Scottish Affairs Committee - Minutes of EvidenceHC 139-I

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Oral Evidence

Taken before the Scottish Affairs Committee

on Wednesday 13 June 2012

Members present:

Mr Ian Davidson (Chair)

Fiona Bruce

Mike Freer

Iain McKenzie

Jim McGovern

David Mowat

Pamela Nash

Mr Alan Reid

Lindsay Roy


Examination of Witnesses

Witnesses: Nick Harvey MP, Minister of State for the Armed Forces, and Peter Luff MP, Parliamentary Under-Secretary of State for Defence (Equipment, Support and Technology), gave evidence.

Q291 Chair: Gentlemen, I welcome you to the Scottish Affairs Committee. We are very grateful that you could come. I will start off by asking you to introduce yourselves and tell us what it is you are responsible for within the MOD so that we are aware of to whom we should be directing our questions.

Nick Harvey: I am Nick Harvey, Minister for the Armed Forces. This covers anything for which the Armed Forces undertake operations. It also involves strategic basing issues and broadly deputising for the Secretary of State across the Department.

Peter Luff: I am Peter Luff, Minister for Defence Equipment, Support and Technology, which means I buy things. I also have responsibility for the ranges in Scotland and this gives me an opportunity to say how much I value the contribution that Scotland makes to the UK’s defence industries, which is very significant indeed and greatly valued by the Department.

Chair: Did you say "Rangers" or "ranges"?

Peter Luff: I am a Chelsea man, I have to say. No, "ranges".

Chair: I am glad we have clarified that.

Jim McGovern: I misheard the same as you, Chair.

Peter Luff: Wishful thinking.

Q292 Chair: First of all, have the Scottish Government been in touch with the UK Government or the MOD to discuss co-operation in defence in the event of a separate Scotland?

Nick Harvey: The short answer to that, Chairman, is no. We have a regular and constructive dialogue with the Scottish Government about a variety of defence matters, not least the Armed Forces Covenant for which the devolved Administrations have a lot of delivery responsibility, but we have not had any discussions of any substance with the Scottish Government about independence.

Q293 Chair: When you say "of any substance", that is capable of interpretation. Have there been any discussions at all?

Nick Harvey: I cannot look you in the eye and say that the word "independence" has never been mentioned in any discussion, but we have never had any meaningful substantive discussion with them about it. Peter might wish to add something.

Peter Luff: We do have a very constructive relationship with the Scottish Government, as you would expect. I write to them regularly on specific issues affecting Scotland. Most recently I had correspondence about the submarine dismantling programme, for example, which has recently been consulted on. There is regular practical discussion over the issues affecting defence, but no discussions on independence that I am aware of.

Q294 Chair: I want to clarify whether or not you have had any discussions at all, or there has been any input, from the Scottish Government on anything relating to future foreign policy that has defence implications and about which you might want to have dialogue with them.

Nick Harvey: To the best of my knowledge there has been no such discussion.

Q295 Chair: You say to the best of your knowledge. Are there other people that would deal with these matters, or would it all come to you if there was a dialogue?

Nick Harvey: If there was a formal dialogue of any description, I am pretty certain I would know about it.

Q296 Chair: Would you welcome some sort of indication from the Scottish Government about what their foreign and defence policy might be, in order that you could undertake some degree of planning?

Nick Harvey: The Ministry of Defence is not planning or preparing contingency arrangements for the event of Scottish independence, because we do not expect it to happen. We have confidence in the Scottish people to arrive at a view in any referendum that they would wish to sustain the Union. You will understand that manpower is quite stretched already with the tempo of current operations and the scale of defence reform we are undertaking at the moment. Clearly it is something about which we have occasional internal discussion, but it is not something that we are devoting a great deal of time to beyond normal contingency planning for the unexpected that is part of any usual military thinking.

Q297 Chair: If the Treasury is drawing up contingency plans for the departure of a small European country like Greece from the Euro, surely the MOD would be having some sort of contingency discussions in the event of separation. Surely there must have been some thinking somewhere about what is obviously a black cloud on the horizon.

Nick Harvey: The possibility of Scottish independence is always in our minds, Chairman. I suspect, as you go on to ask us questions about various aspects of our work, that the relevance of the independence dynamic to decisions we might take over the next couple of years, for example, will be explored a bit. No, we are not spending our time setting up teams to prepare for the contingency of Scottish independence. Basically we do not have the resources with which to do that.

You touched-and I fully see why you did-on questions of what the future foreign policy, and therefore the defence and security policy, of an independent Scotland might be. I entirely agree with your observation that, before anybody can make any sort of an assessment of what the future of defence in Scotland might be, or how that would interrelate with the residual United Kingdom, we would need to understand that. I feel it is incumbent upon those who advocate Scottish independence to explain their view at least of what that might look like, but of course if an independent Scotland came about, it does not follow that the political composition of the current Scottish Government would necessarily be the composition of a future Scottish Government. Therefore, there is necessarily an element of speculation as to what decisions a future Scottish Government would take.

Q298 Chair: I do understand this, but I want to pursue the point slightly because it is quite crucial for this and a whole number of other areas. Many of us who are Scots in Scotland with a vote in the forthcoming referendum do not want to end up in a position where we have to vote for a pig in a poke. We think the idea that we will simply wait and see what turns up is inadequate. We are therefore trying to clarify the extent to which we can tell the Scottish people what the options and possibilities are. I must say I am very disappointed to hear that there seems to have been no work in the MOD on planning or preparing for the possibility of separation, and how this might be implemented or what might result under various scenarios.

Nick Harvey: I did not say there had been no thinking given to the matter, but I state again that we have not set up teams to prepare for a contingency that we do not expect to arise.

Peter Luff: Additionally, Chairman, I would just say that there is so much uncertainty about what an independent separate Scotland would mean and we would have so many scenarios to plan that the workload would be immense. Until there is greater clarity in what the Scottish National Party intends for independence, it is very difficult to do that preparatory work in any meaningful way.

Chair: Without wanting to suggest that you use Special Forces or spies or anything, we find it difficult to clarify this as well. We wanted to be clear, first of all, whether or not you had had any communications. You would welcome that.

Q299 Mr Reid: I want to pick up on a point from Nick. Quite rightly, nobody knows what future Scottish parties would be elected to a future Scottish Government; but if this referendum were to be carried, then what we do know is that it will be the present Scottish Government that would be negotiating with the UK Government, so you do know who you would be negotiating with. Have you made any effort to find out their negotiating position or decide what your own negotiating position would be?

Nick Harvey: In response to that I would say that, in the event of a referendum returning a vote for separation, I surmise that a big pan-governmental negotiation would have to take place, of which defence would be but one part. It would be quite a large and significant part but nevertheless only one part. The lead for that would be the Cabinet Office and the Treasury. I do not think it would be wholly without precedent. The public sector reorganises itself from time to time, but clearly that negotiation would be looking at assets, liability, costs of change, and, frankly, these are questions considerably above my pay grade and ones on which the Treasury, the Cabinet Office and the Scottish Government would have to agree some ground.

Q300 Chair: We will continue to pursue this with you as we go through this because it is clear to us that the Scottish people deserve more than simply a pig in a poke.

Nick Harvey: Yes.

Chair: We have to have clarity both on the Scottish Government’s negotiating position but also on what the likely response from the MOD and other Government Departments would be.

Q301 Lindsay Roy: Given the faith that the SNP apparently have that separation will come to pass, are you not surprised that there has been no approach to you about defence of the British Isles? There appears to be a vacuum at the moment.

Nick Harvey: There appears to be a vacuum in terms of their intentions across a wide front, of which defence is an important part, but one part among several. I understand the frustration of the public, the media and political colleagues in Scotland that there is not a more tangible proposition to debate. I find it surprising that there is not, but I confirm what you are saying. At the moment, as Peter quite rightly says, there are so many different ways this could go that it is very hard to know which aspect of which issue it is constructive to debate.

Q302 Lindsay Roy: Just to clarify, if they feel so confident, you would expect an approach?

Nick Harvey: I would have expected them to start spelling out to the Scottish people what the practical impacts would be, so that the Scottish people can start to formulate their opinion in an informed way.

Q303 Fiona Bruce: Running on from that last statement, you said that we may ask you about specific areas. I want to ask you about a handful of specific areas. We took oral evidence from some military analysts before the recess and they pointed out some of the future threats to the UK and a future separate Scotland. We are very interested therefore to know whether you have any knowledge-I am assuming that you have had no discussions with the Scottish Government from what you say-of their position regarding the following and indeed, as you say, the practical impacts of separation on them: first, the defence of the North sea and fishing waters. Have any statements been made to you or have you had any communications?

Nick Harvey: No; I do not believe so.

Q304 Fiona Bruce: What about tensions around the Arctic?

Nick Harvey: None that I am aware of.

Q305 Fiona Bruce: With regard to cyber crime, have the Scottish Government talked to you about what military capability might be required for this, bearing in mind, it is fair to say, that such a modern threat would require a modern defence involving perhaps the latest technology and effective intelligence? Such things do not come cheaply.

Nick Harvey: I believe that the Cabinet Office, in executing its cross-governmental responsibility for cyber security, does have practical discussion with the devolved Administrations. I do not believe there has been any discussion with the Ministry of Defence about specific defence aspects of that in the longer term that you are describing. I do believe there is a constructive dialogue between the Scottish Government and Whitehall about current cyber security threats.

Q306 Fiona Bruce: It may well be worth us pursuing that with the Cabinet Office.

Nick Harvey: It might be.

Q307 Chair: I want to follow up on this. Should the SNP and Scottish Government’s negotiating position on these matters ever become clear, would it then be the MOD’s position that they would prepare negotiating positions for the remainder of the UK in order that they can respond, or would you just wait and see what turned up?

Nick Harvey: I find it an unlikely situation that Whitehall Departments would prepare negotiating positions in the sense that you have described. I think that negotiations would only take place after there had been an outcome that determined that negotiations needed to take place. However, I believe that, if some clarity began to emerge about what the more detailed proposition was, then the Ministry of Defence, like other Whitehall Departments, would begin to offer a commentary on that and make observations about that. I would draw a distinction, as it were, between engaging in the debate and preparing a negotiating position.

Q308 Chair: That is helpful. It would also be helpful if you were able to authorise people such as the Defence Academy, which I visited in the context of the Armed Forces Scheme, to have some dialogue with us in order that we can pick their brains. Unless I am mistaken, there are no defence experts here of the calibre that you are likely to find in the Defence Academy. We would quite welcome having ideas put in front of us for consideration-a sort of idiot’s guide to some of the issues.

Nick Harvey: Chairman, if what you wanted was, as you put it, to pick the brains of the Defence Academy, I do not think there would be any problem with that. If you want them to come formally and give evidence to you, I would be more concerned about that. In a sense the session you have already had with some quite notable defence experts has already given you-

Q309 Chair: We are looking for authorisation from you for informal discussions that we would find helpful.

Nick Harvey: I do not see any problem with that at all.

Chair: That is excellent.

Q310 Mike Freer: Minister, I am going to turn to the UK’s relationship with NATO. The SNP have a long history of saying they would withdraw from NATO. Given that Scotland has been described as NATO’s aircraft carrier-I am not sure whether that is complimentary or not-do you perceive complications in a future relationship with an independent Scotland because of our relationship with NATO and their lack of relationship with NATO?

Nick Harvey: It is certainly the case that our relationship with NATO is the central bedrock of our defence and security policy. That position was reaffirmed in the National Security Strategy and the SDSR two years ago. The defence arrangements that we have with other countries that are members of NATO are necessarily and understandably closer and more mutually interdependent than our relationships with many countries outside NATO.

If a future independent Scotland were to be members of NATO, I think that would enable a quite different relationship with them from that which would obtain if they were not members of NATO, therefore that is an important consideration in trying to analyse what a future defence relationship would look like. I understand why you raise it, but this is clearly something that a future Scottish Government, were such a thing to come to fruition, would have to work out for itself, starting from its foreign policy analysis and then working through to what it considered its security threats were and the arrangements it wished to put in place in order to meet those. It would not be for UK Ministers to say what those should be. It would be up to the people of Scotland to decide.

Q311 Mike Freer: What you are saying is that you think they would simply follow the Irish route-the relationship between the UK and Ireland as a non-member of NATO. The relationship between the UK and Scotland would simply replicate that Irish relationship.

Nick Harvey: It is impossible to say quite how the relationship would work out without knowing the answer to a vast number of variables. I would observe that the SNP’s declared position on the nuclear deterrent would raise some interesting issues if it sought to join NATO, when you consider what NATO’s underlying shared concept is.

Q312 Mike Freer: Given the importance of our relationship with our NATO partners, have there been any discussions or comments from our NATO partners on the impact of an independent Scotland on the relationship with the UK?

Nick Harvey: None with me personally, but we interact with NATO partners at a huge number of different levels, so I do not think it would be possible for any one person to give you a comprehensive digest of any such discussions that have taken place. You may wish to address some of these questions to the Foreign Office, which has the policy lead on our international alliances.

Q313 Chair: I want to clarify whether or not you are aware of the Scottish Government having raised with any of our NATO partners the possibility of Scotland leaving NATO.

Nick Harvey: My perception is that, if an independent Scotland came about, they would have to apply to join NATO rather than take a decision to leave it.

Q314 Chair: That is an interesting point that had not occurred to me. The point I was making was slightly different. I want to clarify whether or not you were aware of Scotland and the Scottish Government having had any discussions with any other countries in NATO about the possibility of their departure. Have they been preparing the way by discussing with any of our NATO partners what might happen if they left?

Nick Harvey: I am not aware of any such discussions, but I do not feel competent to say with any confidence that they have not had any such discussions. I am not aware of any.

Chair: I am now in a difficulty. I have this trust in the MOD’s intelligence services that you would certainly know if such discussions were taking place, but I am not confident you would necessarily tell me. We will just have to leave that as it is at the moment.

We will now turn to Trident and Alan Reid has a question.

Q315 Mr Reid: Have the Scottish Government contacted you about their view of what would happen to Trident should they win the referendum?

Nick Harvey: Not that I am aware of. I will give way to Peter, because he deals with some of this.

Peter Luff: I have had no formal contact. I read comments in the press attributed to SNP spokesmen, but I have had no formal representations at all about their intentions.

Q316 Mr Reid: What is your view of their intentions, given their stated comments?

Nick Harvey: I find it quite impossible to make an assessment of their intentions. One can piece together different statements that have been made at different times. One understands that the policy position of the SNP has historically been that they are completely opposed to the nuclear deterrent, but I do not know what their precise proposition will be when making the case for independence.

Q317 Mr Reid: My understanding of their position is that Trident would leave very quickly. Given that position, has the Ministry of Defence done any planning as to where it would base the submarines, warheads and missiles should that happen?

Nick Harvey: The UK Government are not making plans for independence, as I explained, and hence we are not making plans to move the nuclear deterrent or indeed the submarines from HM Naval Base Clyde. In the course of our normal work we have all sorts of contingency arrangements in place, but we have not had any discussion of the sort that you are alluding to, certainly with either the SNP or the Scottish Government.

Q318 Mr Reid: Does that contingency planning take into account the scenario where, for whatever reason, Faslane was not available for, say, a submarine that was at sea and had to return?

Nick Harvey: Yes.

Q319 Mr Reid: You have run scenarios like that.

Nick Harvey: As part of our normal work, all sorts of contingency plans are in place for all sorts of situations that might arise.

Q320 Mr Reid: What is the contingency planning?

Nick Harvey: It would depend entirely on what the problem was.

Q321 Mr Reid: A Vanguard submarine is at sea; it cannot return to Faslane because, say, Faslane has been damaged by a terrorist attack. Where does it go?

Nick Harvey: Chairman, we are getting into areas that I do not think Ministers would discuss in the public realm.

Peter Luff: It is important to recognise that HM Naval Base Clyde at Faslane would not be a base just for the Trident deterrent but also for the conventional tactical submarines. They are nuclear-powered but not nuclear-armed. Again that is an issue. Does this apply just to Trident or does it apply to the entire fleet of nuclear submarines?

Q322 Mr Reid: Turning to the other submarines, as you know, the plan is that Faslane will become the base for all the UK’s submarines. Has the fact that the referendum is going to happen in 2014 affected the timetable for that redeployment?

Nick Harvey: That is quite a slow timetable anyway. The task of moving the entire fleet is going to take a decade or so in any case. It has not affected the time scale thus far.

Q323 Mr Reid: You say "thus far". Are there intentions that perhaps it will slow down?

Nick Harvey: It has not, but we will follow events with interest.

Q324 Mr Reid: Is that something that could be considered in the near future-i.e. slowing down the timetable because of the referendum?

Nick Harvey: No, I don’t think so because, whoever’s view you take on the likely time scale of the referendum, we will have an outcome of the referendum in time for it not to have a profound impact on that piece of work.

Q325 Mr Reid: But, as part of the transfer of the submarines, extra accommodation has to be built for the crews. Has the prospect of the referendum in any way slowed down the planning for building that accommodation?

Nick Harvey: No, it has not. Work continues as announced.

Peter Luff: I am visiting Faslane shortly to see some of the investment in the infrastructure there.

Q326 Mr Reid: Have you done any planning as to how long it would take to replicate the facilities at Faslane and Coulport elsewhere in the UK?

Nick Harvey: While it would be possible to do so, it would be fraught with difficulty. It would be a very challenging project, which would take a very long time to complete and would cost a gargantuan sum of money. When the facilities there were upgraded for Astute and the previous upgrade of the nuclear deterrent, the cost of that upgrade in today’s prices was about £3.5 billion. That was upgrading an extant facility. If we were to replicate it somewhere else, that figure would be dwarfed by whatever that would cost.

Peter Luff: It was the Vanguard and the Trident warhead.

Nick Harvey: I beg your pardon; that was for Vanguard.

Q327 Mr Reid: As you point out, replicating these facilities would cost a lot. We also have to take into account that, if Scotland was not part of the UK, then obviously the GDP and the tax base of the rest of the UK would have been significantly reduced. Do you think that in such a situation the rest of the UK would be able to afford to replicate these facilities and maintain the Trident deterrent?

Nick Harvey: The costs would be absolutely immense. I would have thought that relocation would be just about the least favoured option that it would be possible to conjecture. In the context of that pan-governmental negotiation to which I alluded earlier, which I would expect the Treasury to take an active interest in, if a future independent Scottish Government were to insist upon the nuclear deterrent being relocated out of Faslane, the impact of that on that pan-governmental discussion would be very substantial indeed. It is hard to think of any single item that would be larger in that negotiation.

Q328 Mr Reid: What are the implications of that for the UK’s negotiating position?

Nick Harvey: I would simply say that on the table, of all the issues that needed to be discussed on a pan-government level, that would stand out as one of the most immense.

Q329 Mr Reid: It sounds as if the UK Government’s position is that they would make substantial concessions in other fields in order to get the Scottish Government to agree to maintain Trident at Faslane.

Nick Harvey: My meaning was slightly the opposite, but you can look at it which way you like.

Q330 Mr Reid: Can you expand? I genuinely misunderstood what you were saying.

Nick Harvey: This is not a matter for the Ministry of Defence to take in isolation. This would genuinely be a huge pan-governmental issue.

Q331 Mr Reid: If Scotland were a separate state and they were agreeable to Trident staying at Faslane, despite what the SNP have said publicly, what conditions would the UK Government be laying down?

Nick Harvey: Thinking off the top of my head here, Chairman, I think the critical one would be complete freedom of action-complete control and complete sovereignty over the facility.

Q332 Mr Reid: You would want the Faslane and Coulport area to be UK sovereign territory rather than Scottish sovereign territory.

Nick Harvey: That is going into detail. As I have described, we are not making contingency plans for this. We do not think it is going to happen. You are inviting me to speculate now, but the critical point of principle would have to be complete control over what we did there.

Q333 Jim McGovern: I have two questions. First, when you talk about the costs of possibly relocating Trident to somewhere outwith Scotland, who would pick up the tab for that? Would it be the Scottish or the UK taxpayer?

Nick Harvey: This is exactly the same question that Alan was asking but reformulated.

Q334 Jim McGovern: Mine is probably more simplistic.

Nick Harvey: What I am saying to you is that, if that cost had to be met in a way which, in a practical sense, would seem to me and I would have thought seemed to people of good sense to be completely unnecessary, then there would be an implication of that across the rest of the negotiation. It would be the largest item looming across the whole piece.

Q335 Jim McGovern: I am not sure I got an answer there. Who would pick up the tab?

Nick Harvey: As I said a little earlier, a huge negotiation would have to take place. It is not for any of us to predict what the outcome of that negotiation would be.

Q336 Chair: I want to be absolutely clear about this. Are you saying that, if a separate Scottish Government threw out Trident, that would not be helpful to discussions on, say, things like retaining the pound in a separate Scotland and having the Bank of England guaranteeing deposits in Scottish banks and the like?

Nick Harvey: You are inviting me to speculate, Chairman. If the residual UK taxpayer had to pick up that bill, their ability to pick up any other bills would be proportionately diminished.

Q337 Chair: That is helpful. When you say "UK", you mean-

Nick Harvey: I mean the residual parts: England, Wales and Northern Ireland. If you have a more elegant term for that I am happy to use it.

Q338 Chair: No, we don’t actually, because we do not think it is likely to happen either, you see. We have not really spent a lot of time working on the language.

Nick Harvey: So you are in the same position as we are.

Peter Luff: At the risk of stating the blindingly obvious, the Scottish Government would lose as well. There are 6,000 jobs currently at Faslane and rising.

Q339 Jim McGovern: That was my supplementary question. What would be the implications for employment?

Peter Luff: There are over 6,000 jobs and rising. There are naval personnel, MOD personnel, contractor personnel and subcontractors providing work for the programme. We do not know the scale of that. It is a huge net gain to the Scottish economy. If they lost it, it is a huge loss for the Scottish economy.

Nick Harvey: And then what they will spend in the local economy.

Q340 Iain McKenzie: I think it is surprising that the Government are not aware of the Scottish Government’s position on nuclear weapons and probably the SNP’s position on nuclear weapons. It would seem pretty clear to me. I have heard it many times and seen them debate and agree at their conferences that they would not have nuclear weapons on Scottish soil should they achieve separation. I would agree with you that you are planning for the continuation of the Union, but surely you would expect them to be planning for separation because that is their goal. You might think they would have approached you and made you very aware of their position with these weapons and also the other positions they wished to discuss on defence.

Nick Harvey: Yes.

Q341 Iain McKenzie: But to date you have had no contact on those particular points.

Peter Luff: I would say it is what we read in open source reporting, what I read in newspapers and magazines and what I hear people say in the House of Commons.

Nick Harvey: Of course we are as aware of their policy resolutions and their public statements as you are, but in terms of any formal proposition to us or to the Scottish people we await them with interest.

Q342 Iain McKenzie: We recognise your position of wishing to continue with the Union and not going to the Scottish Government and asking, "What is your position?" If they wish for separation, they should have knocked upon your door by now to say, "Here is our position on this. Here is what we would like to discuss on defence." At least then the options that they are putting to the Scottish people would stand up to scrutiny.

Nick Harvey: We would certainly expect them to do so at some point and await with interest their doing so.

Q343 David Mowat: I was just reflecting on this approximately £5 billion figure for moving Trident. Effectively that is one of the costs of separation. Presumably it would just go into the negotiation with everything else, so the UK residual Government-

Nick Harvey: The only figure that I have used was that a previous upgrade in today’s money cost £3.5 billion and I felt that that would be dwarfed by the cost of re-establishing-

Q344 David Mowat: The point I am making is the same. Whatever the figure is-£x billion-it would go into the negotiations. The UK would have a position and the Scottish Government would have a position. There would, as you have said, potentially be dozens of these things, including a number of items about the National Debt, RBS bailouts and all the rest of it. We would put in a big list, go down and decide where the line fell. To answer Mr McGovern’s question, in the end, a compromise would be made as to who pays for what. So both sets of taxpayers would end up paying because that is how negotiations work. That is likely to be the way it is, is it not?

Nick Harvey: That sounds to me a sensible characterisation of what I think would probably happen, yes.

Q345 Chair: I want to seek a bit of clarification on this because these matters are obviously important. Taking account of the fact that you have not been formally approached about any of this, if we had a situation where on day zero-the day after a separation referendum and it was carried-you were told, "This has to be moved," and if the rest of the UK decided that it wanted to retain Trident, can you give us some sort of indication of how long that might take to rebuild? We have had some discussions with witnesses here and they were vague about the time. Since then it has been suggested to me that it would be 15 to 20 years. I want to be clear about what the nature of the negotiations might be. If the Scottish Government wished to be reasonable and said, "We will give you a period to remove it," and the period is 15 to 20 years, would that be the ballpark figure that would allow you to relocate?

Peter Luff: In the context of the fact, what Nick said is right: we have done no detailed thinking about this. Nevertheless, one has to recognise that one is moving nuclear- qualified facilities and the standard of safety required is absolutely enormous. Even quite simple engineering tasks for a conventional boat/ship become immensely more complicated when dealing with nuclear facilities.

I am going to Faslane to see the new jetties being constructed. It is a saga in itself. One jetty has been a huge struggle. There are massive problems with the contractor meeting the very testing requirements of a nuclear-qualified facility. It is not just a question of shoving up a few buildings. It is a question of creating an immensely strong infrastructure against any seismic shock, for example, that you can possibly foresee. The orders of magnitude for the construction complexity are significantly greater than any other more routine defence investment. Therefore, I have no reason to challenge the figure you are giving but I cannot justify it either. They are much longer periods of time than are normal for construction projects.

Nick Harvey: Absolutely spot on.

Q346 Chair: I ask because we will obviously want to pursue with the Scottish Government at some point the question of the 20-year figure. If that is deemed by people, including the Defence Academy, to be a reasonable figure for moving, we will then want to clarify with them whether or not they are prepared to allow Trident 20 years until such time as replacements are built.

Peter Luff: Chairman, I would have thought you would also need a period of consultation with the local population where you are moving it to. It would be a very long project indeed. It could not happen in a couple of years.

Q347 Chair: That is why the advice we had of 20 years seemed to me to be not wildly unreasonable. Have you discussed or considered in the short term seeking agreement from our French allies that perhaps some of our nuclear materials or submarines would be based in conjunction with the French nuclear weapons and submarines? We heard from some of the previous witnesses that there is surplus capacity for nuclear storage in some of the French facilities. They have nuclear submarine bases and this might be possible as a short-term measure before a long-term solution was found. Therefore, the 20-year figure might be considerably reduced.

Nick Harvey: We have had no such discussion.

Q348 Chair: Would you consider having a word with the French about this? I can speak to them the next time I see them, but I suspect that your relationship is slightly better than mine. Well, no, perhaps since I support the President, then possibly mine would be better than yours. Either way, I would suggest that this is something that is examined. It might very well be that, if there is an urgency applied to the removal of Trident and you want to keep it, then you would want to look at other solutions like that.

Peter Luff: Chairman, you will understand that we are engaged in a programme of collaboration on nuclear issues with the French, but these are very difficult areas with very challenging security issues around them. They cannot be rushed into. The idea of dumping off the boats there for a few years while we sort out a long-term solution would be a little tricky to manage. That is my immediate instinct but we have given this no thought. That is my immediate reaction.

Nick Harvey: I agree. Even what you are describing, as reasonable as you make it sound, would in practice be immensely difficult.

Q349 Chair: Before we accepted that, we would have to prove it. We would have to have some evidence that that was not doable, as it were. To be realistic, if the Scottish Government did win, we had separation, they wanted Trident out and they were willing to be reasonable, they would have to be satisfied that you had no alternative but to keep them there for 20 years. It is not an unreasonable point to pursue with you.

Nick Harvey: I am not saying that anything cannot be done.

Q350 Chair: Good. That is the first time the MOD has ever said that.

Nick Harvey: I am saying it would be difficult and not straightforward.

Q351 Chair: Ah yes-that is the traditional MOD caveat. You forgot to mention expensive.

Peter Luff: And lengthy.

Nick Harvey: I took all of that as read.

Q352 Chair: Very wise. I turn now to the question of the division of assets in the event of separation. It would be helpful if you could let us have a list of all the MOD facilities in Scotland together with, where you have them, lists of the civilian and military personnel involved. It would also be helpful if you were willing to agree that, in principle, Members of the Committee, possibly over this summer and subsequent periods, were able to visit and look at these. Obviously we would want to identify what facilities might be under threat, the numbers of jobs that might be lost and the like. Unless there is anything particularly secret-the local papers probably know about it anyway-if you were willing to open the way for us that would be helpful.

Nick Harvey: I cannot see any objection to what you are describing. I am sure that your officials and ours could follow up with some of the detail.

Q353 Chair: I think I know the answer to this, but I want to clarify whether or not the Scottish Government have given you any indication as to which of the existing UK MOD bases in Scotland they would want to retain post-separation.

Nick Harvey: As we have already established, we have had no such discussions with them. We have seen statements from SNP figures saying that the defence footprint that we have defined for Future Force 2020 of one principal RAF base, one naval base and a deployable army brigade is the footprint that they would want for an independent Scottish defence force. That may be so. What they would base at their naval base and their air base, and how they would construct their army and what they would do with it, are not matters for us.

My broad observation would be that the defence footprint in Scotland at the moment is comprehensively integrated with the whole of the United Kingdom’s defence capability. What is based in Scotland is not there by accident. It is based there because it makes sense in military terms for the defence of the UK as a whole. What the foreign policy would be of an independent Scotland, what the defence or security ambition and policy would be, what sort of forces they would want and what they would intend to do with them would be matters for a future Scottish Government. Why that would, by complete coincidence, be reflective of what the UK Government currently locate in Scotland I cannot begin to imagine, but I suppose their starting point would be that they would aspire to use existing defence assets or at least some of them.

Q354 Jim McGovern: Chair, you said when you asked the question that you thought you knew the answer to that question. Was that the answer you thought you were going to get?

Chair: Basically the short answer I expected was, "We don’t know what they want," but that was the long answer. That was the answer that had been prepared by his civil servants beforehand, and delivered very well, if I may say so.

Peter Luff: I would like to emphasise what Nick said about this interrelatedness point. It is very important. The Secretary of State used a phrase that it is not just like breaking a couple of lumps of chocolate off a bar. There is a total integration. You cannot just break what you have.

Chair: We have some questions on that later on and we will come on to that.

Q355 Iain McKenzie: With respect to assets in Scotland, has the MOD given any thought to the ones on which you would like to come to an arrangement to continue to use, if separation should take place, and other assets that you may look to dismantle, take and place in other parts of the UK?

Nick Harvey: We haven’t for the reason that I set out earlier-that we are not preparing for this contingency because we do not believe it is going to happen. We are working pretty flat out on running defence as it is. I would observe in response to your question that it would depend entirely on what sort of relationship we had with the defence force of an independent Scotland. Our starting point is that we would expect them to be friendly, allied neighbours and we would hope to have some sort of co-operative relationship with them. We have already touched on Mike Freer’s question about whether or not they were in NATO, which would be very significant. We have no idea what sort of forces they would have. At the moment the UK forces have global interests and ambitions. We are geared up for expeditionary warfare. I have no idea whether a future Scottish force would have that sort of ambition or a far more limited ambition. Therefore, the scope for working with them is hard to determine. Whether or not they would propose any sort of shared security with us, who knows?

Q356 Iain McKenzie: Are there any properties in Scotland you would like to negotiate continued use of? For instance, there is Cape Wrath.

Nick Harvey: It is certainly the case that there are facilities in Scotland that, in an ideal world, we would wish to continue using. Therefore, as part of that big negotiation I described, and as part of an ongoing defence relationship, I can think of facilities particularly with reference to training, and we have already discussed Faslane, which in an ideal world the residual UK Armed Forces would be very keen to use.

Peter Luff: I want to add not Rangers but the ranges into this as well. Last year I visited Benbecula in the Hebrides range and saw that incredibly large air-to-surface range with a phenomenal ability to take a large amount of airspace and conduct really important tests. How do we know on what basis we will be able to continue using it? Would the kind of weapons we would want to test there be acceptable to the Scottish Government? What nationalities would be able to operate these ranges? There are so many imponderables around this. I would very much like to be able to use that Hebrides range, but until I know more about the defence posture in Scotland I cannot begin to assess whether I could use it or not.

Q357 Chair: Being willing to stay on and use Cape Wrath and the Hebrides range, and willing to pay money for it, presumably, would to some extent depend upon how agreeable the negotiations were about Trident. Is that fair to say?

Nick Harvey: I cannot speculate about the linkages of different issues within a negotiation, but I say again, clearly at the point the separation was being negotiated, there would be a pretty vast and comprehensive negotiation and then, on an ongoing basis, we would expect to have some sort of relationship and would regularly negotiate things as part of that. It is quite impossible to predict outcomes or interconnectivities, but there will be a variety of issues that we would want to discuss.

Q358 Lindsay Roy: It is very clear from what you are saying that dividing up assets would be a real challenge. One quarter of an aircraft carrier would not be much help to an independent Scotland. Can you envisage a set of criteria being established for dividing up assets?

Nick Harvey: You make a good point. The Defence Secretary has said that it is not just like snapping a piece off a chocolate bar. When you had some of your defence experts in a couple of weeks ago, there was a general view among them that an independent Scottish defence force would be unlikely, for example, to want or need fast jets. It is probably just as well because the costs of trying to run some sort of miniature fleet of highly sophisticated aircraft or complex warships would, I would surmise, be completely uneconomic. I do not think that the concept of dividing military assets is a simple or straightforward one at all. That is before we even get into the realms of what a Scottish defence force would plan to do or what it wanted kit for.

Q359 Lindsay Roy: That is because it would be very difficult at this stage to know what the strategic priorities were for a separate Scotland, if that ever came into being.

Nick Harvey: Quite so.

Q360 Lindsay Roy: I want to pursue another area in relation to the strategic reasons for keeping Lossiemouth open, in particular as a base for fast jets. Would you like to comment on that?

Nick Harvey: Historically, there has been a fast jet base at Lossiemouth because the potential aerial threat was perceived to be coming from that direction. That was certainly a part of the underthinking that underpinned the decisions taken during and pursuant to the SDSR. That is not to say that Lossiemouth is the only place from which we could defend ourselves in aerial terms, but it was the view of this Government, as it has been of previous Governments, that it was a very good place from which to do so.

Q361 Lindsay Roy: Has there been any thought to stay at Leuchars, because I understand that recently a review indicated that it would cost around £40 million to transfer and a £10 million on-cost every year thereafter?

Nick Harvey: I do not recognise any of those figures.

Q362 Lindsay Roy: They are from Philip Hammond.

Nick Harvey: Without understanding the context, I cannot offer intelligent comment on them. There is no plan to review the choice between Lossiemouth and Leuchars. Either which way round, there are costs. At the moment Lossiemouth is still working very hard as a Tornado base. The question of where you build up the Typhoon capabilities will bring costs with it either which way.

Q363 Lindsay Roy: I am sure you are aware that the second group of Typhoons is now being based at Leuchars. The issue, therefore, is that at a time of diminishing resources, if you have to fork out another £10 million a year and £40 million, I just wondered if there had been a further review.

Nick Harvey: There has not been a further review thus far, certainly.

Q364 Lindsay Roy: Can you indicate how many jets will be based at Lossiemouth and how many personnel?

Nick Harvey: The plan is eventually to base three squadrons there. You will end up with a military footprint of between 1,500 and 2,000.

Q365 Lindsay Roy: To be clear, that would be in jeopardy if Scotland became a separate state.

Nick Harvey: It is quite impossible to predict what would happen. I know that some of the SNP figures have talked up a concept of joint defence. This is not a concept or a doctrine that we recognise. We cannot see anywhere in the world an example of joint defences among sovereign UN member states. Even with relatively small countries-for example, the division of Czechoslovakia into the Czech Republic and Slovakia-they divided out their military capabilities. Certainly I am unpersuaded by the idea that they have floated of joint defence. I do not think it is out of the question that we could have co-operative defence arrangements. Where those might lead us in terms of where we might base anything, time alone will tell. I think you asked me whether it at least put a question mark over that. It must do.

Q366 Lindsay Roy: Apart from floating the idea, there has been no real discussion of any possible joint venture. It would seem nonsensical to make a huge investment, if indeed that was likely to be the outcome of separation.

Nick Harvey: Are you talking about investment before the referendum or after?

Q367 Lindsay Roy: I am talking about investment in gearing up Lossiemouth and indeed the costs of transfer from Leuchars.

Nick Harvey: Lossiemouth is still very busy as a Tornado base.

Q368 Lindsay Roy: Yes, but it is Typhoons for the future.

Nick Harvey: We may know the answer to this question in time.

Q369 Lindsay Roy: Lastly, can you tell us about the size of the RAF Search and Rescue presence in Scotland?

Nick Harvey: As you are aware, from 2016 Search and Rescue will be provided by a civilian contractor with the Department for Transport as the lead Department for that. Therefore, irrespective of the independence question, that will cease to be a uniformed defence service any which way.

Q370 Lindsay Roy: Can you clarify how many people will be based in Scotland in that scenario?

Nick Harvey: None.

Q371 Chair: That has the merit of clarity.

Peter Luff: No military personnel. It will be a civilianised service run by the Department for Transport. It is being bid for at present. The contract is at an advanced stage of competition. It will be up to the contractor to determine how many people he or she will be using in the contract. Scotland will be adequately well covered by the service.

Q372 Chair: I want to clarify one point arising from what has been said. You did mention when we were discussing Lossiemouth that it is the best point "from which to defend ourselves". Of course, after separation, the MOD based in London would have a different "ourselves" to defend, as it were. I want to clarify whether or not it would be your view that sharing of bases would be appropriate. You can tell me whether or not you actually share bases anywhere else in the world. The Scottish Government have suggested, "We will all be pals together and we can just share a base." I am not entirely clear how sharing would work in those circumstances.

Nick Harvey: I think sharing of bases is intrinsically a rather difficult proposition. It is certainly the case, for example, that we and the Americans have bases adjacent to each other at Bastion, where the American Leatherneck facility is next door. These of course are operating bases; they are not permanent home bases. The difficulty of having joint bases, if you have two different Governments pursuing two different foreign policies and two different defence policies, is what would happen in the event that there was a divergence of view, for example, about deploying aircraft or naval assets in this joint base. Would the Government that did not wish to get involved start trying to frustrate the preparations of the one that did wish to? This is intrinsically a very difficult proposition.

By contrast, if a future Scottish Government were to make an assessment that they felt that Scotland faced a similar aerial threat from the north that the residual UK believed it did and were to negotiate with the residual UK that it provided air cover for Scotland, and as part of that arrangement some decision was made to base part of that capability somewhere in Scotland, with the UK operating it in a sovereign sense but providing some cover to Scotland, I could imagine an arrangement of that sort being negotiated, but joint bases, joint capability and joint assets are an intrinsically difficult proposition for which I think you will struggle to find analogies.

Q373 Chair: That is no then to jointery. Anything that you had would have to be sovereign. Perhaps there might be an agreement on objectives and so on, but it would have to be sovereign control. We will want to explore this with the Scottish Government. If you are saying, as I think you are, no to jointery, then it is either having a sovereign element within a base or a separate base with an agreed objective and so on, but you cannot have two masters for the one aircraft.

Nick Harvey: I am certainly saying that last point, yes.

Q374 Mr Reid: We talked earlier about the likes of Faslane becoming a sovereign base. Obviously, with a base on the coast, the submarines sail out into international waters, but, if you have a sovereign air base, does that mean you would also be insisting on the right to overfly any Scottish territory at any time?

Nick Harvey: You are inviting me into areas that I have made clear from the outset we have not considered because we are not planning for this contingency. We make overflight arrangements with various countries around the world to cover a variety of activities. In the event of Scotland becoming independent, frankly, regardless of basing, we would expect to try to negotiate overflight, come what may.

Q375 Chair: Surely these things must be negotiated elsewhere in NATO.

Nick Harvey: Precisely, yes.

Chair: Of course, if Scotland was in NATO, then they could just adopt the usual pattern. It is not in NATO just now but that is this week; it might very well be in NATO by next week. David now wants to ask some questions about procurement.

Q376 David Mowat: Just before we go to procurement, it strikes me that the example you gave of the sovereign thing, Nick, was a bit like a country outsourcing defence. The example you gave was Scotland saying to England, "We would like you to defend our northern airspace." That is the analogy in commercial terms, is it not?

Nick Harvey: Yes. You could look at it like that, but all countries around the world, even the Americans, are feeling the pinch. We all have understandings with each other about the circumstances in which allies will help each other. There are many agreements in place all over the world between allied nations. We have memorandums of understanding with a huge number of friendly countries covering a vast range of different things. Yes, style it as outsourcing if you like, but what I am saying is that that would not be without analogy. There would be many comparable arrangements to be found everywhere, but joint assets and joint bases serving two masters, as it were, as the Chairman put it, would be entirely novel. A co-operative arrangement of sharing burdens is becoming increasingly common.

Q377 David Mowat: It made me think that the Scottish Government could outsource their entire defence to the UK if they so chose under that scenario that you gave, but let me go on to procurement.

Lindsay Roy: That would not be independence.

Nick Harvey: That is called a Union.

Q378 David Mowat: We have been wrestling with the area of procurement policy and the way that contracts could be divvied up between the UK, Europe and indeed an independent Scotland. Before we do that, Scotland is about 10% of the UK. How much of the procurement of the MOD is in Scotland? Would you say it is more or less than that?

Peter Luff: We do not count those figures because we are a Union and I would regard defence expenditure for defence purposes. We do not look at those figures. The most recent figures I have seen were in this week’s Jane’s Defence Weekly, where there is a six-page article on the consequence of independence for defence. Yes, something like 10% of UK jobs in defence are in Scotland compared with a population share of just over 8%. It means Scotland has a disproportionately large share of the United Kingdom’s defence expenditure if those figures are the case.

Q379 David Mowat: But not massively so.

Peter Luff: No. The Secretary of State for Scotland has told this Committee, I believe, that some 40,000 people are involved in about 800 different companies.1 It is a very big engagement. Again, as with the Armed Forces themselves, the relationship is close and intimate. It is not easily separated.

Q380 David Mowat: In terms of procurement policy you have all the EU directives that you have to follow, presumably, like everybody else does, but am I right in saying that that does not apply to equipment that can be used in war? Is it article 346?

Peter Luff: So much of what we have had to say today is hedged around with conditions and qualifications because we do not know the situation. Here I can offer the Committee some absolute clarity. It is true that the Commission is currently trying to create a more genuine single market in defence products. It is bearing down on countries that have unilaterally used protectionist measures to procure only from their own defence companies. That is true. Nevertheless, the Commission does recognise-it is enshrined in European law and we have put the directives into our law as well-that there are special exemptions for defence.

Article 346, as you rightly say, of the Treaty on the Functioning of the European Union, known as article 296 in previous treaties, makes it very clear, and I quote, that "any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material; such measures shall not adversely affect the conditions of competition in the internal market regarding products which are not intended for specifically military purposes". In other words, where we think our security depends on this, the Commission does allow us to procure within the United Kingdom.

The test that we apply as a country is a test of operational advantage and freedom of action. We believe in our ability to maintain an operational advantage and a competitive edge over our enemy. We want to do it ourselves and we want to guarantee that we can actually maintain that action and not depend on foreign countries to maintain that action. Again, we wish to do it ourselves. It is true that we do prefer open procurement in international markets where we can, but very often this means you have to buy stuff from the countries-

Q381 David Mowat: For clarity, your 346 exemption would be applied when you have operational advantage-

Peter Luff: Where we wish to maintain our operational freedom of action we would apply the article 346 exemption, yes. That would mean we could not buy from an independent or separate Scotland. On the other hand, were we not to apply the article 346 exemption, we would be obliged to compete the contract internationally. We could not favour Scotland, England, Wales or Northern Ireland.

Q382 David Mowat: Approximately what percentage of your total spend would you say is under the 346 exemption versus the rest?

Peter Luff: That is a very good question, which I cannot answer directly. I can tell you that 40% of our expenditure is non-competitive at present. Of course shipbuilding comes under this exemption so it is a very important part of the Scottish future. We are trying to drive this down.

Q383 David Mowat: Of that 10% in Scotland that you mentioned at the start, a good chunk of that will be 346 exemptions-i.e. shipbuilding.

Peter Luff: Complex warshipbuilding comes under the article 346 exemption, yes.

Q384 David Mowat: Therefore, future contracts of that type would possibly not be in Clyde.

Peter Luff: When we come to build the new Type 26 frigate-the Global Combat Ship-we will have to apply for an exemption under article 346 to enable us to build it within the United Kingdom without contracting it. That means that, if Scotland is separate, we cannot build it in Scotland.

Q385 David Mowat: Would it be possible for you to give to us-or write to us about it later-the percentage of your total procurement spend under 346?

Peter Luff: I will see what analysis I can have done on that. I am not sure what analysis I can helpfully give you.

Q386 David Mowat: The carrier project is a contract with British Aerospace and not Scotland per se.

Peter Luff: The Aircraft Carrier Alliance runs that together with other companies.

Q387 David Mowat: There are presumably lots of subcontracts within it, stages and everything else. Could there be a requirement, if Scotland separated, for that work to move?

Peter Luff: In practical terms it would be very difficult at this stage. The first carrier is at a very advanced stage of assembly at the site, of course, in the Babcock facility. The work on the second carrier is also at an advanced stage.

Q388 David Mowat: So you would not use 346 in that case.

Peter Luff: I think it is unlikely that it would be practical or sensible to do that. My understanding is that the exemption applies to the prevailing conditions at the time it is applied. It would not be invalidated by a Scottish separate state. The carriers would not be affected, as I understand it. The Type 26 Global Combat Ship would.

Q389 David Mowat: That is useful. I have one final point on this area. For the non-346 spend, for the avoidance of doubt, I presume the status of Scotland would be the same as the status of any other country.

Peter Luff: Yes.

Q390 David Mowat: I was going to say in the single market or in the world.

Peter Luff: In the world.

Q391 David Mowat: So it would be the same status as South Korea.

Peter Luff: The Scottish defence industry is very competitive. They may well win many of these contracts because they are fine businesses, but they will be competing internationally in those circumstances. I want to say something else about the carriers, just to make one thing absolutely clear. We often focus on the construction of a particular platform or asset. Through-life maintenance and support are often of a greater value to the economy. We would not be able to maintain complex warships in a country where we could not guarantee our freedom of action. It is as though Scotland would disqualify itself from the maintenance of ships.

Q392 David Mowat: As you say, in the life cycle of the carriers, presumably all the maintenance would currently be done out of Clyde.

Peter Luff: We have not yet taken a decision as to where the aircraft carriers will be maintained. That decision will be taken around the middle of the decade. I do not see how we could maintain an aircraft carrier in a separate Scotland.

David Mowat: That is quite a separate point.

Q393 Chair: I want to be clear on one point relating to that. If the contract to maintain the aircraft carriers is awarded to a company and then the constitutional position changes, do the MOD have the right to redirect that contract to within the rest of the UK or are they tied by the terms of the contract that they have already signed?

Peter Luff: As I understand it-and I will be corrected, I am sure, by my officials if I get this complex piece of European Union law wrong-if we apply an article 346 exemption and begin the work, should something change the status thereafter, we can, legally, continue the work. We might choose not to do so for operational reasons, but, legally, we are able to continue the work. We could continue to construct the aircraft carriers irrespective of the separate state of Scotland. Where we have not begun work on a particular product-a particular platform, or shed, whatever it is-and we then have to apply an article 346 exemption afresh, we could not build them in a separate state. Is that clear enough, Chairman?

Q394 Chair: Not entirely. For example, the design work on the Type 26 has begun. Is that work that has begun and therefore can be completely allocated to Scotland even if Scotland is separate?

Peter Luff: That would be fine, yes. We will have the main gate decision around the middle of the decade. At that stage and thereafter we will sign a contract with a supplier to build the ships. The aspiration of the Scottish National Party is that they should be separate at that stage. That would mean we could not, if we applied the warlike stores exemption under article 346, invite a Scottish yard to bid for that contract.

Q395 Chair: To clarify this point, if we take day zero as being the date of the referendum, if the contract is signed on day zero minus one, then it could run, as the Type 26 order is expected to, for some 15 to 20 years. If it is signed on day zero plus one, then it could not.

Peter Luff: The point about applying for a warlike stores exemption is that it is open to challenge by the European Commission other member states. It is effectively a public process. In those circumstances you may well see a challenge from other countries saying, "Hey, hang about a bit. Scotland may become independent or is about to become independent, and we have a right to bid for this contract too." It is quite a complex position. There are many hypotheticals in this, but I can give you the absolute guarantee that, if we did not apply for an article 346 exemption, then Scotland would have to compete internationally. If we did apply, it could not do it.

Q396 Chair: Again, to clarify this, Scotland would not be bidding. It would be BAE that was bidding. BAE has yards in both England and Scotland. If they win the contract and then decide to award it to England and the separation comes, there is no difficulty there in the sense of the hypotheticals. If, however, they decide to allocate it to Scotland, what I am not clear about is whether or not you would then be obliged to move it, whether or not the contract would run, or whether or not indeed you would be able to instruct BAE to redirect the work.

Peter Luff: Let me try and unpack that one as slowly as I can to make sure I do not mislead the Committee unintentionally.

Q397 Chair: If necessary, write to us. We are not trying to catch you out today.

Peter Luff: Many things would vary in this situation. For example, the number of ships in the contract could well vary in such circumstances. Our view of the desirability of building a ship in Scotland might or might not change, depending on the defence posture that Scotland had taken if it were to become separate. Many moving parts are present here. It is certainly the case that, if we decided, freely and willingly, to enter into a contract prior to independence, we could continue with that contract should we choose to do so.

Q398 David Mowat: Is article 346 a geographic thing or an ownership of the company thing? For example, if an American company or a Russian company builds stuff in England under a 346 contract, that would be fine? Is it who owns the company or where they do the work?

Peter Luff: I am not a lawyer so I must be careful. I read out to the Committee the relevant provisions of article 346. What it says is: "Any Member State may take such measures as it considers necessary for the protection of essential interests of its security." We can define our own security requirements. The interests of the single market do not override our own definition of our security interests. We are at liberty to do what we think is necessary to protect our security interests. That is my understanding.

Q399 David Mowat: If you choose to let a contract of that type to a Russian company that was going to build it in England, that would be your choice.

Peter Luff: This is a very hypothetical situation, but I am largely blind to the ownership of companies operating in the United Kingdom. I regard them as being British companies, whether it is Lockheed Martin, Boeing, Raytheon or whoever it may be. I regard them as British companies. We require a surety around the contractors providing the service, security clearances and so on. It is a complex process. How we would choose to define our national security interests is up to us.

Q400 David Mowat: I was reflecting on the fact that you say 10% of defence procurement is done in Scotland.

Peter Luff: That is the story I have today.

Q401 David Mowat: That is not hugely out of balance. It does seem, though, that, if Scotland were separate, the nature of the procurement that they did would be different because you would not get the big ticket items as are being done now. Although the total volume might not change that much, you would not get aircraft carriers because they do not need two of those, do they?

Peter Luff: I would go further than that. I would say it is almost inevitable that, if Scotland were to separate from the rest of the United Kingdom, the volume of defence contracting in that country would reduce. Where we apply the article 346 exemption, we cannot do it in Scotland. I know individual companies in Scotland are saying to me privately, "In the event of separation we would consider moving south of the border because we want to keep our access."

Q402 David Mowat: In fairness, though, Scotland would presumably have some kind of defence industry and defence spending themselves, which they would have in the other direction.

Peter Luff: Yes.

Q403 David Mowat: What I was getting at is that the nature of the items would be different. A bigger country like UK residual can do aircraft carriers, whereas it is unlikely that a residual Scottish defence establishment would need that.

Peter Luff: I am rather obsessed with small and medium-sized businesses because they do provide enormous innovation in defence. I would say not only the bigger ticket items like aircraft carriers and ships, which you have identified, but the very clever cutting-edge technologies that often spin off into civilian technologies would also be at risk.

Q404 Jim McGovern: At the risk of digressing, the question I want to ask is certainly about procurement but possibly not about Scotland’s separation from the UK. I had a meeting with Peter possibly about 18 months ago about the subject of Remploy. The Remploy factory in Dundee produces fantastic uniforms and depends almost entirely on MOD contracts. At that time, at that meeting, you said I should make a nuisance of myself. That is exactly what I am doing now. When are you going to come to Dundee and visit the Remploy factory?

Peter Luff: I should have prepared myself for questions about Remploy. I have not done so, Chairman. I promise to talk to you again, Mr McGovern, about Remploy.

Q405 Iain McKenzie: I want to explore the non-346 contracts to get an idea of the variety of products that fall within that. Are we talking about sophisticated high-end, high-spec additional apparatus for ships and so on, or are we simply talking about putting out general contracts for toilet roll holders or whatever?

Peter Luff: The most controversial non-346 contract that we have let in the last two years was for the MARS tankers for the Royal Fleet Auxiliary. A decision was taken by the last Government-in my view quite rightly-that they could not apply for a warlike stores exemption for them. They are important ships, but they are basically tankers for the Royal Fleet Auxiliary and not for the Royal Navy itself. The last Government, in my view rightly, decided that they had to run an international competition for those ships. They are very largely British components going into those ships; they are British-designed. I am sure they will be customised in the United Kingdom as well. They bring huge economic benefit to the UK, but the basic ships are being built in Korea. I will be going in a couple of weeks to see the shipyard and discuss some issues around that construction with the guy who will be building them.

Q406 Iain McKenzie: We are talking about low-end, low-spec, low-tech, and that is the sort of market that Scotland after separation will be competing in if they want to get those contracts.

Peter Luff: There will be some reasonable stuff as well. You are right that, by definition, it tends to be the case that the most complex weapons and technologies, made by companies like Raytheon, tend to have the security exemptions applied to them. The very interesting technologies would be likely to be retained within the United Kingdom, yes, or what remains of the United Kingdom.

Q407 Chair: Following up that point and taking the example of Raytheon in my colleague’s constituency, at the moment you give them priority because they are within the United Kingdom. If you wish to retain the intellectual property that that firm has got, which has been paid for by the MOD, how do you ensure that that happens if they choose to remain in Scotland?

Peter Luff: I am not going to comment on any one particular company. I do not want to be specific. If a company chose to exclude itself from competition for warlike stores within what remains of the United Kingdom, and that product was particularly important, then that would be a cost to us. We would have to reinvent it with existing contractors. It would settle in what remains of the United Kingdom. That would be a challenge for us. I suspect on many occasions it would be a strange commercial decision for the company to take, but it would be a challenge for us. That is one of the many reasons I do not want Scotland to separate from the United Kingdom.

Q408 Chair: I understand that but I want to be clear. I obviously have other defence firms in my constituency, as do some of my colleagues. I just want to be clear that, if they have been awarded contracts by the MOD under your most favoured status, as it were, and the MOD covers only England, Wales and Northern Ireland, they will then have the choice of either losing that business and competing internationally or relocating to England. The only way they can be sure of it is by relocating to somewhere else within greater England or the rest of the UK.

Peter Luff: Your analysis is pretty strong and powerful, Chairman.

Q409 Lindsay Roy: Is the time delay before the referendum on separation causing any problems for strategic planning? Are you in a position where you say, "We might delay that a bit further"?

Peter Luff: I am not yet aware of any serious challenge to our strategic planning.

Q410 Lindsay Roy: Is that something on the horizon?

Peter Luff: I can see that it might become a problem in due course.

Q411 Lindsay Roy: And possibly a difficulty for companies who are applying for contracts.

Peter Luff: Certainly it will create considerable commercial uncertainty for the companies themselves. It may at some stage pose a challenge for us too; I can see that.

Q412 Lindsay Roy: Have you been approached by companies about their concerns?

Peter Luff: As I think I said earlier, privately a number of companies have indicated to me that potentially they are undertaking planning, reflecting what they might do, but they are unprepared to say this in public.

Q413 Lindsay Roy: I can understand why. Is the number in teens?

Peter Luff: I have spoken to a number of contractors but I would not like to go beyond that. It would not be fair. It would breach the confidence.

Lindsay Roy: I am not asking for names; it was just a quantitative analysis.

Q414 Chair: Could you possibly reflect on the fact that, as you have said, a number of companies are making contingency plans for the possibility of separation and yet the MOD is not? Does that not seem strange to you?

Nick Harvey: I made clear that it is not the case that we have not thought about these issues, but we don’t have a contingency plan because there are so many imponderables and so many unknowns. Until we get some clarity on them, it is hard to make an intelligent plan.

Q415 Chair: Clarity is being sought; right.

Peter Luff: This is where there is an air of clarity. The article 346 issue gives great clarity to what will happen and there can be no misunderstanding about it.

Q416 Mr Reid: When you advertise for bids for non-346 work, are you able to tell us what proportion of that work is won by companies within the UK?

Peter Luff: I can tell you that, historically, a very high proportion of competitive and non-competitive work stays in the UK. Round about 85% or 90% is the kind of figure overall that stays within the United Kingdom within competitions. We have a very highly competitive, successful, skilled and technically advanced defence sector. We are the second largest defence exporter in the world. We have a very strong defence sector, of which the Scottish industry and companies are a very strong and important part. We have a very strong defence business. We are the fourth largest defence budget in the world. It is hardly surprising that we are so well placed. A very high proportion is won by British companies.

Q417 Mr Reid: In relation to the amount that is not won by British companies, are there one or two countries that tend to win most of that?

Peter Luff: There is a lot of work for America of course-United States work. A lot of commodities come from the traditional commodity-supplying countries, where the UK is not competitive. America must be our biggest single trading partner outside the United Kingdom.

Q418 Chair: I want to be clear about the position of firms such as QinetiQ. We mentioned the range. That is presumably being operated by them under contract <?oasys [pc10p0] ?>to the MOD. Presumably the MOD would then be able to end that contract and move it somewhere else at the break point, should they so desire. It is not there for ever necessarily should we have separation.

Peter Luff: I do not think I ought to get into a contractual discussion. Even if I knew the answer to that question, I do not think I would share it across a Committee room because it would be a contractual issue. It is certainly the case that, if we could not operate the ranges and deliver the kind of test and evaluation ranges in the way we needed to secure our national security, then we would have no need for the ranges. There are break points in contracts.

Q419 Chair: The Committee wants to clarify some of these issues with you. It will be necessary at some stage to have a discussion in private, where we indicate that we are interested in particular locations, in order to be absolutely clear about some of the dilemmas and difficulties that are being faced in Scotland. I can appreciate why you do not want to raise some of this in public, but you can understand why that is not acceptable to us. We do need to have some things a bit firmer.

Peter Luff: We do have many options for ranges, for example. The French would like us to use their ranges. We use American ranges, Australian ranges and German ranges. There are many options for ranges and there are many other places. We look at the best value and the best service for the security of the nation.

Q420 Pamela Nash: I want to go back to the article 346 contracts. We are trying to put it out there for the layperson reading this in the papers tomorrow. Can you tell us, Peter, when was the last time the Royal Navy ordered and built a warship in a foreign country?

Peter Luff: I am so grateful to you for asking me that question because I have to admit that I misled the trade unions. They came to see me on 16 May. I told them that it was at least 50 years. I am now prepared to take a political risk and go against the advice of my officials. I would say it is pushing 200 years. We built warships during the second world war outside these shores. They were not complex warships but simple things like the so-called Landing Ship, Tanks, which were the brainchild of Winston Churchill-a thousand of them were built in the United States of America to enable amphibious attacks on the D-Day beaches, for example-and we built some 200 or 300 wooden minesweepers around the world during the second world war in bizarre places like Tel Aviv, Bombay, Cochin, Singapore, Burma and Canada; so we have built ships. I am reminded by the naval historians-I hope this is not regarded as frivolous but it is an important point in many senses-that the Royal Navy has also operated many foreign-built complex warships acquired through seizure or capture and has also operated some simple built ships such as HMS Endurance and HMS Protector, but as to complex warships, I honestly think the answer is not for a couple of hundred years.

Q421 Pamela Nash: Apart from a period of national emergency, there has not been a warship commissioned outside the UK.

Peter Luff: That is correct.

Q422 Pamela Nash: Therefore Scotland would be seen as a foreign country and it would be unlikely.

Peter Luff: That is correct.

Q423 Mr Reid: Obviously I do not want you to refer to any one particular company, but I just wondered if, when you are giving out contracts for work that is very sensitive, the contracts tend to specify that the work must be carried out within the UK.

Peter Luff: They can contain precisely that criterion, yes.

Q424 Mr Reid: If Scotland then became not part of the UK, what has your legal advice said? Would the work then have to be moved to within the UK?

Peter Luff: We would have to look at it on a case-by-case basis. My instinct here-I am making this up as I go along now-is that we would have to look at it on a case-by-case basis for the individual contracts and projects and decide what was in the best interests of the taxpayer, the security of the nation and look into the project.

Q425 Mr Reid: Would the legal advice be such that, if you felt it was in the best interests of the residual UK taxpayer, then legally you would be able to tell that company they must transfer the work to within the rest of the UK?

Peter Luff: That is a very good question. I do not want to get this wrong, so I cannot answer that question.

Q426 Mr Reid: Can you write to us?

Peter Luff: I will see what I can say to you. I see the importance of it.

Q427 Chair: That is one of the points that we may wish to discuss with you in private at some point, naming particular companies, discussing particular contracts and establishing a view about what might happen in certain circumstances. I appreciate that due to commercial confidentiality you do not want to discuss this openly, but none the less we need to be clear.

Peter Luff: There are commercial and security issues as well.

Q428 Chair: Absolutely.

I now move on to issues relating to the Scottish regiments and related matters. First of all, could I again clarify that you have had no observations from the Scottish Government directly about the pattern of forces that they would wish, apart from saying that in manpower terms they want pretty much what you <?oasys [pc10p0] ?>happen to have decided that they were going to get? There have been no other submissions made or anything like that?

Nick Harvey: Chairman, are you asking whether they have made representations in the course of the current work being undertaken now?

Chair: No.

Nick Harvey: You are asking about independence.

Chair: Yes.

Nick Harvey: No.

Chair: Fine; I just wanted to clarify that again.

Q429 Jim McGovern: As regards the regiments, possibly I should declare a rather parochial interest in this. I represent Dundee, and the Black Watch traditionally recruit from Dundee, Tayside and Fife. My own grandfather served in the Black Watch and is buried in the Black Watch section of the cemetery in Gibraltar. What would the future hold for a separate Scotland for Scottish regiments and Scottish battalions?

Nick Harvey: This tracks us back to two questions that we have already touched upon. The first is what sort of defence an independent Scotland would want, what threat it thought it was trying to deter, what appetite it had for international engagement and therefore what configuration of forces it might wish to generate to those ends.

The other point that we have already touched upon is that the UK Armed Forces as currently configured are very complex and very interdependent, and regiments that happen to bear Scottish names or recruit from Scotland are integrated into brigades with other regiments and battalions that recruit in England, Wales or Ireland. In terms of their functionality, they hang together and work together as deployed formations. Therefore, if you were to simply say that regiments with a Scottish name or a Scottish tradition would form the basis of a future Scottish defence force, and those with English, Welsh and Northern Ireland traditions and names would form the future of a residual UK defence force, neither of them would be coherent. It simply would not make any sense.

Q430 Chair: With respect, we are not here to discuss whether or not the nationalist position is coherent. We are here to discuss what it is and what it would mean. We cannot go down the road, I am afraid, of discussing which of their policies would be coherent because that is impossible.

Jim McGovern: I was welcoming it, actually.

Nick Harvey: The worry I have as Minister for the UK Armed Forces is that, if our brigades were suddenly no longer to have the Scottish regiments within them, our Armed Forces would cease to be coherent as well.

Chair: That is a much more helpful way of putting it.

Q431 Jim McGovern: Do you think that, if this happens-it is all hypothetical-and Scotland was separated from the rest of the United Kingdom, the <?oasys [pc10p0] ?>remainder of the United Kingdom Armed Forces would still welcome Scots into the Armed Forces personnel?

Nick Harvey: The situation at the moment, as you know, is that the Armed Forces recruit from all over the Commonwealth. We recruit from Ireland.

Lindsay Roy: And Fiji.

Nick Harvey: We recruit from Fiji. In practice, what we do would reflect at any given point in time the prevailing legislation, the policy, the priorities, the needs and so on. As a point of principle, I can see no reason why we would not recruit from Scotland-none at all.

Q432 Jim McGovern: There is a current move to reduce the numbers of Regulars and increase the numbers of volunteers-the TA. Do you have a view on how the numbers would be affected if Scotland was separate?

Nick Harvey: I have no view whatever about what numbers a future Scottish defence force would comprise. That would be entirely a matter for them and would depend on what they wanted to do. The next Strategic Defence and Security Review for the UK is scheduled to take place in 2015, by which time the outcome of the Scottish referendum will be known. Without prejudicing an extremely complex piece of work, which will be conducted in three years, I would surmise that the UK would largely still retain its current view of global security and its current appetite for participating with allied nations in activities in all parts of the world and would very broadly, I think, wish to sustain Armed Forces of a comparable size to those which we are currently planning.

Q433 Jim McGovern: Finally, can I put you on the spot? Could you confirm that on your watch there will always be a Black Watch?

Nick Harvey: As you know, the Army is reviewing its regimental structures. At the moment it is reviewing its entire structure and force generation picture-

Jim McGovern: It is a one-word answer really.

Nick Harvey: As a consequence of that, there will sadly have to be slightly fewer regiments and battalions in the future. I would hope that an announcement will be made shortly and certainly before the summer recess.

Q434 Pamela Nash: At the moment Scots who are currently in the UK Armed Forces are becoming increasingly concerned about the possibility of separation, not just their formal status and what country they might be serving but also practical concerns about their own pensions and medical records. Has there been any approach at all so far from the Scottish Government to discuss what the future of the Scots currently in the UK Armed Forces might be?

Nick Harvey: No. As with similar questions you have asked on other fronts, there have been no such discussions. Let me say this if it is of any help to <?oasys [pc10p0] ?>those whom you describe as being worried. Soldiers, sailors and airmen cannot simply be co-opted. They cannot suddenly be declared to be part of another country’s Armed Forces. They would have to be given a choice, and it is far from clear that they would automatically choose to join the Armed Forces of an independent Scotland, the ambitions and activities of which we can only speculate about at this stage. But that they would find themselves shifted off wholesale is just not going to happen.

Q435 Pamela Nash: What about the future of people from other countries? A couple of people have mentioned those from Fiji who are serving in Scottish regiments at the moment. What would you say is a possibility for them?

Nick Harvey: People, wherever they are from, are in the same situation. We are not going to suddenly march them off into somebody else’s army.

Q436 Pamela Nash: So they would be absorbed into the new UK regiments.

Nick Harvey: They have joined the UK Army and would still be part of it.

Q437 Pamela Nash: In that case they would be treated like the Scots in the Army at that stage.

Nick Harvey: Wherever people have come from.

Q438 Pamela Nash: We were also discussing the fact that we have nine Scottish regiments at the moment but only three are based in Scotland. Would you see the future of those other six as remaining in the UK?

Nick Harvey: You make an interesting point. Regiments that recruit from Scotland are based in England and in Germany. Equally, there are English people serving in Scottish regiments as well. It comes back to the point of the whole thing being integrated and structured into a comprehensive and coherent whole. Until we see and understand what an independent Scotland thought it wanted by way of defence forces, it is quite impossible to see what future there will be for people serving Scotland’s defence.

Q439 Pamela Nash: This is very much your opinion and not in your ministerial role, but the Scottish Government’s consultation has basically said that those who are serving in those regiments at the moment not based in Scotland will not have a vote in the referendum. What do you think about that? If these people are putting themselves forward to serve their country, do you think they should have a vote?

Nick Harvey: There are Scottish people in many walks of life that happen currently to be working elsewhere and who will be equally aggrieved that they are not given a vote on this issue.

Q440 Pamela Nash: The difference, though, is that those in the Armed Forces are sent there and are serving their country. This is not the private sector where they have chosen to move out of Scotland for their own benefit.

Nick Harvey: I will discuss that issue with the Scotland Office and make that point to them.

Pamela Nash: That would be helpful.

Q441 Chair: I want to clarify a couple of points. We indicated earlier on that we might want to visit some bases and some suppliers. The same thing would apply to the regiments as well; we may want to visit them. I presume that that is agreeable to you. We would also want to have some discussion with people in the regiments, on the same terms as those of us who have been on the Armed Forces Parliamentary Scheme have had discussions, just on an informal basis. It would be helpful if you were able to expedite that.

It would be helpful as well if you were able to give us some factual material. We note here that there are nine Scottish regiments, three of which are based in Scotland at the moment. It would be helpful if you were able to give us the figures on what their capacity is, how high up they are in terms of staffing and how many of their number are overseas citizens. Obviously we will want to ask any putative Scottish Government whether or not they would intend to retain all the Scottish regiments, so we need to know what level of commitment that might mean for them in manpower and financial terms. There are a couple of artillery regiments and there is at least one tank regiment. We will need to clarify with them whether or not they would intend to retain those. It is only fair that we give them an indication of the scale of numbers and expenditure that that might involve. If you could let us have that, that would be very helpful.

Nick Harvey: We will give you what statistics we can. We do not always know what the country of origin of every member of the Armed Forces is. There will be people serving in English regiments who may have been born in Scotland or of Scottish parentage. We will not necessarily have a comprehensive picture on that. Similarly, there are English people serving in Scottish regiments. We will not necessarily know that either, but we will be as helpful as we can be.

Q442 Chair: The Fijians are generally easier to spot in these circumstances.

Nick Harvey: I follow your logic, Chairman.

Q443 Chair: We want those sorts of figures. It would also be helpful for the Committee if we could have some sort of briefing. I understand your point that these cannot be seen in isolation, and they need other elements of the forces to support them and so on. I do not have a feel for that, I must admit. I am not quite sure of the sort of figures we are discussing, what sort of units are necessary, and therefore what might be necessary in order to add to that. It would be helpful if we had co-operation, and that might be where the Defence Academy or somebody similar helped us with that sort of information, because it would be factually important for us to have that.

The other point I wanted to clarify is the nature of the relationship that Sandhurst and other colleges-Cranwell and Dartmouth-have with other countries and whether or not arrangements could be reached with a separate Scotland whereby officer training could take place for separate Scottish services in these locations, or whether it is only members of NATO, for example, or anything else that can use them. I am not quite sure whether that was touched on in the points that Pamela made; I was not able to hear all of it.

Nick Harvey: Chairman, students come from all over the world to those colleges, not only from NATO or the Commonwealth but literally from countries all over the world. The arrangements and who pays for them, for example, will differ depending on which country it is. The point I would make is that demand for places always dramatically exceeds supply. It would not be possible for us to make an offer to any other country that we could fulfil all of its officer training in our academies.

Q444 Chair: Again, it would be helpful if we had some guidance from you about what might be necessary to establish officer training structures for home defence forces-how many officers might be required by a Scottish home guard, how they might be trained and so on, and similarly the naval home guard and stuff like that. All of these are presumably separate. The officer training is not contained within the existing Scottish regiments, is it? If an independent Scotland retained all the Scottish regiments, there would still have to be a separate officer training structure; is that correct?

Nick Harvey: It is correct that the training is not done entirely within regiments. That is absolutely right. A future Scottish defence force would certainly need to be making some arrangements of its own. Your question was about if the future Scottish defence force was to take on the Scottish regiments or, if you like, regiments with Scottish names. That is a mighty big "if". If some of those regiments are based in Germany and have a substantially English composition, I just slightly query your assumption that, notwithstanding tradition and name, the regiment belongs to the Scottish Government to have.

Q445 Chair: It is reasonable for us to take that as our starting point. We will be asking the Scottish Government whether there are any of the Scottish regiments that they intend to desert, or whether or not they want to retain them all. Then we will try and map out what the consequences of that might be in terms of other support staff that they might need and what training they might need. In the absence of straight answers from the Scottish Government, it really falls to this Committee to try and establish what the facts are, so that they can be put in front of the Scottish people; otherwise you are left with the situation where people are being asked to vote for a pig in a poke. It is the pig-in-a-poke argument that causes most people in Scotland a great deal of difficulty, when they do not know what the choices are. That is why we will be looking for your assistance.

Unless I am mistaken, there are no other points that any of my colleagues want to raise. I just ask you whether or not there are any answers for which you have been briefed that you have not been given the question to offer to us. None of the staff behind you are shaking or giving any indications, but presumably in the MOD it is done by thought transference or staring at notes.

Nick Harvey: You have covered the ground that we anticipated, Chairman. The Defence Committee, as you know, has announced that it will inquire into the impact on defence. We appreciate that you are inquiring into the impact on Scotland. Therefore, in a sense, you may care to read their report when they publish it because it might throw more things up.

Chair: We have taken the view that the Defence Committee and the Foreign Affairs Committee, for example, have the responsibility to look at what the impact of separation would be on the rest of the UK. It is our responsibility to look at the interface and also what the impact upon Scotland would be.

I thank you very much for finding the time to come along. This has been very interesting. No doubt our dialogue will continue.

[1] The figures quoted refer to the combined aerospace, defence and marine sectors (sourced from Scottish Enterprise website).

Prepared 6th August 2012