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17 Oct 2007 : Column 254WH—continued

The value of the export support team in our missions around the world is evidenced by the letter that has come into a number of hon. Members’ hands from Helen Liddell, the high commissioner to Australia, who eloquently sets out her experience in a mission of
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the value of such organisations and the way in which a country such as Australia buys into a relationship. She explains how a small manufacturer in any of our constituencies can go to Australia, go straight to the post, talk to the DESO representative—the first secretary—to understand how to do business with the Australian Government. It is vital to maintain that link, which operates through the military attaché network as well. I therefore hope that the Minister shares with the House the reaction of the key players to the Prime Minister’s decision.

We understand that two Ministers—Lord Jones and Lord Drayson—are very keen to make whatever comes out of this mess work. I pay tribute to them—I shall pay tribute, too, to the Minister for Employment Relations and Postal Affairs if he is prepared to give us that assurance—but things have not started very well. There are reports in the trade press that Lord Jones has described the Prime Minister’s decision as “bonkers”. Lord Drayson is alleged to have said, in the hearing of many officials, journalists and others at the farewell party for the director of DESO, Alan Garwood, that the Prime Minister’s decision was a great mistake. Such candour is to be admired. I hope that we hear more of it, and that it manifests itself in a genuine desire to sort out this mess.

Was the Secretary of State for Defence involved in the decision? If so, when did he learn of the Prime Minister’s tortured thinking? What is the involvement of the mysterious Baroness Vadera? I assume that she is the person to whom my hon. Friend the Member for Mid-Sussex referred last week. We are told that she has enormous influence over the Prime Minister and I think that the House deserves to know what her involvement in the matter is. What about the defence industry? We have heard from BAE Systems, Thales and others organisations. How many other companies have written to the Prime Minister, to the Minister or to others to complain? How many small companies in our constituencies have complained to the Government about the decision? The decision is much more important for them than it is for larger companies, which have large marketing departments and have experience all over the world. It is the smaller companies that account for a large percentage of the several hundred thousand employees affected—the people who need the support most.

What about the unions? What issues have they raised with Ministers? I said earlier that a number of them have not yet had the discussions with Government required under civil service rules. How many ambassadors and high commissioners were as bemused as Helen Liddell was in her letter? How many of them have contacted the Government? With open and accountable government, these matters should be put before the House. It is simply not good enough for the Minister to come here today and pretend—and I hope he will not do so—that he did not expect to be asked these questions. His civil servants will have told him what was said in the House last week. He will know that internal memos, minutes and documents relating to the matter are flying around Westminster and Whitehall like confetti.

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I am grateful to those hon. Members who could not attend this debate or, indeed, last week’s debate on defence procurement for providing me with a wealth of material from constituents and others closely involved with DESO. A great many people, with varying degrees of involvement, are so disgusted with the Government’s behaviour that there is no shortage of information on just what has been going on inside this dysfunctional Government. If we do not receive answers today, this matter will run and run and become a festering sore for the Government. I have already drafted a raft of written questions, and I shall table them formally after our debate if the House does not receive the answers that it deserves. The Freedom of Information Act 2000 offers tempting avenues if approach fails. I hope that the Select Committee on Defence, on its return from an overseas trip, will set in train a detailed investigation into the matter.

I hope that the Minister will not insult our intelligence by claiming that the decision will strengthen UKTI and put this vital area of economic and strategic importance on a better footing. I hope that he will not make the fatuous claim that it will somehow remove the clutter of another department from the MOD. DESO was one of the great success stories, precisely because it was part of the MOD as well as being at arm’s length from operational matters. We may attack the decision and the way in which it has been taken, but we must obtain answers for the future. What arrangements exist in UKTI to undertake the work currently being carried out by DESO? I am sure that Lords Drayson and Jones want to make the best of it, but a rumour is going round among colleagues in the know that whatever emerges in UKTI may have the politically correct title of “Defence Services Research Group.” I urge the Minister to tell us that that is not so, because it sounds like some quasi-intelligence organisation, and customers will not want to touch it with a bargepole. Most of all, the industry wants to know if support for defence exports will remain part of the MOD’s remit. I hope that the Minister will not pretend that the process was a well thought-through, strategic change to the machinery of government. It was a ham-fisted and poorly thought-through decimation of four decades of success.

9.57 am

David Taylor (North-West Leicestershire) (Lab/Co-op): Thank you for allowing me to speak, Sir Nicholas. I did not intend to speak, but the hon. Member for Newbury (Mr. Benyon) has provoked me to make certain comments.

There is a strong case for withdrawing Government financial support from the Defence Export Services Organisation. We are dealing with an internationalised arms industry. DESO was set up by the then Defence Secretary Denis Healey in 1966; it was then called the Defence Sales Organisation. There was at that time an identifiable UK arms industry, which existed primarily to supply the UK’s own armed forces, and a UK arms export would then have been relatively easy to identify and define. Today, there is no identifiable UK arms industry. Military industry is internationalised, with most equipment containing components and sub-systems from a variety of companies. The companies may have their headquarters in one country, but subsidiaries in several others.

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Mr. Spellar: May I put it to my hon. Friend that the British defence industry is very identifiable by the tens of thousands of skilled British workers who are working in British factories throughout the country and often at the cutting edge of technology, which is an important driver in maintaining Britain’s manufacturing base? I think that they could identify the defence industry quite well.

David Taylor: That is not the point that I am making. In an earlier intervention, I made the point that one job in 500 in the UK economy is linked to the British defence industry. I shall try to make my point in a different way. BAE Systems illustrates the trend. It sells more to the US Department of Defence than it does to the UK Ministry of Defence. Most of its shares are held outside the UK, and barely one quarter of its work force is employed in the UK. It would already be a US company had it been able to persuade one of the massive US companies to buy it. BAE Systems and the other major arms companies exist, of course, to maximise profits for their international shareholders and they have little or no commitment to the UK and UK defence.

Astonishingly, DESO has responded to that internationalising trend not by being more selective about which exports it supports but by broadening its assistance. In 2005, Alan Garwood, the head of DESO, was asked what determined whether his organisation would consider a particular export a UK one and thus entitled to DESO support. His reply is lengthy, although I shall shorten it, but it illustrates that the definition of an export worthy of DESO support, and by implication the UK Government’s and taxpayers’ support, is both wide and unclear.

Dr. Julian Lewis: I congratulate the hon. Gentleman, who did not intend to make a speech, on having such an extensive script from which to read. His general theme seems to be that DESO—or should I say the British defence industry, which is formally represented in DESO’s activities—is not worth all that much to the British economy. Does he accept that it is worth some £5 billion a year, and does that figure not strike a chord in his memory as being exactly the size of the present Prime Minister’s raid on pension funds when he was Chancellor of the Exchequer?

David Taylor: The figure that the hon. Gentleman quotes may or may not be correct. I do not think that what amount the former Chancellor took from pension funds is a subject for this debate.

When asked that question, Alan Garwood said:

Swedish fighter aircraft have received DESO support, as they

and exports by the UK subsidiary of the US-based Lockheed Martin might also qualify under that definition.

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Military exports are not unique in raising questions about the appropriateness of UK Government support for a multinational commercial enterprise. As the hon. Member for Newbury mentioned, the Export Credits Guarantee Department is holding a consultation on foreign content in which it proposes to address the problem with a formula based on percentage terms. In contrast to the ECGD’s approach, DESO’s UK test seems noticeably vague. It is unclear how it was developed, and the test is open to subjective decisions by DESO, which—particularly if there are competing bids—is left susceptible to lobbying.

I turn to second-hand sales. A major part of DSO’s work was to sell surplus UK armed forces equipment, thus making a return to the Ministry of Defence. However, two and a half years ago, the Disposal Services Agency, which is responsible for that work, moved from DESO to become part of the Defence Logistics Organisation, so the need to recoup MOD costs is no longer a reason for continuing Government support for DESO.

Should a private industry receive public subsidy? DESO co-ordinates most of the direct Government support for arms exports, provides marketing assistance and advice on negotiation and financing arrangements and organises exhibitions and promotional tours. The hon. Gentleman is quite right—the budget for operating costs is a relatively limited one, at £15 million or so during the last financial year.

As well as DESO’s assistance, the arms companies value the position DESO gives them at the heart of government. The head of DESO is always seconded from an arms company. DESO can argue a company’s case against other Departments and, through its explicit role of lobbying Ministers, is likely to distort policy making.

Mr. Spellar: In order to understand my hon. Friend’s argument fully, may I ask a simple question? Does he think that the United Kingdom should be exporting defence equipment or not?

David Taylor: I am quite happy for defence equipment to be exported by the UK defence industry. It has an appropriate part to play in countries around the world. There are some examples of exports going to regimes that should not be receiving UK arms by that or other means, but in general I am happy. With parts of it, I am not. I hope that that answers my right hon. Friend’s question.

Military exports undoubtedly bring commercial benefit to UK-based companies—I acknowledge that—but it is not the same as benefiting the UK economy as a whole. Taxpayers should not be in the business of subsidising private companies to help them boost their profits and share prices.

Mr. Gerald Howarth (Aldershot) (Con): I am grateful to the hon. Gentleman for reading out his brief from the Campaign Against Arms Trade. Perhaps he has not been briefed on this, but does he not accept that defence exports enable British industry to achieve economies of scale that reduce the unit cost of British defence equipment to the United Kingdom Government? In other words, defence exports result in direct benefit and cost reduction to the Government.

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David Taylor: That is an interesting hypothesis, but it is not necessarily borne out by the facts. I do not think that that suggestion is true in practice.

What would happen if the arms trade to certain regimes were scaled down? The many millions invested in that industry could be invested in others, such as renewable energy and transport, creating new and highly skilled jobs.

Mr. Ben Wallace (Lancaster and Wyre) (Con): I understand the hon. Gentleman’s feeling about the arms trade, and I respect it. It is interesting that he is here today to speak on the abolition of DESO. I have not yet seen either an early-day motion or an Adjournment debate in his name about the abolition—it happened almost without a press release—of the Defence Diversification Agency, whose job was to diversify the defence industry into the UK market. It is contradictory for him to come here and not mention that. It is part of the same issue that he has raised today.

David Taylor: That is a fair point. When I get back to my desk, I shall look to see whether there has been an omission or oversight leading to the lack of an early-day motion to that effect, but I am not sure whether the hon. Gentleman’s point is accurate.

The existence of DESO places the reputation of the Government and the UK at risk. Military industry ranks alongside construction as the world’s most corrupt sector. DESO’s close ties with and public support for military companies risks tainting the Government with allegations of corruption. There is quite a long track record of it. Back in the late ’60s and early ’70s, DSO officials turned a blind eye to corruption in UK arms sales to Saudi Arabia. More recently, before the al-Yamamah probe was dropped, the Serious Fraud Office interviewed Alan Garwood under caution. It is understood to have asked him whether DESO knew if payments made to Saudi officials continued after 2001, when the law was changed to make payments illegal that could be construed as bribes. I refute the point made in an intervention that DSO had no involvement in the al-Yamamah deal. It might have been a Government-to-Government deal, but DSO provided advice, support and consultation. Its fingerprints are all over that unfortunate deal.

Mr. Spellar: Why does my hon. Friend describe as unfortunate a deal that kept tens of thousands of skilled British workers in employment at the cutting edge of the technology industry, particularly in the north-west? What does that say to workers in the north-west?

David Taylor: When I described it as unfortunate, I was referring to the circumstances—the financial arrangements and the covert organisation that existed to push substantial sums into hidden pockets in Saudi Arabia and elsewhere. That is what is unfortunate—not the deal, the arms or the country receiving them but the arrangements surrounding the deal. I am sure that my right hon. Friend will want to contribute to the debate later, having worked as a Minister with some distinction in the relevant Department earlier in our Government’s time in office.

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I wish to make two further brief points. Military exports are often justified as a way of ensuring continuity of production, so that the UK’s armed forces can be supplied whenever necessary. However, exports can take precedence. For example, the first 24 Eurofighters for Saudi Arabia will be taken from those that were originally destined for the RAF. That is hardly continuity in supply for the UK’s armed forces.

Finally, one reason given for wanting the continuation of DESO—we shall see what happens after its demise—is that public support for military exports is based on defence diplomacy. However, the Saudi Arabia saga exposed the lunacy and fallacy of that argument. For all the Government’s desire to expand our influence around the world, the dropping of the SFO inquiry—perhaps the Minister will incorporate an answer to this point in his reply—shows clearly that the real power lies with the customer Governments and the supply companies. The interests of the Government and the taxpayer come a very poor third and fourth in that equation.

Although I respect the motives of the hon. Member for Newbury in wanting to debate the subject—I congratulate him on its timeliness and on his speech—the activities of DESO, its style and its involvement in numerous dodgy deals over many years mean that it is at last being consigned to the wastepaper basket of the defence industry. That is where it deserves to be. The UK defence industry will continue to thrive and expand, it will continue to provide jobs and advance technology, and it will continue to be a British influence around the world. It does not need DESO. DESO is a barrier to that; it is a brake, not an accelerator or a catalyst. DESO is going, and good riddance to it.

10.11 am

Mr. Nicholas Soames (Mid-Sussex) (Con): It is a pleasure, Sir Nicholas, to be under your chairmanship for a debate on defence, as no one has done more over the years to support the defence industry and our armed forces. I am pleased to contribute to the debate. It was initiated by my hon. Friend the Member for Newbury (Mr. Benyon), who rightly pounced on the matter as being of the first importance to our national life.

As far as I know, I have never seen the Minister before in my life. I understand from “Dod’s” that he was the last Prime Minister’s political secretary. Of one thing we can be sure: the last Prime Minister would not have behaved in this way about DESO—as the Minister will know. I put it on record that there can be no more inappropriate person to answer this debate than a Minister for Employment Relations and Postal Affairs. It is a farce that, on such a matter, the Government could put up a Minister who has had absolutely no interest in or responsibility for any of the decisions that we are debating today. I hope that the official channels will note that fact, as it deserves broader and wider recognition in the House.

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