Defence Reform Bill


The Committee consisted of the following Members:

Chairs: Mr Graham Brady  , † Albert Owen 

Brazier, Mr Julian (Canterbury) (Con) 

Brown, Mr Russell (Dumfries and Galloway) (Lab) 

Colvile, Oliver (Plymouth, Sutton and Devonport) (Con) 

Docherty, Thomas (Dunfermline and West Fife) (Lab) 

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

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

Ellwood, Mr Tobias (Bournemouth East) (Con) 

Gilbert, Stephen (St Austell and Newquay) (LD) 

Hamilton, Mr David (Midlothian) (Lab) 

Harvey, Sir Nick (North Devon) (LD) 

Hinds, Damian (East Hampshire) (Con) 

Jones, Mr Kevan (North Durham) (Lab) 

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

Mordaunt, Penny (Portsmouth North) (Con) 

Pawsey, Mark (Rugby) (Con) 

Phillipson, Bridget (Houghton and Sunderland South) (Lab) 

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

Wheeler, Heather (South Derbyshire) (Con) 

Woodcock, John (Barrow and Furness) (Lab/Co-op) 

Georgina Holmes-Skelton, Committee Clerk

† attended the Committee

Witnesses

Lord West of Spithead, former Service Chief, House of Lords

Mike Cherry, National Policy Chairman, Federation of Small Businesses

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Public Bill Committee 

Tuesday 3 September 2013  

(Afternoon)  

[Albert Owen in the Chair] 

Defence Reform Bill

2 pm 

The Committee deliberated in private.  

Examination of Witness

Lord West of Spithead gave evidence.  

2.11 pm 

The Chair:  Good afternoon, Lord West. Thank you for joining us for this oral evidence session. Before calling Alison to ask the first question, I remind Members that questions should be limited to matters within the scope of the Bill. We must stick to the programme order that the Committee has agreed. This session will end at 2.45 pm. 

Q 3030 Alison Seabeck (Plymouth, Moor View) (Lab):  Thank you for coming, Lord West. This is off the subject of Reserves; it concerns your former role as First Sea Lord. Do you have a view on how the relationships between the service chiefs and the GoCo will work, given that a degree of expertise will be required from each of the service chiefs in order to put in their requests for kit and equipment? Do you feel that measures introduced to tackle the revolving door and ensure that people spend longer on their tours in procurement—say, four years instead of two—will help to make a difference, in terms of the support and advice that service chiefs will receive? 

Lord West: May I take my jacket off? 

The Chair:  Of course. 

Lord West: Thank you. First, there is no doubt at all that we need to do something about our procurement process. That has been recognised for a long time, and we have been through rafts of things like smart procurement. Then there was the study by Bernard Gray in 2009, and then Lord Levene in his report came up with some words about procurement, and we have had studies since then. It is quite clear that something needs to be done. I was always worried, when I was First Sea Lord, about my lack of ability to influence any procurement decisions. Some of the things that have been done in the last couple of years have probably helped that, in that they have upped the amount of money that can be dealt with by the single services. I think that is a good thing. 

I have considerable concerns about GoCo more generally, and there are areas that I would touch on regarding single-source issues. We know that 40% of what we are talking about in the yellow book are long-term, big issues. Most of this paper seems to focus on the big programmes. We should also remember that we have

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not been that bad in this country. A lot of the countries that have big procurement programmes in defence—I am not talking about little countries that just buy stuff off the shelf and do little programmes—are worse than us. That is no reason not to do anything, but that is the case. Look at the private world: people say, “Let’s get it out of civil servants’ hands and do this,” but that is quite shambolic as well. If we look at the channel tunnel costs, the NHS computer system, civil nuclear and High Speed 2, where an extra increase in costs is being identified now, it is not a good message. Private does not necessarily mean cheaper, so I am a bit nervous there. 

As for the detail, on the single-source side, I am concerned about the status of the new regulator. How can we be absolutely sure that they will be independent? That will be crucial. Can they credibly conduct all the functions asked of them? It seems quite a considerable amount, within this paper. There is a bit of concern about the contracts. I must admit that I have only read this once, not again and again, but as I understand it, they are saying that the contract can be renegotiated throughout the course of the contract and up to two years later. Is there provision for judicial review? I do not know whether there is, but there might well be demand for it. The issue of the Secretary of State granting waivers to offshore entities seems extremely complicated; I am not sure how that will work. 

As for the whole matter of intellectual property, we are not just talking about a clever gizmo that has been invented. I do not need to tell you that the way to make profit by using service provision, finance and hardware to give you a competitive edge. Most companies are nervous about exposing that. In America, under title 10, you can be taken to court for breach of IP. I am not sure whether we will have a similar thing here. 

Sorry, I am giving lots of examples of things that I am worried about. Is this helpful? I am concerned about what the real cost of administration will be in the new system. How do we assess the financial savings? The Government have talked about £934 million in 10 years, in respect of the GoCo, and a third less for Defence Equipment and Support plus, and £1,720 million for the single source; I would like to know how that was done. What criteria will be used to judge it? What about defence exports? If we are talking about a mix of United States and United Kingdom, I can see that being quite problematic. How can contracts be incentivised, bearing in mind the export side of things? 

I am very involved with very small and micro enterprises, and I do not believe that they have been thought about in as much detail as they might be. I am sorry that I am not giving you answers; I wish that I knew the answers—I might then have tried to solve the problems in the past, but I have some real concerns. 

Q 31 Alison Seabeck:  Those are genuine concerns that the Minister will undoubtedly respond to during the sitting. To come back to Reserves, the Bill’s impact assessment states that the Government’s intent is to ensure that the 

“reserves will complement the regulars within an integrated Whole Force, providing military capability in a different way from the past to deliver the range and scale of military forces and skills required.” 

Do the Bill’s provisions contribute to achieving that? 

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Lord West: I think they are trying hard, but I am not sure whether they will achieve it. I like the fact that we are seeing Reserves as an integral part of our military. Indeed, they have been, to an extent, before. Let us face it: in the second world war—74 years ago today, of course, we declared war on Nazi Germany—Reserves were crucial. Looking at just the naval side, the Royal Naval Reserve was absolutely crucial, and the Reserves fought as well—some better, some worse—as Regulars. I like the way that that is recognised. 

I have real concerns, particularly on the Army side, about whether we will actually manage to get the numbers that are being talked about. To try to achieve that, we might have to put more money in there than we particularly want to. I am also concerned that, although in a war and over time, Reserves can be as good as Regulars, on day one they are not. Even if they have had some training, they have to get up to speed. Otherwise, why have any Regulars, and why not have them all as Reserves? 

It is really difficult for some companies. I am involved with micros and VSMEs, and normally they are really good companies, with bright, British people. They want to be involved, so in a company of six, there might be four in the Reserves. That is a real crippler if they are being used on a regular basis, and I am not sure whether we have resolved that in the Bill. I would like to think that we have, but I am not sure. 

Q 32 Oliver Colvile (Plymouth, Sutton and Devonport) (Con):  First of all, Lord West, welcome and thank you for coming to see us. Clause 42 of the Bill talks about renaming the Army Reserve as the Regular Reserve, and changing the Territorial Army to the Army Reserve. Do you think that that will be confusing? How can we ensure that it will not be confusing? 

Lord West: It certainly confused me. When I was First Sea Lord and people came to me and said, “We want to do this; we’re changing this to this and this name to this” and so on, I normally wanted to look into the matter a little more thoroughly, because they were just trying to confuse everyone. It is confusing. We will need to be careful to ensure that people understand it. I am not saying that the Reserve status is not confusing already. In the Navy, for example, people who leave the service then have a certain amount of time that they are meant to give back. They all have different names and it is confusing. We will have to have more clarity. I think people will be confused. Of course, people will still use the old names for things, because that is what people do. I bet you that they will be saying “Territorial Army” in 20 years’ time. That is just British nature. We do need real clarity on some of these things. 

Q 33 The Lord Commissioner of Her Majesty's Treasury (Mark Lancaster):  Lord West, may I come in on the back of a comment you made a few moments ago about concerns about the Reserves being at readiness? I think you said that on day one they are not as good as their counterparts. The Ministry of Defence has laid out very clearly the cycle in an enduring operation—a cycle of 10 six-month cycles. The first six-month cycle is to be deployed by the rapid reaction brigade, which is currently 16th Air Assault Brigade. Reserves, in the main, do not begin to be deployed until cycle 3, giving a 12-month preparation time. Are there any points in those 10 operational cycles at which you feel that we have

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a weakness, in that the number of Reserves we will be using will not be given sufficient time—I think the minimum is one year—for their training and mobilisation? 

Lord West: The first thing that I would say is that we are too tied to that operational cycle. One of the military’s duties is to prepare for the unexpected. It is fine, if you think that you will be able to plan absolutely, to have a cycle of operations in Afghanistan, but you can bet your bottom dollar that all of us will be caught out by something. It might be tomorrow or in three years’ time, but there will be something that is totally unexpected, and for which we will suddenly need our military. That is why I sometimes get a little annoyed about the Treasury view, which is that if you do not use them, you lose them. What it does not understand is that those units are there as an insurance policy, so that we are able to do things for our nation, which we have done on numerous occasions in the past. I am concerned about getting too tied to the cycle. 

Turning to the detail of your question, there can be a problem in the rotation, in that there will come a stage when you have units that are not necessarily at the required level. Normally, when you plan for it and are using rotation, you have obviously trained units up to a level they need to fit in with the people who are doing it. Of course, the way that we have now split the Army helps that as well. 

Q 34 Damian Hinds (East Hampshire) (Con):  Lord West, the Bill extends the circumstances in which Reserves could be called out to any purpose for which the Regular forces could be used. Do you think that is appropriate? In practice, do you think that “any” will mean “all”? What limits might exist? 

Lord West: I think one has to be pragmatic. People will be sensible about how they apply that change. In theory, if you go down this route, as we have done—I am glad to see that we have accepted that the Reserves are part of the forces—you have to say that, and that is acceptable. There will, however, be occasions when you would have to be wary of actually doing that because of this issue of getting them trained up to the right level quickly enough if something happens. Again, I return to an issue that I talked about in the House of Lords on one occasion, in which some of the EU’s health and safety regulations were impacting on our forces. Our job is to fight with what we have, in the war that we are in, on the day it starts. That goes for the people and their training as well. If they are needed, they have to do it. That is part of what you sign up for if you are in the military. We do have to be quite pragmatic and careful, however, because they will not be at that same level. They just will not be. 

Q 35 Damian Hinds:  For what types of activity or deployment do you think the integration between Regulars and Reserves will be most challenging? 

Lord West: That is almost too difficult for me to say, because you can train for much of it in lots of ways. There is a complexity now on the battlefield. You can imagine a sailor taking the Mickey out of the soldiers—it was pretty straightforward. The complexity now for soldiers on the battlefield has increased with their interconnectivity and their abilities to speak on secure, covered circuits, to draw down data, to use drones,

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minor drones, mini-drones and to get information and use it and sift it. That is all highly complex, and you are doing that in an environment where you are frightened and stuff is going on. That takes a lot of training and a lot of work. I think they will be up to a good standard but not the same standard as people who are doing that all the time. 

Q 36 Damian Hinds:  Presumably that is about where individuals are in terms of their training and development, rather than excluding certain activities. 

Lord West: Yes, of course, and they can all get there. As I said earlier, we had volunteer Royal Naval Reserve officers, who 74 years ago today were on a merchant ship, piloting submarines by the end of the war, sinking Germans. Yes, you can do it, but they are not there straight away to go. 

Q 37 Oliver Colvile:  I am interested to know whether you would end up deploying Reservists as a unit, with necessary leadership at the top, or would you say they have to be deployed into the Regular battalions or regiments? 

Lord West: That is a very good question and leads into cap badges and all sorts of things, doesn’t it? One of the things my Army colleagues always said to me was that the regimental system is crucial; that is what a man fights for. He fights for his mates, his regiment; he dies in a ditch for that. That is why the regimental system is crucial. It does seem that that regimental system has been rather broken up in the way we fight now. 

As far as I understand it, the Reservists would not fight as a battalion of Reservists, like the Pals brigade in the first world war. That is probably right—that they should be mixed up with a unit, fighting that way—but there is a loss. There is a loss if you belong to a unit and you are with the same people—because I tell you, you do fight for the chap next to you. I know that is the case. 

Q 38 Oliver Colvile:  Your background is in the Navy. Would you say that we need to deploy Reservist sailors into ships, and similarly with the Royal Marines—that they need to be melded in together. 

Lord West: That is certainly the way I would say it in the Navy. The days when we had MCMVs run just by the RNR were great but we have gone beyond that now. I think they are crucial to make up numbers to do all the things they need to do in the specialist areas they work in. 

Q 39 Mr Julian Brazier (Canterbury) (Con):  Sorry to contradict you, Lord West, but the Secretary of State did make it clear that in the case of the Army, we are committed to going back to where all our English-speaking counterparts are, which is deploying Reservists again as four bodies, more at sub-unit level than unit level, except in easier circumstances. 

Lord West: But not as a battalion. 

Mr Brazier:  Companies and squadrons, rather than battalions. 

Lord West: In that case, I am delighted, because you do fight for the man next to you. Being with a group of 20 or 30 people you have trained with and been with is very important. 

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Q 40 Mr Jeffrey M. Donaldson (Lagan Valley) (DUP):  Clause 43 also aligns the duration of service in which Reservists may be called out. What is your assessment of those measures? Are the time periods appropriate for each of the services? 

Lord West: Again, I think my main worry is on the Army side. When you look at the time periods, at how often they can be called up, and when you look at the problem for some small firms and the attractions of being in the service, I really have concerns that we will come up with the numbers that we want to have. I really do wonder whether we will achieve that. I think for the other services it is just about okay. It is not such a big issue; we are not talking about the same sort of scale as within the Army. 

Q 41 Mr Donaldson:  And you feel that would be a deterrent to attracting more Reserves. 

Lord West: I think it will cause a problem. One can say, of course, that if Afghanistan goes away, as we hope, and we do not find ourselves with boots on the ground in Syria, and you do not have something going on year after year, perhaps it will not be the problem that I think it could be. If we got involved in some sort of enduring operation, it could be a real problem and we could have huge difficulty in getting and keeping the numbers we want to. 

Q 42 Oliver Colvile:  This may not be an appropriate question, in which case, Mr Chairman, you will no doubt tell me. How do we ensure that the Reservists and their families are well looked after, especially in relation to their mental health, when they come out? There is a big issue in that, if you are a Regular in a regiment and you go back, you are on base; but if you are a Reservist and you go home—you may go home to Aylesbury, for example, if you are in the Navy—all of a sudden you do not have that support mechanism behind you. How do you think we deal with that? 

Lord West: You have identified what is a real problem, and we have identified that as a problem with Reservists. To be fair to everyone, it is only relatively recently that we have understood post-traumatic stress disorder and that sort of thing. I know that we did not really understand it in the Falklands, and it hits everyone. I thought that the Falklands and the loss of my ship had no impact on me at all, and my wife said after 10 years that I was totally different for the first two years afterwards. I was unaware of that. Most people, luckily, can get over it, but there are some who unfortunately cannot and need to be looked after. I think we recognise that now. 

In the Regular forces, we are much better at that, but we have got to be able to do the same for Reserves. If we are saying that they are part of the whole, which we are, we have got to look after them as if they are part of the whole, and I do not think we do at the moment. 

Q 43 Mr Kevan Jones (North Durham) (Lab):  Clause 43 creates two types of Reservists. The first group will be under the existing rules and they will have different call-out periods from the new Reserves. Do you think there will be a problem with Reservists fighting or being called up for different periods? 

Lord West: There is always a problem when there are two terms of contract for people. Do I think that that will make a difference when they are in their ship, being

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bombed and fighting, or in a trench, shooting? No, because one thing the military is good at is the morale of the people on the front line. That is what we are all trained to do. The British people are good at that. They will fight like buggery because they are there and are doing it. One should try to avoid two terms of contract, however, because once you are out of that front-line situation, it can cause tensions and difficulties. Sorry, I should not have said that word. Cancel that from the record. 

The Chair:  It has been said now. 

Q 44 The Parliamentary Under-Secretary of State for Defence (Mr Philip Dunne):  Lord West, one of the clauses we are seeking to introduce would remove discrimination by employers against Reservists in the event that they were to lose their job on account of being a Reservist. Did you have any experience of such discrimination when you were serving? 

Lord West: I have only anecdotal evidence. If it had been exact evidence, I would have tried to do something about it. I have anecdotal evidence that there have been problems, and all of them were in very small firms. To be quite honest, I could understand it from both sides. I could understand how incredibly difficult it was for the chap running it, because this is a terribly difficult area, as you well know, Philip. If we have to start taking small companies to court again and again, that will not help anyone. We have to protect someone who has made the decision to serve their country in this way and has signed up to all this with all the issues involved. It is a duty of our nation to look after them, but we have to do that very carefully, because the employers will not be happy to find they are being taken to court over it. You will get this done through the back door, which will probably be worse. 

Q 45 Mr Dunne:  But you agree with the principle that we should be able to seek to minimise discrimination in the Reserves in the same way that we do in other aspects of the services? 

Lord West: Absolutely. We should try to do that; it is how we do it that is so difficult. It is completely wrong that they should be discriminated against when they have done something to serve our nation. It is rather like the discrimination we have found some military get when they go into pubs and things like that. It is all unacceptable. 

Q 46 Mr Dunne:  You mentioned dealing with SMEs as part of your concerns about the GoCo. As far as SMEs and losing Reservists to service when mobilised is concerned, we have sought to take some steps to provide compensation for SMEs that is not provided to larger companies. Do you think that that will be enough? Is it an appropriate step? 

Lord West: As I touched on before, I think that it probably will not be enough. It probably needs to be more, and I am not sure even then whether, in the totality of the package, it will achieve the desired result. As I have said, Philip, I still have real concerns that we will not meet the sort of numbers that people are talking about. I know that people have been very positive and are working hard at it and that there is a can-do attitude in the MOD and everywhere, but I am willing to bet a few pints on the fact that we will not make it. 

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Q 47 Mr Dunne:  Have you got some recommendations on how we should stimulate those numbers? 

Lord West: I wish I knew the answer. It is rather like procurement: if I knew the procurement answer, I would be a rich man. 

Q 48 Mr Dunne:  Of course, the Royal Naval Reserve is better recruited than the Army Reserve, historically, so there may be some tips that you could give us from your experience. I do not know whether you ever had responsibility for the Naval Reserve. 

Lord West: I think I did once, many years ago. As a commodore, they came under my bailiwick. I don’t think I can extract something out of there easily, to say why it is easy. The numbers are much smaller. It may be if you like ships and boats—you tend to get the odd “yachtie” who likes it purely because of that. I don’t think I have an answer on that one. 

Q 49 Mr Brazier:  May I put a possible answer to you, Lord West? Although the numbers of the communities you are looking at are much smaller, because there are only a few RNR units, the size of the communities are typically comparable individually to, say, a company or squadron in the TA. May I suggest that one of the reasons why the RNR has been historically better recruited is that almost all its units are commanded by Reservists—people who do civilian jobs themselves? 

Lord West: I do think that helps, yes. You are right there, Julian. 

Q 50 Mr Dunne:  On a similar tack, are you familiar with the extent of Reservists in some of our allied nations—I mean, the proportion of total strength that is made up by the Reserves, compared with the challenge we have set ourselves? We are looking to raise the Army Reserve to 30,000, which would be some 17% of the total strength. That compares with 55% of the US’s total strength, 51% in Canada and 36% in Australia. In terms of the scale of the ambition, it is half that of Australia. 

Lord West: I don’t think you can do a comparison with America. It is totally different—the way it does all of this and the way it gets people up through the ROTC and all that sort of thing. That is totally different. I have to say that I have not looked at the Canadian and Australian examples. I am so impressed that you have stayed awake through my talking. An Australian commodore and captain came to talk to me about Reserves when I was a commodore. I sat talking to them in my office after lunch, and they both fell asleep. So I didn’t really get to the bottom of their issue over Reserves, but I did realise that I must be quite boring. 

Mr Dunne:  We will try to keep that bit off the record; at least, we will not send it off to Australia or Canada. May I take you back to where Alison started, on some of your observations on GoCo and single source—[ Interruption. ] Sorry, go on. 

Q 51 Mr Jones:  Could you elaborate on the American example? I heard a previous Secretary of State argue that America is an example, but is that not a very

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different model in terms of how the National Guard and other Reserves are formed—not just culturally but organisationally? 

Lord West: Absolutely. That is the point I was trying to make. It is completely different. The other interesting thing, in terms of looking after people with mental illness, for example, is that because of the dreadful position America was in after the Vietnam war—I can remember going on ships where there were ghettoes and God knows what, and people taking drugs—it did a complete changeover of everything. Now, they are looked after across America. You go into a place there and you are all saluted. The difference in the way they look on their people is amazing. The whole structure of the National Guard and the ROTC is totally different, which is why you cannot do a comparison. 

Q 52 Mr Brazier:  But you do not think there is a lesson for us there? 

Lord West: I think there are probably some lessons there. Most of us Brits would be a bit embarrassed if there was quite so much “hoorah, hoorah!” whenever a sailor or soldier walked into the room. They are a bit over the top about it, but there are some nice lessons. 

Q 53 Mr Jones:  Also, a difference in the United States is that the National Guard and other Reserve units have their own equipment and dedicated headquarters, on a scale that— 

Lord West: Well, it is probably more than our entire defence vote. Obviously, it is a totally different way of doing things. If you look at the way the Canadians deploy, there are some issues there which make them different in terms of the number of Reservists. I am not too sure on the Australian front. 

Q 54 Oliver Colvile:  I was in Washington in July and I visited the Department of Veterans Affairs. One of the things it is good at doing is ensuring that people are identified as being in either the army or the military of some description, and that is something we need to be better at doing. 

Lord West: Yes, although I think that has improved over the last few years. There are things such as the veterans’ badges. It has got better in this country, but I agree that there are still lessons to learn. 

Q 55 Mr Dunne:  Taking you back to your concerns about the GoCo, you mentioned one in particular, and I would be interested in your experience. Intellectual property, and making sure that that is adequately secured within a new environment, is clearly very important to us and our contractors. At present DE&S uses a large number of external consultants to advise on specialist roles on a whole host of procurements. I imagine that that was the case when you were in post as First Sea Lord. Why do you think there would be any greater risks if we moved to a GoCo structure than from the access that external, non-MOD employees, non-civil servants, have to some of these contracts and the intellectual property they contain? 

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Lord West: I just do not think you have the same supervision and control as you do when you are using DE&S to do it. It is one of the things that Lord Levene, who is even more anti-GoCo than I am, is very concerned about. 

Q 56 Mr Dunne:  Why do you think there would be less control? 

Lord West: Because you put it out to this other organisation that will run that aspect of things, you have not got it within a Government purview, in a sense, except at one step removed. 

Q 57 Mr Dunne:  Although in some instances we undertake a procurement by having a contest managed by an external entity already, so you might get a particular adviser who in effect runs the procurement for a particular speciality. 

Lord West: That is correct. We have seen that a lot with urgent operational requirements. We all love UORs, do we not? They are all the things we want to achieve with our procurement. They are very responsive, to time, to budget, all of those things. But these are small programmes. The really big programmes are very difficult and very different. I try to give this flavour: we are not good in the private world at doing that. We are probably better than some countries that have big programmes. Lots of countries do not have these huge programmes. Things like the nuclear submarine programme and the Typhoon aircraft programme are immense programmes running for many years. 

As an aside, one of the biggest problems we have had in procurement has been changes of political mind about things. That causes one of the biggest problems. Exactly how that will fit into this new GoCo scheme is quite an interesting and exciting prospect. There is nothing huge at the moment: it might change. It would be quite interesting to see how that changes. I am not sure about the transition, either. The transition in the Bill looks pretty complicated. I am not sure how we will do it. I cannot pin down every one of my concerns. I have given a number. I feel a real concern and I cannot quite put my finger on it. I was trying to give a flavour of some of the things that worry me. 

Q 58 Mr Jones:  It would be interesting to see how a GoCo would react to the NAO report about the change in the F-35 decision. 

Lord West: That is what I meant about political decisions. To be fair, we have done that over years. It is the political decisions that have made huge differences. 

Q 59 Mr Jones:  On intellectual property, do you have concerns about how our closest allies who are working on programmes would react to the fact that some of the things you have talked about are at arm’s length from the Government? 

Lord West: I am worried, but I am less worried than I would have been. As I understand it—Philip will know better than I do—the Americans are not so anti-GoCo as they originally were. When I rang several friends in America, all of whom had gone into the defence industrial base, initially they were pretty shocked. But as I understand it, they have looked at this again, and maybe they are not quite so shocked. So I am less worried than I was,

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but I still have those worries. I go back to the defence exports. There are some real difficulties there. I would love to know what key, sovereign issues are blocks. We have been bad historically at working out what things are fundamental to us. 

The Chair:  Last question. 

Q 60 Mr Dunne:  To be honest, I was going to ask you whether there are any other things that we have not touched on that you would like to raise with the Committee. 

Lord West: I have written out a stream of consciousness which I am happy to give to the secretary. But, please, it is not a beautiful piece. It is just a stream of consciousness. 

Mr Dunne:  The only thing I would warn you, Lord West, is that it will go on to the public record. So depending on whether you are concerned about that, we would be delighted to receive it. 

Lord West: I will pretend that I am dyslexic and that is why the spelling is so bad. 

The Chair:  I am sure that that can be circulated to Members. On behalf of the Committee, may I thank you for the way in which you have answered the questions, and for joining us this afternoon? 

Examination of Witness

Mike Cherry gave evidence.  

2.45 pm 

Q 61 Alison Seabeck:  Thank you very much for coming. Your submission to the Committee concentrated very much on the Reserves. There are three parts to the Bill, so although I am going to ask you a general question, hopefully it will encompass the Bill more widely. Could you tell the Committee how effective the MOD has been in engaging with your members about the provisions in the Bill and dealing with your concerns? In particular, could you tell us whether your members generally support the measures regarding Reservists? What are their concerns? Also, do you have any concerns—ADS raised some earlier—about the potential burdens on SMEs, particularly regarding part 2 of the Bill and the way in which substantive contracts are dealt with? People in the supply chain could potentially find themselves burdened with additional regulations and demands. 

Mike Cherry: Good afternoon. On the MOD’s effectiveness in engaging with us, it has been very effective since the publication of the Green Paper. I think that certainly it recognised that there had been a significant silo mentality and a lack of engagement with the small and micro-business community in particular. I very much welcome the meetings that I have held. 

As the Committee will be aware, we managed to survey our panel members—6,500 of them—over the Christmas period in order to try to get the evidence that we needed to substantiate our thoughts and my own feelings on this issue. Ever since then, we have had regular and ongoing contact with the MOD at the highest levels to discuss our concerns and to ensure that small and micro-business issues are being looked at adequately and recognised going forward. We have seen some of that answered in the amount that is now being

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suggested as being supportive financially. Whether or not that is adequate remains to be seen, but it is certainly more than we would have expected at the outset of the discussions. We very much welcome the Government’s support in that respect. 

As far as general support is concerned, again, the Committee will see from our submission that our members were not calling just for financial support. It is about ongoing support around trying to find replacements if people are called up on deployment, and also support in other areas, particularly around employment legislation, where there could be after-effects from going on deployment into Afghanistan or anywhere else where issues might arise. There is also a general awareness that if politicians got it wrong, particularly when you look at the UK aspect of deployment, there might not be such adequate support from small and micro-employers and the general population more widely. 

It has become apparent that there has been a disconnect with the military over subsequent years compared to what previous generations had, and that is reflected to some extent in our members’ concerns and the support that they can offer. However, as you will appreciate, small and micro-businesses, particularly the very micro—under 10 employees—find it incredibly difficult to support this kind of initiative, because of the impact it has on employees, particularly if it is a skilled person going away and they have difficulty trying to replace them. That is why we have suggested that there needs to be a better matching service. There could be a pool of labour for the more general skilled jobs that may be available to help small businesses in particular. There is also the issue around adequate accreditation and the matching of the skills base between the military and civilian arms. 

Q 62 Alison Seabeck:  Can I come back to something you said in your answer? You talked about employment legislation and issues that might arise. Can you explain what you meant? 

Mike Cherry: Yes. If somebody has been on a deployment and comes back and is maybe mentally affected, but it becomes apparent at a later date, and they then have to leave their employment or are off on long-term sickness, that obviously has a detrimental impact on the employer who was expecting to have somebody back who is fit for purpose and able to continue to do the job. They are then liable for paying any statutory sick pay or any long-term support that that individual might need going forward. So there are some nuances in there that we are a little unsure about and we hope that the MOD will look at that in more detail. 

Q 63 Alison Seabeck:  You clearly have experience from your members of that type of circumstance and you fed all that in during your discussions with the MOD. 

Mike Cherry: Yes. 

Q 64 Damian Hinds:  Mr Cherry, you have experience of being in the Reserves. With that in mind, given that the Bill extends the circumstances in which Reserves may be called up to serve any purpose for which Regulars could be put into action, do you think employers will be deterred by that, relative to the enthusiasm they might otherwise have for supporting the programme? 

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Mike Cherry: Certainly, the evidence that we have did not suggest that. Clearly, there are a number of employers who cannot support it, because of the nature of their business perhaps, or for other reasons, but there was an overwhelming number who were supportive of the initiative and would continue to support their Reservists. We heard—certainly in the media last year—the question about whether Reservists should make their employers aware if they were in the Reserve forces. Overwhelmingly, our members said they would like to know so that they can give adequate support to the individual or individuals. 

Q 65 Damian Hinds:  Do you think there is wide awareness among your membership of what Reserves do? Is there awareness of the breadth of activity they may go through and the training benefit that may accrue to the firm? 

Mike Cherry: No, there certainly is not. Again, when you look at the results that we got to a specific question that we put into the survey around the Army awareness days that are carried out fairly regularly, about 90% said that they had not even been made aware of these, so there was a complete lack of engagement with the MOD. We need to make the small and micro-employers aware of what actually goes on in the MOD today, which is probably significantly different from when I was in the TA, compared with what they may or may not understand and appreciate. This is why knowing what goes on and what skills are interchangeable, albeit with the right accreditation so that they are meaningful to employers, is absolutely crucial going forward. The more that we can have a better understanding between the MOD, Reservists and employers, the more support should be there to take it forward. 

Q 66 Damian Hinds:  Do you think these awareness days are the key to doing that or is there a broader effort required, perhaps not just involving the MOD and business organisations, but the role of the media and so on? 

Mike Cherry: I think there is a lot more that we need to be doing to make people more generally aware of what goes on and what skills people can come out of the forces with. Society more generally has a role to play in that, and particularly Government as well. It is an ongoing engagement that has to happen. It is not just down to awareness days, which often do not match what employers are looking for or what suits the MOD. 

Q 67 Oliver Colvile:  I am a member of the Federation of Small Businesses. I think you should be aware of that. 

Mike Cherry: Excellent. 

Q 68 Oliver Colvile:  One of the things that you might want to do is to make sure you include it in your annual conference, and also in your newsletters too, to make sure that your members—our fellow members—would actually be aware of all this. 

Mike Cherry: I think you will find that that was in the last edition of First Voice. We tried to push it; we tried to get the Secretary of State to take a two-page spread, but unfortunately that was not forthcoming. 

Q 69 Mr Jones:  I will pick up Damian’s point about attitudes of small businesses to deployment. Clearly, individuals being deployed to Afghanistan is quite visual.

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Do you think that there would be a difference between somebody being deployed, say, to Afghanistan, Iraq or a smaller foreign conflict and Reservists being called to things like local emergency floods, or covering for fire strikes? Do you think that there would be a different attitude as to whether the employer is happy to release people? 

Mike Cherry: I think I alluded to that in my answer to the first question, inasmuch as politicians need to be aware of the distinct differences there. If they are to get employers supporting their Reservists on those types of deployment, whether it is back here in the UK, firefighters going on strike or whatever, they have got to make the case and more widely get society on board as well. If they fail in that, they are not going to get the support of employers or Reservists, I would suggest. 

Q 70 Mr Brazier:  First, can I say how much I appreciate the work of the FSB in this area? Your own branch came in to brief me about this. 

Mike Cherry: Excellent. 

Q 71 Mr Brazier:  I have three quick points. First, you mentioned employer awareness days. Something the Australians and Canadians do is provide regular reports: through the email system it can be done very cheaply and easily to employers, without much bureaucracy on what employers are up to. I will give you the second point with that. Typically, rather than holding a drinks party or a session in the training centre, they will invite employers to visit an interesting piece of training. Do you think that either of those initiatives is worth pursuing? 

Mike Cherry: I think they have a purpose in their own right, but I would not suggest that they are adequate. What you need to be making the case for—again, this is something that I felt was slightly missed when I went down to the awareness day at Sandhurst the other month—is that the MOD do not seem to make the employer’s case. They make the MOD’s case, but they certainly do not make the employer’s case on what skills those individuals can gain by being a member of the Reserve forces and imparting that back to employers. 

Q 72 Mr Brazier:  My last question concerns the way that the self-employed are not included in the provisions for SMEs and micro-businesses. The self-employed play quite an important part: barristers and self-employed telecom engineers are two that you find a lot of in the Reserves. They are both groups that can slot in and out of their employment relatively easily but suffer quite a bit of penalty when they come back, because, clearly, they have to pick up on their client base and so on. Do you think that there is a case for including the self-employed in those arrangements? 

Mike Cherry: I think you will find from our membership that many of those are self-employed in their own right. There was certainly an appetite, first, to learn more about what Reserve forces are about—which I think indicates that there is a significant lack of understanding out there in society more generally. Secondly, it very much depends on whether that individual can take the time out. Whether it is financial, family or other issues today that impact on their ability to support this initiative is, unfortunately, down to the individuals. 

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Q 73 Mark Pawsey (Rugby) (Con):  Mr Cherry, may I ask you about the maximum call-out period for deployed Reserve forces? The Bill envisages a maximum of 12 months. I ran a small business before arriving here and I know that 12 months is a very long time in the life of a small business. What is your view about 12 months and the possibility of perhaps even a longer period? 

Mike Cherry: I think that 12 months is certainly better than six months, but obviously, it depends on the sector that the business is engaged with. 

Q 74 Mark Pawsey:  Why is 12 months better than six months? 

Mike Cherry: Because if you have a skilled person who is away, you then have to engage somebody else who may not have those skills, so there is more training involved to bring them up to speed for that business. On that aspect, there is benefit in a longer deployment rather than a shorter one, where you may have somebody who is just not able to come up to the full speed that the business needs for a couple of months. That is a very large segment of that six month period. 

Q 75 Mark Pawsey:  If 12 is better than six, is 18 better than 12? 

Mike Cherry: Not necessarily, no. 

Q 76 Mark Pawsey:  I wonder whether some of the negative views that have been expressed by your members are expressed in the light of recent military experience. Do you think your members would have a different view if we had had a greater period of stability than we have seen in recent years? 

Mike Cherry: I suspect that, whether we like it or not, we are still going to be facing uncertainty going forwards, and therefore incidents are bound to crop up whether we like them or not. 

Q 77 Mark Pawsey:  That may be the case, but we need the support of small businesses. If there had been a period of stability, do you think your members would have been saying slightly different things? 

Mike Cherry: No, I do not think that is the case. Conversely, where you have got Afghanistan particularly at the moment, that engenders more support, shall we say, so it has the opposite effect. 

Q 78 Damian Hinds:  I wondered, in your panel research with your members, whether you have put a question about the length of deployment. The view you have expressed is interesting and presumably would apply more to highly skilled industries, not so much to places with high staff turnover. I wonder how widespread that view is, and whether you are able to say anything about how it varies by sector. 

Mike Cherry: The key point that came out was more about the amount of notice that could be given to the employer. That was absolutely key. Three months certainly came out in the survey results as being the minimum that members would like to have. There are obviously certain instances when that cannot be given. That was far more apparent than the length of deployment. 

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The Chair:  Before I bring in Penny, there are a couple of supplementaries. Briefly, please, David, and then Philip. 

Q 79 Mr David Hamilton (Midlothian) (Lab):  The supplementary is along the lines that in my area we have a number of micro-companies. They are supportive because of the barracks and so on; we have grown up with that in mind. However, one of the real concerns raised is that we have a company of eight people and two of them are Reservists. Has the MOD listened to concerns that you cannot afford two people to be away at the same time? That is a real concern. 

Mike Cherry: We have certainly made the point of how difficult it is for the smallest businesses to give up even one particularly skilled person, if that were the case. Therefore, being able to look at how that could be mitigated or supported comes alongside what we have been saying, aside from the financial support that may or may not be available to the employer and the Reservists. 

Q 80 Mr Dunne:  I would like to start by thanking you, Mr Cherry, and your organisation for the work that you have put in to help us with this proposal for the Reserves. The FSB has put in a lot of effort, I know. I appreciate the comments you made at the opening about how well the relationship is developing. 

I have a question on the back of this survey, which I think is extremely helpful to provide some quasi-factual basis to your commentary. Many companies do not know who are Reservists and who are not. I noticed that 7% ticked a box that said they do have Reservists, so they obviously knew that. Did you have a question in the survey asking whether they knew they had any Reservists? You obviously had a question saying, “Do you employ or would you propose to employ?” 

Mike Cherry: I think the question we asked—and I can check in a minute if you wish—was around whether you would support a Reservist and whether you would like to know whether or not you had Reservists, not whether or not you do have them. 

It was interesting to talk to people from larger businesses. They do not actually ask the question. That is something that will become more apparent across the patch, with small businesses and larger businesses, knowing which of their employees may be a Reservist or in other areas that need more support. 

Q 81 Mr Dunne:  One of the risks of the discrimination clause that we are putting in is that it will deter employers from asking whether someone is a Reservist or not. Whereas, in fact, it could be very useful information for them in being able to provide support. There is a delicate balance there. Do you have any advice for us? 

Mike Cherry: I would suggest that it is crucial that employers do know. Those who wish to know will give adequate support; those who cannot support would probably not want to know in any case, because they cannot offer that support. I think it is absolutely crucial. We have heard the anecdotal comment, shall I say, that Reservists may feel that they have been disadvantaged if they make their employer aware of it. That certainly has not come up through our evidential base and nobody has been able to pin down that fact. I would treat it with

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a bit of scepticism, purely and simply because it did not come up in our evidential base and we are not aware of that from our members. 

Q 82 Penny Mordaunt (Portsmouth North) (Con):  Turning to the incentive and targeted payments, do you think that they are sufficient for us to achieve our objectives on the recruitment and retention of Reservists, and to reduce the barriers to individuals actually joining Reserve forces? 

Mike Cherry: There are so many aspects to that question, not only from the employers’ point of view but from the perspective of the individuals’ families, that it is very difficult to answer. As I said earlier, whether the £500 a month support given to employers is adequate remains to be seen. We were favourably surprised, because we felt that that was far more than had been indicated in our discussions with the MOD, but it will be down to individual employers, at the end of the day, as to whether they feel that that is sufficient financial recompense to enable them to support their employees. I hope that it is, and it is certainly a significant step in the right direction. 

Q 83 Penny Mordaunt:  And presumably in the long term that is an issue that you would monitor. 

Mike Cherry: Yes. 

The Chair:  That was a good, quick answer. 

Q 84 Oliver Colvile:  Clause 45 makes provision to exempt Reservists from the statutory two-year qualifying period for claiming unfair dismissal from their civilian employment, if being a Reservist is the reason given for them being given the heave-ho. In your experience, are employees who are in service more likely to be subject to apparent unfair dismissal, and will the provision sufficiently address the problem identified in the Bill? 

Mike Cherry: I certainly am not aware—again, the evidence from our members did not make us aware of this—of any issues around that at all. I would not expect the majority of small businesses to discriminate against their employees because they are Reservists, or for any other reason. 

Q 85 Mark Pawsey:  We have heard one or two negatives on the role of Reservists in small businesses. Can you tell us some of the benefits that accrue to small businesses as a consequence of employing Reservists? 

Mike Cherry: There are the ongoing individual benefits from the increased skills that that individual may bring back, including the simplest, such as a heavy goods vehicle driver getting his licence through the military, rather than the employer perhaps having to pay. On top of that, there is the confidence that those individuals come back with, whether we are talking about management skills, self-confidence or whatever. They will have learned how to be very much more of a team player, which will help their employers going forward; there are all the other aspects around that. In my opinion it is invaluable, but I would say that. 

The Chair:  Thank you. Before I bring in Russell, it has just been indicated that Alison and John want to ask a question on GoCo that was not answered earlier. 

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Q 86 Alison Seabeck:  There are a couple of issues to raise on the GoCo and the single-source parts of the Bill. The Bill is quite regulatory in those parts, and it is not a question of one in, one out; the GoCo has been exempted from that rule. Do your members have any concerns—they were voiced earlier today by ADS—about the application of the regulations to subcontractors, many of whom will be SMEs? It might be something that you have not yet picked up on, but your views on that, either now or later, would be welcome. 

The second point is about whether you feel that the establishment of a GoCo will make it more or less easy for SMEs to access MOD contracts. Fujitsu has published a survey this week that said that SMEs still found it difficult to access Government contracts, across Government. That obviously included the MOD. I wondered whether you felt that the GoCo would lead to greater opportunities for businesses. 

Mike Cherry: I will answer that in almost reverse order and touch on the basis of public sector procurement more generally. We are very pleased that, over the last 18 months or so, central Government have got the issue about more public sector procurement being made available to small businesses, with pre-qualification questionnaires and everything being made far more simple than they are at the moment. That is beginning to spread out into the wider public sector. You may or may not be aware that this is the second year that we have done a survey of local authorities and how they support small businesses in the procurement that they can offer us and our members, and we are trying to get that applied across the wider public sector as well. 

The MOD, we have a challenge with, because our database does not give us sufficient detailed information to say specifically whether or not our members are engaged with the MOD, but we suspect that it is about 5%, which is not an inconsiderable number. As for the GoCo aspect, that is not my particular area of expertise. If I may, I will feed back to the Committee on that issue, because I know that my portfolio chairman, who looks after what used to be trade and industry and is now innovation, has some views on it. We will feed back in writing, if we may. 

John Woodcock:  That is the avenue that I was going to pursue as well, so we shall wait for written evidence. 

Mike Cherry: Thank you. 

Q 87 Mr Dunne:  While recognising that you will be writing to the Committee, I have a couple of questions on this. It has been alleged that SMEs will, by definition, be disadvantaged by going down the GoCo route. Our previous witness said that was one of his concerns. When you do reply, if you are not able to do so now, I hope that you will consider how and why that might be the case. I personally do not see it, but if you think that is a concern, we would very much be interested to hear it. The other aspect is whether there are any concerns for SME participation in defence exports as a result of a GoCo. Again, I have real difficulty in understanding why that might have any impact at all. 

You might be able to answer this question now: as a result of defence transformation and delegation of capability-setting powers from the MOD to the domains, it is now possible for contractors who are seeking to win

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defence business to have a number of potential clients within the MOD. In the past it was more centralised, but it is now more devolved. It should allow SMEs to have better access to smaller contracts, recognising that the windows of entry to the MOD have become larger, so it may be more complicated to access a greater proliferation of contracts. Is that how you see it? 

Mike Cherry: I think this all comes down, at the end of the day, to making it easy for small and micro-businesses to access the contracts and that, in particular, means that we need to be aware of what is available. This comes back, in every case, especially around exports, to this idea: I am a firm believer—this has been evidenced—in the idea that if you provide the leads, the business will go after that business, and then seek the support that it needs to get it, and not the other way around. Raising awareness of how businesses can access those opportunities, and communicating that effectively to the small business community, and not just relying on the small business organisations or a website, is fairly key to that, going forward. 

Q 88 Mr Dunne:  We have established the SME forum, which, as you know, I chair every four months, and at which you are represented. Do you think that is helpful? This is slightly beyond the legislation, so it might be rather inappropriate, but as you are here, Mr Cherry, and it is relevant, it would be interesting to know if you think that is helpful. You mentioned the simplification and the pre-qualification questionnaires. We also have the Contracts Finder website, where all opportunities over £10,000 are advertised. Are there other things that we should be doing on a practical level, rather than at a legislative level? 

Mike Cherry: It is continuous information going out to small businesses. The Government, particularly when the coalition came to power, obviously had a moratorium on many things, and communication seemed to suffer because of that. That is beginning to come back into play a little bit better. On all issues around policy and procurement, however, it is about making businesses aware of the opportunities continually, and not just saying, “We are going to highlight one particular website for the next three months,” whether it is Contracts Finder or something else, because that is not the way, as you know, that business actually works. The Government—whether this coalition or subsequent Governments—have a far greater role to play in continually making businesses aware of the opportunities. 

Q 89 Mr Dunne:  It is not our intent that the GoCo should have any impact on any of the engagement that we presently have with small businesses along these lines. Do you think that we are misguided in that expectation? 

Mike Cherry: I would like to come back on that particular question. 

The Chair:  That is very fair. The Minister asked you about a number of points there, and if you want to clarify them further in writing, that would be helpful. 

Q 90 Mr Russell Brown (Dumfries and Galloway) (Lab):  Mr Cherry, the Minister just asked about the practical level, rather than the legislative level. Can I

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bring you back to that, and ask whether you are aware of any additional measures that you have not mentioned already that you think should be added to the Bill for it to secure the support of your members? 

Mike Cherry: I do not believe that there is. As we all know, small and micro-businesses in particular are far more family friendly than their larger cousins in both the public and private sectors. If they can support an individual, whether in being a Reservist or in other areas around family life, that is what our members will try to do. Sometimes it is just not possible or practical as far as the business is concerned, but our members know when employees are members of the Reserve forces, help them with financial support and perhaps with being able more easily to find replacements when Reservists are called up, and are just generally much more aware of the small and micro-business elements that often mean that we cannot be as nice as we would like to be. The will is certainly there to give support wherever we possibly can. 

The Chair:  We are running slightly ahead of time, so does any other Member want to raise anything before I bring the Minister in for the final question? 

Q 91 Mr Hamilton:  Going back to the Minister’s question, you indicated that things have improved substantially. Does that mean that you no longer have the problem of major contractors winning the contract and then subcontracting out to your members, who then pick up the liability for developments and so on? That was a problem in the past, back when I was on the Defence Committee. 

Mike Cherry: If I have understood the question correctly, the MOD is one of those areas where we certainly have not yet cracked properly the problem of awarding contracts to small and micro-businesses. A lot more work needs to be done on that. It is my portfolio that is tasked with engaging with the MOD on that, but it is obviously responsible for dealing with it. A lot more work needs to be done to make small businesses aware of what is available, and to enable them to take that forward. If the MOD goes down that route, and it becomes generally accessible for small businesses, another issue that I would like to highlight is that the MOD should ensure that any payment terms to first-tier contractors are automatically and fairly passed down through the chain of supply. 

The Chair:  A final question from the Minister. 

Q 92 Mr Dunne:  Last year, 40% of new contracts placed by the MOD were placed with SMEs, so we think that we are substantially opening up direct access to SMEs. We also recognise, however, that a large proportion of SME work is done through the supply chain from prime contractors, because many of the 60% of contracts could not be placed with SMEs; they would, by definition, cease to be SMEs were they to win the contract. Given the proportion that we are doing directly, and the fact that some sub-contractors, under the single-source arrangements, for which we are legislating in this Bill, will place a burden of information supply on suppliers, do you think that the information request, as far as you have understood it—I accept it will come out mostly in regulation, rather than in the Bill—will be an unwelcome burden on SMEs? Will they be able to cope? 

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Mike Cherry: I do not know enough about the detail to say whether they will be able to cope with it. Those who are certainly interested in pursuing the opportunities will, I am sure, try to ensure that they can. As you know only too well, our organisation is against increasing the administrative burden on small businesses in particular, purely and simply because they just do not have the resource. When you talk about SMEs and “small” in the same breath, I would urge you to try to consider the small and micro aspect of SMEs, rather than just generally lumping all SMEs together. 

The Chair:  Thank you very much, Mr Cherry, for answering the questions. As I indicated, you may wish to write to us with further comments. 

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Mike Cherry: If I may, Chair, that would be helpful. 

The Chair:  It is left to me to bring the business to an end for the day. The Committee will sit again to take further evidence on the Bill at 11.30 am on Thursday 5 September. 

Ordered , That further consideration be now adjourned. —(Mark Lancaster.)  

3.21 pm 

Adjourned till Thursday 5 September at half-past Eleven o’clock.  

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Written evidence reported to the House

DR 01 Defence Police Federation 

DR 02 Federation of Small Businesses 

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DR 03 Prospect 

DR 04 ADS 

DR 05 Public and Commercial Services Union 

Prepared 4th September 2013