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

Wayne David Excerpts

Monday 11th February 2019 General Committees

[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.

[Mark Tami (Alyn and Deeside) (Lab)]

I was thinking of the airborne warning and control system, for which there did not appear to be any procurement policy. We just opted for the American option, rather than something that would have benefited employment in this country.

[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.

[The Chair]

I call the Minister. [Interruption.] If hon. Members wish to catch my eye, will they at least look at me?

--- Later in debate ---

[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.

--- Later in debate ---

[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.