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

Stuart Andrew 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.

[Nigel Mills (Amber Valley) (Con)]

To take the Minister back to what he was saying about allowing companies based in the EU to have access to our defence procurement, is that a reciprocal requirement? If any part of the EU refused to allow our defence companies access to their markets, could we refuse companies in their countries access to ours?

[Stuart Andrew]

As it stands at the moment, these regulations would come into force should we leave without a deal. British companies would not have a legal right of access to those European competitions. Having said that, a minimal number of contracts have been won by UK companies through that legal right, compared with the number of exports that our industry secures. I have a lot of faith in the British defence industry and believe that it will be successful in terms of all the other international competitions that will take place.

Although the amending regulations mainly relate to exiting the EU in a no-deal scenario, they also make some updates and corrections to the Defence and Security Public Contracts Regulations 2011. These will come into force before exit day, regardless of whether there is no deal. Through the amending regulations, the Government will ensure that UK defence and security procurement continues to function properly and appropriately, with solid legal foundations underpinning it. This instrument would give procurers and suppliers the confidence and continuity in procurement that they would need in the case of a no-deal scenario, and I commend the regulations to the Committee.

--- Later in debate ---

[Stuart Andrew]

I am grateful to all hon. Members who have spoken. As they will be acutely aware, delivering the deal we have negotiated with the EU remains the Government’s top priority. However, these amending regulations will provide for continuity and legal certainty in this important area in the event of no deal. It is prudent to plan to ensure that we have some certainty. The hon. Members for Caerphilly and for Glenrothes said this was bad planning. The whole point of the draft regulations is to ensure that we are prepared for every eventuality. I question whether they are massively significant, given that we have tried to replicate as much of the current regulations as possible so the industry knows where it stands and can have confidence that not too much has been changed.

The hon. Member for Caerphilly mentioned concern about the effect of UK businesses not having a legal right to bid when other EU member states procure. I am sure the Committee will be interested to know that between 2011 and 2015, UK defence exports totalled £40.2 billion and contracts from the EU to British companies under the current EU directive were €168 million. That is a significant difference, but regardless of the changes made by the draft regulations, British businesses will still be able to bid. Given the world-class industry and technology we have in this country, I am sure that many of those businesses will be successful.

The hon. Gentleman also mentioned single-source procurement. That is often done either because we need the equipment quickly or because we need the proven capability that is on offer. AWACS was mentioned. I have said on a number of occasions that the capability that is being offered works and is proven. The Australians are using it. Some of our armed forces personnel are out there at the moment learning about the equipment. The hon. Gentleman mentioned the Airbus and Saab alternative, but they have not even put it on the plane yet. We know from experience that when it comes to this sort of equipment, we can spend years and years trying to prove a capability that does not work and ends up costing us billions.

[Mark Tami]

Does the Minister accept that the American alternative is not currently being sold? They will have to restart the production lines to produce our order.

[Stuart Andrew]

Those planes are ready at the moment. Some of them are ready for us at the moment. They are on the production line. That will not be an issue at all. As I said, we are still going through a lot of the assessments, but the point is that the Airbus alternative has not even been proven. This is a capability that we need. I agree completely with the hon. Member for Glenrothes that we need to give our armed forces equipment that they can rely on and depend on. This is a classic example of why we have do that.

[Wayne David]

I hear what the Minister is saying, and he may have a case, but would it not have been far better simply to have an open procurement competition under which every competitor could set out what it had to offer and everybody could see which was best?

[Stuart Andrew]

It would have taken them some time to prove the capability. The point is that we do not have the time. The E-3 system is not really up to standard, and we need to replace it. That is why, as I say, we look at these situations very carefully.

I am glad that my right hon. Friend the Member for Scarborough and Whitby talked about the Boxer. It is a proven capability, and he is absolutely right that we negotiated for 60% of the supply chain to come from this country. The hon. Member for Caerphilly said that BAE Systems had been taken over by Rheinmetall. This is a joint venture; it is something we should be really pleased about.

[Wayne David]

It is the majority shareholder.

[Stuart Andrew]

We are seeing investment in this country, and I am surprised that the hon. Gentleman is not welcoming the fact that jobs will be sustained in Telford, and more jobs will be created, because of this joint venture. It is disappointing that Labour Front Benchers are not welcoming this investment in the British defence industry and the jobs it will secure.

Regarding article 346, the whole point is that we have transferred the wording, because in this instance we want that continuity to take place. It also allows us to exempt the need to go into international competition, should there be a national reason why we have to keep that capability within this country. The hon. Gentleman said that we have not gone into the changes in depth, but, as I said in my opening comments, those are for future discussion. Once we have left, we want to have a look at the opportunities available to reform our defence procurement systems.

Finally, the hon. Member for Glenrothes said that the 1958 list will be transferred to the Secretary of State. It is not fair to say that the Secretary of State will not be held to account. There will be many opportunities to hold him to account, including questions in the House and Select Committee hearings, but the most important point is that any changes that the Secretary of State might suggest to the 1958 list would have to go through this House as an SI, and would therefore need the approval of both Houses. It is not fair to say that he can make such changes on a whim. I hope I have answered all of the specific questions, and clarified the implications of the amended legislation.

Question put and agreed to.

Resolved,

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