Manufacturing

Nick Smith Excerpts

Thursday 24th November 2011 Commons Chamber

[Nick Smith (Blaenau Gwent) (Lab)]

All too often, the issue of defence management is sidelined, so it is good that we discussed BAE Systems earlier. I see this debate as an opportunity to emphasise the importance of defence manufacturing and procurement, which a colleague mentioned earlier.

I have been lucky enough to be a member of the Public Accounts Committee for the past 18 months, during which time we have focused partly on questioning top Ministry of Defence officials, making defence one of our Committee’s themes and, crucially, visiting our country’s manufacturing base by going to Govan in Glasgow and Rosyth in Edinburgh where our new Queen Elizabeth-class aircraft carriers are being built. In doing that work, we have considered a number of instances in which the MOD has not secured value for money in procurement. I raise those instances today because I think they undermine our manufacturing capability and make the work of our armed forces much more dangerous.

As a country, our priority should be to provide our troops with the equipment they need for the best possible value for money. Having a sustainable skills base is vital for that. In Britain, we have a thriving defence manufacturing industry, as I saw for myself at this year’s Defence and Security Equipment International exhibition. We have skilled engineers and fantastic research and development skills. Under the Labour Government, firms such as BAE had the opportunity to invest as the defence budget increased by 10% in real terms. The defence industry provides valuable exports for our country, as well as important skilled jobs. Having the latest technology can also be valuable as it gives our troops an edge on the battlefield.

What are the key figures? Defence spending has been cut, meaning we have £2.63 billion less to spend on our military over a five-year period. This leaves 7,000 fewer members of our armed forces needing armour, four fewer frigates to equip and 40% fewer Challenger tanks to arm. As a result, we cannot afford to sustain our domestic capability to produce the kit we need. Last year’s strategic defence and security review was criticised by the Select Committees on Defence and on Public Administration. It was seen as a tug of war between the Ministry of Defence and the Treasury.

Cost-effectiveness is important. Initially it was hoped that the decision to change the type of aircraft flown from the new aircraft carriers would save money. However, it has resulted in a multi-billion pound refit for the carriers because catapult and trap technology have to be added. That type of indecision can rapidly increase costs for manufacturers and, ultimately, for taxpayers. It also means that we will not have carrier capability until 2020 and that the carriers will not be fully operational until 2030.

The best way to ensure value for money in procurement is by ensuring there is genuine competition in the tendering process. One way in which the MOD has discouraged competition is by gold-plating its procurement plans. Yes, our soldiers should have the best equipment, but that can lead to delays and leave our soldiers without the kit they need for a very long time. Competition is key in achieving value for money in defence manufacturing. Competitive tendering has been the Government’s aim, but National Audit Office figures show that fewer than 20% of the current major projects nearing their service date were awarded through genuine competition. Some 40% of contracts, representing £8.7 billion a year—these are big numbers—have been awarded by single-source procurement, under which the MOD invites only one firm to tender. There is a danger that by excluding firms from the tendering process we are reducing our skills base and our capacity to produce certain equipment in the long term as firms build up monopoly status.

In conclusion, the best way for us to maintain domestic manufacturing capability is to have a number of firms with the ability to produce the equipment we need. That would protect more jobs throughout the industry, enable us to achieve better value for money and provide an incentive for firms to produce good-quality equipment on time. The point about being on time is particularly important. In future, both Government and industry must work to ensure that we have sustainability in our domestic defence manufacturing industry. Then we will better protect and arm our brave servicemen and women.