Defence

Paul Sweeney Excerpts

Thursday 11th January 2018 Commons Chamber

[Vernon Coaker]

I thank the hon. Gentleman for his advice. I am sure that he has read the whole motion, which says that expenditure should be maintained

“at least at current levels”.

This is the problem that I have in trying to be conciliatory. I tried to put together something that everybody would agree with, but perhaps I should have been a bit stronger. I take the admonishment, but I did say “at least”.

[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

My hon. Friend refers to maintaining a fiscally neutral position in defence spending. Does he recognise that in the past few years defence inflation has been 3.9%, on average, whereas the background GDP deflator has been only 0.8%? We are seeing a huge erosion of the effective purchasing power of the defence budget every year that is eroding our capability every year.

[Vernon Coaker]

My hon. Friend knows, from his own background in the defence industry, the importance of the point he has made. It is not just the headline inflation figure but the real inflation rate we face that needs to be addressed when we make any spending decisions, so the point is very well made. If I may, Madam Deputy Speaker, I will speak for just a few more minutes.

We find ourselves in an incredibly serious situation, given that a Defence Minister is reported to have threatened to resign if the Army numbers are reduced any further. Will the Government rule out any further reductions in troop numbers below the 82,000 figure? The Army is already 4,000 below that figure, recruitment and retention in our armed forces as a whole has reached crisis point and the current deficit in the number of service personnel needed is 5.6%. I say to the Minister that central to this—I know the Government have made some noises about it—is lifting the 1% public pay cap for our armed forces. We should ensure that something is done about it as soon as possible.

What about the cuts to training that we have all read about? The Government have confirmed that a number of training exercises have already been cancelled for 2018, largely due to costs. According to a parliamentary written answer I have seen, those include Exercise Black Horse and Exercise Curry Trail, which involves jungle training. Have we now abandoned the foolish idea of cutting the marines by 1,000 people, and of getting rid of HMS Albion and HMS Bulwark, which would mean we did not have the ability to mount beach landings? As I have said, the Government say that this is speculation, but the Minister now has an opportunity to rule out such things; he could say that this is speculation, that these things are not going to happen and that this Government will not let them take place.

Following on from the point made by my hon. Friend the Member for Chesterfield (Toby Perkins), all of this is taking place against the backdrop of continuing financial pressures on the MOD’s £178 billion 10-year equipment plan. The National Audit Office has said:

“The risks to the affordability of the Ministry of Defence Equipment Plan are greater than at any point since reporting began in 2012”.

That is surely right. The plan relies heavily on efficiency savings being made in order to make ends meet. The MOD’s permanent secretary has stated that there is a need to save £30 billion over a 10-year period.

The 10-year equipment plan for the MOD does have amazing new equipment for our armed forces—new frigates, new planes and the Ajax fighting vehicle—and our defence companies provide massive employment opportunities, including apprenticeships. Many areas depend on this military spending, as well as businesses such as BAE, Airbus, Thales, Raytheon, Babcock and many others, including small and medium-sized enterprises. They need certainty in their orders, however, and regular orders to maintain their skill base, and the questions raised by the Defence Committee and the National Audit Office about affordability and efficiency savings cannot just be dismissed. The refreshed defence industrial strategy must be something that makes a tangible difference.

--- Later in debate ---

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

I suspect you may agree, although you would never be ungracious enough to say it, Madam Deputy Speaker, that sometimes debates in this place can go on a bit. But we have heard a genuinely informative and at times inspiring series of contributions today, and it has been a pleasure to sit through and listen to the debate, almost in its entirety. I, like perhaps one or two others, may not have the privilege of winding up a debate any time soon from the Front Bench, so it is a privilege to be the last speaker from the Back Benches in this debate.

[Mr Sweeney]

Almost.

[Madam Deputy Speaker (Mrs Eleanor Laing)]

For the avoidance of doubt, there is still one hon. Member to come and I have not forgotten him.

--- Later in debate ---

[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

Thank you, Madam Deputy Speaker, for the opportunity to contribute to this magnificent debate in which we have heard a series of robust, resilient and passionate contributions, not least from my immediate predecessor in speaking, my hon. Friend the Member for Barrow and Furness (John Woodcock). He represents a fine shipbuilding town that has a critical stake in the future of the defence equipment programme.

I think it is fair to say that there has been consensus, and that it is a source of great dismay, among everyone present today that every year of this Government has seen a steady decline in defence spending as a percentage of GDP, from 2.4% in 2011 to 1.9% in 2016. Not only has it declined in every year of this Government, but it is lower than in any year of the previous Labour Government. Those figures, damning as they are about the Government’s real commitment to defence, belie the true criticality of the situation. A letter published by former defence chiefs during the general election last year called the 2% target “an accounting deception” and added:

“Most analysts…agree core defence expenditure for hard military power is well below 2%.”

Not only is real defence spending well below the purported 2% target minimum, but its effective purchasing power is being eroded year on year; as many Members will know, the defence rate of inflation runs well above the national rate. In 2015-16, for example, the defence inflation rate was 3.9%, the highest since 2010, while the national GDP deflator was just 0.8%. That relentless pressure on defence resources explains the litany of cuts stemming from the 2010 and 2015 strategic defence and security reviews. Most notable in its absurdity has been the scrapping of the Nimrod MRA4 programme mere months before it entered service, squandering £3.4 billion and leaving the UK with no maritime patrol aircraft for at least a decade.

In recent months, the Army has been cut by a fifth, wages have been frozen for a sustained period and no Royal Navy ships have been on patrol in international waters over Christmas for the first time in history. That is an absurdity and a really depressing situation. We continue to see the playing out of chaotic and wrong-headed thinking on procurement of defence, most notably in the recent national shipbuilding strategy. Yesterday, I had the privilege of chairing the latest meeting of the all-party parliamentary group on shipbuilding. We heard further testimony about the urgent need to improve key elements of the strategy if we are to achieve the best effects possible for our national shipbuilding sector.

Key themes seem to be emerging from the ongoing process of discussion with key stakeholders in industry and in the defence community. The national shipbuilding strategy must both define and outline measures to safeguard key industrial capabilities. It is breathtaking that the strategy has taken no steps to define the minimum sovereign capabilities that we need to sustain as a nation in the shipbuilding industry or to prescribe how we achieve and sustain those capabilities.

The strategy must also commit to investment that will ensure that those key industrial capabilities, once defined, are modernised to be world class. That was the case under the previous defence industrial strategy created by the Labour Government in 2005; it designated that the Clyde shipbuilding industry would be the key deliverer of the nation’s complex warships and prescribed a solution that would allow that industry to become world class by developing what was called a frigate factory or modern dock facility. That would deliver an integrated, consolidated site achieving the efficiencies necessary to deliver the defence capability for the Navy at an effective value for money cost.

We also recognise as a result of this process that a distributed block build strategy as defined by the national shipbuilding strategy is not suitable for frigates such as the Type 31E as it will actually drive up unit costs to manufacture; they would best be built in that consolidated world-class facility, with the benefits from learning curves and efficiency from integrated production. The national strategy must also recognise clearly that there is a huge opportunity for that distributed block build strategy in the next tranche of royal fleet auxiliary ships to be procured: the three fleet solid support vessels with a displacement of 40,000 tonnes—a scale suitable for such a strategy. No one site in the UK would be capable of building such a ship alone. That is the key opportunity: to use that distributed block build strategy to sustain shipbuilding capacity across all the multiple sites in the UK and maintain the resilience of the defence supply chain. I would like to insist that the Minister consider applying the treaty on the functioning of the European Union article 346 protection in the case of the new solid fleet support ships to ensure that there is a UK-only competition to build those new complex royal fleet auxiliary ships.

[Mr Seely]

I am interested in what the hon. Gentleman says as I have the same problem. Does he agree that, as well as having shipbuilding as a core strategic industry, we need to keep radar capacity in my constituency and others? We need radar demonstrators to ensure that we continue development of radar in this country for those ships in the next 50 years.

[Mr Sweeney]

I thank the hon. Gentleman for that excellent contribution. What he says is absolutely critical. When we think of shipbuilding, we often just consider the hull of the ship. However, when we see a ship launch into the water for the first time, we are seeing perhaps only 8% of the value of the overall project, even though structurally it looks like much more. The real value is in the ship as a platform for multiple other high-value defence capabilities. A good example is the multi-function SAMPSON radar. It is manufactured on the Isle of Wight and constitutes a large share of the overall cost of the Type 45 programme. That is where we need the pipeline of capability: not just in the front-end shipbuilding capability, but in the second and third-tier supply chain.

Our RFA capability provides an opportunity to pump-prime our national shipbuilding capability. According to the latest figures compiled by the Fraser of Allander Institute at the University of Strathclyde, shipbuilding on the Clyde alone contributes £231 million a year to GDP in the UK and—critically—generates, in addition, a multiplier of £366 million a year across the wider defence supply chain. That includes the facility in the constituency of the hon. Member for Isle of Wight (Mr Seely). It is critical that we use the national shipbuilding strategy to involve that wider supply chain and so maximise the value to the UK economy.

The all-party group on shipbuilding and ship repair yesterday discussed how we gave the contract for the latest fleet support tankers to Daewoo Shipbuilding and Marine Engineering in South Korea. The cost of building them there was equivalent to the cost of building them in the UK, but the price the South Koreans offered was considerably lower than any UK shipbuilder alone could have offered. In effect, the South Korean taxpayers are subsidising the British MOD to build its ships for it. Why on earth would they do that if they did not recognise that it is a major industrial opportunity for them? Surely there must be an opportunity for the South Koreans. They would not do it simply out of generosity or altruism; they are doing it because they recognise that it is a core part of their defence industrial capability and national industrial strategy. Perhaps we ought to take a leaf out of their book by having a more active industrial strategy when it comes to defence and including those RFA ships.

There is a further issue in the national shipbuilding strategy: the financing, particularly of complex warships. My hon. Friend the Member for Barrow and Furness mentioned that the previous Chancellor of the Exchequer described defence as no different from any other Government Department when it came to capital expenditure. I take issue with that, as I am sure do many other Members. Defence is unique when it is commissioning complex warships such as the Type 26 and the new deterrence submarines. These two vessels alone constitute two of the most complex engineering projects every built by mankind. They are huge national, generational programmes. The idea that they ought to be constrained by in-year spend profiles is absurd, because it militates against the efficiency of the programmes. They are not managed in the same way as, say, the Olympic games, the High Speed 2 programme, Crossrail or any other large-scale infrastructure project. They are arbitrarily constrained by Treasury limits on annual spending. It is critical that we change that—this is a cultural thing in the UK—if we are to achieve the best opportunity for defence. That has to be tackled on a cross-party basis.

When I worked at BAE Systems, innovations for the Type 26 programme, which included changing to spray-on insulation, using LEDs and replacing non-structural welding with adhesives, were constrained because the MOD was not willing to adapt and innovate and apply new standards to its shipbuilding programmes. That demonstrates that it is the customer that is sclerotic in its approach to innovation in new programmes. It drives costs into projects and militates against innovations that would save costs in the long term. Those short-term constraints cast a long shadow through the life of the programme and build in an overall cost.

That is the reason for the attrition we often see in programmes such as the Type 45—originally 12 ships were meant to be built; that was cut to eight; and finally six ships were built. There is an optimism bias at the start, followed by annual constraints on spend and a structural rigidity built into the programme that fails to adapt as it goes forward and innovate with new products as new technologies emerge. That approach also insists on arbitrary competition in the supply chain, when actually long-standing relationships can be established there—for example, with gear box manufacturers and engine builders—that can ensure a commonality of approach and adaptability and enable ships to be built more efficiently. A year-zero approach for every programme duplicates costs and adds complexity that could easily be avoided.

All that ought to change. We have a huge opportunity. We have seen the bigger picture. The root cause is the relentless decline in defence spending as a share of GDP. The Chair of the Defence Select Committee mentioned that it has halved as an overall percentage of national wealth in the last two decades or so since the end of the cold war. That is the root cause, but we could certainly provide mitigation in the meantime by more efficiently managing the remaining resources we do receive and managing our defence equipment programme in a more resilient and innovative way.

Hopefully I have presented some practical opportunities to improve the national shipbuilding strategy that can help us to achieve a future fleet of the scale and capability that we need to sustain British military power around the world in the coming decades. I look forward to the Minister offering his view on that.