Draft Defence and Security Public Contracts (Amendment) (EU Exit) Regulations 2019

Robert Goodwill Excerpts

Monday 11th February 2019 General Committees

[The Parliamentary Under-Secretary of State for Defence (Stuart Andrew)]

I beg to move,

That the Committee has considered the draft Defence and Security Public Contracts (Amendment) (EU Exit) Regulations 2019.

It is a pleasure to serve under your chairmanship, Mr Evans. A responsible Government plan for all eventualities. As part of the preparations to leave the European Union, it is essential that we ensure that our legislation governing defence and security procurement functions properly beyond exit day in a no-deal scenario. It is the first duty of a Government to keep their citizens safe and the country secure. As part of that, the Government need to be able to procure the critical equipment and capabilities they need smoothly and with confidence.

In the event of no deal, these amending regulations will provide procurers and suppliers with legal continuity and certainty, giving them the stability they need to conduct business after 29 March. Clearly, the amendments reflect the UK’s new status outside the EU in a no-deal scenario, but the framework and principles underlying the defence and security procurement regime remain otherwise unchanged. That is in accordance with the powers given to amend retained EU law in the EU (Withdrawal) Act 2018. The Act does not allow major policy changes or the introduction of new legal frameworks beyond those changes to fix deficiencies to ensure that the law continues to function properly and changes to remove any reciprocal obligations that are no longer appropriate from exit day.

Brexit will offer us real opportunities, including reform of our defence and security procurement regulations. In the near term, however, the regulations ensure that the UK’s defence and security procurements continue to function smoothly in a no-deal scenario, but with that all-important autonomy from the European Union.

To protect the UK’s essential security interests, the regulations will maintain the effect of article 346 of the treaty on the functioning of the European Union by writing its substance into the existing regulations. The regulations already make clear that they can be trumped by article 346. Article 346 enables us to disapply the defence and security procurement rules where necessary to protect essential national security interests.

Through the amendments, control over our procurement is returned to the United Kingdom. For example, the Secretary of State for Defence will take the power previously held by the European Commission to modernise, although not broaden, the 1958 list of warlike stores that falls under article 346(1)(b). All notices for defence and security procurement opportunities will in the future be published on a new UK e-notification system. Business continuity meanwhile is assured through the transitional provisions. There will be no defence procurement cliff edge.

Competition remains the cornerstone of defence procurement policy, ensuring that we equip our armed forces with the right capability at the right price. Currently, we allow bids from suppliers outside the EU, although the existing regulations provide the legal right of market access required by EU law only for suppliers based in the EU. Any restrictions on, for example, bidding on national security grounds are made clear from the outset of any procurement. The regulations provide a legal right of market access for suppliers based in the UK and Gibraltar that currently enjoy rights under the EU defence and security directive. After exit day, suppliers in the EU will lose their legal right of market access, but we will still allow them to bid on the same basis as suppliers outside the EU. That reflects the UK’s new status as a third country outside the EU.

[Mr Robert Goodwill (Scarborough and Whitby) (Con)]

Much EU environmental legislation, such as for vehicle emissions, has an exemption for military use. After we Brexit, will that situation change under any of the provisions in the regulations?

[Stuart Andrew]

Nothing in this order, which purely transfers our procurement regulations, does that. We can look at a whole raft of matters once we have properly left. We will obviously consider the point that my right hon. Friend raises, but that would be under further consultation, and legislation would then have to come through the House.

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[Wayne David (Caerphilly) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Evans. This is a very worrying amendment to the regulations, because it deals with the doomsday scenario of a no-deal Brexit. We have 46 days left before we leave the European Union, and the Government are coming forward at this late stage with quite a significant piece of legislation that requires far more detailed scrutiny and far greater preparation. If the Government were serious about considering this, why on earth did they not do so months and months earlier? I am concerned about the regulations, which are indicative of the Government’s irresponsible approach to Brexit as we near the end of the process.

The explanatory memorandum explains that the central purpose of these regulations is to ensure that there is

“little or no distinction between the treatment of economic operators from the EU and other places outside the UK.”

In other words, this mechanism—as far as defence procurement regulations are concerned—provides the brick wall between Britain and the EU and the rest of the world. However, it is important to bear in mind that this issue works both ways. It would not apply simply to companies from abroad—whether outside or inside the EU—that wish to engage in commercial activities here, but would have an impact on British companies’ work in other European countries, which is an important point. The Government correctly argue that the export capacity of British industry in the military sector is significant—not just to the rest of the world, but to our partners in Europe. I am concerned that companies with long-term strategies increasingly oriented towards an export capacity will find trade more difficult if this measure is introduced.

[Mr Goodwill]

The hon. Gentleman is absolutely right that this uncertainty is damaging, but should he not take the advice of 57.6% of people in Caerphilly who voted to leave the European Union, and back the deal?

[Wayne David]

It is important at this stage in the process that we do not engage in such cheap debating points. We need to look at the nature of our economy and the impact that a no-deal Brexit would have. This is too important for simple political digs or empty rhetoric. We need cool heads and a sharp analysis of what is before us. That is what I am seeking to do, and I hope, in the national interest, that the Government will do so too. We are getting perilously close to the point of no return. We have 46 days. We must take a deep breath, stand back and put the interests of our country and our constituents first.

Why have the Government adopted this approach? The impact assessment says that there are no policy changes, and therefore they do not require a detailed business impact assessment. However, I suggest that it is a policy change because it cuts across what we have been doing and saying for many years in this country. There should therefore be a fully-fledged business assessment so that we can understand the economic consequences of what we are doing. Incredibly, that is lacking. I come back to the point that I made at the start. If we had any sense, and if we were seriously considering a no-deal Brexit, this issue should have been considered in detail months ago—indeed, two years ago. Europe is a vital export market for us, and this will have a big impact.

The Government talk a great deal about competition, but it is worth bearing in mind that 40% of the Ministry of Defence budget is single-sourced. There is no competition; the MOD simply gives the money to a particular company or amalgam of companies. It is therefore important that we question the Government’s commitment to competition.

[Wayne David]

That is a very good and important example. There was at least one other strong alternative to the Boeing bid for AWACS, but the Government decided not to consider it at all. There was no publicity, openness or transparency; they just came to a cosy little arrangement with an American company, and effectively bought the equipment off the shelf from the United States, with minimal investment in the British economy.

[Mr Goodwill]

Would the hon. Gentleman agree that sometimes there can be great benefits to the UK from that? For example, General Dynamics is building a new light tank for the British Army in Merthyr Tydfil, employing 950 people.

[Wayne David]

Yes, indeed. I commend the work that General Dynamics is doing, but let us not forget that that company lost out because of the lack of competition for the mechanised infantry vehicle. Again, the Government put competition to one side and came to a cosy little deal with a German-led consortium for the Boxer vehicle, and General Dynamics lost out. It quite rightly said, as Saab and others said about the Wedgetail, that it does not mind losing a bid, but it at least should have the chance to bid openly for it. The Government should be giving contracts to the best companies at the best price to have the best impact on this country’s economy. Sadly, that is not what they are doing.

The draft regulations will transpose into British legislation article 346 of the treaty on the functioning of the European Union—an important article that allows exceptions to competition rules where national security issues arise. However, fleet solid support ships remain an issue: despite representations from Labour, from other Opposition parties and from trade unions, the Government have decided not to issue the contract to a British company. Instead, they are putting it out to international tender, saying, “It’s these terrible European rules that are making us do this—we’re tied into the straitjacket of European competition rules.” But which EU rule are they referring to? Article 346! If their rhetoric is true, why are the Government taking that article en bloc and transposing it into British legislation? For the life of me, I cannot understand it, if they are sincere in their comments about the invidiousness of article 346.

I would very much like to hear the Minister explain how he can square that circle and face both ways at the same time. If the Government were serious about a no-deal Brexit, surely it would have been sensible to take the opportunity to ditch article 346 and have decisions taken in this country, in the interests of British industry and British jobs, rather than putting contracts out to competition. However, I fear that the Minister’s response will confirm that the Government are not concerned about that. They want to ensure as smooth a rhetorical transition as possible, but they have not gone into the depths of detail that are required.

I come back to the point that this Committee and all such Committees are going through a façade, because the Government are not really contemplating a no-deal Brexit; this is all part of blackmailing Parliament to ensure that the Government get their own way. I have raised a couple of points that I would like the Minister to respond to, but I particularly ask him to do his best to refute my last point about the Government’s strategy.

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[Mr Goodwill]

I will not detain the Committee long. Following on from the point made by the hon. Member for Glenrothes, this is not about getting the cheapest equipment, but about getting the best equipment. Although much of the equipment built in the UK is state of the art, the global market may supply particular specialists, such as drones. In the Nimrod contract more than 20 years ago, a political decision to revamp the old Nimrod airframes ended in disaster. Lockheed Martin had a perfectly good alternative that would have meant jobs in the UK for companies like Hunting Aviation at East Midlands airport.

It was mentioned that the Boxer vehicle had been given to a German company. To be fair, it should be made clear that 60% of the value of that project will go to British companies, including BAE Systems, Thales UK and Pearson Engineering. When we place an order abroad, there is often collaboration. Indeed, the frames for the tank being built in Merthyr Tydfil are being built in Spain. Part of our negotiating strategy is to ensure UK involvement in such projects. I hope that the Committee will understand that the Boxer is not a purely German-built vehicle, but a vehicle with a high degree of UK content. Indeed, if further contracts are awarded around the world for Boxer, we could hope and expect to get a share of that.

[Wayne David]

The right hon. Gentleman makes an important point, but it is also significant that recently Rheinmetall has taken over a part of BAE Systems. That is an issue of concern.

[Mr Goodwill]

Exactly. The hon. Gentleman is absolutely right, although, in the spirit of collaboration, the new turret for the Warrior, which I think has gone to Lockheed Martin, will involve a gun from Rheinmetall. Germany has a long record of building very good guns, as we have found out to our cost at times, but it is important that we look at that collaborative approach. Indeed, many UK companies, such as BAE Systems, have interests in other factories around the European Union. That should not change following Brexit.