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7.12 p.m.

Lord Henley: My Lords, the noble Lord the Opposition Chief Whip says that we often differ, and he is certainly right. However, there is one matter on which I am in full agreement with him: it is regarding the problems with and frequency of acronyms. As one who has only recently come to the Ministry of Defence, I am having great difficulties in getting to know and understand the vast number of acronyms which proliferate in that department.

I had also hoped on this occasion to be able to agree with the noble Lord on one other matter. He, like me, always welcomes brevity in speeches. I had thought for the first time ever that I would be able to congratulate every speaker in an untimed debate on keeping their speeches to within 10 minutes. However, the noble Lord himself broke that rule. I shall seek to keep within 10 minutes myself; but I do not know whether I can. I shall certainly not respond at the same length as our response which was published last week, to which other noble Lords have referred.

I start by extending my thanks to the noble Earl, Lord Selborne, for calling this debate on the Select Committee's report and offering my thanks to him, the members of the committee and its staff for their work in producing the report. I wish to say how grateful I am for the tribute that he paid to the Defence Research Agency and the excellence of its work.

As the House is aware, the publication of the committee's report coincided with the publication of our own report, Front Line First, which included a proposal to enlarge the DRA. We have been engaged in considering that proposal. As I have already mentioned, our response to the Select Committee's report was published this week.

I think that I would reject the allegations from the noble and gallant Lord, Lord Carver—for whom I have the greatest respect—that the report was complacent. I rest to some extent on the remarks of the noble Lord, Lord Redesdale, who welcomed the report. I hope that he will offer a similar welcome to other announcements that my department may make from time to time.

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We value the scrutiny given by the Select Committee to the DRA's role in the relationship between the agency and the department. We are pleased that the committee speaks highly of the DRA management and staff to the extent that it considers achievable the DRA's aim for international pre-eminence. We were disappointed, however, that similar acknowledgement was not given to the efforts made within my department to develop that relationship. The DRA is our principal scientific and technical knowledge base, and as its principle customer my department uses the trading fund regime to derive the best value for money from that knowledge base for the taxpayer's benefit. This will be even more the case when the trading fund is enlarged, and new streamlined procedures governing our relationship will help the DRA to plan ahead and improve the cost-effectiveness of the research programme.

The relationship between the DRA and its MoD customers is one of a trusted partnership in which the DRA has substantial knowledge of our future equipment needs and joins with us in planning the research programme. The Front Line First proposals on the restructuring of the MoD research programme into corporate research and contract research will allow us and the DRA to build a more coherent research programme to the benefit of my department and the wider economy.

Obviously I understand the committee's call—it was referred to by my noble friend Lord Selborne and the noble and gallant Lord, Lord Craig of Radley—for a period of consolidation and stability in the DRA's affairs. I have to say that there was no case to exempt the DRA from the rigours of the Defence Costs Study which looked at all aspects of support to the front line. We are determined to drive down costs to the taxpayer. The broad framework of the DRA structure and operating processes will remain in place.

The proposal in Front Line First, as my noble friend Lord Selborne, made clear, is to bring together the DRA, the Chemical and Biological Defence Establishment, the Defence Operational Analysis Centre, the Director of Test and Evaluation, and other MoD scientific staff into a single, enlarged executive agency. This will enhance the ability of those organisations to meet, through the existing trading fund, the demands placed on them by my department. The proposal in principle has been the subject of consultation with the trade unions and nothing in the comments received on the consultative document leads us to believe that it is not right to go ahead and prepare to launch the enlarged agency on 1st April next year. Nor do I believe that that will affect the stability of the DRA.

No evidence has been presented in favour of privatising the DRA—a matter to which my noble friend Lord Trefgarne referred. The Front Line First report—I believe that my noble friend mentioned it—specifically recommended that it should not be a candidate for privatisation. Indeed, in his evidence to the committee, the then Minister for Defence Procurement, my right honourable friend Mr. Jonathan Aitken urged caution in the light of our international commitments. However, I can assure my noble friend Lord Trefgarne that those are matters which should be and will be kept under review.

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Should it be a suitable candidate for privatisation in the future, that is certainly a matter that we can look to. However, I must express the caution that my right honourable friend expressed in his evidence to the committee: that it is certainly not a matter for the immediate or foreseeable future.

We welcome the importance that the committee attaches to the wealth-creating activity of the DRA. Last year's White Paper on science, engineering and technology, Realising Our Potential, emphasised the Government's commitment to harnessing all publicly funded science and technology more effectively to support wealth creation and improve the quality of life. The DRA has an important role in delivering our increased efforts to realise the wealth creation potential of its research and development activities. I can give an assurance to the House that the DRA is working closely with both the Office of Science and Technology and the DTI to take forward its wealth creation initiatives. The exchange of information with the civil sector is an important part of that process.

We rejected the idea that was advocated in the report and repeated both by my noble friend and by the noble and gallant Lord, Lord Carver. Lord Carver went on to suggest looking at the German solution to these problems. Certainly, again, as someone who is new to the department that is something—without making any commitments—that I would be more than willing to do. As I said, we rejected the idea in the report that the Office of Science and Technology and the DTI should share in ownership of the DRA, as that would undermine ministerial accountability without creating any clear benefits.

However, my department will invite the Government's Chief Scientific Adviser, Sir William Stewart, to become an external member of the Defence Research Agency Council.

Perhaps I may say a word or two about the Treasury rules that were referred to by the noble and gallant Lord, Lord Craig, the noble Lord, Lord Graham, and, I believe, the noble Lord, Lord Redesdale. We reject the contention that such rules place an unnecessarily high burden on the DRA. The present 6 per cent. target rate of return set by the Secretary of State as owner of the DRA is the same risk-free rate that applies across similar Government trading funds and provides the necessary commercial discipline. The DRA is free to charge what it considers appropriate for its facilities provided that it does not disadvantage the Ministry of Defence. It is merely constrained by the willingness and ability of its customers collectively to pay the full cost. I do not accept the noble and gallant Lord's arguments that those are contradictory. Nor do I accept the argument that those impose excessive constraints.

We also consider that the—-

Lord Trefgarne: My Lords, I wonder if I may intervene. I hope my noble friend understands that the views to which he just referred and rejected so firmly were held almost universally throughout the committee, not just by my noble and gallant friend Lord Craig.

Lord Henley: Obviously, my Lords, I take note particularly of what the noble and gallant Lord, Lord

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Craig, said, and also of what the committee said. If my noble friend—a former colleague on this Front Bench—also forcefully makes those remarks, I will take even greater note of them. I am afraid, however, that I do not accept the arguments that have been put forward. I hope that my noble friend will therefore bear with me in that respect.

We also consider that the present arrangements provide sufficient commercial freedom for the DRA to contribute to the activities of British industry more widely. The important issue is for the DRA to use these effectively without affecting its capacity to meet the needs of the Ministry of Defence and the Armed Forces. The "trusted partnership" allows the agency to identify how the research programme might be modified to meet its wider remit while still meeting the MoD's needs.

In conclusion, perhaps I may remind the House that the Ministry of Defence is concerned first with defence objectives. That is our prime role. We require that the DRA should support that objective. However, such a mutually beneficial relationship does not rule out a wider remit for the agency, and we believe that within the overall defence framework it is possible for the DRA to operate flexibly and to make a very real contribution to the wider role of wealth creation. These are objectives that this Government support, and we shall continue to encourage in what has undoubtedly become a flagship among agencies for service delivery and efficiency.

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