Defence: Procurement

Baroness Dean of Thornton-le-Fylde Excerpts

Monday 18th March 2013 Grand Committee

Asked by

[Baroness Dean of Thornton-le-Fylde]

To ask Her Majesty’s Government what are their policies towards and priorities for defence procurement.

[Baroness Dean of Thornton-le-Fylde]

My Lords, this Question for Short Debate covers a huge area and we are not going to be able to cover it all in one hour, so maybe we need to come back to this issue at a future date. My work for today has been substantially assisted by the helpful report by the House of Commons Defence Select Committee dated 5 February.

Defence procurement has dogged Governments from all sides of the House for many years because of delay, cost overruns and changing capability. Taken together, all of these have often had an impact on the capability of our Armed Forces. Despite many reports from the House of Commons Select Committee, the National Audit Office and others, the problem appears to be intractable and one that Governments somehow cannot get to grips with. In 1997 the incoming new Labour Government were faced with cost overruns and delay on the Eurofighter, Merlin and Tornado programmes, to name a few. So the statement after the 2010 election about the budget deficit being so big and it being down to the previous Government entirely is not quite the full picture; it is an issue that has faced many Governments, including this one. As the Select Committee report says in paragraph 15, “The decision in 2010”— after the coalition Government were elected—

“to change to the carrier variant of the Joint Strike Fighter was … rushed and based upon incomplete and inaccurate policy development. It … led to increased costs to the carrier strike programme and a delay in the in-service date of the carrier”,

as well as,

“the early decommissioning of the Harrier”.

The decommissioning of the Harrier has, of course, attracted an awful lot of attention and, certainly, critical comment from many people who know a lot more about this issue than I do. There has been regret in the services about the early demise of the Harrier jump jet.

However, Ministers in the MoD have been extremely active. We have a report from Bernard Gray, commissioned in 2009 by the previous Government, and the Levene report, to name just two major pieces of work, as well as the National Security Through Technology White Paper. Through those, together with the Defence Committee report, I have been able to gather together information for our debate today. It is impossible to cover all the issues, as I said, but I would like to cover the transition of security and the UK-based skills requirement that it brings with it; the defence procurement structure itself; research; and the defence budget.

On transition, we are witnessing a Government who have moved from a defined list of sovereign capabilities, which we had under the previous defence industrial strategy, to the current approach in the defence and security White Paper—it appears to be reflected in government documents—for off-the-shelf acquisition where that is possible, with a less defined list of sovereign capabilities. That leads me to my first question for the Minister. What are the Government’s plans to ensure that the need for skills and for an affordable programme is met? In industry, transitional periods are always more expensive than a flat state. New skills will be required for this different type of procurement. What are the Government’s plans on that?

For instance, there is a need to ensure that decisions are made about the long-term sustainability of the complex warship build programme and the transition from the Type 45 to the Type 26 programme, which will require key skills, some of which are not there today. That brings with it questions of related affordability and how that impacts on the MoD budget. Decisions are also required on the capability of Typhoon, particularly if we want to maximise our potential for export markets in that area. Another area is the topic of unmanned systems. We are good at this in Britain—we have extremely good skills—but what is government policy in this area?

Those are merely three areas of capability, but all are resource-demanding. What priorities have the Government set across the general board of procurement? Decisions such as these have a profound impact on the defence industry and on provision, so that industry can plan and have the confidence to invest in its workforce rather than making people redundant, providing the right skills to make sure that we can manufacture defence here in the UK. It is an issue to which the Defence Committee report refers as important in its last recommendation, number 198, about the skills base.

The structure of defence procurement is a wide area. The Bernard Gray report talks about changing it. There were two possible models of procurement: an executive non-departmental public body or a government-owned contractor-operated organisation, commonly called a GOCO. At a conference in March 2011, the author of the report, Bernard Gray, said that it,

“seems extremely unlikely this idea, GOCO, will be pursued given the lack of support it received”.

Yet the Government appear to have stopped all work on any other model and are concentrating on GOCO. I thank the Minister for the briefing that we had on that at the MoD. I now ask him where government thinking is on this. What hurdles do the Government anticipate, and how do they intend to overcome them when we are talking about our international allies? How will our allies react to that change to a government-owned but contractor-operated system? Defence procurement is an expensive business, and getting more expensive. It is highly unlikely that any one nation will be able to fund its own defence in future. In fact that is already not the case today; we have to work in concert with our allies.

We have a good research base in the UK. It has worked well for SMEs, academia, the MoD itself and the defence industry. Paragraph 114 of the Select Committee report asks the Government to target 2% of the MoD budget to be spent here in the UK on UK-based research and development. What is the Government’s response to that? Do the Government agree that we should be aiming for that target?

In the Statement on 14 May 2012, the Secretary of State announced that the budget had been brought into financial balance. He also announced that, for planning purposes, it had been agreed with the Treasury that a 1% per annum real increase in the equipment and support budget would apply from 2015. Can the Minister confirm that this additional 1% in real terms for the defence budget will be new money, not money that the MoD has to find from its overall budget? Obviously, a large part of the rest of the budget is personnel spend. Will that increase apply from 2015? In conclusion on the defence budget, it seems odd logic that, whereas all our non-allies—China, North Korea and other countries—are increasing their defence spend, we in the western world are reducing ours, and doing so to an extremely concerning point.

I said that I could not cover all the points in this short debate; I hope that we can return to this topic. It would be helpful if the Minister could answer those questions. On the key issue of GOCO, will the Minister confirm that no final decisions have been taken? I look forward to his reply, and to hearing what the small number of colleagues taking part in the debate have to say.