Defence and Security Procurement


The Committee consisted of the following Members:

Chair: Mr Gary Streeter 

Bebb, Guto (Aberconwy) (Con) 

Connarty, Michael (Linlithgow and East Falkirk) (Lab) 

Donaldson, Mr Jeffrey M. (Lagan Valley) (DUP) 

Dunne, Mr Philip (Parliamentary Under-Secretary of State for Defence)  

Halfon, Robert (Harlow) (Con) 

Hamilton, Mr David (Midlothian) (Lab) 

Holloway, Mr Adam (Gravesham) (Con) 

Horwood, Martin (Cheltenham) (LD) 

Jackson, Glenda (Hampstead and Kilburn) (Lab) 

Lancaster, Mark (Lord Commissioner of Her Majesty's Treasury)  

Mordaunt, Penny (Portsmouth North) (Con) 

Seabeck, Alison (Plymouth, Moor View) (Lab) 

Stuart, Ms Gisela (Birmingham, Edgbaston) (Lab) 

Lloyd Owen, Committee Clerk

† attended the Committee

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European Committee B 

Monday 28 January 2013  

[Mr Gary Streeter in the Chair] 

Defence and Security Procurement

4.30 pm 

The Chair:  Does a member of the European Scrutiny Committee wish to make a statement about the decision to refer these documents to the Committee? 

Penny Mordaunt (Portsmouth North) (Con):  It is a pleasure to serve under your chairmanship, Mr Streeter. 

It may be helpful if I take a few minutes to explain the background to the Commission’s report and the reason why the European Scrutiny Committee recommended a debate on it. 

The directive on defence and security procurement is an important element of the Commission’s policy to create a European defence equipment market and a European level playing field for defence procurement. It subjects defence and sensitive procurement to internal market rules with the aim of fostering transparency and competition. Defence and, to a lesser degree, security markets are very specific markets; the customer side is primarily public and both defence and security are national prerogatives. Moreover, defence spending and defence industrial capabilities are highly concentrated in a few member states, including the UK. 

Due to the nature of the products, markets are highly regulated, certain companies are strategically important and procurement decisions are often determined by political and strategic considerations. The directive’s objective was therefore to provide procurement rules that are tailor-made for the uniqueness of defence and security equipment; namely, sensitivity and complexity. The directive includes specific provisions for security of supply and security of information and allows for unrestricted use of the most flexible award procedure. 

As a consequence of the directive, the Commission argues that member states have at their disposal EU-wide rules that can apply to complex and sensitive transactions without putting their legitimate security interests at risk. Defence contracts should therefore, as a rule, no longer be awarded outside internal market rules by invoking the exception clause of article 346 of the treaty on the functioning of the EU on the ground of national security interest. That should lead to more transparency and competition, which in turn should foster the competitiveness and innovation of European defence industries and help member states satisfy their procurement needs despite ever-shrinking budgets. 

The directive had to be transposed by member states by 21 August 2011. The report implements article 73 of the directive, which requests the Commission to present a report on its implementation. The Commission’s report concludes that timely transposition of the directive proved challenging for the vast majority of

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member states, including the UK. The Commission opened 23 infringement proceedings against member states, but all but four were withdrawn. Despite the delay, it comments: 

“Most of the 23 member states who had transposed the Directive as of July 2012 have prima facie done so correctly.” 

Infringement proceedings, however, are being brought against Poland, Slovenia, the Netherlands and Luxembourg. 

The Commission says that further initiatives may be necessary to promote the internal market in this area, so it has set up a taskforce to examine ways of further developing European policies in the defence sector. It will do so in association with the European Defence Agency and in close co-operation with the relevant stakeholders to ensure the overall coherence of European efforts in an area of strategic importance to the EU as a whole. 

The Government’s explanatory memorandum explains that the UK was late in transposing the directive because of separate legislation being required for Gibraltar. They are supportive of the directive’s objective and they are content with the report. 

National defence and security industries should benefit from the increased business possibilities presented by opening up the European defence and security market. The Government are currently working with the Commission to identify areas where the European defence, technological and industrial base can be enhanced by the EU, while also ensuring that future initiatives do not infringe upon freedom of action in the interests of national security. 

The European Scrutiny Committee recommended the Commission’s report for debate because of the political importance of defence procurement to the UK economy. In the course of the debate, we would be grateful if the Minister expanded on how the directive to date has benefited UK defence and security industries and what, if any, the adverse consequences have been. We would also be grateful if the Minister expanded on the Commission’s forthcoming comprehensive strategy for the defence sector, the Government’s policy on that and what assistance is currently being given to the Commission in this field. 

The Chair:  I call the Minister to make the opening statement. 

4.34 pm 

The Parliamentary Under-Secretary of State for Defence (Mr Philip Dunne):  It is a pleasure to serve under your chairmanship, Mr Streeter. I thank my hon. Friend the Member for Portsmouth North, who is a distinguished member of the Select Committee on Defence, and who takes a great deal of interest in defence matters, for her opening statement on behalf of the European Scrutiny Committee. 

This sitting is an opportunity to take stock of the implementation of the defence and security procurement directive and to discuss the European Commission’s proposed strategy for the defence sector, which my hon. Friend asked me to cover, particularly in the context of the Prime Minister’s agreeing that defence should be addressed at the December 2013 EU Council. 

While the focus of the EU Council meeting should primarily be on finding ways to ensure that Europe is able to deliver more substantial capabilities in future,

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through, for example, greater use of NATO’s Smart Defence and the EU’s Pooling and Sharing, the strengthening of the European defence industry will also be addressed in December. 

It is clear that the defence industry faces significant challenges. Defence budgets are reducing in the US and across Europe and as a result there is significant over-capacity in the industry at a time of increasing global competition. Against this backdrop, it is important for Europe to have a defence industry that is innovative, competitive and aligned to meeting its future defence requirements. That would, of course, also represent a market in which we would expect the UK’s world class defence companies to prosper. 

In that context, I am sure that the prospect of a Commission strategy for defence will be of concern to members of the Committee. I assure them that the Government are taking a robust position with the Commission, stressing that our national security interest must be respected, and that the Commission does not propose any new controls that add to bureaucracy and impede growth. 

If I may, I shall first address the implementation of the defence directive, which was the main focus of the Commission’s document, and which the European Scrutiny Committee has rightly highlighted as of political and legal importance. 

The Commission’s objective for the directive was to introduce fair and transparent rules to help suppliers access defence and security markets in other EU member states. That means that the internal market principles of equality of treatment for all suppliers in the EU, and no discrimination on the ground of nationality, will apply to the defence and security markets, which have traditionally been excluded from EU law. That will make those markets more open, for the benefit of all. Taxpayers’ money will be spent more efficiently. Armed forces will get better value for money, and industry—in particular British industry—will get better access to new markets on the continent. 

The Commission’s other objective was to limit exemptions with respect to the internal market to the strict minimum. The directive is therefore tailored to the specific nature of sensitive purchases where EU member states need to protect their classified information and maintain security of supply. EU member states are still able to use article 346 to exempt defence and security procurements that are so sensitive that the directive cannot satisfy their needs—for example, in the case of a requirement to restrict information to UK citizens. 

The directive was a key step towards a better use of national defence budgets. It was developed to facilitate more open and transparent competition between defence companies within the European Union and therefore provide better value for money for all member states. 

In the UK, the Defence and Security Public Contracts Regulations 2011 transposed the directive into national law on 21 August 2011, without putting an additional burden on Government or industry. We also aimed, where possible, to be consistent with the rules for civil procurement. Subsequent transposition in Gibraltar on 21 June 2012 meant that the UK had now adopted all the national regulations necessary for full and complete compliance with the directive. 

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Our wish for more open competition between defence companies in the European Union must of course be balanced by the need to protect our national security. To this end, we must ensure that the ability to protect those national interests when procuring defence equipment remains, through the article 346 treaty exemption.

The exemption allows for a national Government to procure defence equipment outwith the directive where it is strictly necessary, either to protect highly classified information that can be seen only by certain nationalities or to retain a national industrial capability to protect our operational advantage or freedom of action. To answer the question of my hon. Friend the Member for Portsmouth North, during 2012 we have used article 346 exemptions for some 200 contracts. Early indications, although we do not have the full figures or analysis of 2012 purchases yet, are that that represented about 20% of all contracts placed above the thresholds in the directive. 

We can see in the report—as we have already—that almost all other member states have also taken necessary steps to implement the directive in their national procurement regulations. Where some steps have still to be taken, we see that the European Union has acted decisively to rectify that promptly, to ensure that the spirit in which the directive was created is upheld. The Government therefore welcome the positive story that we have seen so far in the European Commission report on transposition of the directive. We support the Commission’s effort to ensure that implementation is consistent and stringent throughout the EU to limit the fragmentation of the market arising from different national regulations. 

The Commission’s strategy for defence has largely been produced by the Commission’s defence taskforce, an internal Commission body looking to improve the competitiveness of the European defence industrial sector. The taskforce will address three broad areas: internal markets, industrial policy and research. It is due to publish its strategy addressing those three areas in the second quarter of this year, and that will form part of the background to the 2013 December Council meeting on defence. 

The Government have sought to engage proactively with the Commission’s taskforce, not least to ensure that any Commission strategy does not impinge on issues that are within, and should remain within, national competence. Defence is primarily a national sovereignty issue and it is not for the Commission to try to dictate change. Let me be absolutely clear to the Committee: we will not allow our freedom of action or our operational advantage to be compromised. 

Similarly, it is important that the Commission does not promote ideas that are counter-productive and prove to be unnecessary diversions from the real issues for European defence, such as Europe’s ability to provide meaningful, deployable capability in the future. We have therefore stressed to the Commission, in addition to defence being an essential national competence, that there should be no proposals for new defence legislation, and that article 346 national security exemptions must be respected. It is also essential that we avoid any measures that serve to promote a fortress Europe. Such measures would not only weaken the competitiveness of

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the European defence industry, but, by provoking tit-for-tat trade wars, undermine the very export campaigns that are required to sustain Europe’s defence industry. 

Instead, the Commission should focus on improving the functioning of the internal market, in particular to ensure consistent implementation of the defence procurement directive. We also support measures that could promote growth, such as those aimed at fostering innovation, particularly in the small and medium-sized enterprises community, and that focus more of the EU research budget on dual technologies that could assist both the defence and security industries. 

In making our position clear to the Commission, we have sought to work closely with our allies who share many of those views. The Government are supportive of efforts to create a more competitive European defence market, not least because we see a competitive defence industry as an important element in Europe’s future growth. To achieve that, it is essential that the rest of Europe open its defence markets as we have opened ours, which should in turn enable the UK defence industry to access markets that have been closed in the past. In encouraging the opening up of markets, we will ensure that our own national security interests are robustly protected. It is clearly in our national interest to promote both those objectives. Therefore, I commend the motion to the Committee. 

The Chair:  We now have until 5.30 pm for questions to the Minister. We do not need to use all that time, of course. I remind Members that questions should be brief. Subject to my discretion, any Member may ask related supplementary questions. 

Alison Seabeck (Plymouth, Moor View) (Lab):  May I seek some clarification, Mr Streeter? Am I allowed to ask a series of questions, or would you expect other Members to join in? 

The Chair:  Might I suggest that you ask two or three, then we will see how we go? 

Alison Seabeck:  I thank the hon. Member for Portsmouth North for her report, which was very helpful, and the Minister. 

I think we are probably in agreement on the way in which this matter has progressed. Directives are complex beasts, but this one is important to our defence sector, as is the assurance that we have a level playing field across Europe. Significant progress has been made, not least in the way in which the whole process has been taken forward. I have quite a few questions for the Minister, but they will not keep us here until 5.30. 

Given the requirement for a uniform approach, is the Minister content with the strength of the enforcement process and the willingness of the Commission to pursue enforcement? Having spoken to a number of businesses in the lead-up to this Committee, I found that that was one issue that was causing some concern. 

On interpreting article 2, I noticed that a particular member state has chosen to restrict its application to a specific contracting authority. Does the Minister feel

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that that undermines the premise on which the directive was introduced, and will he tell us why that member state took such a line? 

Will the Minister also tell us whether he supports the expansion of the European defence and equipment market? Has the industry raised any concerns with him about that expansion? I have certainly had some concerns raised with me, so I am interested in hearing his comments. 

Mr Dunne:  First, I welcome the supportive remarks of the hon. Lady, who speaks for the Opposition. The directive initiated the process for ratification, or transposition, under the previous Government. The then Opposition spokesman raised a number of issues, but we are now satisfied that the primary concerns, which were to ensure the maintenance of the article 346 exemption, and to avoid compulsion in terms of the proportion of SME involvement in issuing contracts, which was unnecessarily restrictive, have been satisfactorily resolved and applied, so we are content to move this matter forward. 

Regarding the enforcement process, we are pleased that the EU Commission is taking action against the four countries that have not yet transposed the directive—Poland, Slovenia, the Netherlands and Luxembourg—and we think that that is the right way to go for the Commission to undertake its process, and we will see how they get on. 

On the hon. Lady’s second question, it is appropriate for nations to be able to direct certain orders to particular suppliers if they feel that those suppliers have the competence and meet the requirements of operational advantage and freedom of action. That means that, in addition to using an article 346 exemption, it might be possible, in certain circumstances, for competition not to be open to all members, but to be directed to specific companies that have a capability. I point to some of the collaborative work that the Ministry of Defence has been doing with France to look at common procurement of certain items of equipment. We are looking not at an entirely open contest, but to direct to suppliers in our two nations rather than to one or all. 

Thirdly, regarding the strength in the European equipment market, the measure will help to build a more comprehensive Europe-wide industrial base. There are really only six countries within the EU that have substantial defence industrial capability, and there are a number of other countries that have smaller capability that may find themselves encouraged to co-operate more closely with the more established companies. At a time of reducing defence budgets in the traditional markets, it will be necessary for further consolidation to take place. The measure makes that a bit easier than it would have been had it not been adopted. 

Penny Mordaunt:  As a member of both the Defence Committee and the European Scrutiny Committee, I am confident that the Minister will give this area the attention it deserves. He has got to grips with his brief very quickly. I note that in opposition in 2008, we voted against the directive. 

I thank the Minister for the information in his opening statement about the proportion of UK contracts falling under the exemption. There are four areas of concern on which I would appreciate his comments. 

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First, do the Government have an estimate of any increase in procurement process costs, for both the Government and industry, created by the directive? I note that the Government’s impact assessment on the implementation of the directive states that it is too uncertain to predict, in monetary terms, many of the costs and benefits. However, it estimates that there is likely to be a one-off cost to the defence and security industry of £2.7 million due to the familiarisation that it has to have with the new rules. 

Secondly, do the Government see any evidence that UK defence and security companies will benefit from the directive in other EU countries? Thirdly, page 5 of the Commission’s report on the implementation of the directive across the EU says, 

“One Member State…has broadened the scope of the exclusion” 

from the directive’s rules when it comes to procurement under the terms of an international organisation. Will the Minister confirm whether the Commission is referring to the UK? Finally, has the directive had any impact on UK procurement from non-EU countries, in particular the United States of America? 

The Chair:  The Minister may wish to respond. 

Mr Dunne:  Thank you, Chair; I certainly do intend to respond as fully as I can to my hon. Friend’s questions. We do not anticipate any additional material costs to the Ministry of Defence from complying with the directive because, generally speaking, we have the most open procurement system of any of our fellow members of the EU. 

As my hon. Friend rightly pointed out, in the impact assessment we estimated that there will be some additional administrative costs to the industry, of a clerical nature, as a result of its having to understand the implications of the directive. However, it is reasonable to assume that those costs will not be significant; the directive will not increase the number of individual contracts awarded, just potentially change the nature of some of the contractors that can apply through these processes. In addition, some of the contracts placed under the new regulations would previously have been placed under an exemption or under the Public Contracts Regulations 2006. Those offsetting savings will help industry cope with any additional administrative costs. 

Secondly, my hon. Friend asked about the specific benefits to UK industries looking to procure in other countries. To be fair, it is early days. As I said in response to the hon. Member for Plymouth, Moor View, we anticipate that British companies will have more opportunities to bid for procurements in markets within Europe that had previously been closed to them. It is fair to assume that there will be greater participation. 

I remind the Committee that, within the European defence space, the UK and France account for just under half of the entire defence equipment spend in the EU; the last available figures show that they represent roughly 24% each. The UK and France have the most mature defence industrial bases, which have been nurtured by that expenditure. We are therefore the two countries best placed to export to other EU countries seeking to place contracts. 

My hon. Friend asked specifically whether the UK was the country that had broadened the scope of exemption from the directive’s rules. I can confirm that it was not.

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Finally, she asked whether the directive would have any impact on our relationship with the US, and particularly our trade with the US. We see it as having no impact on our policy of looking to both sides of the Atlantic to meet our capability needs. 

We were clear in the White Paper, published almost exactly a year ago, that wherever possible, we would pursue an open procurement policy. We have long-standing procurement relationships with the United States and purchase a great deal of equipment through their foreign military sales organisation. We see no particular reason why that will change, or why it will not be competitive against other European opportunities and quotes for specific pieces of equipment. 

The Chair:  I remind Members that questions should be brief and that there will be an opportunity to make speeches in the second half of our proceedings. 

Ms Gisela Stuart (Birmingham, Edgbaston) (Lab):  To follow on from the point put by the hon. Member for Portsmouth North, if the United Kingdom did not ask for broadening, who did? Secondly, if 20% of United Kingdom procurement required exemption under article 346, what was the percentage for France? Thirdly, why are the Netherlands currently felt to be in breach? Fourthly, have the Government given any thought to the difficulty that it is usually subsequent European Court of Justice rulings that tend to cause problems with the implementation of directives, rather than the directives themselves? Does he anticipate any problems? 

Mr Dunne:  Those were commendably brief questions in response to your exhortation, Mr Chairman. I am afraid that I will have to give pretty brief answers. First, I do not know which country extended the scope. I may get inspiration while answering the hon. Lady’s other questions, but I suspect that I may have to write to her, if indeed we know at all. 

Secondly, it is not the role of the Ministry of Defence to quantify the performance of the French industrial defence enterprise, so I am unable to say what proportion of French supply took advantage of article 346 exemptions. I think it unlikely that that information is available within the Ministry of Defence, but if it is, I will write to her and the Committee to provide whatever information we have. 

Thirdly, again, why the Netherlands are in breach of the transposition of the directive is a matter for the Dutch Government, and not one that I am in a position to respond to. I am afraid that I must disappoint the hon. Lady on that question as well. It is not within the remit of the MOD, but if we are aware of why the Dutch authorities have not transposed their directive into law, I will let her know. 

I turn to the fourth point, although I may need the hon. Lady to ask the question again in case I have misunderstood. I think that she was asking whether the European Court of Justice will play an increased role in policing the directive. We do not anticipate that, but if I have misunderstood, perhaps she will clarify. 

Ms Stuart:  The Minister might have got advice from civil servants that some terms of the directive might be legally open to question. That is usually where the scope

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for the European Court of Justice comes in. Have there been significant areas where such advice has been forthcoming? 

Mr Dunne:  I am grateful for that clarification. As of now, I have not read any such advice. If it exists in the Ministry, I will certainly provide it to the hon. Lady and the Committee. 

Martin Horwood (Cheltenham) (LD):  It is a pleasure to serve under your chairmanship, Mr Streeter. I should probably declare a strong constituency interest in the directive. A lot of my constituents work for defence suppliers, such as GE Aviation and Safran Messier-Dowty, and a lot more work in an organisation at GCHQ that is probably heavily involved in security procurement, although they would never tell me what. 

My questions are about a small statement on page 11 of the Committee’s report, which relates to the scrutiny that the transposition of the directive has received. The European Scrutiny Committee and its predecessor have scrutinised the directive a total of seven times, and this is the second European Committee to have scrutinised the transposition of the directive. Has the Select Committee on Defence ever formally scrutinised the transposition of the directive? 

Ministers announced last January that we would consider reforming the scrutiny of European documents and policy making in this place, and that was widely welcomed across the House. In fact, in a rare moment of agreement between the hon. Member for Stone (Mr Cash) and the Liberal Democrats, we both called for such documents routinely and automatically to go before specialist Select Committees, not just European Committees or the European Scrutiny Committee. If officials have had time to check whether the directive has gone before the Defence Committee, perhaps the Minister could answer that question. Will he also update the Committee on the progress of the reform of European scrutiny? 

Mr Dunne:  I am extremely grateful to the hon. Gentleman for raising issues that are properly the remit of the Defence Committee and the European Scrutiny Committee, neither of which I sit on, although it is always a pleasure to appear before them. Two members of the Defence Committee are present, and they may be able to answer his question. My understanding is that there has been no such scrutiny, but I stand to be corrected. 

Penny Mordaunt  rose—  

The Chair:  I am afraid that answers cannot be intervened on. I will call the hon. Member for Portsmouth North to put another question in a moment. 

Robert Halfon (Harlow) (Con):  It is a pleasure to serve under your chairmanship, Mr Streeter. 

Given that the directive addresses the strengthening of the technological industrial base, is there any consideration of how procurement could be used to achieve other goals, such as skills and training? I give

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the example of the Department for Work and Pensions, which has asked its main procurement suppliers to hire at least 5% of their work force on apprenticeships. That resulted in 2,000 extra apprentices in the supply chain with no increased costs for the Department. Can the Minister assure us that the directive will help UK defence firms that want to hire more apprentices, thereby helping to build our skills base? 

Mr Dunne:  I am most grateful to my hon. Friend, whom I applaud for his work in encouraging apprenticeships within his constituency and across the wider industrial base of this country. 

The issue is clearly not directly addressed in the directive, but if the British objective is to encourage British industry to be able to sell into more markets in Europe, by definition, if successful, it will give more opportunities for British companies to hire more people and provide them with the skills necessary to meet the exacting requirements of foreign countries’ procurement. 

It is axiomatic that if the directive is effective at broadening the scope of competition within European defence procurement, that should reflect well on the prospects for British industry to participate in such development. We are one of the two largest defence industrial providers in Europe. We are also the second-largest defence exporter in the world, so we are better placed to export equipment manufactured in or through our own country than all other countries in Europe. I hope that will have the effect that my hon. Friend desires. 

Robert Halfon:  Will the Minister consider adopting for the Ministry of Defence the same clause that the DWP has in its procurement contracts for this and other procurement, to increase the number of apprenticeships? 

Mr Dunne:  This is not the place to give such an undertaking, but I assure my hon. Friend that the role of apprenticeships within the supply base, the armed forces and the MOD itself could hardly be more highly emphasised. 

In particular, the engineering gap is a great concern to me, my fellow Ministers and major companies in our supply base. Indeed, every meeting I have had with MOD suppliers, and particularly prime contractors, since I have been in post has included an exhortation to them to do what they can to bolster apprenticeships and the skills base. 

I am pleased to say that many of the largest engineering companies responding to the call for apprenticeships have been some of our major contractors. I was at Rolls-Royce only last Monday, and I was told how effective its apprenticeship scheme has been. Today, I was at the Bloodhound project in Bristol, which is essentially an engineering project to break the world land speed record. It is being supported by the MOD primarily to raise interest in maths and science among young people from primary-school age upwards, to encourage them to get into science and engineering and provide the apprentices for the future. 

The Chair:  Back to the documentation before us. 

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Alison Seabeck:  The offset is mentioned a number of times, from different perspectives. Clearly, at a time when countries such as India are seeking to build their defence capability, it is important for British companies that the EU gets this right. Will the Minister explain how the defence, security and industrial engagement policy differs from the industrial participation policy? What compromise did the UK have to make to ensure that it was not a form of offset that was proposed? 

The Minister talked about the number of companies that had benefitted from the application of article 346. How many of those were Scotland-based companies? What is the planned time scale for the Commission’s strategy for defence? What steps is the Minister taking to consult industry about its concerns, which I know it has and I am sure it would want to be fed into the process before the issue goes to the Heads of Government at the end of the year? 

On research and development, the framework 7 funding is coming to an end as we move toward Horizon 2020. I gather that there is a shift away from aerospace, for example. Will the Minister say if and how UK defence industries will lose out as a result of the change in emphasis in the two funding arrangements? 

The Chair:  That is probably enough. 

Alison Seabeck:  Very finally—this is my last question, Mr Streeter—the Minister spoke about partnerships, particularly with France, and about the way in which procurement packages and opportunities would present themselves. He spoke as though things would be fairly jointly handled and evenly balanced. Why does he have such confidence that the UK will have a fair crack of the whip and that the French will not find a work-around mechanism to benefit their suppliers? 

Mr Dunne:  As far as the offset arrangements are concerned, it is clear that part of the directive’s purpose was to remove offset that would otherwise allow nations to cotton-wool their industries and protect them from open competition. It is clear that one of the attractions for the British Government in signing up to the directive is to remove offset in the EU. We have to recognise that, in the newly emerging nations that are seeking to build their aerospace capacity or other industrial capacity, providing some technological transfer, which is a preferable concept to offset, is a fact of life and will continue. However, the directive goes a long way towards making it more difficult for European countries to seek to steer genuine open procurement arrangements on to an open-competition basis. 

The 200 contracts that I referred to were not with 200 different companies. We do not maintain a database of the geography of where the contracts are placed, so I cannot answer the question about how many were with Scottish companies. It is fair to assume that some were, but I cannot say how many. 

On R and D, we made it clear in the White Paper last year that it was important to provide a floor to the steady decline in science and technology spend undertaken by the MOD over the previous decade or so. We have therefore set 1.2% of the MOD budget to be spent on science and technology, which equates to slightly more than £400 million. Actually, in the current financial

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year, we have increased that because at one of the decision points earlier in the year, we were able to give a little more. I do not have an exact figure for the expectation for the current year, but it will be north of £400 million. That is a subset of the overall research and development spend by the Department, because much of our equipment spend on substantial pieces of equipment includes major research. If we compare research and development spend across the European Union nations, we and France have by far the lion’s share of R and D spend, and we do not anticipate that changing. 

The hon. Lady asked whether we will be able to police the way some of our allies interpret the directive, and particularly to ensure that British companies are not disadvantaged by the behaviour of some of our main competitors—she mentioned France. It is not for me to stand here and lecture our French colleagues on how they go about organising their procurement. I will simply say that we have a close working relationship, which is developing across different equipment strands, with France. I sit on the high-level working group and have six-monthly reviews of the progress being made on equipment procurement following the Lancaster house treaties. I look forward to the next such meeting in April, after which I will perhaps be in a better place to give the hon. Lady an update on the progress made. 

Mr Adam Holloway (Gravesham) (Con):  Are there any grounds for thinking that the directive might give an advantage to British contractors over, say, contractors in France? 

Mr Dunne:  It is fair to say that our contractors in the UK have been more accustomed to competing on an international basis for British defence procurement than have companies in many other countries, and therefore our industry is in many respects somewhat fitter and leaner than some of our competitors. The French have been very keen competitors, and in some of their major equipment procurement, such as the fast jet, they have been very effective. It is too early to say how industry in other countries will adapt to a more open procurement system, but it is reasonable to assume that we are ahead of the pack in positioning our industry to be able to compete internationally. We will have to see how it evolves in the next two or three years. 

The Chair:  Final question. 

Penny Mordaunt:  Following on from the question asked by the hon. Member for Cheltenham, I draw attention to the current inquiry of the European Scrutiny Committee into improving scrutiny of European documents and correspondence, including better communications with departmental Select Committees and initiatives such as permanent and specialist membership of EU committees and so on. The European Scrutiny Committee recommended the directive for debate, and we have three members of the Defence Committee currently in the room. Both Committees are scrutinising the document and the reports, so I hope that that will give the hon. Gentleman some comfort. If I have to ask a question to stay in order, Mr Streeter, it would be to invite the Minister to agree with me that both Committees are doing a thoroughly good job. 

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Mr Dunne:  I am most grateful to my hon. Friend. I apologise to the member of the Defence Committee whom I omitted to recognise as present when I said that there were only two here. It is good to see that this Committee has such strong representation from that Select Committee. I hope that that excellent answer goes some way to help my hon. Friend the Member for Cheltenham with his query. 

I omitted to respond to one of the questions from the hon. Member for Plymouth, Moor View about the time scale for the comprehensive strategy. We are expecting a communication from the EU in May or early June, which will contribute to our recommendations to go forward to the EU Council discussions on defence later in December. 

Motion made, and Question proposed.  

That the Committee takes note of European Union Document No. 14596/12, a Report from the Commission to the European Parliament and the Council on transposition of Directive 2009/81/EC on Defence and Security Procurement; notes the Government’s approach in the timely implementation of the Directive; and further supports the Government’s proactive engagement with the Commission and our European Allies in the development of a ‘Comprehensive strategy for the defence sector’ while protecting national security interests.—(Mr Dunne.)  

5.16 pm 

Alison Seabeck:  I thank the Minister for his full and helpful responses to my questions. The directive is broadly welcomed, as we have heard. On that note, I sit down. 

5.16 pm 

Martin Horwood:  I shall speak briefly too, although unfortunately I must correct myself on one thing. I inadvertently missed out a bit of the title of one of the Safran subsidiaries that operates in Gloucestershire. It is not just Messier-Dowty, but is now Messier-Bugatti-Dowty, thereby illustrating the intertwined nature of European defence and aviation suppliers. I am sure they will forgive me. 

I welcome both the transposition of the directive and the Government’s approach to this. The right balance has been struck at both British and European level between the absolute importance of developing the single market and competition in defence and security

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procurement and the rather unique requirements and sensitivities of defence and security to nation states. I think the measure will help competition and thereby help those involved in defence procurement and, through them, the British taxpayer, but but it will also benefit those very competitive British suppliers who will be able to compete more effectively in the European market. I absolutely welcome the Government’s position on this. 

My final comment is not so much about the scrutiny of defence procurement by the Defence Committee—I would be startled if they were not doing it—but about the reform that was specifically suggested by the Liberal Democrats, which was that documents such as these should automatically and routinely go before Select Committees of all kinds. That is a broader issue than just the Defence Committee; it is about the overall reform of European scrutiny in this place, and Ministers need to crack on with that, as we have been discussing it for well over a year now. It is important that these issues of scrutiny are addressed and that we provide proper and expert scrutiny to all European policies and documents. 

5.18 pm 

Mr Dunne:  In winding up, I emphasise to the Committee that this is an essential measure to open up defence procurement across Europe and to remove protectionist barriers, which is something that we all agree makes sense. It accords entirely with the position that we took in the White Paper published last February, which I referred to earlier, to encourage open competition in the global market. 

I hope that during the course of my remarks today I have demonstrated how the Government take a robust line with the Commission. We will always stress that our national security interests must be respected and we will not accept action by Europe that would add bureaucracy and impede growth. Defence, as I have said, is a national sovereignty issue. We are clear that we will not allow our freedom of action or operational advantage to be compromised. 

Question put and agreed to.  

5.19 pm 

Committee rose.  

Prepared 29th January 2013