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The Joint Strike Fighter is an issue that keeps coming up, and will rightly do so until the issue of transfer of technology from the United States is concluded. I am aware that the Minister put up a robust performance before the Senate committee in the US, and that was very welcome. I just hope that the outcome ensures that when we have the Joint Strike Fighter and it needs attention, the work can be carried out by our technicians here and that we get the transfer of the technology that we need.
The defence industrial strategy specifically mentions autonomous air vehicles. Earlier this year, I and a number of noble Lords visited BAE Systems at Warton, where we saw some of the innovative work being done there. This is certainly an area of great innovation and has great promise. But will the MoD support that type of work and, if so, how? Both progress on the Joint Strike Fighter and the autonomous air vehicle impact directly on the ability to sustain a fixed-wing aerospace capability; they are interdependent and we are looking at the next stages of technology.
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Finally, the FRES system is in the defence industrial strategy. It has stalled over a number of years and if I was talking in other circles, I would ask: does it still have legs? Is it still a reality? It is there in the industrial strategy, but I am not sure whether any progress has been made. Has the MoD yet reached a decision on its requirement and acquisition strategy—two important aspects in regard to FRES? My noble friend the Minister will be aware that the issue comes up regularly in questions asked at our meetings with him at the House of Lords Defence Group, which I chair.
It is good that we actually have a strategy that we can discuss, because we did not have one before last year. It is good that we have a robust strategy about our country’s industrial base, with our country’s skills and technologies involved in it. It is a mighty challenging exercise that is at the forefront of technology in so many areas of our lives. I wish the industrial strategy well and I thank the Minister for the work that has taken place in the past 12 months, but it would be good to hear an update on some of the issues that are exercising many people.
9.27 pm
Lord Hamilton of Epsom: My Lords, first, I must declare an interest. I am a consultant to Curtiss-Wright and Leafield Engineering, a small British defence contractor. I have only a short contribution to make to this debate.
When the defence industrial strategy was originally published, it was welcomed by Mike Turner, the chief executive of BAES, who said that it was a very good reason for BAES to stay in the United Kingdom. This came as a bit of a surprise to those of us who thought that BAES was the biggest defence contractor in the United Kingdom and we did not know that it ever had any intention of going.
I have two questions for the Minister. To what extent did the defence industrial strategy change the relationship between BAES and the Ministry of Defence and, if the rumours in the press are correct and BAES is taken over by Boeing, does that relationship then change again?
9.29 pm
Lord Garden: My Lords, I too thank the noble Lord, Lord Truscott, for arranging this short debate on the important topic of the defence industrial strategy. I declare an interest as a member of a small group of defence specialists known as the RUSI Acquisition Focus. We have taken as our task to follow the DIS and its implementation closely. When we think it is helpful, we publish reports on various aspects as they happen.
The first report from the RUSI Acquisition Focus concluded:
“Implementation is the key. It needs to change the fundamentals, particularly culture and behaviours in both industry and MoD, but however worthy the aims of the initiative, it will fail, as the promising Smart Acquisition initiative failed, unless there is strong commitment and leadership from the top over an extended period”.
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As we have heard from your Lordships tonight and in the past, we think that we have someone who can give that commitment and leadership from the top. The question is whether it can be over an extended period.
As I opened the now 10 month-old defence industrial strategy White Paper, I turned again to the photo gallery at the front of all the signatories from the Ministry of Defence, the DTI and the Treasury—all the Ministers who signed up to the strategy. I have to tell the noble Lord that he is the only one still in the same job 10 months later. That is more than a cheap shot about turbulence in Government. It is important that there is continuity for the introduction of this complex and long-term initiative. The problem of turbulence in posts and keeping engaged people who know what is going on is also true at the lower levels. Has the Minister had any success in reducing the personnel turnover within his area of management?
When I responded in your Lordships' House on15 December 2005 to the Statement which launched the defence industrial strategy, I said that I welcomed,
- “the strategy’s clear set of priorities; number one: the operational capability and getting the technology to do the job; and number two: value for money”.—[Official Report, 15/12/05; col. 1411.]
It is against those criteria that we must keep judging progress. As the noble Baroness, Lady Dean of Thornton-le-Fylde, said, it has been going only a fairly short time in which to judge progress. We cannot expect to see great changes and there will be undoubted tensions over how it develops. Given that we are in a co-operative mood this evening, perhaps the Minister will share with us in his reply the areas that he thinks are moving less fast than he would have hoped. Where are the difficult areas at the moment?
In that first debate, I also highlighted the potential tension between the desire to give industry long-term planning stability and, at the same time, to meet the near-term operational demands. I happened to choose section B5 on helicopters as my example. As I pointed out then—nearly a year ago—we needed,
- “heavy-lift helicopter capacity for Iraq, Afghanistan, for UN operations, for conflict prevention and for humanitarian relief. We cannot provide it if we are putting all our money into attack and maritime helicopters in order to promote an industrial strategy. So what I see is that, even at this early stage, we are shaping the future of our operational requirements around an industrial strategy”.—[Official Report, 15/12/05; col. 1413.]
The Minister’s response was to say:
“We recognise that we must address that within our overall rotor-craft strategy and we are doing so. We are making the extra investment to enable us to do so”.—[Official Report, 15/12/05; col. 1416.]
Yet, as we know only too acutely, the near-term problem is still with us a year later. I do not ask the Minister to rehearse all the urgent work that he is doing to get lift-helicopters for our current operations. It is the wider point that I hope he will address. How does he see a long-term strategy for stability for industry working when the strategic context is changing so rapidly, and often unpredictably?
Of course, it is not just the security environment that is in a state of flux; there is also the question of the industrial environment. Indeed, the intervention of the noble Lord, Lord Hamilton, in the gap highlighted one aspect of that. BAE Systems is very much favoured
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The noble Lord, Lord Levene, as always, with his great experience, made an important contribution to this debate. I remember his time at the Ministry of Defence, balancing how much we favour particular industries and what that means in terms of their ability to develop into efficient industries.
On the implementation side, the Defence Select Committee identified some areas for further work, some of which have been mentioned already. I am sure that the Minister will update us on how they are progressing. The key area that has been mentioned is research and technology. It has seen a long-term decline in funding, something that everyone involved in this business has worried about.
This afternoon, I was delighted to claim the only copy of the defence technology strategy available in the House of Lords. I went to the Library where I was told, “You will be careful with it, won't you? We have only one copy”. I went to the Printed Paper Office where the staff said “That is very interesting: it has no command number, no reference number and no date, so we cannot order it”. Actually, they said that they would try to order it from the Ministry of Defence. Obviously, we have not had time to absorb everything in this document but its status is a little uncertain. It is not a White Paper; and it is not a dated document from the Ministry of Defence. Is it a pamphlet giving us the thoughts of the Minister or is it government policy? How are the companies that will read this with great interest to take this document? Certainly those in the Printed Paper Office have not seen a document come out in such an anonymous format.
Nevertheless, we have been asking for priorities in terms of research, and the strategy gives us that. I was grateful to the noble Lord, Lord Truscott, for telling me what I did not know: that we have a figure for the funding of the R&T side, which is going to rise in line with inflation. In other words, it will not rise in real terms at all. The funding is too little; it has declined; and we have a problem because we are not investing anything like the amount invested in the United States. How does the Minister think, at that kind of funding level, he will close or stop the gap increasing in relation to United States technology? What thoughts are there for doing more with our European colleagues, in terms of pooling resources—each nation spending little packets of money and not achieving anything very much?
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The Defence Select Committee also looked at small and medium-sized enterprises. They are a vital part of the United Kingdom’s defence industrial base, but they have great problems in getting their voices heard in the Ministry of Defence against the big companies. In my quick skim of the technology strategy document, I saw mention of how SMEs will be involved. But in terms of bidding for the main contracts and getting involved, what has the Minister managed to do this year to try to bring in the SMEs?
The Select Committee highlighted the further work required in the maritime sector. The noble Lord, Lord Truscott, also mentioned that. The press has suggested that the Minister has been applying pressure to speed up developments in this area. I hope that this evening he will share with us what progress he has made.
Since we last debated the DIS, as the noble Lord, Lord Levene, and the noble Baroness, Lady Dean, highlighted, we have had the July announcement of the merger of the Defence Procurement Agency and the Defence Logistics Organisation. That is a massive amalgamation. I agree with the noble Lord and the noble Baroness that it is right and overdue. However, we have only just completed the creation of the DLO, where the savings that were assumed were rather slower in coming than had been planned for. I would be interested to hear whether the Minister is confident that the DLO is ready for this next big step change and what assumptions have been made about new savings. One of the problems is that one cannot get this done if the savings are forced too quickly.
Everyone who looks at defence acquisition seems to agree that the key need is for cultural change. Does the Minister agree that that is fundamental and, if so, how does he think he is going to achieve it?
As the noble Lord, Lord Truscott, highlighted, looking ahead, the most important issue is resources. At the moment, funds are needed for urgent operational needs. We hear of them every day: operational bonus payments, vehicles and helicopters. Yet funds are needed to make this strategy work. Is the Minister confident that he will get the funding to support his strategy?
Then there is the balance of the equipment programme. I have avoided using tonight as an occasion to debate progress on particular procurement projects, but the noble Lord, Lord Jones, mentioned a number of them. They are important, but I want to focus on strategic issues for the future. As we look forward, we have the problem of a somewhat unbalanced programme, which now focuses on maritime issues—the carrier programme and the possible replacement of Trident—at a time when all our current operational needs are on the land warfare side. We are buying aircraft that do not have close air support capabilities, but that is what we need. Does the Minister agree that we are at a stage when his colleagues in the ministry need to look at reviewing defence policy so that they can better inform his defence industrial strategy?
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9.41 pm
Lord Astor of Hever: My Lords, on a number of occasions, I have suggested to the Minister that we should have a debate in government time on his important defence industrial strategy. Therefore, I am moderately pleased that he has prevailed upon the noble Lord, Lord Truscott, to pose the Question before us that will enable the Minister to give an account of progress. This debate is not exactly what we asked for, but it is better than nothing and I am grateful to the noble Lord, Lord Truscott, for sponsoring it.
I echo the noble Lord’s praise of our Armed Forces and, as he said, they must have the equipment to ensure that they do their job properly. I also echo his point about the vital importance of safeguarding the nation’s maritime capacity, but, unlike him, I did not have the luxury of sight of the defence technology strategy document before this debate. I echo the protestations made by the noble Lord, Lord Garden, and I look forward to hearing from the Minister the good reason why we did not get a chance to consider that very important document before this debate.
The noble Lord, Lord Levene, who has great experience in the defence procurement and manufacturing industry, spoke with great eloquence, and I am looking forward to reading closely his speech in Hansard tomorrow. I also listened carefully to the important points made by the noble Lord, Lord Jones, about the world-class high-tech defence industry in Wales. Like him, I look forward to hearing the Minister’s response on the future of the A400M and the future strategic tanker aircraft. The noble Baroness, Lady Dean, welcomed the hardnosed, commercial approach of the DIS. She is hoping for progress on the carrier project, as are we. I look forward to the Minister touching on that subject and also on the JSF and FRES. As the noble Baroness said, she chairs our defence group, and I would like to put on record how much I appreciate her outstanding leadership of that important group. My noble friend Lord Hamilton asked two interesting questions on BAE Systems, and I look forward to the Minister’s response to them.
I anticipate that the Minister's response generally will refer in some detail both to the McKane report, published by his department in June, and to the defence research report similarly published at the start of October.
I hope, if with rather less confidence, that the noble Lord will also address The Defence Industrial Strategy: An Analysis of Industry Responses, collated and published by RUSI, and I quote:
“An outcome of the Defence Research Report is the ‘wish list’ of technologies which the MoD is said, in Press Reports today, to wish to nurture”.
The most significant outcome of the McKane report is, of course, the proposal to amalgamate the roles of the Defence Procurement Agency and the Defence Logistics Organisation.
We accept the case for big-ticket items such as tanks, ships and aircraft to be handled seamlessly through their operational life by one authority. Nevertheless, the creation of an enormous department
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It is a superficially simple decision, but the scope for procedural difficulties, and indeed for obstruction, is almost unlimited. We are concerned that attention to the inevitable issues that will arise from this extensive reorganisation will serve to distract attention from the demanding work involved in bringing the core objectives of the DIS into effect—a concern of industry, as expressed in the RUSI report. It would be disastrous if MoD officials devoted the next two years to a fixation with implementing this huge merger.
The proof of success will lie in an acceleration of the procurement cycle to bring it more up to speed with the cycle of technological advance; a direct and effective communication and understanding between the Armed Forces, as users of the equipment, and industry, as the designers and suppliers—or, as the RUSI report which I have mentioned puts it:
It will also lie in a shorter, quicker and more reliable supply chain and a significant reduction over time in the working capital tied up in the procurement and logistics processes and chain.
There is much else that is interesting and welcome in and arising from the McKane report and the report on Maximising Benefits from Defence Research. But the very limited time available tonight does not allow me to dwell on them, or on the hundreds of technologies identified as meriting nurture, as I want to highlight some of the points in the third document, the RUSI analysis of industry responses, and to invite the Minister’s response to them.
I have already mentioned industry’s reported concerns that the knock-on demands of the DPA/DLO merger should not divert attention from the basic objectives of the strategy, and that the avowed intention to bring industry and the front line together to mutual advantage should indeed be effected.
This will involve very considerable culture changes by all concerned, the Armed Forces, industry and the MoD itself as the clearing house. Industry’s current observation, as reported, is that,
- “commitment to the implementation of DIS is not reflected at all levels and across all organisations within MoD”.
Does the Minister accept that this is indeed the fact? If so, how is he and those working with him, rather than those who may not support his ideas, planning to change this?
Industry also sounds a series of warning notes about many of the implications, direct and indirect, of “partnering” as described in the strategy. This is probably the point in the original DIS which causes the most difficulty to me and to my right honourable and honourable friends in the other place.
As the report says, and we agree:
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So far, the Minister has concluded agreements with Augusta Westland, in respect of helicopters, and MBDA, in respect of missiles. Perhaps the Minister can tell the House with what other companies he is in negotiation. The report continues—and again, we agree:
“We must fully understand the purposes of different partnering and alliancing models, which may involve more than two actors”.
Of course, such is the case with the prototype allowance to take forward the Carrier project. The report continues:
We believe that to be a valid cautionary note.
In the same context, the report is concerned about the position of small and medium-sized enterprises—the SMEs mentioned by the noble Lord, Lord Garden. Again, we share that concern. SMEs are widely and correctly seen as a source of innovation and a contributor to flexibility. Those are qualities that we want to cherish.
The development of the DIS has a considerable way to go if it is to attract our support on that point. When the Minister presented his strategy to this House last December, I warmly congratulated him on producing the document to time and gave a cautious and qualified welcome to its content. In a similar sense, I congratulate him tonight on having sustained the momentum as he has. I am sure that he understands to a substantial extent—not completely—the problems that lie ahead of him and I look forward with interest to hearing what he has to say tonight. Although I cannot assure him of our wholehearted endorsement on every point, I can say that, in general terms, we are, and will show ourselves, broadly supportive of what he is trying to do.
9.52 pm
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Drayson): My Lords, I welcome the debate that we have had this evening on the defence industrial strategy and thank my noble friend Lord Truscott for securing it. I also thank all noble Lords for the very constructive tone that they have taken this evening, which they also take in our conversations outside the Chamber, and for their work.
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