr. John Spellar (Warley) (Lab): Would not a deal such as al-Yamamah still be dealt with by the MOD under the new arrangements? Government-to-Government deals would still be the provenance of the MOD and separate from company-to-Government deals, which would be dealt with by the Department for Business, Enterprise and Regulatory Reform.

Mr. Benyon: I hope that the right hon. Gentleman is right. We are talking about Government-to-Government deals, which were not part of DESO’s remit and will not be part of what we are led to believe will follow DESO.

Dr. Julian Lewis rose—

Mr. Benyon: If my hon. Friend will allow me, I will give way to him once I have completed my point.

Was that daft—I use that word carefully—decision taken, as my hon. Friend the Member for Mid-Sussex (Mr. Soames) claimed last week, as

We need an answer from the Minister. Was the decision made to appease to some faction within the Labour party? In answer to the point made by the right hon. Member for Warley (Mr. Spellar), I wonder whether it
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was a classic piece of new Labour spin. Did the Government perceive a problem with the BAE Systems al-Yamamah deal, and did they wish to park it? Getting rid of DESO means that they can say to the Liberal Democrats, or any organisation with which they may wish to make deals, that they have dealt with the issue. It does not matter that DESO was not part of the deal or that the issue was not about DESO. The decision is hugely damaging and wrong, but the Government have taken it.

Dr. Lewis: The hon. Gentleman has made the point that I wished to make a few moments ago. Surely this is a classic piece of horse trading and gesture politics. The Government are on the back foot, as their own left wing and the Liberal Democrats are baying about the dropping of the BAE Systems case. The decision is a sop—a piece of red meat thrown to the lions, irrespective of the merits of the case.

Mr. Benyon: My hon. Friend who, like my hon. Friend the Member for Mid-Sussex, has great experience in these matters, is absolutely right. To mangle an analogy, the decision is like using a sledgehammer to miss a nut.

Sustaining a capable and flourishing UK defence industry base, as my hon. Friend the Member for Reigate (Mr. Blunt) said, offers the UK a strategic advantage. It allows us to depend on quality, home-grown procurement for our defence needs. It helps keep down the cost of UK defence procurement by creating competition between domestic and overseas suppliers and generating economies of scale. It also helps to co-ordinate directly our armed forces’ urgent operational requirements in the field, which feed through into our defence exports. I am talking about real operational experience from our armed forces. Keeping that operation in the MOD strengthens relationships, with positive consequences for both military and foreign security policy objectives. The Government ignore that point at their peril. It is not I who has thought this argument up. It is all there in the Government’s defence industrial strategy 2005, which states:

I ask hon. Members to consider for the moment a small African country—Botswana, let us say. Some people in the House believe that it is entirely wrong that a poor country such as Botswana should spend money on arms, but it has a right to defend itself. It has a right to have a small number of armed forces, and it may wish to take part in African Union missions to places such as Darfur. Where should Botswana go? Its first port of call should be the country with which it has a relationship—Britain. In the circumstances, I foresee that Botswana will believe that there is no value, no relationship, no future in coming to a country such as Britain, and it will receive a very welcome invitation from countries such as China, Russia or Israel. Many of those countries have very different attitudes towards arms sales from us.

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