Examination of Witnesses (Questions 1-19)
LORD DRAYSON,
MR ANDREW
MATHEWSON AND
MR ROBERT
REGAN
12 JULY 2007
Q1 Chairman: Minister, we are very
grateful to you for coming to meet the Sub-Committee this afternoon
and we are very glad to see that you have Mr Mathewson and Mr
Regan with you who we have met before. We do try to have two sessions
a year looking at the ESDP part of our remit and it is particularly
useful, given that you were at the meeting in May, that you have
been able to come and talk to us today. I do not know whether
you have any general opening statement on the scope of defence
policy within the European Union or whether you would prefer to
go straight into the questions?
Lord Drayson: Just very briefly perhaps to say
that it is early days with the development of this initiative
and we do think that the EDA has got off to a reasonably good
start but it needs to be given the opportunity and time to mature.
We have a particular policy with regard to how we think it can
most effectively be developed. I think last time I was in front
of the Committee I described it almost as trying to encourage
a start-up culture rather than a big bang organisation. We believe
that so far, so good and we need to maintain that policy.
Q2Chairman: Thank
you very much indeed. Mr Witney has now come back from Brussels,
has he not, or is on the point of coming back?
Lord Drayson: He is just about to.
Q3 Chairman: Would it be possible
perhaps for the Committee to meet him at some stage after he has
returned for him to talk to us about the EDA?
Lord Drayson: I think that would be a very good
idea because the Committee would benefit from his perspective
of trying to make this work. His views have developed a little
bit over the time that he has been doing the job.
Q4 Lord Anderson of Swansea: Is he
still in the same broad field within the Ministry of Defence?
Lord Drayson: No. In terms of his position within
the Ministry of Defence, I am not quite sure what his career plans
are next.
Q5 Lord Lea of Crondall: In answer
to a question which the Minister posed to himself, "What
is all this for", I think he said to encourage a start-up
culture rather than some big bang, or something like that. What
does that mean? We can all imagine that it might be nicer if we
all had the same sort of helicopter or something but what do you
mean by a start-up culture as the centre of the policy?
Lord Drayson: We do believe that there is a
role for an organisation such as the EDA, but what is important
is that the EDA identifies those particular aspects of defence
equipment procurement where it, as an organisation, can uniquely
add value and not duplicate what other organisations are already
doing or what each of the partner nations may feel it is already
pretty effectively doing itself. A particular example of that
is where we had an issue with the Force Protection Initiative
where we did not feel that we, as a country, would benefit from
participating in that particular programme and others did. This
idea of a start-up culture for me really is rather than the partner
nations providing the EDA with a very substantial budget which
then gives EDA the opportunity to look at too many things rather
than focusing on those things where we can really make a positive
difference, by not giving it too much money to start with, forcing
it to focus and identify where the new added value can be created
it is much more likely to get off to a good start, be seen to
be a good thing by the participating nations and then as success
is generated we can provide it with more budget as required and
in doing so avoid unnecessary bureaucracy. That has been the British
position; other nations have not necessarily shared that. Where
we stand at the moment with the level of budget that EDA is operating
at, we have got a reasonable balance.
Q6 Lord Anderson of Swansea: Minister,
you mentioned force protection and there is a joint investment
programme but we have decided not to participate, in part because
we have our own national programme. I am a little puzzled by that
because clearly with our own national programme we have, or will
develop, an expertise which will be highly relevant to other participating
members of the EDA, they could benefit from that. Why do we stand
aloof from it? What is the principle behind that?
Lord Drayson: I think the principle is firstly
that we do, as a general principle, separately from the EDA share
with our coalition partners expertise, equipment and know-how
that we develop, particularly in areas such as force protection
because clearly there is a benefit for all nations in terms of
having access to the latest thinking, particularly in an area
where the threat is changing quite quickly. There are particular
aspects where we think the UK has got to a position where it has
invested a substantial amount of money and has developed its own
tactics and procedures around force protection, therefore if it
participates in this force protection exercise it is effectively
paying twice. We did not feel that in that particular area this
EDA project was going to be able to add anything new. We do think,
given that the EDA has a limited budget and a limited focus, there
are areas where if the EDA focused we would fully wish to participate
because there is an added value to doing that. What we wanted
to avoid was being forced to participate in programmes where we
had already invested in those programmes and in doing so we would
effectively be paying twice.
Q7 Lord Anderson of Swansea: With
respect, it is not a question of being forced. By participating
with the expertise that we have built up surely we would be able
to mould some of the procedures and influence those procedures
in ways which are of benefit to us. Ultimately, presumably if
there were joint procedures we would have to accept those, so
why not be there at the ground floor adding our own expertise
to it?
Lord Drayson: Because we felt the focus of this
would be investing valuable defence funding and research funding
in an area where we had already made that investment. Fundamentally
it boils down to a difference of opinion within the partner nations
which will, we have to face up to, face us again and again when
we look at issues for defence equipment collaboration within the
EDA, which is that some nations invest a much greater amount of
money and have much greater level of investment, expertise and
capability than other nations and are at a higher level of military
development and technological development. In some cases it is
about the level of technology development; in other cases it is
to do with the sophistication and nature of the armed forces themselves.
For example, when you look at Europe the predominant investment
is being made by the United Kingdom and France. Other countries
who are members within this collaboration are not so developed
and would like to piggyback on the investment in technology and
research and development which has been made by other countries.
There is a balancing act that has to be made because do you level
up or do you level down? From our point of view we come from the
position in terms of national interest, that we want to do is
bring people up and we want to focus people's areas of collaboration
in those areas where it would provide added value for all of the
nations concerned rather than it being a situation where we are
faced with aiming to develop capability at a lower technological
level. I think the biggest challenge this faces us is in the research
and development area. Force protection was an example of that
but we are going to face that in other areas in the future too.
Q8 Lord Hamilton of Epsom: Minister,
do you accept that we have rather been here before? There has
been a whole mass of European collaboration on procurement projects,
most of them have been pretty disastrous, have run massively over-cost
and been so late, and one thinks of Eurofighter as a classic example
of something that was designed for the defence of the United Kingdom
from the Soviet threat and the Soviet Union disintegrated and
we found we did not really need the aeroplanes at all. I am delighted
that we are not getting involved in force protection if we do
not think that our interests are in so doing because we also have
a history in the past of getting involved in things and then ducking
out of them, and one thinks there of medium-range TRIGAT, for
instance, which we pulled out of and had nothing more to do with.
What is really new about all this and are we not in danger of
going down the same rocky path that we have been down in the past?
Lord Drayson: I accept that the history of defence
procurement collaboration both in Europe and between ourselves
and the United States does have some pretty poor examples. It
also has some successes, and an example of real success was the
Storm Shadow/SCALP missile programme. The very important point
is that we learn the lessons of where it has not gone well and
we apply principles in the way in which we run these programmes
to make them effective. If I could just make one particular point:
you mentioned Typhoon, and you are correct in that that programme
aimed to develop a fighter which is primarily an air-to-air combat
fighter against the Soviet threat, nonetheless as the security
situation has changed the United Kingdom still needs a first rank
air defence fighter for the UK and, coincidentally, the Typhoon
went operational yesterday protecting the airspace of the southern
United Kingdom. We do need a fighter to do that job but what we
also need to do is to develop the Typhoon fighter to have a broader
capability in terms of ground attack, and it is being developed
to do that. You will see the Typhoon in the field in Afghanistan
next year in a close-air support role showing that industry and
the Ministry of Defence have adapted the fighter to the current
situation. Why is it worth going through the additional hassle
and complication of international collaborations? The answer is
that the nature of the threats that we face and the complexity
and scale on costs of the technological solutions to meet them
necessitate these collaborations. It is just not feasible for
countries to be able to field themselves the complete range of
military capabilities that they need. Our policy within the United
Kingdom is to be pragmatic, to collaborate with European partners
where it is in our interests to do so, not on some sort of political
agenda but because that is what is in the interests of the National
Defence Strategy, and with the United States on a case-by-case
basis. We are implementing policies now which learn the lessons
of the past, and I turn to a recent one which is the aircraft
carrier project where we are collaborating with France but on
a set of principles where that collaboration does not negatively
impact the time to delivery and the cost of the British aircraft
carriers, and I do believe this will be done.
Q9 Lord Chidgey: It is quite difficult
because Lord Drayson has opened up so many interesting options
in his opening comments that it is difficult to stick to the agenda.
Can I ask one question on the back of your opening remarks, Minister.
You talked about the difficulties and the tensions of some of
our partners wanting to level down the limits of their political
ambitions—
Lord Drayson: And their budgets.
Q10 Lord Chidgey: And we are trying
to maintain a higher standard because of our objectives. Is there
another dynamic here which influences this, and that is as part
of our policy we are always aspiring to attain interoperability
with our American allies, which is very challenging, I understand,
in terms of R&D and budget and so forth? How much of that
is an influence on the dynamic tension between our European neighbours
and allies and, of course, our fundamental military ally, the
United States?
Lord Drayson: It is a fundamental issue which
is another reason why the EDA is a very good thing. Providing
that the EDA focuses in areas where it can make this real added
value difference I think the EDA is to be supported by the United
Kingdom and is in the national interest. An example is setting
standards for those pieces of equipment which determine whether
interoperability happens or not. A key example where the EDA is
just starting to look at this is in the networking of communications
systems and computer systems. Increasingly, all pieces of military
hardware rely upon communications, rely upon sophisticated computing
technology, but we do not have good interoperability across NATO,
across the EU, and this is something that needs to be developed.
This is about setting standards, not letting the standards be
set by the defence industry because obviously a defence company
will try and set the standard relating to its own particular operating
system. From the United Kingdom we are trying to encourage the
EDA to focus on the development of standards which are compatible
with the US and which set a framework which allows European industry
to develop pieces of equipment to that standard which then allows
them to be effective and to have export potential. At the last
meeting on 14 May I particularly tried to encourage the EDA to
look at the whole area of unmanned air vehicles. We are seeing
a real development in Afghanistan and Iraq in the use of unmanned
air vehicles to give surveillance over the battlefield. Clearly
this technology is going to come to Europe. Having the capability
to have a UAV to look over UK airspace would be very helpful in
terms of dealing with certain types of counter-terrorist operations.
The regulations do not allow it at the moment, so we can fly these
things in Afghanistan but we cannot fly them over the United Kingdom
even though we have them. It would be fantastic if the EDA helped
Europe develop the standards to allow these things to be used
and to do so in such a way which enables such systems, if developed,
to be exportable to other parts of the world. This is an area
where the EDA can really add some value.
Q11 Chairman: Thank you very much.
I wonder whether I could put a question to you, Minister, about
the EDA Code of Conduct on Defence Procurement. What evidence
do we have already about the UK industry using the Code of Conduct?
The second question is I know that not all the members of the
EDA have signed up to the Code of Conduct, but is there evidence
that other nations are following and accepting the obligations
of the Code?
Lord Drayson: I think that the best evidence
in the implementation of this is the use of this electronic bulletin
board for posting contracts. As of 28 June we saw that 15 states
had placed 185 contract notices on the bulletin board to a total
value of €7.5 billion. The good news is that has happened.
Without the Code of Conduct, the bulletin board, that would not
have been done and, therefore, the companies within the network
would not have known about those projects, so there is positive
evidence that it is happening. We have got one example where a
British company has received an order from Sweden for a particular
project and that would not have happened previously. I think we
can be encouraged. We need to continue to push the governments
to do this and equally for industry to pay attention to these
bulletin boards and to exploit this opportunity.
Q12 Lord Tomlinson: Lord Drayson,
if I can move on to the questions of EDA funding. In his annual
report, the Head of the EDA hinted that the EDA could do even
more if it was given additional resources to do so. Do you believe
this? Do you believe the money would be effectively and efficiently
spent if there were a larger budget, particularly bearing in mind
that as we view it from the outside it seems that the Brits have
been at the forefront of the campaign for a restricted budget,
so when you say given the fact that the EDA has a limited budget,
it seems to be in accordance with our wish that it has a limited
budget but also against the wish of many of our partners who would
have liked to have seen a more substantial budget. As we are at
the centre of this fight for restricted budgeting, are we really
satisfied that it needs any more resources, that it has the capacity
to use them or has the capacity particularly to use them efficiently
and effectively?
Lord Drayson: I think you have put your finger
on it absolutely about the ability to use the budget effectively.
This is the principle that we have adopted in negotiating this
point. We are three years into this. We do hope and expect that
as the EDA is successful and grows and shows the value it has
created then its budget will be increased, but we want to make
sure that is done in a way which builds on success and therefore
starting off small, and we accept we have been negotiating from
the start for a smaller budget, then the very nature of that limited
budget forcing the EDA to think very clearly about what is most
important and what can it add the most value in and the EDA being
set up as an organisation to do that, and as we go forward and
see the success there is a good argument for the budget to be
increased. What we were concerned about was that if it started
off meeting the aspirations of certain countries for a very large
budget we would end up with a bureaucratic organisation without
a clear focus. The EDA has been working hard on the development
of strategies. This start-up mentality idea is about saying the
first thing the EDA should do is think about what it is the EDA
is about and where it can add value. Let us get that clear, let
us get that all agreed and recognise there are conflicts in terms
of where the different nations are in terms of their level of
resources, their focus on defence and so forth, let us get that
straightened out, let us get some good projects going that we
can all buy into, and then on the basis of that success a few
years into this let us start to provide it with more money.
Q13 Lord Tomlinson: If I could just
follow that up. Do you think you have persuaded colleagues who
are participants in the EDA to that point of view? Are we going
to manage to get a triennial budget out of this process because
we failed last year and you won by getting the lowest common denominator,
ie the argument against change? In this process, have we got any
agreement with our colleague participating countries on what,
in your opinion, should be the measures determining efficiency
and effectiveness?
Lord Drayson: I will turn in a minute to my
colleagues who have a lot more experience in this than I do as
to whether or not they feel we are winning the argument. The sense
that I had from the meeting I attended in May was that provided
the United Kingdom is clearly being seen to be an enthusiastic
member of this, but with some clear views about what it should
be doing and not being dragged kicking and screaming to be a participant,
the UK's approach to this is consistent with this focus on the
areas of added value that I described and that we are seen as
supporting the issue of the increase in budget where that is based
upon success and delivery in the way in which I have talked about
then I do believe that we can win the argument. However, we should
not underestimate that we are in quite a different place from
a large number of the other members of this joint effort just
because of the nature of the investment we put in defence, the
pressure on operations which we are under at the moment and the
level of development of our industry. We have to recognise that
we are the world's number two defence equipment nation after the
United States, so within Europe we are the leading nation and,
therefore, we come from a slightly different place from other
nations. What do you think?
Mr Mathewson: I think in terms of your specific
question on where the debate on the budget is going, it is more
or less on our terms rather than on the terms of those who are
very much more ambitious. The focus of discussion tends to be
the size of the operation budget for the following year. If you
think back to last autumn, it was relatively easy to agree that
the operational budget should go up from four million to five
million, so a fairly modest growth. The area of controversy was
looking out to the third year of the prospective three year timescale
where there was a bid from the Agency for it to go up from five
to ten by the third year. In terms of the close discussion about
what next year is likely to be we are in broadly the same place
and I would be surprised if the Agency bid for next year was very
substantially greater than where they are this year in terms of
the operational budget. It remains to be seen where they think
it is sensible to pitch their bid for the third year. That has
been the experience so far, that we could come to agreement fairly
quickly on what next year looks like but those at the more ambitious
end of the spectrum have particularly been challenging the outer
years of the three years. At the moment I would not like to say.
Like last year, I am reasonably confident we will find common
ground for the 2008 budget but let us see what the bid is for
the three year framework for years 2008, 2009 and 2010.
Q14 Lord Lea of Crondall: I am now
into the territory of question three, if it helps to say that.
In putting it, what are the objectives and main aspects of the
recently adopted DTIB strategy, could I just continue the theme
that we seem to be on in a sense. Could you give us, as it were,
some real life examples of France, Germany, Italy, Spain or Sweden?
What are we talking about here in having a strategy that people
sign up to common standards of purchasing? The reason this is
not a market question is presumably we are all purchasers and
we all want to get value for money in purchasing presumably. What
is the rationale when you translate it into operational meaning?
Is this something that makes sense to the military at the operational
end of it?
Lord Drayson: Yes. At the heart of this strategy
is the conundrum that all nations face which is that unless industry
is provided with sufficient orders for a particular type of equipment
the capability that nation has will be lost because the industry
over time will disappear. Given that defence equipment has become
increasingly expensive, and the United States market is a huge
market and dominates the landscape, the challenge for the United
Kingdom and the majority of other nations in Europe is that, for
example, with submarines in the United Kingdom, unless we buy
a new submarine about every two years there is not enough work
to sustain a submarine industry in this country. So we set out
in the UK back in 2005 a Defence Industrial Strategy which for
the first time set out how we would balance our procurement decisions
such that we would ensure we could make the best judgments on
how we could maintain capability and get value for money and,
therefore, know that when the military needed a particular type
of capability, a submarine for example, we would have the ability
to get it. In the way in which that applies to the United Kingdom
it applies to Europe too. We have to be clear in Europe about
how we can work together in certain fields to maintain the capability
for Europe and how we are going to operate our procurement processes.
To give you a particular example where this could work very effectively:
armoured fighting vehicles. We are running a procurement programme
within the United Kingdom at the moment for a new armoured fighting
vehicle, it is called the FRES programme, and we have said that
we are willing to consider vehicles which have been designed and
manufactured in Europe, in the United States, in countries such
as Sweden, Germany and France within this competition. It is an
example of where there is this industrial base, the industrial
base is important for the defence needed and I think it is important
for us all to recognise that our policy within the United Kingdom
is the defence need comes first, so what is firstly the military
capability we need to deliver for the United Kingdom and how can
we manage the industrial base to do that. This is about exploiting
that our collaboration across Europe can make sure that over time,
by pooling these resources and having a clear strategy, we can
have the best likelihood of maintaining these important capabilities
into the future.
Q15 Lord Lea of Crondall: Can I just
check I have understood the essence of that. So it is not driven
by the convenience of the manufacturers, it is not driven by the
convenience of the Ministry of Defence, it is driven ultimately
by the need for the ultimate users, the military, to have an industry
which is going to serve what they want and, therefore, they have
got to have some planning flow of orders. In that context, what
is the point about Britain being independent? Are we expecting
Operation Sea Lion, or something? On a scale of nought to ten
all of these countries want to protect their independence, right?
Lord Drayson: It is not practical for countries
to do that across the board. What we have done is recognise that
there are certain areas of military equipment that we regard that
it is essential for our defence interest, not talking about jobs,
we are talking about defence, to have in the United Kingdom a
sovereign UK capability. An example of that is a nuclear powered
submarine. International treaties prevent you from buying a nuclear
powered submarine on the open market but we need to be able to
maintain our nuclear deterrent and be able to have that capability
in the United Kingdom. We have set out in the UK's Defence Industrial
Strategy, which provides effectively a list of those capabilities
which we regard as having to have in the UK, those which we are
prepared to collaborate on and those which we are happy to source
from the global market.
Q16 Lord Crickhowell: Through this
I have been wondering how you get from A to B. I entirely understand
and totally approve of the tight approach in the initial start-up
phase when you want to get something new, but going though the
strategy document agreed on 14 May: "We cannot continue routinely
to determine our equipment requirements on separate national bases,
develop them through separate national R&D efforts and realise
them through separate national procurements. This approach is
no longer economically sustainable" and so on. You have added
an element from the initial start-up phase that there are certain
sovereign UK requirements that we have got to go on providing
but the object at the end of the day in simple terms for Europe,
I suppose, is that each country is not inventing and constructing
the wheel independently and at some point we get beyond our present
systems to move to these areas where we are going to co-operate
and invent the next generation of the cart or whatever it is.
What I do not quite understand, having listened to all the answers
that we have had so far, is how one envisages moving from the
immediate tight control of national interests to the point where
we really are a number of countries developing whatever follows
on from the wheel.
Lord Drayson: Firstly, we do come at this very
much from the direction of what is in the UK's national interest,
in our defence interest. Secondly, we come at this from the perspective
that we are pragmatic in choosing which type of equipment we believe
we should collaborate on, which we think should do ourselves,
which we think we should collaborate on with our European partners
and which we think we should collaborate on with our US partners.
I think the United Kingdom is in a particularly strong position
in being able to do that and being able to take that pragmatic
project-by-project approach. It is important for us to maintain
that, to not find ourselves going down a US only approach or a
European only approach. I do not want to give the Committee the
impression that we think in time everything is going to be done
on this joint basis; it is not. There are going to have to be
significant areas of military capability, military equipment,
which have to be done just by us here in the United Kingdom and
we will have to afford them because if we cannot afford them we
will lose them. There are others which we do think it is best
for us to work on with other countries on a bilateral basis and
others where we can work together on a more European-wide basis.
It is about choosing these areas and being pragmatic in choosing
them in terms of what is in the national UK interest to do so.
The overall strategy, it is fair to say, is a high level aspirational
document that sets out principles, but it gives a framework for
industry to deliver against those principles and for projects
to be looked at through the framework that the strategy set outs,
and that is how I believe you get from A to B.
Q17 Lord Chidgey: I think we are
now on to the nitty-gritty of the strategy of the Technological
and Industrial Base, Minister. You have been quite reassuring
in the way you have talked about the importance of retaining our
research and development capability in those areas that we believe
to be vital for us, and I am grateful to hear that. There is also
the importance, surely, of keeping the integrity of the supply
of your armaments. You have talked, and talked very lucidly, about
the importance of the high tech end, but I do remember reading
in the first Gulf War that we had a problem with the supply of
the ammunition for the standard issue rifle to the British troops
because the country that supplied the bullets did not agree with
the policy within themselves of us being there.
Lord Drayson: I think it was Belgium.
Q18 Lord Chidgey: To me that is a
classic failure in ability to project the military force. The
first question I have is, yes, okay for the R&D I think that
is a sound approach, but what about when you start to outsource
the whole of the procurement, how do you determine that you are
going to keep that security of supply of the nuts and bolts, never
mind the high tech?
Lord Drayson: You have put your finger on an
important aspect of the interface between foreign policy, defence
policy, politics and these decisions about capability. The approach
which we are taking in the Ministry of Defence is to be pretty
hardnosed about this, particularly in the context of being engaged
on operations as we are, and we expect the operation in Afghanistan,
for example, to continue for a considerable period, therefore
what we have to do is make sure that we do not put ourselves in
a position where our ability to undertake such an operation would
be constrained because of a lack of security of supply of a certain
element of the supply chain or a piece of equipment which we would
need to do that. Pragmatically how do you deal with that, you
deal with that through stock levels in terms of the contractual
agreements that you reach between partner nations and you address
those issues upfront. That particular example that you mentioned
relating to the bullets, I was not around at the time but from
I have been told, came as a bit of a shock at the time but it
was a shock which has had an effect within the system and I do
not believe that the Ministry of Defence would find itself in
that position today.
Q19 Lord Chidgey: A follow-up to
that answer and that aspect. There are two other factors that
I would like to hear your views on, and that is the impact and
effects in this regard of the major defence companies wishing
to outsource their manufacture, their subcontractors and suppliers
outside the United Kingdom. We often hear how important it is
to keep the defence industry fed with orders but we do not often
hear about the major manufacture companies looking for opportunities
to outsource the work outside the United Kingdom to reduce costs.
There is an issue there about how we can control or affect outsourcing
to make sure we have reliability of supply. The other point, and
I think this is very relevant in terms of your remarks about the
future aircraft carriers, which is an issue dear to my heart as
you know, working in collaboration with the French, is how much
do you take into account the ownership of the companies that you
are working with in EU countries? I am talking particularly about
the fact that there is a preponderance of state ownership in some
of our EU partner countries in the defence industry which does
not exist in the UK which means that they must be more vulnerable
to political decisions than they are to commercial decisions in
those areas and, therefore, it makes the contracts that may be
signed in a commercial way somewhat suspect to disagreements in
a political vein. Can you give us some examples of how, in our
interests as a nation, you are able to cope with differences of
approach within political, commercial and defence establishments
of our partner countries in the EU when working in collaboration.
Lord Drayson: We have shown over the last two
years, after we published our Defence Industrial Strategy which
addressed this issue head-on, that we are very robust in implementing
our policy which recognises the dilemma we face as a country in
that we have a policy as a government to effectively embrace globalisation,
not to protect against it, to encourage and have the most open
defence market here in the United Kingdom and to encourage foreign
investment. We believe that is the way to (a) provide the best
military capability to our forces and (b) to ensure that the UK
defence industry continues to prosper and be competitive. The
problem we have is that other countries do not see it in the same
way, so our policy, and I say it is robust, is a policy which
recognises that reality and when we are negotiating with those
other countries about particular projects, to do so on the basis
that we cannot expect them to change the way in which they operate,
we have to deal with them as they are, and we need to protect
the principles that we have really quite strongly and that means
we allow companies to buy UK assets, we are open to foreign ownership
of those assets, but the companies that acquire those assets,
the management and the way in they operate, the location of the
intellectual property, the location of the skills, has to be consistent
with their industrial strategy which puts a big emphasis on location
of intellectual property, access to design of property, so where
we are very strict is about where the know-how is, where the skills
are, because we know that we need to have access to that to be
able to maintain our capability. Where that gets tested then I
think we have shown as a government over the last year in particular—an
example was Devonport Dockyard with the Joint Strike Fighter programme
and in terms of the FRES programme is another example—we
have implemented very robustly those principles. I think that
this is having an effect. For example, our relationship with France,
which in the past has been effectively one-way traffic where it
has been possible for French companies to acquire British companies
but vice versa has not been the case, it has been possible for
French companies to access UK procurement projects, but the opposite
is not true, we have made it clear to France that this cannot
continue and given that France, and a number of other countries,
is in the position of looking to get the most military capability
for the amount of budget it has, it is in its interest to open
up its market. I am hopeful that by pursuing this robust line
we are seeing real progress on that. An example is the aircraft
carrier project and I hope there will be others. If I may reassure
you and the Committee, we are not naive in this, we do believe
that we have the right policies which are in the long-term interests
of the United Kingdom and in time are in the long-term interests
of Europe to face up to the realities of globalisation. We are
robustly making our case. Where we have the ability to pursue
the argument, because we are a significant spender in defence,
we will do so.
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