Oral Answers to Questions

Peter Luff Excerpts

Monday 2nd September 2013 Commons Chamber

[Mr Dunne]

The MOD is in the early stages of negotiations on the contract for a GoCo and, as I have said, is at the same time working up a DE&S-plus option. We will not make a decision until we have received bids from the consortia, which we expect to conclude in the spring of next year, and we will compare that against the DE&S-plus option. Only at that point will it be appropriate to consider the question that the hon. Gentleman asks.

[Peter Luff (Mid Worcestershire) (Con)]

I appreciate that for sound commercial reasons the Minister will not want to share with the House the details of the value-for-money assessment of DE&S-plus and the GoCo. Is he able to tell the House whether that process has been completed and, if it has, what the broad conclusion is?

[Mr Dunne]

As I have just said to the hon. Member for Coventry South (Mr Cunningham), until we receive the bids for the GoCo option we will not know either the costs of implementing that option or the benefits the MOD will receive. The final value-for-money case can be completed only once that information is available to us.

Defence Reform Bill

Peter Luff Excerpts

Tuesday 16th July 2013 Commons Chamber

[Mr Hammond]

The Government have a focused initiative to increase participation of small and medium-sized enterprises in the defence supply chain. Such businesses provide a tremendously important part of our defence resilience. Because they are often buried in complex supply chains led by a large prime contractor, their contribution is not always noticed as much as it should be, but they are an important part of the equation. I will come later to the balance between open competitive procurement and single-source procurement, which is at the heart of part 2.

The Bill has three main parts. Parts 1 and 2 deal with defence procurement and part 3 deals with our reserve forces. Turning first to procurement, I think that few in this House would not agree that the way in which we develop, specify, procure and support defence equipment can and must be improved. We have already made significant progress, but we recognise that fundamental change is needed if we are to sustain that progress and to deliver the equipment that the armed forces need and the value for money that the public are entitled to expect. Now is the time to make those changes.

For decades, our defence equipment programme has suffered from poor time and cost forecasting and poor project and programme management, leading to delays, cost overruns and specification failures. We have to address these issues by challenging the pattern of incentives and behaviours once and for all. That is why, after success on military operations, my priority as Defence Secretary has been to establish, for the first time, a fully costed and deliverable 10-year equipment plan. This has now been achieved and published. Our armed forces now have the certainty that the equipment they are expecting has been both planned for and is properly funded. However, if we are to deliver this programme consistently and to entrench a better method of working to provide a better service to the front line in future, we need fundamentally to reform our defence acquisition processes and structures.

The previous Government were of course aware of this problem. Towards the end of their time in office, they commissioned the independent report by Bernard Gray into the acquisition process. That report found serious structural and cultural problems in the way in which we procure defence equipment. We have considered carefully its analysis and the options available for reform of Defence Equipment and Support. My predecessor appointed its author as Chief of Defence Matériel, with a remit to take the reform agenda forward. The results of that work are set out in the White Paper, “Better defence acquisition”, which I published on 10 June this year.

Our preference is to transform the existing Defence Equipment and Support organisation into a Government-owned, contractor-operated organisation—a GoCo. We believe that this model is the one most likely to embed and sustain the significant behavioural change required to transform defence acquisition. However, belief alone is not enough, and we will test this proposition through a commercial competition and against a public sector comparator. If, at the end of this rigorous evaluation process, a GoCo is assessed to be the best-value-for-money option, a private sector partner will be appointed to manage DE&S on behalf of the Secretary of State. This will be a radical change, but not quite as radical as some of the more lurid headlines have suggested.

[Peter Luff (Mid Worcestershire) (Con)]

I am most grateful to my right hon. Friend for his compelling speech and for giving way. May I ask him about the timetable for the process he has outlined? When will these things actually happen?

[Mr Hammond]

We expect to reach a decision point in the commercial process next spring. If we go down the route of appointing a GoCo, we expect the GoCo operator to be appointed late in 2014 or at the very beginning of 2015.

--- Later in debate ---

[Mr Arbuthnot]

Oh, good. One problem is that the date for the invitations to negotiate has already slipped. That was meant to take place this month, but it is now taking place in August. Let us hope there is no further slippage. We have not heard that any is expected; let us just hope.

[Peter Luff]

My right hon. Friend is making an important point. I hope that when the Minister winds up the debate, he will provide some clarity about the invitations to negotiate. They must not be allowed to slip beyond August, as any further slippage would put at risk the rather challenging timetable that the Secretary of State has outlined.

[Mr Arbuthnot]

My hon. Friend, as a former Minister responsible for defence procurement, has a great deal of expertise. Despite the enormous qualities of his successor, I was very sad to see him leave his job. He has got this point absolutely right.

I am going to divide the final question on this defence procurement issue into three. We understand that the process of moving towards a GoCo, if a GoCo is accepted, will be taken in two stages, with perhaps one domain paving the way to be followed by the rest of defence procurement. My questions are: first, what will be included in the first domain? Secondly, how long will it take for the Government to work out whether it has succeeded, so that the remainder of defence procurement joins the first domain? Thirdly, how will anybody work out, within a period of less than 10 years—many of these defence contracts run for so long—whether this approach has succeeded? My suspicion is that the success of this entire process will be able to be judged only in about 2020. I wish it well and, as I said at the beginning, I am attracted to the idea.

On single-source contracts, the House will be relieved to hear that I have not got very much more to say. I am not sure why this matter requires legislation, because for many decades we have been spending 40% of the defence budget without legislation. It may be that there is a tearing and pressing need for legislation or that the setting up of the regulator is what requires legislation, but no doubt that can be explained. It is startling that the MOD will be able to challenge a contract price already agreed between the parties up to two years after the completion of that contract. I would have thought that would make it a bit difficult for industry to decide how to invest, but, again, no doubt the Minister will deal with that in his wind-up. Will these new rules apply to overseas contractors? Apparently they will not. Does that not create an incentive for UK defence contractors to move abroad? That would be a shame.

Part 3 of the Bill deals with the reserves—once again, I declare an interest because my daughter is one of them. I keep asking this, but I am told that repetition is no shame in a politician: what plan does the Prime Minister have to form an alliance with the Leader of the Opposition and to go out and make it absolutely plain that this reserve forces project must succeed, in the national interest. It must succeed because there is no plan B. Much of the plan has already been welcomed by industry. I think there is a greater job to be done by industry in saying that this must succeed in the national interest, and by the FSB, which, as I say, supports it. Some measures in the Bill—for example, the extra notice for the deployment of reservists—will certainly make things easier for employers. The £500 extra payment has been welcomed by the British Medical Association, as well as by the FSB and others. Perhaps there is more to be done in order to sell this, but the success of the entire process is essential. I welcome this Bill and this part of it as being in the national interest, and I hope that the Prime Minister will be able to get out there and say so himself.

--- Later in debate ---

[Mr Julian Brazier (Canterbury) (Con)]

I follow the Secretary of State, the shadow Secretary of State and others in paying tribute to those brave young men who have just lost their lives in the hills of the Brecon Beacons. My thoughts and prayers are with their families, as I am sure are those of the whole House. I remember some uncomfortable times there many years ago.

It is a pleasure to follow the hon. Member for Merthyr Tydfil and Rhymney (Mr Havard). He and I work together closely on the Select Committee. I associate myself with his tribute to the mountain rescue service in his constituency. We must not prejudge the inquiry, but I hope its role in averting a much worse problem will be fully acknowledged.

Let me be very clear that I strongly support the Bill and I am delighted that the Under-Secretary of State for Defence, my hon. Friend the Member for Ludlow (Mr Dunne), will be taking it through Committee—if I am very lucky, perhaps I will be allowed to serve on it. I support almost all the Bill’s provisions. I just want to say a few words on procurement before focusing mostly on part 3.

I am happy that we are evaluating the possibility of a GoCo. There are a number of very successful GoCos in our current set-up, including Aldermaston and the special arrangements that Babcock has with the Royal Navy. However, to echo what my hon. Friend the Member for Aldershot (Sir Gerald Howarth) said, there is one feature of the GoCo that I am very concerned about: the possibility that there might be a substantial foreign element in its running. My reason for saying that is not xenophobic at all. There are two main reasons why there should be a serious concern about foreign companies or foreign employees being involved in the management company: one relates to intellectual property rights—state secrets—and the other relates to reasons of commercial confidentiality.

Many years ago, just before I was elected to Parliament, I did a consulting project in Aldermaston for the management of a small Swedish firm that I was working for at the time. I cannot see how the commercially in confidence question could possibly arise in Aldermaston with regard to the American companies involved in the management. It simply is not an issue. The point about IPR is that we are already collaborating with the Americans and, arguably, they are pretty uniformly ahead of us; so the IPR reason does not arise, because there is no parallel.

The plain fact is that if we were to employ foreigners in a management company, whether or not they work for foreign companies, there is a danger that they might then be cherry-picked. Even if we put the clear criminal sanctions set out in part 2 of the Bill into part 1—slightly oddly, they are in part 2 but not in part 1—there would be no way of enforcing them if, for example, an American employee of an American company was then head-hunted by one of the big American defence contractors so that it could pick his brains on commercially confidential material.

[Peter Luff]

I think that I can reassure my hon. Friend on that point. The risk he identifies exists already. The risk of people being head-hunted from Defence Equipment and Support because they cannot be paid the right sum of money means that intellectual property can already transfer out of the organisation too readily. I think that those risks, whatever the nationality of the companies that have an interest in the contract, will be reduced significantly by the change to GoCo status.

[Mr Brazier]

My hon. Friend’s point is well taken, and I support the concept of the GoCo, but the plain fact is that, however strong the protections we try to put in place, there is no way of enforcing them in relation to foreign employees. It is that straightforward.

[Peter Luff]

rose—

[Mr Brazier]

If my hon. Friend will forgive me, I will move on to the main burden of what I want to say today, which relates to reserve forces. I strongly support the measures set out in part 3. [Interruption.] My hon. Friend is clearly agitated, so I will take his intervention before moving on.

[Peter Luff]

I think that I can offer further reassurance. All employees in sensitive areas of DE&S will be required to be “UK eyes only” personnel, so no foreigners would be working on the sensitive stuff that worries my hon. Friend.

[Mr Brazier]

If the sensitive areas were for UK eyes only, that is a protection normally for intellectual property rights. The problem for the defence industry is what is commercially in confidence—increasingly being called “soft IPR”—which is in no way covered by the provision my hon. Friend mentions, as he knows. The problem is that knowing how a particular contractor has structured a particular contract, which the management company must know—otherwise, there is no point in having it—means that that kind of information must be known to it, and it is extremely valuable material. He was quite right to say in his previous intervention that the danger already exists. However, the only way to produce an enforceable mechanism that deals with it cannot cover foreign employees who go back to America, or indeed anywhere else, although I think that we would be unlikely to take employees from another country.

My main point concerns reserve forces. I strongly support part 3 of the Bill and the Government’s measures on reserves, and I was delighted to hear the shadow Defence Secretary give a broad welcome from the Opposition Benches to those measures. I will not go into the provisions in the Bill except to say that one or two—special support for SMEs, for example—are especially welcome, as is greater protection for employees who are reservists. Instead, I suggest that the Bill could provide a vehicle for reforms in the governance of reserves. Such reforms were highlighted in the report by the independent commission to review the United Kingdom’s reserve forces, on which I was privileged to serve, as we are a long way out of line with arrangements in other English-speaking countries.

Our report looked at three areas of governance, one of which was for transition. The other two areas were senior appointments, and the role of the reserve forces and cadets associations and, when considering those two matters, it is important to ask what is happening abroad. I have focused on English-speaking countries because there is little point in looking at countries that have recently given up conscription. The most obvious example of a country that gave up conscription a long time ago—France—has gone down a route that Britain will never follow in having an armed gendarmerie trained effectively as an army reserve, including a big reserve component of its own. Therefore, the US, Canada and Australia seemed to the commission, and seem to me today, to be the best comparators.

In truth, those countries—I say this with no pride at all as somebody who has extensively visited their armed forces—have consistently had, year after year, much lower personnel turnover than our reserve forces, and they often get better turnouts for periodic training. The National Guard units that I visited in Afghanistan had a staggering 98% turnout for that operation, and the officer recruiting level of all those other countries is much higher than in the UK. Reserve forces in those countries have a larger place in society than our Army Reserve, and I fully endorse and totally support everything the Government are doing to expand that role in society. Above all, reserves in other countries have much more experience than us of deploying formed capability rather than simply being used as a part-time personnel service, as has been forced on the reserves over the past few years.

--- Later in debate ---

[Peter Luff (Mid Worcestershire) (Con)]

I am provoked by the speech from the hon. Member for Hartlepool (Mr Wright) and tempted to tear up my speech and demolish his instead. I shall resist that temptation, however, save for one thing: we should be careful what we say about exports, because often, by acquiring a capability overseas, we can build a defensive strategic relationship with another country that brings much greater long-term benefits to the UK. The classic example of that was the acquisition of the military afloat reach and sustainability—MARS—tankers for the Royal Fleet Auxiliary in South Korea, which led to a family of tankers being developed in consultation with BMT, the excellent British design house, and a range of equipment being fitted on to those tankers, not just by the British Navy but by other navies too. More importantly, however, that deal led to the South Korean Government deciding that they would like a strategic relationship with the UK, as a result of which, Rolls-Royce got into the marine market there with its propulsion systems, and now AugustaWestland is sending AW159 helicopters there. Sometimes a short-term decision to buy overseas—such decisions are often deplored by the Daily Mail, which does not understand defence acquisition at all—can actually be the right decision for Britain’s strategic interests globally and for British jobs, so I advise caution about that. The South Korean example is a model of how to acquire capability in the best interests of the country, economically and strategically.

Returning to the Bill, it is a Bill I feel rather nostalgic about and that I would like to be supporting from the Front Bench, rather than the Back Benches, but I am delighted by the challenging yet consensual nature of the debate. It has been conducted in exactly the right spirit for something so important. I was particularly heartened by the remarks of the shadow Secretary of State. I genuinely believe that the Bill will help to secure the improvements made by my right hon. Friend the Member for North Somerset (Dr Fox) when he was Secretary of State, and now by my right hon. Friend the Member for Runnymede and Weybridge (Mr Hammond), the current Secretary of State. Big changes have happened. The armed forces are now well equipped, and we want to keep it that way. I remember hearing Brigadier Bob Bruce speaking to the media when he took 4th Mechanized Brigade to Helmand last year. He described the taskforce as

“the best prepared and best equipped task force the United Kingdom has ever put into the field”.

That is a big step forward from what we are used to in this country and one the whole House should welcome. That process began under the last Government. It is an example of where improvements have been made and sustained, and we are now in a much better place than we were.

The taxpayer’s interests are better protected too. The equipment black hole has been closed. The hon. Member for North Durham (Mr Jones) is not in his place, so I cannot provoke him on that point, but there certainly was an overheated equipment programme. How big it was is a matter for debate. If anything, I think the £38 billion figure is an underestimate, but it was a black hole and it has been closed.

[Thomas Docherty]

Standing in for my hon. Friend the Member for North Durham (Mr Jones), let me challenge this point yet again. The National Audit Office report, which the hon. Gentleman referred to in a roundabout way, said that if there had been no uplift in spend, over a decade there would be a £38 billion black hole. Therefore, it was not that big in 2010, when he was in post. Does he accept that point?

[Peter Luff]

I do not want to get bogged down, but I agree that the £38 billion figure depends on the assumptions made. Those assumptions were too generous, actually, to the last Government and the true size of the black hole was nearer £60 billion or £70 billion, but that is another debate. That is my sincerely held view.

On the whole, I do not think it right for ex-Ministers to boast about their achievements, particularly as anything achieved in a Department is always shared with many other players. However, I was pleased that the National Audit Office’s major projects report for 2011, dealing with the 16 major biggest defence acquisition programmes, said—among some words of criticism, of course, for how things were being managed; it was not a totally clean bill of health—the following:

“In recent years we have reported several times that the Department has had to slip projects or cut equipment numbers to bridge the gap between estimated funding and the forecast cost of the defence budget. These decisions were not value for money and meant that new capabilities were not available on time. There are no such instances recorded this year”.

That is the way we need to keep it. I believe that this Bill is the way to achieve that massive step forward.

[Mr Brazier]

I do not make interventions like this very often, but my hon. Friend is being too bloody modest—excuse my language, Mr Deputy Speaker. He must take some of the credit for that extraordinary achievement.

[Peter Luff]

I am most grateful to my hon. Friend. I am very proud indeed to have been part of the team that achieved that. In fact, the only change being made to the budget now is to put new bits of equipment into it, which is a huge sea change from the world that all of us involved in defence have known over many years.

The Government have set out a clear policy to sustain those improvements. I say to the hon. Member for Hartlepool that if I were publishing now the White Paper that I published last January or February, I would call it “Defence-Industrial Strategy”, because that is what it is. At that stage, there was a degree of nervousness in the Government about the phrase “industrial strategy”, but the Department for Business, Innovation and Skills has now won that argument. I see what we have now as an effective defence-industrial strategy that will drive up the competitiveness and effectiveness of British industry, particularly by protecting investment in science and technology—again, that is a debate for another day. My argument with the hon. Gentleman is this: it is broken and it does need fixing. I agree that there are risks with any change, but this is a change that needs to be made. I am conservative by nature, and one of my favourite quotations is from Viscount Falkland, who said in 1641:

“When it is not necessary to change, it is necessary not to change.”

On this occasion, I believe it is genuinely necessary to change.

I will quickly work through the Bill in reverse, if I may. On reserves, I will not add to the excellent remarks of my hon. Friend the Member for Canterbury (Mr Brazier), to whose work in this area I pay mutual tribute. He really has done a first-rate job on our reserves, and the whole House—indeed, the whole armed forces—owes him a great debt of gratitude. Concerns have been expressed about the number of reserves we need to fulfil the Government’s aspirations. I always divide numbers by parliamentary constituencies to get a sense of their scale, and in this case we are talking about an average of about 50 for each constituency. That is not a huge number. I genuinely believe that what the Government are doing will help us to recruit some of the specialists we need, as the White Paper says, particularly in the area of cyber-security. Keeping skills up to date is important in the real world as well. The reserves have a hugely important role, and I am sure the Minister will respond to my hon. Friend’s comments when he winds up.

Let me turn to the single-source pricing regulations. It was time for a radical review. I commend page 20 of the impact assessment to the House, which lists the major structural changes to have taken place since 1968, when the yellow book was first introduced. Let me emphasise the point—this cannot be said too often—that this is not an attack on the profit of the defence industries; it is an attack on their cost base. A reasonable rate of return is what the defence industries need to sustain their activity in the UK. This is not an attack on their rate of return for their shareholders, but, as I say, on their cost base. Frankly, I have seen past examples of the cost base being—shall we say?—artificially inflated in a way I found totally unacceptable. There has been abuse.

We in this House also ought to say a big thank you to Lord Currie of Marylebone, who did so much hard work to produce the “Review of Single Source Pricing Regulations”, the document published in, I think, October 2011. I will quote my own words—because I said them better then than I could today—from the foreword to that report:

“Tackling industry’s cost-base and improving the MOD’s procurement process are at the heart of this Government’s transformation agenda for Defence.”

Importantly, I also said:

“Making industry more efficient should not only achieve value for money to the taxpayer, but also lead to a more competitive role for the UK industry in the export market.”

I was particularly pleased by the emphasis that Lord Currie put in his report on small and medium-sized enterprises. Again, I said in my introduction:

“Small and Medium Enterprises…would have fewer data reporting requirements and a simplified profit rate process. Larger contractors would be expected to provide an annual statement on how they have engaged SMEs in their supply chain.”

It is a hugely important development in the single-source pricing regulations review that we will now ask contractors to say what they are doing to help SMEs in their supply chains, because so much of the innovation in modern defence comes from SMEs. We want to know that they are being helped and encouraged by the primes—the big contractors—and I am sure the report will be important in ensuring that that happens.

I agree with the hon. Member for Hartlepool and my right hon. Friend the Member for North East Hampshire (Mr Arbuthnot), the Defence Committee Chairman, about single-source pricing regulations and possible exemptions for foreign companies. In fact, the Bill gives the Secretary of State the power to exempt individual qualifying contracts from the process, but I agree that it could be used to exempt foreign companies. I cannot think at present of many examples of a non-competitive contract going to an overseas contractor, and this would not affect FMS—foreign military sales—as I understand it, so the Tomahawk missiles, for example, would not be covered by the regulations.

There is a powerful point here about the risk of creating a perverse incentive, should foreign companies be exempt, for British contractors to move more of their operations overseas to escape the new regulations. I hope there will be a truly level playing field and that the American defence contractors—who typically will be affected by the regulations—will genuinely be affected and not exempted from them. I also obviously expect the Single Source Regulations Office to be truly independent and sympathetic to the needs of small and medium-sized contractors, as the industry suggests.

Turning to Defence Equipment and Support itself, potentially the most controversial part of the Bill, getting the budget balanced was the easy bit. It did not seem so at the time—certainly not for my right hon. Friend the Secretary of State—but keeping the budget balanced is going to prove a lot harder. Acquisition reform is going to be central to achieving that.

I am delighted about the bipartisan process that has been adopted, and I have a bit of an apology for the hon. Member for Plymouth, Moor View (Alison Seabeck) who is on the Opposition Front Bench. Last year, we worked through the complex issues associated with this development but did not keep her properly informed about how things were developing. I am grateful for the sympathetic meeting we had in my office some time last year, when we brought her up to date on our thinking. I apologise, in that we got too obsessed with the internal processes of government and did not do enough to communicate how our thinking was developing.

Bernard Gray was a special adviser to the last Labour Government and is Chief of Defence Matériel for this Government. His report of 2009 called for a GoCo. That was not the initial view of Ministers in this Government, but we changed our minds as we listened to the argument. I was rather amused by the response of officials to his report. When I took on the ministerial portfolio it was all, “Well, we all knew it was like that; we don’t need Bernard Gray to tell us this. It will all be absolutely fine. He told us nothing new at all”. Actually, he did tell us something new. He put it all together in a powerful and punchy way, and I am sure the issues had never been analysed as coherently and consistently as they were by Bernard Gray.

I was presented with the document entitled, “The Defence Strategy for Acquisition Reform”, which was a product of the last Government. It was a classic piece of Sir Humphrey-like bureaucratic obfuscation and box-ticking, with apparent action being the substitute for effective change. It provided a mass of detailed actions that gave the appearance of doing something while doing absolutely nothing whatever. Now, we all speak with unanimity about the dangers of an overheated equipment programme, about the conspiracy of optimism on programme costs, about the high price of requirement creep—huge steps forward—and about the lack of key commercial and engineering skills at DE&S.

I was struck by some of Bernard Gray’s comments in an interview in Civil Service World—a publication I like to read every week or month when it comes out. He said:

“If industry wants to go out and hire the best lawyers, the best programme managers, they can; and all the choices they make create costs that we bear. So we’re paying them to upgrade their side of the equation, but we don’t pay to have those skills available to our own side.”

That is a very important point indeed. I think we now understand that we have to keep the equipment programme balanced, to create proper boundaries between DE&S and the customers and to ensure that DE&S has the skills, processes and incentives to keep costs down.

DE&S does most of its work extremely well, and its staff deserve a pat on the back and to be congratulated more often than they are. The phenomenal work done recently on urgent operational requirements and operations should be a cause for deep and warm congratulations. Sometimes the staff are unfairly pilloried by some members of the national media, and there are nowhere as many of them as is sometimes said. The current headcount—I look to the Minister for reassurance here—is some 14,000 or 15,000 after a series of very steep reductions in recent years. I believe that only some 8,000 civilians would transfer to the new GoCo if such a transfer were to take place, with around 2,000 military secondees—some 10,000 people, which is much smaller than the 29,000 figure one often hears quoted by cynics.

I have three specific concerns about the GoCo. First, could we write the contract? I have been reassured on that and believe that the suggested phased approach addresses the issue sensibly. Secondly, would it offer value for money? I believe it will, and we will know very soon. It is right for the House to be exposed to this argument in as much detail as possible, consistent with commercial confidentiality and not prejudicing the Department’s commercial position.

Finally, would our allies be happy, especially about the security question? I have seen some alarmist reports in the specialist media about the American view and I am confident that that can be addressed. We have a GoCo already for the most secret thing we do—that is, nuclear warheads—and there is no reason why we cannot address those concerns. Our nuclear propulsion plants and our submarines are already built by the private sector and there is no reason why we cannot write the kind of guarantees our foreign allies would seek.

I have a number of questions, some of which echo points that have already been made. First, on the point made by the hon. Member for Hartlepool, will DE&S be incentivised to support exports? That is an important question and we need to know how that will be achieved. Secondly, will the system have enough flexibility to cope with sudden surges caused by operations? Will there be sudden meetings of lawyers and specialists to discuss contract amendments, or will we be able to deal with sudden and rapid surges in demand? Industry is right to worry about intellectual property protection, and clause 7 and schedule 2 will need particularly careful scrutiny in Committee.

Above all, I am worried about the speed of progress. I intervened on my right hon. Friend the Chairman of the Defence Committee about the invitation to negotiate. Time is slipping through our fingers and—call me cynical—I still fear there might be people in the Treasury, the Cabinet Office and the higher echelons of the MOD who do not like the idea and might like to kill it by civil servants’ favourite device of time-wasting. I hope there are no such processes under way and that my hon. Friend the Minister can reassure me that after the rapid progress we have made, there will be no slippage in the invitation to negotiate, as urgency is needed.

I believe that only radical change will secure the behavioural changes we need in defence. It is not just about numbers on a bit of paper but changing people’s mindset. We need to ask what the taxpayer’s relationship is with the armed forces and what we need to do to improve the way we operate. Even if the value for money case is finely balanced, the behavioural changes a GoCo would introduce would make it worth deciding to go for a GoCo. I hope a modest, finely balanced judgment will not be used as an excuse for not proceeding. Only if the value for money case was clearly negative would there be grounds to pause and think again.

In the preface to his 2011 report, Lord Currie of Marylebone summed up my attitude to the procurement aspects of the Bill:

“The reward is a more stable environment for the single source defence sector, where industry is more cost competitive in export markets, and the MOD maintains a balanced budget. That balance will avoid the need to cut or delay programmes and greatly reduce the level of waste that results, with benefit to the MOD and industry, including SMEs. This is a much healthier position for both parties, and one that should help to take them out of the spotlight. The real prize…will be better value for money for taxpayers and a better equipped front-line.”

That is what the Bill will deliver.

Better Defence Acquisition

Peter Luff Excerpts

Monday 10th June 2013 Commons Chamber

[Mr Hammond]

That depends. We would expect a GoCo contractor to inject a certain number of senior staff who would be part of its package and who would be remunerated through its incentivised fee. Within the overall DE&S work force, getting the right skills in the right places will be part of the task for the management contractor. In some cases, that will mean recruiting at market rates, because at the moment we are haemorrhaging talent. The Under-Secretary of State for Defence, my hon. Friend the Member for Ludlow (Mr Dunne), has just given me an example where we had nine applicants for 70 commercial posts that have recently been advertised. We have to address the haemorrhage of talent from DE&S by offering market rates if we are to support our armed forces as we need to.

[Peter Luff (Mid Worcestershire) (Con)]

The Secretary of State will understand how pleased I am that he has announced the implementation of the major elements of the report that I commissioned from Lord Currie on single-source pricing regulations—a highly technical but really important subject. On DE&S, does he share my concern that there may be forces even in his own Department, and certainly elsewhere in Government, that may wish to frustrate the progress towards a GoCo? May I encourage him to reassure me that he will work enthusiastically and energetically, notwithstanding his caution, to overcome unreasonable, opportunistic or bureaucratic obstacles put in his way on the path to a GoCo?

[Mr Hammond]

I am grateful to my hon. Friend and happy to acknowledge the crucial part that he has played in the process that has led us to this announcement. I can safely say that yes, there will always be forces that resist any change that I look to make. We have to carry the case by making the argument, building it during the assessment phase and then presenting the value-for money case for the Go-Co against the DE&S+ benchmark comparator. I am absolutely clear that we have to make that case: there is no pre-judgment that a GoCo is the route we will follow. We have to prove that it provides value for money, and do so to some of the institutionally most sceptical forces—no names, no pack drill—in Government.

Oral Answers to Questions

Peter Luff Excerpts

Monday 15th April 2013 Commons Chamber

[Mr Hammond]

Of course, cuts in defence budgets, not only in the UK but in the United States and, in fact, in nearly all developed countries, have presented huge challenges to defence industries. At the same time, many of their traditional export customers have developed their own defence manufacturing and even design and development capabilities. We are trying to work with the defence industry to give it greater visibility of our forward intentions, and to work with it to design greater export ability into its projects.

[Peter Luff (Mid Worcestershire) (Con)]

I congratulate my right hon. Friend unreservedly on his success in the herculean task of balancing the defence budget, but does he agree that if we are to keep that budget balanced, one of the things that has to change is the status of Defence Equipment and Support? Can he share with the House any clear indication of when he will announce his intentions in respect of that organisation?

[Mr Hammond]

My hon. Friend is right. [Interruption.] The right hon. Member for East Renfrewshire (Mr Murphy) correctly guesses that the announcement will be made shortly; “in the spring” and “before the summer recess” also spring to mind. My hon. Friend is right that if we are to deal effectively, and in a way that protects the best interests of the taxpayer, with large corporate entities which are able to scour the world for the top talent, we must be able to match them man for man across the negotiating table.

Oral Answers to Questions

Peter Luff Excerpts

Monday 25th February 2013 Commons Chamber

[Mr Hammond]

We have done this one before. As I explained to the right hon. Member for East Renfrewshire (Mr Murphy), the £12.5 billion quoted by the NAO is a CAAS figure, based on its assessment of early summer 2012. In October, CAAS reported that it had downgraded its assessment of the contingency requirement to £4.4 billion, which is rather less than we have allocated in the budget.

[Peter Luff (Mid Worcestershire) (Con)]

This is my opportunity not to ask a question on the defence equipment programme that I believed I would have to ask for a fourth time at Defence questions, but instead to congratulate my right hon. Friend on the programme’s publication. What has been the reaction from industry and elsewhere to the welcome detailed information in the equipment plan, and to its clean bill of health from the NAO?

[Mr Hammond]

I am grateful to my hon. Friend, who is an aficionado of NAO reports. Anybody who reads NAO reports regularly will recognise that, in context, the report was supportive and favourable. However, it does not make us complacent—we still have a great deal of work to do. I can tell him that the response from industry has been favourable. I chaired a meeting of the defence suppliers forum the week before last, which commented favourably on the report and the guidance it gives in directing its investment in future capability.

Oral Answers to Questions

Peter Luff Excerpts

Monday 14th January 2013 Commons Chamber

[Mr Robathan]

I am afraid I cannot answer that question. Omniscient though I may be, I do not know the answer, but I will write to the hon. Gentleman and let him know.

[Peter Luff (Mid Worcestershire) (Con)]

For the third time of asking at three successive Defence questions, may I ask the Minister when we can expect the publication of the very important but long-delayed audited defence equipment plan?

[The Parliamentary Under-Secretary of State for Defence (Mr Philip Dunne)]

Shortly.

Oral Answers to Questions

Peter Luff Excerpts

Monday 26th November 2012 Commons Chamber

[Mr Dunne]

The hon. Gentleman might be interested to know that I will be in Scotland on Wednesday evening to meet defence contractors precisely to encourage them to participate more in the procurement that is on offer.

[Peter Luff (Mid Worcestershire) (Con)]

The Minister has explained to the House how much has been done to make it easier for smaller businesses to do business with the MOD. One outstanding action item is publication of the audited equipment programme. A month ago, the Secretary of State told me that it would be published “shortly”. How shortly is “shortly”?

[Mr Dunne]

I pay tribute to my predecessor for his work in championing the role of SMEs in defence procurement. As far as his direct question is concerned, as he knows the equipment plan is with the National Audit Office, and as soon as it has finished its deliberations the Department will publish it, alongside the NAO’s review.

Oral Answers to Questions

Peter Luff Excerpts

Monday 22nd October 2012 Commons Chamber

[Mr Philip Hammond]

It is not for the Government to pursue arrangements for the future of BAES, EADS or any other company, but we will of course listen carefully with an open mind to any proposals brought to us by any of these companies. Where we hold a golden share—a veto share—we will allow any such transactions to proceed only where the United Kingdom’s vital national interests can be protected.

[Peter Luff (Mid Worcestershire) (Con)]

When does my right hon. Friend expect the National Audit Office’s assessment of the affordability of the defence equipment programme to be published?

[Mr Hammond]

Shortly.

Afghanistan (NATO Strategy)

Peter Luff Excerpts

Tuesday 18th September 2012 Commons Chamber

[Mr Speaker]

I am grateful to the right hon. Gentleman. I would point out that his response is to the House, which is why it is perfectly proper for him to respond.

[Peter Luff (Mid Worcestershire) (Con)]

The Secretary of State has made it commendably clear that it is in our vital national interest to stick to the strategy that has been set in Afghanistan. When it comes to the security of British troops, does he take comfort from the words of Brigadier Bob Bruce, who will be leading the 4th Mechanised Brigade in its forthcoming tour of Afghanistan, who has said that we are sending to Afghanistan

“the best prepared and the best equipped…Task Force”

the United Kingdom has ever put into the field?

[Mr Hammond]

I am most grateful to my hon. Friend, who has been a stalwart supporter of the policy and the strategy, which, as I have emphasised this morning, has not changed. I am grateful to him for those words. It seems to me that although the Opposition protest their support for our policy, they are desperate to try to read into this ISAF operational notice a strategic change when there is no strategic change. It could not be clearer.

Oral Answers to Questions

Peter Luff Excerpts

Monday 16th July 2012 Commons Chamber

[Priti Patel (Witham) (Con)]

9. What his most recent estimate is of the proportion of defence equipment and support contracts let to small and medium-sized enterprises.

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

During the financial year 2011-12, approximately 41% of new contracts were awarded to small and medium-sized enterprises. That represented approximately 13% of the value of all new contracts placed in the year. A significant proportion of our other business also reaches SMEs from the prime contractors through the supply chain.

[David Rutley]

I welcome the recent announcement that 41% of contracts were awarded to SMEs. They are vital not only to our security, but to the economy. What steps is my hon. Friend taking to fulfil their potential abroad as well as at home?

[Peter Luff]

I am glad to say that I find that SMEs are often particularly energetic in pursuing overseas opportunities. Indeed, many British small defence contractors begin their commercial lives exporting, rather than selling to the domestic market, which is a great tribute to the enterprise they show. UKTI DSO takes enormous steps to help SMEs. It participates in many trade delegations with my hon. Friend the Member for Aldershot (Mr Howarth), the Minister with responsibility for international security strategy. I pay tribute to DSO and to SMEs, which make a great contribution to our economy and to defence.

[Priti Patel]

There are 3,000 SMEs in the UK defence industry, and they are doing great things for our economy and vital work for our defence sector. What is the MOD doing to make Government business more accessible to these SMEs?

[Peter Luff]

My hon. Friend might apply for an Adjournment debate on that topic, because it would test your patience, Mr Speaker, if I were to list all the things we are doing to help SMEs, which include producing simplified standard contracts, making SMEs aware of tendering opportunities, and ensuring they are paid quickly. However, I attach the greatest importance to the establishment of the suppliers’ forum for SMEs, which I chair, and which enables us to pursue in detail both the concerns of SMEs and the issues we have in dealing with them. That is a very fruitful discussion, which is leading to a radical simplification of the way in which we do business with SMEs, and in due course it will create many more opportunities for them.

[Mr Speaker]

I always have patience for orderly answers, but not for speeches masquerading as answers. I know the Minister will readily accept that point.

[Kevin Brennan (Cardiff West) (Lab)]

On defence contracts, will the MOD’s current plans inevitably result in more contracts for companies such as G4S?

[Peter Luff]

That is not my responsibility. I was talking about defence equipment and support contracts, and as far as I am aware—I stand ready to be corrected—G4S has no role in such contracts.

[Jim Shannon (Strangford) (DUP)]

Many SMEs in Northern Ireland are involved merely on the periphery of large MOD contracts. What steps are the Government taking to ensure that there is a fair distribution of defence contracts and fair business opportunities for SMEs in Northern Ireland?

[Peter Luff]

It is one of the sadnesses of the structure of the UK defence industry that defence industries are relatively few and far between in Northern Ireland. Of course, Thales is the prime example of an excellent company doing first-rate work in Northern Ireland; I visited it earlier this year, seeing for myself just how good that company is, and it makes a huge contribution through the supply chain. The small and medium-sized businesses of Northern Ireland can also contribute to other contracts throughout the United Kingdom, and I am sure they are doing so in a realistic and strong way.

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[Graham Jones (Hyndburn) (Lab)]

11. What steps his Department is taking to maintain skills levels in the defence manufacturing industry.

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

The “National Security Through Technology” White Paper published in February emphasised the need for a strong skills base in the UK to ensure that the armed forces and national security agencies have access to the technology, equipment and support they need. That is why we are creating the right conditions for companies to invest in the UK, encouraging innovative small and medium-sized enterprises, investing in defence science and technology, and strongly supporting responsible defence and security exports. We are also working closely with the Department for Business, Innovation and Skills on a range of initiatives to maintain and develop engineering and scientific skills, including initiating a dialogue with the defence industries similar to that taking place through the successful aerospace growth partnership.

[Graham Jones]

There are reports today in the newspapers that the F-35B programme is to face substantial cuts in the US. Has the Minister had any indication from his counterparts in the US of a reduction in the number that will be procured, which may affect defence jobs in east Lancashire?

[Peter Luff]

I remember a good friend of mine, a general, who retired recently from the British armed services, who said he would know that he had retired when he started believing what he read in newspapers. I would strongly recommend to the hon. Gentleman not to believe what he reads in newspapers. The United States remains strongly committed to the programme. The F-35B is an outstanding aircraft, it is flying extensively, and my right hon. Friend the Secretary of State will receive our first two aircraft on Thursday. The hon. Gentleman should be a little sceptical.

[Mr John Baron (Basildon and Billericay) (Con)]

12. What account he took of recruitment capability in determining regimental disbandment.

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[Mr David Evennett (Bexleyheath and Crayford) (Con)]

14. What plans he has to improve the helicopter capability of the armed forces.

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

The Ministry of Defence is making significant investment in helicopter capability, including: buying an additional 14 Chinook helicopters and modernising the existing fleet; completing the life extension programme for Puma; upgrading the Merlin helicopters and our attack helicopter capability; and replacing the current Lynx fleet with new Wildcat helicopters, the first of which was formally handed over to the MOD at the Farnborough international air show last week. My right hon. Friend the Secretary of State also announced a £250 million support contract to sustain these in service. That is a substantial programme of investment that will ensure a strong and credible helicopter capability.

[Mr Evennett]

I welcome my hon. Friend’s reply. Will he update the House on plans to marinise the Merlin and upgrade Apache?

[Peter Luff]

The Department is currently exploring options for upgrading the mark 3 and 3A helicopters as part of an assessment phase for the Merlin life sustainment programme. It will look at obsolescence issues and the ship optimisation upgrades needed for routine operation at sea. All options are still being considered, so I cannot tell my hon. Friend what he wants to know until the conclusions are available. The decision on exactly how many Apache helicopters will be upgraded will be taken at a later date, but we plan to sustain their capability until their out-of-service date, which is 2040.

[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

The Minister will know of my sincere wish to see air-sea rescue remain within the Department. What contingency plans, if any, does he have on helicopters as far as air-sea rescue is concerned?

[Peter Luff]

I have every confidence that my hon. Friends in the Department for Transport will secure that facility very successfully during the competition they are running.

[Andrew Selous (South West Bedfordshire) (Con)]

T1. If he will make a statement on his departmental responsibilities.

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[Julian Smith (Skipton and Ripon) (Con)]

T2. Can the Minister update the House on the range of protected vehicles available to our troops in Afghanistan?

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

Yes I can, and I have heard very moving testimony from those who have returned from Afghanistan, and from the families of those in Afghanistan, about the effectiveness of such vehicles. We have a range of options that balance firepower, mobility and protection, including Huskey, Mastiff, Warthog, Warrior, CVR(T)—combat reconnaissance vehicle (tracked)—Coyote and Jackal; and the latest protected mobility vehicle, Foxhound, which is being deployed to Afghanistan now, will reinforce our commitment to provide force protection and proper protection against the improvised explosive device threat, while providing maximum utility. It is a good package.

[Tristram Hunt (Stoke-on-Trent Central) (Lab)]

T4. The armed forces careers advice centre in Hanley in my constituency is the second busiest in the country, but, under the Defence Secretary’s ill-thought- out plans, its recruits will not be able to join their local battalion, the Staffords. On recruitment, his numbers are not wrong, but, rather than acting like a desiccated calculating machine, will he support the campaign to keep the Staffords’ name in the Mercian Regiment by merging it with 1st Battalion the Cheshires?

--- Later in debate ---

[Amber Rudd (Hastings and Rye) (Con)]

Will the Secretary of State confirm that the Scout specialist vehicle will go ahead, giving much needed certainty both to the armed forces and the supplier, General Dynamics, a valued employer in my constituency?

[Peter Luff]

I can confirm that. The Scout specialist vehicle programme is currently in the demonstration phase. The first vehicle platform test rig was rolled out on 6 June this year and pre-production vehicle prototypes are due to begin delivery from 2013. The successful completion of the demonstration phase will lead to a main investment decision at main gate, currently planned for 2016. That is good news for my hon. Friend’s constituents, and I thank them, through her, for what they are doing to create that important capability for the Army.