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I am very much in favour of the valued Scottish defence sector having the following: a competitive taxation advantage, decision making close to production, and guaranteed full value of domestic defence spend, whether direct contract or through offset, which does not happen in the UK. I am, of course, also in favour of the Scottish Parliament making decisions on all these policy areas. Members have rightly scoffed at Parliaments or powers elsewhere making decisions about defence policy
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as it impacts on, from their perspective, the United Kingdom. I am in exactly the same position: I think it frightfully odd that a Parliament 550 miles away from my country makes decisions about our defence and procurement policy—but I have no doubt that that will change for the better in the years ahead.

A Scottish Parliament and Government making decisions about defence procurement will allow us to continue with shared UK programmes where that makes sense and is properly managed, and to provide alternatives where that is not the case. It must be in the interests of the MOD in London to partner with neighbouring nations interested in making bulk purchases of expensive pieces of equipment, thereby bringing down the unit cost; surely no Minister in Whitehall would gainsay something like that. However, if in Scotland any procurement projects were not in either the taxpayer’s interest—we have heard a litany of them today—or the national interest, it would make eminent sense for Ministers in Scotland to be able to decide not to buy into them. However, so long as Scotland does not have the power to make such decisions, we will go on contributing to the UK Treasury, and throwing good money after bad in many procurement policy areas.

I would like to conclude by turning to an area that has not been discussed, but which will be of growing importance: satellite and space technology. I do not need to talk at length about the military applications, as they should be obvious to anybody who understands anything about these matters. However, of particular interest is the fact that we are only a few short years away from commercial space flight operating from the UK. There are the beginnings of a significant satellite sector in the UK, and I greatly encourage the MOD to look as closely as possible at this.

I must declare an interest: the leading, preferred site for the launch of commercial space flight in the United Kingdom is Lossiemouth. [Interruption.] I am glad to have such vocal support from right hon. and hon. Members on both sides of the House. I had a successful meeting with Lord Drayson a few weeks ago, and I very much sensed from that meeting that the UK Government are seized of the opportunities that that technological development offers. I hope that the Under-Secretary of State for Defence, the hon. Member for Grantham and Stamford (Mr. Davies), will take forward the development of space technology and commercial space flight from a site in the UK, wherever that site may be, although I of course believe that Lossiemouth is the best place for it. That development really would afford a whole range of options to the defence and aerospace sector, and it is worth pursuing it before other countries get there first.

8.45 pm

Mr. Ben Wallace (Lancaster and Wyre) (Con): It is certainly a pertinent time to have this debate, just a few days before the Budget. Our armed forces face an incredibly high tempo of operations; they are probably more overstretched than they have ever been. At the same time, their equipment perhaps faces the prospect of basically being worn out. Some of the equipment in the field today has been there not for weeks or months, as was the design in some cases, but for years.

This Prime Minister is no different from many of his predecessors in sometimes failing to recognise that defence costs. So do defence deployment and time. The Ministry
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of Defence is often up against it when it comes to budget. I am acutely aware of the history. Historically, we have always tried to play catch-up with the threat. I would like to blame the Labour Government for finding themselves in that predicament, but it is not a new phenomenon. For centuries we have invested in the wrong technology, or had troops in the wrong part of the world when a threat has appeared elsewhere. We always do our very best to catch up.

As both a former soldier, and a former civil servant who worked briefly at the Defence Evaluation and Research Agency before it became QinetiQ, and then at QinetiQ, I have experience of both sides of the coin. Having served, I have needed equipment as an infanteer and in the armoured infantry, as a Warrior commander. However, I have also been involved in trying to get money out of the MOD and in supplying the equipment to the front line. I am aware of the tremendous effort made in the MOD by officials, members of the armed services and indeed Ministers to try to get resolution to the problems that our forces face daily.

One thing that we can say about the MOD is that historically, under all Governments, it has been a can-do Ministry. When I meet Ministers who have been in the Ministry of Defence and have then gone to other Departments, they nearly always say to me, “I could teach them a thing or two in this Department, with what I have learned in the MOD. I’d have the MOD running half of Whitehall.” I often hear Ministers saying that—and I hear it just as much from the Government Benches as from my party’s Benches. We should not forget in today’s debate that there are hundreds of successful stories of defence procurement. It goes on all the time, producing good kit for our soldiers, and allowing our armed forces to do their job and to maintain their standard, often in the face of the enemy, although they are now under greater pressure—I wish it was not so—and although there are strained budgets.

My right hon. Friend the Member for North-East Hampshire (Mr. Arbuthnot) raised the issue of the Treasury. We are always calling on our Ministry of Defence to reform—to reform how it procures its equipment, or how it deploys its assets or forces—but we seldom hear about the Treasury being forced to reform. Far too often, extra expense or waste in the MOD is caused by the Treasury’s insistence on short-term measures being taken in the defence budget, rather than engagement in understanding the long-term needs of defence procurement.

There are a number of examples; the private finance initiative is a good one. Treasury figures that I eventually managed to get hold of show that by 2015, 4.5 per cent. of the whole defence budget—not just the capital budget, but the capital and revenue budget—will be taken up by PFI payments for a range of projects. That is a huge figure. Some £1.7 billion a year will be spent on paying off the mortgage broker, effectively. The chart given to me by the Treasury covers the next 32 years; I will have long left the House by then. I suspect that some of us will be in our boxes by that time. That is a long mortgage—my mortgage is only 20 years—and we have to ask what we have locked ourselves into.

Another example was the time when the MOD wanted to buy four C-17 heavy-lift aircraft and the Treasury said that it could not buy them and would have to lease them. Some £769 million was spent leasing them for
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five years, after which the MOD was allowed to buy them at the original offer price of £200 million. If that is not an example of a huge waste of money caused by Treasury demands, I do not know what is.

We have to insist that the Treasury accepts some reform. That is easy to say, and I am sure that the door would be slammed in my face, but I want to recognise the efforts that Defence Ministers in this and previous Governments make in day-to-day battling against the demands of the Treasury.

My specific warning in that area concerns tranche 3 of Typhoon. In an intervention on the Minister earlier, I said that when we failed to take decisions about tranches 1 and 2, it cost the taxpayer £100 million in penalty payments. We dithered over the decision, production stopped and the contract meant that we had to pay compensation. Such penalties also exist for tranche 2 to 3. The Minister did not want to speculate, but he will know the likely cost if we do not make a decision on tranche 3 by May, or if the Germans fail to make a decision by the end of the year. That will be money wasted. The Government may be looking forward to blaming the Germans—a familiar pastime for many in this country at some stage—but they cannot say, “We have had to cancel tranche 3, but it’s the Germans’ fault—they have had an election and decided to delay.” That will not be an acceptable excuse, because the Government have enough power within the consortium to achieve some resolution and push ahead.

There are real procurement challenges ahead in the next few years, not just in the long-term strategy for our armed forces and our position in the world, but in refurbishing the equipment that we already have and that is wearing out. My hon. Friend the Member for Aldershot (Mr. Howarth) and I recently visited Congress. The US army has an office there, and the US colonel we met told us that he had 900 tanks coming back from the Iraq war that needed refurbishing. The challenge for his budget was to restore them to useable condition, let alone replace them with a new model. Such refurbishment will also cost us a lot.

We will have to make the decision on all the urgent operational requirements—the UORs—as to whether we absorb them into the main defence budget and our defence infrastructure. For example, all the Mastiffs and other vehicles bought for operations in Afghanistan are one-off purchases at the moment, and the decision has not been taken about whether to bring them back and make battalions out of them or to give them to the Afghans. If we bring them back, that will take a large chunk of the budget. In one of the Defence Committee’s excellent reports last year, it identified the proportion of UORs that had been brought into the main core of the MOD, and it was only about 5 to 10 per cent.

The biggest challenge in procurement of services will be post-conflict welfare—the welfare of our soldiers who, like their equipment, may be worn out. Dealing with the mental stress they face will mean the procurement of Army medical services and Combat Stress-type initiatives.

From the history of procurement, we must learn that we have to insist on flexibility. The point was made by my hon. Friends the Members for Mid-Sussex (Mr. Soames) and for North Essex (Mr. Jenkin) that the debate on the super-carrier is not about how much money we should
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spend or even whether the Navy should have one: it is whether we are reducing the flexibility of our armed forces by putting all our eggs in one basket—or 32 airplanes on one piece of metal in one part of the world, as opposed to a more flexible option.

When we cut off our flexibility, we get stung further down the line. We withdraw ships from certain parts of the world, and suddenly drugs trafficking across the Caribbean goes through the roof and the next thing we know we have drugs on our streets. Flexibility will see us through these periods with smaller and ever-decreasing armed forces, because that is how we will be able to plug into our closest ally, the United States, and into Europe.

There are two programmes that I want to mention that need examining within our current budgets. They are perhaps unnecessary—some have been talked about already—or could do with significant improvement. The first candidate for cancellation is the A400M programme. In 2003, with a host of European nations, we set about the purchase of a medium-lift capability aircraft. One reason that we did that was that that aeroplane was built around the concept of the armoured FRES vehicle. We opted for the 23 tonnes lift capacity, while the Germans went for the 26 tonnes capacity. It would be able to fly the new FRES utility vehicle around the world to a medium range—a similar range to that of a Hercules. There is no FRES utility vehicle—I will not hold my breath for it—and it is starting to look like there is a gap.

Why do we need a medium-lift capability? We have the C-130J Hercules, which has only 30 per cent. less payload capability than the A400M, at about 48,000 lbs rather than 65,000 lbs. It has the same range, it is tried and tested and we run 25, already. We can use the same crews and will not need to retrain a whole load of people to fly a European A400M. The C-130J has flown and it is being made. The only photograph that anybody will see of an A400M is of the one that they had to tow out of the factory in Spain because the engine did not work. It still has not flown. We are going further along a path that leads to an expensive project, with an upfront purchase of £2.6 billion and a through-life cost over a decade of about £1.8 billion, depending on the exchange rate.

The A400M is an expensive aeroplane that is untested, that will require the retraining of some of our crews and that is yet to fly. The only defence for continuing to purchase it that I can see at the moment came from the French Defence Minister when he gave evidence to the Senate in March. He said, “We have to have it, because we must have some competition for the Hercules.” That was the only answer.

Mr. Hoyle: Of course, a lot of jobs and skills come on the back of the A400M, because of the technology in Barnoldswick and the fan technology. The hon. Gentleman is talking about the aero engine, which is a joint venture between Rolls Royce and Snecma. Of course, there have been problems because we are putting it together—it is a turbo prop engine—but the fact is that it gives us a capability. We are also hiring in a lot from Antonov at the moment. We are still using Antonov; does the hon. Gentleman not agree that we ought not to give up on UK jobs quite so easily?

Mr. Wallace: Forgive me, but what I do not want to give up immediately is our forces. Our forces will experience a capability gap in medium and lightweight cargo and
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trooping because the A400M is already two years late. It was due to be delivered in 2011 and will perhaps be delivered in 2013, and it looks likely that it will not even make its fixed cost. The only other plea to keep it going has come from EADS, the German-French conglomerate defence company, which has said, “We might go bankrupt if you don’t carry on buying it.” I do not see any real long-term need for the A400M, especially as if we cut it now there will be few penalties—we have a three-month moratorium before we have to make a decision. Let us cancel it now and get some C-130Js and some C-17s. Let us get on with this, save the money and get the troops the equipment that they need. This is not anti-European, but the A400M has not worked and it is not going very far.

The other programme that should be further considered—it is harder to get the figures—is the future strategic tanker aircraft. It is a £13 billion private finance initiative project over 27 years. By 2011—for our £480 million a year defence budget for those 27 years—we will get not a plane. We do not buy the planes at the end. Not only that, but from the PFI deal on which we have embarked we will get eight planes on call at any one time with a further six should we need them. Those other six will apparently operate as passenger planes for charter holidays. There are so many of them that, in an economic downturn, it will be possible for the consortium to raise the money that way. There is already a glut of Airbus airframes around the world—second hand and so on—so the consortium will manage to work out how to raise enough revenue. The worst thing is the sweetener for the PFI project from the MOD: we handed over the monopoly for all air-to-air refuelling capability for that 27-year period. Should we decide that we want to refuel our next generation of helicopters in that way, which the Americans often do, we cannot do so. Should we want to utilise, if we buy the A400M, the refuelling plumbing fitted in the aeroplane, we cannot do so. If we buy the A400M, it will be delivered from the production line with the ability to provide and receive air-to-air refuelling, but we will not be allowed to switch it on, because we have handed over that monopoly to a PFI project for 27 years.

With the super-carriers, for example, the Americans refuel their fighters with something called a buddy-buddy tank—another fighter carries a fuel tank, and it piggybacks—or they use the V-22 Osprey, a peculiar-looking plane in the marine corps. It is certainly not the same as a strategic tanker, but all those options will be cut off, because we have given the monopoly to a consortium. That is extraordinary—who knows what technology will be developed in 27 years? Twenty-seven years ago, we hardly had colour televisions, so we can only imagine what will happen when we want to utilise a new way of air-to-air refuelling.

We must look at that. The future strategic tanker aircraft is another aspect of the fact that our partners, whether European or from other parts of the world, are not contributing their fair share to deployments, whether it is the NATO deployment to Afghanistan or the European deployment in Kosovo, or whether it was in Bosnia or wherever. If we look at the tables on tanker-to-fighter ratios for our partner countries, we can see that Belgium has two tankers and 72 fighters. I do not know why it bothers having fighters, so let us look at France, which is the only country comparable to the
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UK. It has 23 tankers, and 320 fighters. It has a ratio of 13 fighters to one tanker. The Germans have 220 fighters and only four tankers. We expect our allies to share the burdens. We should not buy 14 tankers to ensure that we keep those international deployments going all the time—it is as if our allies need not worry, because the British are always there to back them up with a tanker. We must make sure that in a range of situations, whether involving troops on the ground, equipment, or logistical or strategic refuelling, our partners play their part. One of the saddest reasons for the defence budget being under pressure is that time and time again, Ministers have worked on their European colleagues to come along to produce more and contribute more to Afghanistan and Iraq, but time and time again, they have not delivered. Whether it was delivering ammunition in the Falklands or delivering troops on the ground in Kosovo, Iraq and Afghanistan, there has been a lot of talk, but seldom is there much delivery.

We are expecting a lot if we not only expect our defence budget to carry some of Europe’s capability but, with the A400M and efforts to support EADS and Airbus with the FSTA, we apparently want our defence budget to carry some of European industry as well. I do not think that we have the money to do that. It is not about being anti-Europe or any other label that some people would want to use; it is about trying to make sure that our troops, and the British interest and front line, receive what they need.

There are other issues that we need to look at. My hon. Friend the Member for Mid-Sussex was absolutely right: what we really need is clarity in our defence strategy. We need clarity in our foreign policy, and we need clarity in what the British interest is and where it lies. The Americans are always 100 per cent. sure about what the American interest is, but I often question, certainly at the fag end of this Government, whether there is a clear definition of the British interest. Just as there was clarity in the defence industrial strategy—that strategy paper gave us great hope—if we have clarity on what we want to procure, where we want to go and what Britain’s interest is, we will go some way towards helping the defence procurement problem that every Government face.

9.5 pm

Mr. James Gray (North Wiltshire) (Con): I rise with some trepidation at the end of a long and well-informed debate, typified by the contribution of my hon. Friend the Member for Lancaster and Wyre (Mr. Wallace), who speaks with a level of knowledge, understanding and wisdom on defence matters that is hardly paralleled across the House. It is a joy to listen to him. He manages to express complex and difficult ideas in remarkably simple, straightforward and understandable language, which you, Mr. Deputy Speaker, called for earlier. My hon. Friend achieves that with huge ability.

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