Industrial Policy and Manufacturing

Richard Fuller Excerpts

Thursday 22nd November 2012 Commons Chamber

[Sir Gerald Howarth]

My hon. Friend in my old county makes my point admirably for me. A common feature of both companies that I mentioned is that they both invest heavily in research and development, which the chief executive of Dyson, Max Conze, describes as “the key to success on the world stage”.

I want to concentrate on defence. BAE Systems and QinetiQ both have their headquarters in my constituency and I make no apology for being a strong supporter of Britain’s defence industry. According to Peter Rogers, who was last year president of ADS—the aerospace, defence and security trade body—the UK’s defence industry employed 110,000 people, of whom 25,000 were graduates and engineers, and supported a further 314,000 jobs. Turnover was £22 billion and export sales were just short of £10 billion—a fantastic record and a fantastic success story in manufacturing industry.

The United Kingdom is a world leader in both civil and military aerospace—as you, Mr Deputy Speaker, know better than almost anybody in this House apart from myself, Sir—with Rolls-Royce in advanced aero engineering and propulsion and Airbus providing the most advanced wing manufacturing in the world. On the military front we have Typhoon, with SELEX supplying the radar and MBDA the missile systems. We have a range of companies, from Rolls-Royce and BAE Systems, to EADS UK, Thales, Ultra, Chemring, Cobham, and Marshalls, to tiny bespoke hi-tech companies that should not be ignored given the fantastic contribution that they make to the cutting edge of technology. We need to maintain our leadership of that cutting edge, not only to win wars but to enable us to compete against newly emerging economies.

If I can single out one man for his contribution to this, it is Lord Drayson, who in 2005, when he was the Minister with responsibility for defence procurement, produced a fantastic paper called “Defence Industrial Strategy” in which he said:

“Well targeted investment in R&T is a critical enabler of our national defence capability; it strengthens innovation in our defence industry, produces more capable equipment for our Armed Forces and underpins our ability to operate with high technology allies like the US or France”.

I could not put it better myself.

[Richard Fuller (Bedford) (Con)]

I agree that the defence industry is an important part of the manufacturing base of our country. Will my hon. Friend contrast the previous Government and this Government in terms of the leadership provided by the Prime Minister? Under Labour, QinetiQ, which now headquarters in his constituency, closed down just outside my constituency with no support from the Government. Under this Government, our Prime Minister went to China and won a contract on behalf of the Aircraft Research Association, which is based in my constituency, thereby securing jobs and securing its future.

[Sir Gerald Howarth]

My hon. Friend anticipates a point that I was going to make, so let me do so now. I fully concur. I do not think that people in this country really appreciate the extraordinary lead that the Prime Minister has given in the promotion of defence exports. Having been the Minister responsible for defence exports, I can testify to his determination, vigour, enthusiasm and commitment. There is every prospect that that commitment will pay off, because he has seriously re-engaged the United Kingdom with the rest of the world in a way that the previous Prime Minister was wholly incapable of doing.

In respect of defence exports, we are increasingly being required to transfer our technology as well; indeed, that appears to be the only way in which we will be able to win these contracts. In looking at the technology, it is very important to understand the significance of defence research. I have QinetiQ in my constituency, but I also have Roke Manor in Hampshire, which produces fantastic defence research and has 400 engineers. In 2009, BAE Systems invested £833 million in defence research.

We have a good record, but I am afraid that the previous Government do not have such a good record. In 1990-91, at 2009-10 prices, real defence R and D expenditure was £3.8 billion, but in 2009-10 that figure declined to £1.7 billion. In other words, it declined from 11.6% of the defence budget to 4.4% of it. As Lord Drayson said in his 2006 document, “Defence Technology Strategy”, today’s equipment is the result of yesterday’s investment in research. He also said:

“Current threats emphasise that science and technology is fundamental to UK military capability.”

Maintaining a vibrant defence industrial base is not a throwback to a 1960s socialist planning concept, as it appears that some of my colleagues believe, but an essential ingredient in the defence of the realm and in contributing to the export-led economic recovery that the Prime Minister wants and which, as I said, he is leading.

I salute my hon. Friend the Member for Mid Worcestershire (Peter Luff) for his sterling endeavours to ensure that the case for supporting British technology was made within Government, but I fear that the right balance has not been struck. People need to understand the consequences of simply buying abroad. Initially we might get a good price and the kit that we want, but then next time we are told, “The price has gone up, so I’m sorry but you can’t have the same capability.” We then find ourselves on a very slippery slope where we cease to be major players in the world and cease to be able to command our own operational sovereignty. We are facing that issue with the joint strike fighter. There is ongoing argument over our access to the technology. I know that you, Mr Deputy Speaker, know a great deal about that. It is imperative that, as equity partners in the joint strike fighter programme, we have that operational sovereignty.

Seeking to grow the UK’s defence industrial base must not be an excuse for the military to over-specify its requirements or for the industry to inflate its prices. Competition clearly has a role to play in restraining such excess, as the hon. Member for Stalybridge and Hyde (Jonathan Reynolds) suggested. However, other nations, including an increasing number of emerging countries, are investing in military capability development and their demand for our products is likely to decline. That raises the inevitable question: from where will the United Kingdom derive its income in the future? I submit to the Minister that the answer has to be in upping our expenditure on defence research, for all the reasons that I have set out.

As a former Bank of England man and adviser to my right hon. Friend the Chancellor, I say to the Minister that the position of R and D tax credits needs to be looked at again. QinetiQ has pointed out to me that it is being seriously disadvantaged by the Treasury’s proposal to change R and D tax credits to make them above the line, which would remove the fiscal incentive for companies that focus mainly on research, rather than development, to locate their activity in the United Kingdom. Given the strength of feeling around the House this evening about the importance of our manufacturing industry, I hope that the Minister will take back to his friends in the Treasury the need to ensure that we incentivise industry and the Government to invest in our technology. That will be hugely important for the defence of Britain and for our defence industrial base.