Defence and Security Procurement

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Nick Harvey: I will not detain the Committee. Suffice it to say that this proposal is a welcome development in the European single market. For the greater part of the EU’s history, defence contracts have largely operated outwith the remit of the single market, and it is welcome and long overdue that we remedy that and bring them within the single market’s scope. The UK has far more to gain than it has to lose, and we should approach the new era with confidence.
The UK, as is widely recognised, has one of the most open defence procurement policies in Europe and competes strongly in world markets, in considerable contrast to some of the other member states. Our record in putting our defence contracts up for open competition stands favourable comparison with that of other member states, so the opportunity to get into the provision of items for other member states would considerably benefit our industry.
The European Scrutiny Committee has done a useful job over the past year or so in picking up some of the inherent weaknesses in the measures as originally drafted, and the Government have made considerable progress in addressing many of those. For example, new exemptions for intelligence activities and for sensitive information that could threaten national security are encouraging developments. There is no particular cause for alarm regarding the package that seems to be evolving.
Mr. Jenkin: I am grateful for the hon. Gentleman’s confidence. Has he seen the draft document with the new wording, which the rest of the Committee has not? He shakes his head. How can he therefore give such an assurance?
Nick Harvey: I cannot give an assurance; that is not my role. However, from the documents I have seen, what I have heard and what the Minister has reported, as well as what the Minister in the other place has said, it appears that progress is being made. We will not, as the hon. Gentleman rightly says, know that for certain until we see a final text, but it strikes me that the debate is evolving sensibly and is a satisfactory outcome to the issues raised. We should be grateful to the European Scrutiny Committee, and I believe that the document has now had copious scrutiny.
I am not sure whether I share the Government’s view on subcontracting; I am not convinced that our defence industrial strategy has been a great boon to our SMEs. The overweening power of the prime contractors on some of the contracts has disadvantaged SMEs, and the Government may have been too ready to take the word of the primary contractors in that we should not be making provision in European measures for SMEs to get a guaranteed share of the work. In the United States, it seems that SMEs get a far greater share of the work than they do here under our defence industrial strategy. If I were to take issue with the Government, it might be about that. As a general principle, however, this is a welcome development. It is overdue, and subject to our getting satisfaction on the remaining points of dispute, it should be welcomed.
6.20 pm
Mr. Jenkin: My thanks to you, Mrs. Dean, for how you have conducted the Committee’s proceedings and listened sympathetically to our points of order, albeit you made a ruling that was not entirely to our liking.
I wish first to articulate the sentiment that
“we do not believe that the benefits that might result from introducing a specific defence procurement directive are sufficient to offset the drawbacks. In particular, an additional regulatory burden on top of those already in place is unlikely to support our aim of making defence markets more effective and efficient. We do not, therefore, support the development of a new directive at this time.”—[Official Report, European Standing Committee B, 8 February 2005; c. 5.]
I urge the Minister to listen to those words, because they are not mine. They are the words of a former Defence Minister, the right hon. Member for East Kilbride, Strathaven and Lesmahagow (Mr. Ingram), who spoke in this Committee on 8 February 2005 and set out the Government’s opposition in principle to this directive.
It is worth reminding ourselves that, once again, the Government have been dragged from a position of total reluctance to one of support, for a whole lot of obscure reasons that we will never know about. We all know that the legislative process in the EU is one of logrolling, as they call it in the American system. We push one end of the log, somebody else pushes the other, and the only way that the log moves forward is if we back something that we do not want and they back something that they do not want, so that we can get something else.
The proposal might be on the price of fish, agricultural policy or some foreign policy position, but it all gets mixed up in the vast multilateral process that is led by the United Kingdom Permanent Representation to the European Union. We all know that, even if the Ministry of Defence still did not want this directive, as was expressed on 8 February 2005, it would be told by the Foreign Office, on the advice of UKRep, to withdraw its opposition and concerns about the directive and let it through. The Foreign Office probably has negotiating priorities that it regards as more important.
Let us be clear about the likely effect of the directive. I am perfectly happy for the Minister to turn on a sixpence and insist that there is only a one in 10 billion chance of a case involving sensitive information that we wanted to keep from the European tendering process going before the European Court of Justice. I simply put it to him that he has not excluded the possibility. His attempt to reassure us might reflect a little hyperbole in the number of noughts he added to the probability of that eventuality, perhaps to try to give us more assurance than may be justified.
Once again, we are in the familiar position of Ministers assuring us that certain things will not happen, to encourage people to support things that they would not otherwise support. In the fullness of time, they often do happen. I remember the debates in this very room on the Transport Act 2000. We were told that the provisions on the free movement of capital would not apply to golden shares in National Air Traffic Services. They do, as that was overturned in the European Court. The Minister involved has since privately apologised to me for failing to take my legal advice on the matter.
It is worth setting out the truth of what the directive does. It states that it
“shall apply to public contracts awarded in the fields of defence and security for:
(a) the supply of arms, munitions and/or war material, referred to in the Council Decision of 15 April 1958”.
Let us remind ourselves what those are. First, “Maintenance and repair services”. It seems to me that every contract—every partnership arrangement we have on any long-term big defence programme—will be brought within the scope of the directive. Secondly, “Armoured car services” and “Computer and related services”. Is there a single piece of sophisticated military equipment that does not have service contracts related to computers and software? Thirdly, “Research and development services” have already been referred to by my hon. Friend the Member for Westbury.
Fourthly, “Accounting, auditing and book-keeping services” may seem innocuous, but they provide a lot of information to those carrying out those services. Fifthly, there is “Management consulting services and related services”. I do not how this Government move in the Ministry of Defence without taking advice from management consultants. For management consultants to do an effective job in the Ministry of Defence, they have to see all the nooks and crannies, warts and all, so there is sensitive information related to that.
Next is “Engineering services”. Is there one major equipment programme going through the Ministry of Defence that does not involve engineering services? Then come “Integrated engineering services”, “Related scientific and technical consulting services” and “Technical testing and analysis services”. These are the sinews of our defence being required to be put into a public tendering process.
Let us also be clear that the decision to exempt any of these contracts on the basis of article 296 is, as the Minister said, to be taken case by case. Let us also be clear what the directive says about how those case-by-case bases shall be arrived at. It says that
“non-application of the Directive should be proportionate to the aims pursued and cause as little disturbance as possible to the free movement of goods and/or the provision of services.”
So it is clear in the drafting—unless this is something the Minister has managed to get changed—that the bias is to be in favour of letting contracts through this European system, with all the lack of advantage for the British Government and for the UK that the Minister advertised in debate in 2005.
I submit that the approach of this directive is wrong. We should be exploiting our bilateral relationships rather than diluting our potential for those by getting into a long-term commitment to multilateral relationships.
We know that this directive is part of a longer-term trend and that the European Defence Agency has set itself up as a procurer of military capabilities. That is what is set out in the charter of the European Defence Agency. Incidentally, those capabilities could eventually refer to more obvious military capabilities, rather than just technical or equipment capabilities. It sees itself as—and is—an embryo Ministry of Defence. Thankfully, our Government, like every other Government in Europe, are starving this new body of much in the way of funds so that it is pretty ineffective. We should be concentrating on not handing over decision-making power on defence procurement to the European Union, which I always used to support as something to do with free trade and co-operation rather than a single European defence policy, but our bilateral relationships and exploiting our technological advantages, which are massively reinforced by the superb professionalism and dedication of our armed services. We should concentrate on interoperability, particularly NATO interoperability.
The most depressing aspect of the European defence procurement agenda is duplication, which the former Prime Minister, Mr. Tony Blair, set himself against when the St. Malo declaration was first announced on the Floor of the House, even though the—
The Chairman: Order. I remind the hon. Gentleman that we are taking about procurement.
Mr. Jenkin: Indeed, Mrs. Dean. I am talking about the duplication of weapons standardisation. The function of weapons standardisation is being duplicated from NATO to the EU—wastefully, bureaucratically and ultimately, through directives such as this, restrictively. It has the potential to limit our procurement options. It is clearly designed to create a European defence identity at the expense of the national identities, which it would be in our national interest to develop. It also duplicates one of the very functions that NATO was set up to pursue.
Dr. Murrison: My hon. Friend may be aware that NATO spent many years trying to agree a common code for stock numbers and part inter-compatibility. That was a very painful process. I served in the armed forces during that time; it was extremely difficult to get that going and I saw the huge problems that it caused. Does he agree that if the EU is to embark on that self-same trail, it will be massively wasteful and consume a huge amount of resources to no particularly good outcome?
Mr. Jenkin: My hon. Friend has trumped me. It would be to no particularly good outcome, because generally, when we try to force ourselves into these multilateral arrangements, the sum total of the parts is worth rather less than the individual components.
Finally, I wish to return to article 296, which provides limited protection that has been generously interpreted by a consensus of member states since 1958. Article 296 (1)(a) states that
“no Member State shall be obliged to supply information the disclosure of which it considers contrary to the essential interests of its security”.
This directive is clearly intended to subvert the protection that article 296 has hitherto provided to us on the basis that somehow it provides a pretext for anti-competitiveness and allows other countries perhaps to behave in a protective way, which may not be in their own interests. It may damage export opportunities of our own.
We have been told that we already have the most competitive and open market in other fields such as health and safety at work, and financial and insurance services, and that this directive will open up the European market so that British insurance companies, British financial services, British agriculture and British food will be sold into other European markets. But it never works like that, does it? We should have learnt from experience that opening markets is a long and painful business. In the field of defence procurement, there are too many risks and too few advantages for us to be pursuing that.
I agree with what was said by the Minister in 2005. How is it justified for this Minister to stand there insulting Opposition Members by saying that they are somehow unbalanced in their judgment when, by voting against the draft directive, we are doing no more than articulating the sentiments that a Minister in this Government articulated a short time ago?
6.35 pm
Mr. Davies: We have certainly had a lively debate. The Government always listen carefully to debates in this Committee and consider whether we can take on board some of the wisdom expressed in the proceedings to further the national interest during negotiations in Brussels. I am sorry that the occasion has been dominated by some extraordinary Opposition statements. They expressed some quite fanciful fears about the purport of the directive. I fear that until now, the Opposition—well, the Front Benchers anyway—have not understood what the directive is about. I hope to make clear what it is about.
The hon. Member for Westbury reverted to asking why NATO is not involved with the matter and why the directive does not deal with NATO. The measure is nothing to do with NATO; it is to do with the single market. Does the hon. Gentleman seriously think that we should bring the United States and Canada into a directive that has as its sole purpose the creation of a special regime, or derogation, from another directive—the public procurement directive—that is part of the single market procedure? The United States and Canada do not have the faintest intention of joining the single market. Such a suggestion is mind-bogglingly inappropriate and shows that the hon. Gentleman has not understood what the directive is about. I am sorry about that. I hope that he thinks about the matter carefully because he will find that I am right. It concerns only the single market.
Despite the apparent intention of the Leader of the Opposition to give his party a slightly more reasonable appearance, it is clear that my judgment of the modern Conservative party is right. Some of the atavistic, anti-European obsessions and conspiracy theories are just as alive today as they have ever been. The directive has nothing to do with giving the EU a political role. There might be other discussions about the European security and defence policy, but they have nothing to do with the directive, which is designed to clarify a regime that has existed since 1957 or 1958 under article 296.
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Prepared 25 November 2008