Defence Reform Bill

Madeleine Moon Excerpts

Tuesday 16th July 2013 Commons Chamber

[Mr James Arbuthnot (North East Hampshire) (Con)]

I echo what was said by my right hon. Friend the Secretary of State about the quality of our armed forces and the amount that we demand of them. We are putting them through a lot at the moment.

Once upon a time, before most Members were born, I was a Defence Procurement Minister, and I was delighted by the publication of the Bernard Gray report under the last Government. Sadly, the then Prime Minister tried to suppress it, although he should have recognised that it covered not just the period of a Labour Government, but the period during which I was in charge of defence procurement. The report revealed a great many failings in the procurement process. It showed, for instance, that the programme was overheated, that a weak interface between the MOD and DE&S was resulting in poor discipline and very little change control, and that there were insufficient skills in the DE&S. Subsequently, I was both delighted and highly amused when Bernard Gray was put in charge of sorting out the mess that he had identified.

The Bill was designed to achieve that. Like Gaul, it is divided into three parts—although, according to its drafting, there are four—dealing with defence procurement, single-source contracts and reserves. Each of those issues, but particularly procurement, raises a great many questions. I shall ask some of them now, because in the case of a change as fundamental as this, the devil is in the detail. The change is fundamental and it is being made against a background of fundamental change at the MOD as a result of the Levene reforms, severe reductions in funding and huge redundancies, not to mention the fighting in Afghanistan and the withdrawals from Afghanistan and Germany. As I have said, we are asking a lot of the Ministry of Defence, and it will need help to achieve the major changes set out in this Bill. It will need help from Parliament and from industry, and from academia and the country, and it should be willing to ask for and accept help, and everyone else should be willing to give it.

I shall start with the defence procurement process set out in the Bill. In December 2011 the Chief of Defence Matériel set out four options: first, the status quo; secondly, a trading fund; thirdly, an executive non-departmental public body with a private sector partner; and fourthly, the GoCo. We are now down to two options: a value-for-money comparison between the GoCo and what we hear is called DE&S-plus. Most unusually, there is no option to stay as we are. It is perhaps surprising that the MOD non-executive directors have not insisted on there being a stay-as-you-are option.

The GoCo option is reasonably clear, and I will come on to it in a moment, but DE&S-plus is not at all clear. The White Paper devotes a massive four lines to it and does not define it. In fact, so far as I understand it, DE&S-plus is designed to be unclear in order to be the basis for a negotiation between the MOD and the Treasury as to the freedoms the Treasury can offer. In other words, if DE&S-plus can pay more for its personnel and so attract much needed skills—more than current civil service terms and conditions allow for—the GoCo will become less attractive. But how, in practice, can the Treasury loosen the rules for the MOD without loosening those same rules for other Departments with similar problems? If the answer is that in practice it cannot, does that mean that in practice this decision has already been made—so it is GoCo or nothing, and there is no public sector comparator? Has my right hon. Friend the Secretary of State made up his mind? How will the private sector companies bidding for a GoCo be confident that their bids are being fairly compared with DE&S-plus, whatever that may be?

ADS, the organisation of defence companies, suggests that the proper metrics might be better value for money for the taxpayer; shorter and cheaper bidding processes; improved skills and expertise; and greater stability in the funding of the defence budget. That is a potential set of metrics, but what does my right hon. Friend say are the proper comparators, and how will he avoid this being a wholly subjective guess about future behaviour?

This brings me to the GoCo itself. I am not instinctively opposed to this idea—in fact, I am rather attracted by it—but the Defence Committee has asked lots of questions, some of which remain unanswered. No other country has gone down this route, so this is courageous, Minister. That does not mean it is wrong, but there are some questions. First, if a foreign company is the lead partner within a GoCo, how will the MOD deal with any conflicts of loyalty that arise? The Atomic Weapons Establishment does not create such conflicts and is not as widespread in its coverage. Secondly, there are concerns about the issue of intellectual property, as some of my colleagues have said. That is covered in the single sourcing part of the Bill, but it is not covered in the defence procurement part.

[Mrs Madeleine Moon (Bridgend) (Lab)]

I am not sure whether the right hon. Gentleman is about to mention how the GoCo will affect current alliances and agreements for joint contracting between the UK and our partners. I was in the USA last week for the NATO Parliamentary Assembly, and I spoke to many alliance partners in NATO and to Congress members in Washington. The best that they could say was that Britain was very brave, that they would like to see whether we succeeded and that they would leave us to get on with it. Concern was also expressed, however, about whether they would be willing to share confidential contracting and technological information. Does the right hon. Gentleman agree that that is a concern?

[Mr Arbuthnot]

As I have said before, the hon. Lady performs a valuable service on the Defence Select Committee. She has put her finger on an extremely important point, which was also raised by the Select Committee in our report on defence acquisition. She is right; this matter has to be covered. I asked my right hon. Friend the Secretary of State a question about how the United States and France were reacting to the proposal, and he was able to say that he had received a supportive letter from the United States that very morning. I also know that there is a working party in operation with the United States to try to ensure that any problems are ironed out. It is true that other countries think we are being very brave. If we are indeed being so courageous, and if this works, we may well forge the way for other countries to follow us. It may well be that whichever company succeeds with the GoCo in this country could find vast new opportunities opening up for it. For example, it could take over the defence procurement of the United States, which would make somebody extremely rich.

The next question, which has been raised by ADS and by the Federation of Small Businesses, relates to how the GoCo proposition would affect small and medium-sized enterprises. The FSB has said that it is broadly supportive of the Government’s proposal, as contained in the Bill, but that it is vital that the needs of SMEs be considered when the reforms are implemented. I echo that, and I am sure that my right hon. Friend the Secretary of State will do so as well.

The time line involved is ambitious. I understand that there is a suggestion that we might reach a final conclusion in April 2015. That must remind us all of another fixture in our diaries for May 2015—the general election. Surely the risk of this project running up against the next election is huge.

--- Later in debate ---

[Mr Dai Havard (Merthyr Tydfil and Rhymney) (Lab)]

Obviously, I have spent some time on the Defence Committee, along with the Chairman and others. We have spent a number of years studying some of these things, from Governments who have come and gone. Clearly the Bill is central to our discussion about how we make our MOD efficient, so I do not approach it from the point of view of opposing change and reform. This is a debate about how we get the correct reform. On the question of GoCo or no-GoCo—or “NoCo” or whatever it is or is likely to be—or “NDPB-plus”, I am not going to go into great detail, because the previous speech raised many of the concerns. As for the freedoms required in the individual terms and conditions given to a chief executive of an organisation, who can pick and choose people and so on, I am a little worried that we should build structures around individuals, as they also come and go. That cannot be the only reason for reform, however; there must be broader reasons for making such a change.

Let me deal with the organisation in the context of the rest of the Ministry of Defence, because the remainder of the Levene reforms must be considered. The heads of individual services and joint services will be procurers. They will not sit on the central board, but they will buy things from various parts of the organisation, as there will be single contracts in addition to DE&S requirements. We can make DE&S as efficient as we like, but we must consider the broader context of whether changing DE&S will make the whole process more efficient, so a lot more work needs to be done on that.

My personal prejudice—I was glad that the Secretary of State spoke about where risk will be retained—is that if we are not careful, a further risk is created by moving things too far away from the political organisation. It will never abdicate responsibility, so if anything goes wrong, it might lack the strategic capacity to direct in such a way as to change the process. Care needs to be taken about the extent to which things are pushed out into a private contracting organisation.

Let me turn to the organisation of the reserves. It is a shame that the Secretary of State has left the Chamber, because I have written to him about this and received something of a reply. I was concerned by the weekend’s events because my constituents were involved, in the sense that my local mountain rescue and search team—Central Beacons mountain rescue team—effectively became the initial primary support for the rescue activity. I do not want to get this wrong, because there will be police and coroner inquiries, but if the Secretary of State were in the Chamber, I would ask him at least to thank the team publicly and to acknowledge its activities on that day.

The team was subsequently supported by Rescue 169 from Chivenor and various other highly professional people to help with the co-ordination of the activity, and they did their best in the circumstances. I thank the rescue team publicly, and my local community expresses its sympathy to those affected during the exercise and the families and friends of those who died. There are lessons to be learned from the weekend, so when that happens, I hope that the exercise will include those people involved. I saw volunteers rescuing volunteers. There is nothing intrinsically wrong with that, but if the support process is going to work, those volunteers should participate properly in that lessons-learned exercise, because they have much to contribute.

I am not a shrinking violet who wishes to downgrade the rigorous nature of training, but an exercise such as the Fan dance must be managed well, and monitored and supported correctly, or it should not be done. The sun had not been out in Wales for about nine months, but local people were expected to run around in the heat at the weekend. Perhaps certain exercises should be graded and there is something to be said for considering how a number are conducted, but the weekend’s activity was a selection exercise, not a training exercise. While many lessons could be learned from what happened, we must be careful, because there is a constituency that will want to downgrade the exercise. There is no need to do so, however, because with proper management, monitoring and support, such a downgrade can be avoided, and the legitimacy of the process will be unaffected.

Wales provides something like 7% to 8% of armed forces personnel, yet our population represents 3% of the UK. Hon. Members may draw their own conclusions about why that is the case, but it is due to many things, such as commitment and history. However, people will look at the proposals and say, “What is this new reserve force we’re being offered? How will we relate to the regular forces? Do I want to play this game and get involved or not?” Others will ask, “Do I want my son, daughter or godson to go into this?” It is not just about money. There are important changes, giving people extra rights, but it will not be possible to make the numbers unless the legitimacy of joining is recognised within the community where recruitment is to take place.

[Mrs Moon]

I recognise my hon. Friend’s expertise in this area. The exercise has been carried out in the beacons over many years, yet two people died and a third person is seriously ill. That is sending shock waves of concern throughout the families and friends of those seeking to join the reserves. Is it not crucial that, if mistakes are found to have occurred, the Ministry of Defence is clear about what those mistakes were and how they will be rectified, so that people may volunteer without anxiety, and families can feel confident that the reserves is a safe and credible option for their family members?

[Mr Havard]

I agree entirely. There is also the question of what people are required to do. There is some description in the White Paper about what reserves will and will not be required to do and how those are linked, but there is a broader question about the type of organisation and the support provided.

I shall come on to the duty of care, which is related to that. The call-out of reservists will be the same as that of regulars. That suggests that they are the same, but they are not necessarily going to do the same things. There may be legal issues involved that we need to explore. I understand why the present narrative is the way it is. It is trying to make things clearer, but at some point we may not be achieving that, and we may need to look to the White Paper to help us do so. The title includes the words “valuable and valued”. The reserves are both; that is absolutely correct, but they will be called out on the same legal basis as regulars. The training is to be the same, but it is not really the same. A lot more work needs to be done.

The Defence Committee is undertaking some work on one aspect. As in the case of the accident at the weekend, about which I will not go into detail, there is a duty of care to people when they are put in certain circumstances. We all know that and we see the latest decisions by the Supreme Court and so on. There is the potential for lawfare, when people might seek to use domestic legislation as a weapons system, all the way through to the development of universal jurisdiction. That is the background to the way that people might operate, and in the Defence Committee we are going to look at these things. We have an inquiry offer out now and people should put evidence to us to try to clarify how the system will work.

Regulars may not be the same as reservists in certain circumstances. The law will not necessarily provide the architectural background to some of the decisions that people think they have made. We are concerned about that and we need to inquire into the position and make sure that the law does that. Money is supremely important, as we all know. For some years we have been trying to drive more efficiency into the Ministry of Defence, yes, but it is not just about the money. The MOD should not degrade the quality of the response that it will get, by talking only in those terms.

--- Later in debate ---

[Mr Iain Wright (Hartlepool) (Lab)]

It is a pleasure to follow the hon. Member for Canterbury (Mr Brazier), who is respected in all parts of the House for his vast knowledge of defence matters. I associate myself with the thoughtful and heartfelt tribute that he paid to the two men who tragically died in the past couple of days in the Brecon Beacons.

I will concentrate on part 1 and, to some extent, part 2 of the Bill. The provisions in part 1 are fraught with risk. I agree with the Chair of the Defence Committee that the devil is in the detail and that no other country in the world has attempted to outsource the means by which it equips its armed forces. The notion that a GoCo—the Government’s preferred option—will act as the agent of the Ministry of Defence and negotiate and sign new contracts on behalf of the Secretary of State is an inherently risky one that needs to be explored during the passage of the Bill.

A defence procurement strategy should have three objectives. First and foremost, it should provide the equipment that is necessary to ensure that this country has the protection and security that it needs. Secondly, it should provide value for money for the taxpayer in the pursuit of the first objective. I also believe that it should have the third objective of supporting and enhancing our manufacturing and innovation capability. I am concerned that the Bill, particularly part 1, does not provide for all three objectives.

I heartily agree with the Defence Committee report on defence acquisition that was published earlier this year, which stated:

“We believe that the absence of a defence industrial strategy which supports appropriate national sovereignty puts the UK at a disadvantage against competitor countries.”

In evidence to the Select Committee’s inquiry, the European Aeronautic Defence and Space Company stated that the Government’s

“feeble support to British Industry is in striking contrast to the model in continental Europe, where for major projects a cross-Departmental approach focuses on cost and value to the nation as a whole. There appears to be no mechanism in the UK to measure the cross-government impact of a contract going overseas, where short-term redundancies and long-term loss of skills shift the problem from MOD to the DHSS and other Departments: good value for money for MOD perhaps, but poor value for the nation.”

I agree with that analysis.

Why do the Government not add defence to their sectoral industrial strategies for aerospace, automotives and the life sciences? The defence industry is economically vital as well as strategically critical to this country. It has annual revenues of more than £22 billion and directly employs more than 100,000 highly skilled workers. The defence growth partnership, which is chaired jointly by the Minister of State, Department for Business, Innovation and Skills, the right hon. Member for Sevenoaks (Michael Fallon) and the managing director of MBDA, which was an excellent appointment, is a good, tentative start, but it needs to be translated into an active strategy that maintains for the long term our operational capability and our economic and industrial competitive advantage.

The Bill, if anything, takes us further away from that objective by creating additional pressure to focus on the narrow definitions of cost, value for money and off-the-shelf solutions. It fails to take account of the long-term impact that procurement decisions have on manufacturing, industry and innovation in this country. In the long run, overemphasising price and purchasing defence equipment off the shelf at the expense of value and national capability may cost us more in terms of our defence flexibility and our defence manufacturing base, and may cause a reduction in the levels of research, investment, intellectual property and design capability in the UK.

[Mrs Moon]

I agree with every point that my hon. Friend has made so far. One area that he has not addressed is accountability. For example, will we be able to call the chief executive of the GoCo before the Defence Committee to be challenged on the spending of public money? Is accountability of concern to my hon. Friend and will he address it in his speech?