BAE Systems

David Davis Excerpts

Thursday 24th November 2011 Commons Chamber

[Mr David Davis (Haltemprice and Howden) (Con)]

I beg to move,

That this House urges BAE Systems to act to preserve the UK’s defence production skills base and, as a recipient of enormous resources over many years from the UK taxpayer, to deploy those resources in such a way as to protect the nation’s manufacturing capability.

On 27 September, BAE Systems, which is Britain’s biggest engineering employer, delivered an agonising shock to its work force. It announced that it intended to lay off 3,000 employees in its plants across the country. In this process it will be closing the production plant at Brough in my constituency, thereby terminating the jobs of almost 900 skilled workers and staff. That was a shock, but not a surprise because the previous weekend the newspapers had published a leak about those plans, which were in breach of all BAE’s codes of corporate responsibility. This cruel treatment of a loyal, decent and hard-working work force was, frankly, a disgrace. As I shall point out, that was not the only disgraceful aspect of this decision.

The symbolism of this retrenchment could hardly be starker. Both aerospace and defence are massively important businesses for the United Kingdom. BAE is by far the biggest company in either industry in Britain. The size of the cutback is grievous and grimly symptomatic of the decline in manufacturing in this country—so far, so bad—but there is a risk in this storm of statistics and grand economic strategy that we lose sight of what really matters. What matters most is the misery that the decision visits on individuals, families and communities: the destruction of their hopes and the blighting of their lives.

In Brough—a community that thinks of itself as the home of the Hawk, centred on a factory that has been building military aircraft since 1916—the shock was visible. It is one of those factories where grandfathers, fathers and sons all work, thus maintaining a proud tradition of skilled work through the generations. A number of married couples who work there met there. Therefore, after Christmas this year, whole families will be looking for work, and what a time and place to look for work. Many of them live in a part of Hull that has more unemployed people chasing every job than anywhere else in the country. In the past four years, the city and area have lost 7,500 manufacturing jobs—a quarter of all the manufacturing jobs now left there.

Brough’s closure is not only an industrial tragedy, but a human tragedy—all so painful, and all so unnecessary. While Brough was announcing job losses across Yorkshire and Lancashire, Airbus was opening a £400 million factory, which increased jobs by 650 and underpinned 6,000 other jobs. That factory makes Airbus wings. In past years, Brough and other parts of the BAE empire have made the struts, spans and other parts of wings for Airbus.

Until about five years ago, BAE maintained a stake in Airbus. The close relationship meant that Airbus components of all sorts were made by the BAE work force. That was a smart strategy. Although civil and military aviation operate on different business and economic cycles and different demands at any time, the manufacturing skills and requirements are interchangeable to a large extent. Until then, the company could switch resources backwards and forwards to whichever sector had the demand.

Despite the counter-cyclical nature of those businesses, profits were stabilised—as, of course, was employment—but five years ago, before the banking crash and the sudden constraints on public spending, defence sales looked lucrative and profitable, and civil aviation looked just a bit too competitive. Now, all is reversed of course: defence sales are hard to come by anywhere in the world, and commercial aviation is booming.

In 2006, in what must count as an astonishing piece of strategic myopia, the company made a hideously short-term decision and disposed of its stake in Airbus and withdrew from civil aviation. Britain is the country that created the first jet airliner. We now own no production capacity for civil airliners. That is not the only strategy error to hit the work force.

Over the years, BAE and its predecessor companies have had a symbiotic relationship with the Government that is all too characteristic of defence industries. In the largely cost-plus environment of defence procurement, the British taxpayer funds the development and production of weapons and aircraft. British test pilots risk their lives testing, proving and improving those aircraft. In exchange, the nation receives the aircraft, equipment and weapons necessary to defend our shores and interests, but it also obtains a defence industrial capacity that supports us in time of war.

In addition, the Government go in for defence sales support, specifically to maintain the viability of that domestic capacity. That is the theory. It seems to me that what has been happening is almost the opposite. Let us take, for example, the Harrier, perhaps the most iconic post-war British aircraft. Without it, we might have lost the Falklands war. It was developed with British taxpayers’ money and tested by British test pilots. Today, it is an American aircraft. As far as I can tell, the Americans paid little if anything for the transfer of intellectual property in the most innovative aircraft since the war, yet they now manufacture that aircraft: British money; British skill; American jobs and capability. Sadly, that appears to be happening again.

If we win the potentially huge American order for the T-X aircraft, between 350 and 1,000 advanced Hawks will be manufactured not in Britain, but in Texas. What that means is demonstrated by what has been happening with the sales of the Hawk to India. In the past decade, about 150 Hawks have been sold to the Indian air force. The vast majority of them—all except the first 24, I think—have been built in Bangalore. BAE will tell anyone, as they told the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson) and me at the time, that it was a necessary offset and that it did not mean that it was moving Hawk production abroad.

I looked in the Indian papers and the defence journals that cover both sides of the story to see what is happening on that project. Ashok Nayak, the chief executive of Hindustan Aviation, which builds the Hawk in India, said this year:

“Last year, while negotiating the contract for 57 Hawks, BAE Systems wanted to give HAL”—

Hindustan Aviation—

“additional work in building Hawks in the future. HAL is looking for a large role in that build. What exactly, is still being discussed.”

That was quoted in the Indian newspaper, Business Standard, but such things are said in not just one paper. The journal Defence Now said much the same thing:

“BAE was discussing moving more production to Hindustan Aviation”,

effectively to create export sales out of India. Separately, reporting at the Paris air show earlier this year, the journalist David Donald said in another journal:

“BAE Systems envisions no problems in maintaining the Hawk’s production status for many years, with the production line in India now driving and sustaining the all-important supply chain.”

It is plain to see that, whether by accident or design, BAE is effectively moving to a position where the emblematic British aircraft, the Hawk—the Red Arrows aircraft—will be made abroad. That is where a serious part of our jobs are going now. What happened to the Harrier yesterday and what is happening to the Hawk today, if we are not careful, will happen to other aircraft in the future. In summary, successive British Governments have maintained a policy to keep a cost-effective British defence industry on British soil. BAE Systems has gained from that strategy, with the effect that we have exported those jobs and capability to foreign soil.

It gets worse. Since the 1960s, to maintain a viable defence industry, successive British Governments of all parties have operated under a set of rules, known as the yellow book, that determine which costs the company meets and which costs the taxpayer meets. It transpires that when BAE lays off 3,000 workers, the BAE shareholder will not meet the cost, as is reported on the front page of the Hull Daily Mail today: “Taxpayers face £100m BAE bill”. Given how the system works, between £60 million and £110 million—we do not yet have the total—will be paid by the taxpayer, not by BAE, to lay off 3,000 people and destroy their jobs. That is outrageous.

A policy designed to defend our defence capability is being used to make us subsidise the destruction of that capability. A policy designed to defend and protect British jobs is being used to destroy British jobs. If I were the Minister, I would not pay BAE a penny. I would tell BAE, “This is your decision. This is the outcome of your strategy. If you don’t like it, I’ll see you in court.”

I should tell the Minister that I have spoken to the Chairman of the Public Accounts Committee about this matter, and she has agreed to have a National Audit Office investigation. I hope that that helps to stiffen the Ministry of Defence’s spine. I have also discovered that BAE has already benefited to the tune of hundreds of millions of pounds from such yellow book subsidies for failure. I will ask the PAC to investigate that, too.

[Mr Ben Wallace (Wyre and Preston North) (Con)]

I have been following the thread of my right hon. Friend’s argument, but I point out that the issue is not entirely one-sided for BAE Systems. The previous Government signed a number of contracts based on the work throughput in a location. No matter what Her Majesty’s Government ordered, BAE Systems was guaranteed to deliver work, through the Clyde, Woodford and other sites around the United Kingdom. If the Government cancelled orders, BAE Systems had to pick up the bill, because it was a sort of Stalinist tractor factory contract that the previous Government put in place.

[Mr Davis]

Frankly, I will resist making this a Labour versus Tory argument, for a simple reason. For the past 10 years, when it comes to BAE Systems and employment in our constituencies, the right hon. Member for Kingston upon Hull West and Hessle and I have studiously aimed solely at protecting jobs, sometimes demurring from scoring political points. My hon. Friend the Member for Wyre and Preston North (Mr Wallace) makes a good general point, that there is a central planning approach—a bad one—but the raw truth is that it was designed to ensure that our defence capability and defence employment were stable, and would be there in time of war. That has been turned, and it has effectively been used to destroy those jobs and that defence capability.

[Mr Jack Straw (Blackburn) (Lab)]

Mr Deputy Speaker— who represents Ribble Valley, in which Samlesbury sits—together with many other colleagues, regardless of party, and I have sought to adopt the same bipartisan approach in our pursuit of BAE interests on our side of the Pennines. We are in full support of what the right hon. Member for Haltemprice and Howden (Mr Davis) and my right hon. Friend the Member for Kingston upon Hull West and Hessle (Alan Johnson) are seeking to do. It would be terrible and hopeless if we turned this into a 2011 contest across the Pennines.

[Mr Davis]

The right hon. Gentleman is absolutely right on both counts. It would suit the people whose minds we are trying to change very well if we fought against ourselves on party political or geographical grounds. Much as I look back with amusement and fondness on past cricketing experiences in the wars of the roses, those wars need not be repeated here and now.

[Mr Tobias Ellwood (Bournemouth East) (Con)]

My right hon. Friend makes a powerful argument, much of which I agree with, but in the interests of balance, will he concede that there is another side to the coin? The Apache helicopter, which we purchased, made by Boeing, was built in the UK, not by the American work force. We also make kit that is exported: the empennage—the rear section—of the F-35, designed for an American market, is made here, and the M777 Howitzer is made in this country and exported. There is another side to the coin.

[Mr Davis]

There is another side to the coin, but since my hon. Friend draws me on that point, I am afraid that on one side there is a pound, and on the other there is a ha’penny. I was the Public Accounts Committee Chairman for five years, and I looked at the issue in close detail, and I have to tell him that the Americans are far more aggressive and effective than we are when it comes to protection of their intellectual property.

The proposals have all sorts of strategic implications. One of the things that we looked at 10 years ago—I am probably not breaking too many secrets—was the advanced medium-range air-to-air missile. We were not even allowed technological knowledge of AMRAAM because of the Americans’ defences, and that made it less effective for us. This is quite an area of battle. Indeed, the previous Defence Secretary made quite an issue of this, as my hon. Friend the Member for Bournemouth East (Mr Ellwood) will know, and will understand only too well. We have not fought our corner very well, and I am afraid that BAE Systems is culpable, as part of that. It has been very poor in terms of its strategic decisions on civil and military aviation, and when it comes to protecting our intellectual property.

[Mr Greg Knight (East Yorkshire) (Con)]

rose—

[Mr Davis]

I shall give way for the last time, because many Members want to speak.

[Mr Knight]

I am most grateful to my right hon. Friend for giving way; he is being very generous. He posed the question of whether what was happening was the result of accident or design. Has he not now answered that question? The answer is design—it is the deliberate decision of the management.

[Mr Davis]

It is certainly the consequence of deliberate decisions. Whether the management intended this outcome at the beginning, or whether it is sheer crass misjudgment, I will leave the House to judge. What I am trying to do is lay out the facts as starkly as I can, because it was long ago time to open up the process to public scrutiny.

That brings me to the decision today. The company is in the middle of a 90-day consultation period. From the start, the right hon. Member for Kingston upon Hull West and Hessle and I, and a number of colleagues—probably every Member of Parliament involved in the process—told the company that we would hold it to its legal responsibilities on a 90-day process. Those legal responsibilities involve being transparent and open, and looking in good faith at all proposals put to it. I repeat that: looking in good faith at all proposals put to it. Unfortunately I have to tell the House that, based on the company’s behaviour to date, it seems to me entirely possible that it has broken its legal responsibilities. It has not looked in good faith at all the options available to it, but I will leave it to my right hon. Friend—I beg his pardon, the right hon. Member for Kingston upon Hull West and Hessle; he is my friend—to say more on that later.

I certainly expect the company to demonstrate why it turned down the options that it was looking at before it made the decision. As far as I can see, it has not even done that. Secondly, I expect it to give proper consideration to the plan drawn up by its management to preserve employment at Brough in my constituency, albeit at lower levels. Again, I think that the right hon. Gentleman will touch on that point.

The work force at Hull are the best, in terms of attitude, productivity and skill, I saw in my 20 years in business before I came to the House, and BAE Systems senior management agree. The work force’s attitude is positive, their productivity is high, and the right hon. Gentleman and I have always been told that they are competitive on cost and quality. They deserve a proper chance.

If the company does a proper, open-minded review, and the figures do not add up—I accept that is possible—its responsibilities do not end there. We have been fortunate: the Civitas think-tank has invested £50,000 in looking at the Brough site to see what it can be used for, how the skills can be deployed, and what we can do without destroying the skills base. For that, I thank it warmly. The chairman of the Government’s skill retention taskforce came to see us yesterday, and it is at work, looking for alternatives. The Government acted within two weeks and put in place two enterprise zones, one on each side of the Pennines, to help us in all this, but if we cannot come up with an alternative, we will again lose a critical mass of skilled workers that will not be replaced once it is dissipated. That is the nub of the matter.

The job losses in Brough and on the other side of the Pennines are, to a large extent, a direct consequence of the company’s strategy over the years. The company’s profits come, to a very large extent, from taxpayer support.

[Andrew Percy (Brigg and Goole) (Con)]

My right hon. Friend makes a powerful point. On the legacy issue, does he agree that it is not good enough for BAE Systems to say, “We will do everything that we can to find people alternative work”? It has to make sure that that legacy remains in east Yorkshire, and that the site remains a site of employment in manufacturing for our constituents.

[Mr Davis]

My hon. Friend, who has been very active in this campaign, brings me to the nub of the issue. It is precisely because the company had, until five years ago, experience in civil aviation; precisely because it is the biggest employer of engineers in the country; and because of its knowledge, access, contacts and understanding of the markets, that it is best equipped to find an alternative use for Brough—full stop. That is what I—and others, I am sure—demand. It is not just Brough; I keep saying Brough because it is closest to my heart, but the company must find alternative employment and use for the assets and the work force across the country. That is what it is best equipped to do. Frankly, as far as I can see, so far it has not lifted a finger in that direction.

There has been a lot of criticism in recent weeks of high levels of executive pay. Recently, the statistic came out that, over 30 years, senior executives have had a 4,000% increase in pay. Despite severe criticism of senior management by investors and others over the years, the pay of BAE’s chief executive grew by 8,000% over the same period, double the national average. I am not one of those who believe that people should not be paid large sums of money, but I expect them to earn it. They could perhaps justify their salaries—the chief executive’s is £2.4 million—by doing a better job not only for shareholders, but for employees and the country.

[Several hon. Members]

rose—

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[Peter Luff]

I know the decision to which the hon. Gentleman refers, and it will of course please other parts of the country, because BAE Systems will do the work elsewhere in the UK, but I shall happily talk to him about it privately afterwards if he would find that helpful.

I do not want to labour the point, but we all know how important defence is as an integral part of advanced manufacturing in this country. It sustains about 300,000 jobs, many of which are highly skilled, in thousands of companies of all sizes. Those employed are at the pinnacle of manufacturing and engineering ability, and they do a significant job in helping to keep our country secure. The industry is a key sponsor of manufacturing apprenticeships and training, the quality of which is acknowledged by employers across a range of industries, and intensive research and development programmes also mark out the defence sector as a source of innovation and intellectual property.

The House will also be aware—this was at the heart of the two speeches that we have heard—that defence is a major contributor to export revenues. UK industry has an outstanding record of export success, second only to the US as an exporter of defence equipment and services. Despite the challenging market conditions experienced by many sectors of the wider manufacturing base, the UK has in the last year won almost £6 billion in new defence exports business. That represents an increase in our share of the global defence market from 18% to 22%, and we are committed to continuing that trend with strong support for future defence export campaigns, including the products mentioned by the Members who have spoken.

Within that vital and dynamic sector of the UK economy, BAE Systems has a significant role. It has been the MOD’s largest defence supplier for some time; it is the fourth largest supplier to the US Department of Defence, which accounts for 50% of its revenue; and it is, indeed, the world’s second largest defence company. I should like to pay a tribute to BAE Systems: its speed and adaptability in updating software for the Typhoon aircraft’s radar and defensive aids systems was one of the keys to the success of the recent action in Libya, and we owe all its staff a great debt of gratitude for that.

BAE Systems’ wider involvement, beyond Typhoon, extends to many of the MOD’s largest programmes, including the Astute submarine, the Type 45 destroyer, the Queen Elizabeth class aircraft carrier, the joint combat aircraft, general munitions and support for the armoured fighting vehicle fleet. Overall in 2010, BAE Systems’ revenue from the UK amounted to just over £4 billion, representing 20% of the company’s total revenue. So hon. Members should be in no doubt about the importance that the Government attach to the contribution of the UK defence industry in general and BAE Systems specifically to a rebalanced economy and export-led growth.

Let me turn to the specific programmes that are relevant to today’s debate. In the air, Typhoon, a triumph of European engineering, has really come of age. It is a first-class aircraft and the envy of discerning nations throughout the world. Already in service with six air forces—in the UK, Germany, Italy, Spain, Austria and Saudi Arabia—and at the forefront of the world’s media coverage following its recent exemplary operational deployment in the skies above Libya, the prospects for expanding Typhoon’s user community have never been better, and Ministers are working hard to ensure that we crystallise those opportunities.

Those export prospects meant that some changes were needed to the Typhoon programme. In May 2010, a request was made by the Eurofighter GmbH industrial consortium—I emphasise industry, not Government—to slow down the rate of Typhoon aircraft production in order to free up and sustain sufficient industrial capacity in the Eurofighter partner companies, comprising Alenia, BAE Systems and Cassidian, and to service export orders.

The UK, along with the other partner nation Governments, agreed to the industry’s proposal in July 2011—on the basis that it would not adversely affect the build-up of our own Typhoon fleet. As a result, there is now the prospect of Typhoons being made over a longer time frame, with the production lines open to 2018 rather than closing in 2015 as previously planned.

[Mr David Davis]

Will my hon. Friend give way?

[Peter Luff]

In just a second.

The letter that BAE Systems sent to Members ahead of this debate does not accurately explain the reasons for the slow-down, which in turn is responsible for many of the redundancies in Warton and Samlesbury.

[Mr Davis]

The Minister has answered my question.

[Peter Luff]

I will return on several occasions to that letter, which was disingenuous in several respects, and am grateful to my right hon. Friend.

The MOD has also invested £190 million in shaping a potential future unmanned combat air vehicle programme. BAE Systems has been our partner in that, and it led an industry team formed of Rolls-Royce, QinetiQ and GE Aviation. An unmanned combat air system programme could form part of a cost-effective solution in air-to-air and ground-to-air combat roles. That work includes the Taranis technology demonstrator, which is a world-class project and a testament to the UK’s advanced design, engineering and technology talents. It exhibits UK manufacturing capability at its very best.

We recognise and welcome the investment that the industry is making in technologies for unmanned air systems and encourage it to continue, so that it will have products that meet our needs and those of export customers. I have to say once again that the letter sent by BAE Systems to hon. Members does not appear to do justice to the partnership nature of the programme, because BAE Systems seems to take all the credit for it. The letter refers to the significant funding BAE Systems put in, but it does not emphasise the Government’s funding or the other three partner companies involved in the project. BAE Systems should be a little more modest from time to time in the claims it makes on behalf of the company.

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[Peter Luff]

The short answer to that question is yes. I have obviously discussed the future of the sector with the company, but I have not done so in specific detail about Brough—in general terms, yes, but not specifically about Brough. If the hon. Lady wishes to make a suggestion to me, I will happily take it forward.

The Government need an efficient defence industry, and I make no apology for saying that. Another line in the letter to hon. Members seems to suggest that we are in some sense to blame for wanting BAE Systems to be more efficient. We want it to be more efficient for the sake of taxpayers and also for the sake of export opportunities. I make no apology for demanding that efficiency of our suppliers.

Although using open competition on the global market is the MOD’s preferred option and its default position for purchasing defence capabilities—I listened carefully to what my right hon. Friend the Member for Haltemprice and Howden said in that respect—in certain situations, the MOD has had to enter into single-source procurement for some of the capabilities we must have in the UK. In these situations, we use the yellow book—it is called that because it is yellow—or “Government Profit Formula and Associated Arrangements” to give its full title. The yellow book covers the pricing arrangements to be used in single-source, non-competitive procurement. That can include reasonable rationalisation and redundancy costs, provided they are associated with a reduction in work related to single-source procurement.

The yellow book arrangements have remained largely unchanged for more than 40 years, which is why in January this year I commissioned Lord Currie of Marylebone to undertake a root-and-branch independent review of it. The MOD is currently undertaking a consultation, which runs until the new year, on Lord Currie’s proposals. No decisions will be made on his proposals until the consultation has been completed.

[Mr David Davis]

The Minister is making a very courteous and informative speech that is very helpful to us. Will he ensure that the response of the Public Accounts Committee and the National Audit Office to my request that they investigate some of the yellow book operations is taken on board in that consultation?

[Peter Luff]

Yes. In fact, there has already been discussion with the National Audit Office about aspects of the single-source regulations. My right hon. Friend makes a very important point and I welcome what he said about that in his speech. It is very helpful indeed to have those remarks on the record.

The scope of Lord Currie’s review covers not just rationalisation and redundancy costs but a whole range of other issues associated with the process. He made his views clear on that in the document he produced, which states:

“We do not recommend moving away from the requirement that the MOD should bear the redundancy and restructuring costs associated with programme curtailment or cancellation. The alternative, whereby the contract bears such costs, would be appreciably more expensive. Faced with the possibility of bearing such costs, the contractor would necessarily need to price in a significant, possibly prohibitive, risk premium into contracts against that eventuality, over which it has little or no influence.”

Let us put those observations on liabilities in a BAE Systems context. The Brough site has historically been used for a variety of purposes, including the manufacture of the Hawk advanced jet trainers. It also has a structural testing facility used for a number of different airframes, and has been involved in the manufacture of some Nimrod MRA4 and Typhoon parts.

Some of those projects were procured on a single- source basis, but many of them were not. In the course of normal business, BAE Systems has approached us to begin discussions on payment for a share of its rationalisation and redundancy costs at Brough. We will ascertain what proportion, if any, of those costs we should be liable for under the yellow book framework. I can assure the right hon. Member for Kingston upon Hull West and Hessle and my right hon. Friend the Member for Haltemprice and Howden that our negotiations will be robust in defence of taxpayers’ interests. I am very grateful for their support in that process.

We also recognise that the Government’s procurement decisions directly impact inward investment and exportability. Our involvement as the only level 1 partner in the joint strike fighter programme has brought significant high-end work into BAE System’s Samlesbury facility and, indeed, to UK industry more widely. That site manufactures the joint strike fighter rear fuselage for Lockheed Martin, in respect not only of the UK order but of orders from the US and other international clients. That production run should continue until at least 2035 and, on current plans, supply 3,000 aircraft. Following that, the UK should be very well placed to win additional competitively placed work within the JSF production support programme, potentially valued at £30 billion. Similarly, Government investment in the assessment phase of the electronically scanned radar for Typhoon will enable a capability leap for the Typhoon fleet. That not only benefits UK armed forces well into the 21st century, but improves Typhoon’s chances of success in the highly competitive, fast-jet market.

One issue that has not been raised is the fact that the letter from BAE Systems to hon. Members alludes to the withdrawal of the Harrier aircraft, but it does not provide the context and detail for that decision. In the bipartisan spirit of today, I shall simply say that we had a very challenging financial situation at the MOD and leave it at that. It is also true that the previous Government took the decision to delete the Sea Harrier in 2006, which is the air defence aircraft. In 2009, they took a subsequent decision to reduce the size of the remaining Harrier fleet, which meant it was not large enough to achieve sustained operations in Afghanistan and maintain an adequate contingent capability for the unexpected on its own. A combined fleet of Tornado and Harrier would not be cost-effective, because retiring an aircraft type delivers significantly greater savings than running two smaller fleets.

Although the withdrawal of the Harrier was a decision we took with regret, it was effectively forced upon us. Despite that sorry affair, we have worked hard to make the most of the situation. I can tell the House today that we have agreed the sale of the final 72 Harrier aircraft frames and associated parts, which will be used as a major source of spares to support the US Marine Corps Harrier AV-8B fleet of aircraft. The value of the sale is $180 million—some £110 million—and represents a good deal for UK taxpayers and the US Government. Added to the savings made from retiring the Harrier fleet from service, that sale takes the total estimated receipts and savings to the Ministry of Defence to around £1 billion. That will enable investment in a more modern and capable mixed fast jet fleet, including the state-of-the-art joint strike fighter, and therefore be good for British jobs.

The Harrier was a marvellous piece of technology and demonstrates the UK’s significant contribution to the development of fixed-wing aviation. I pay tribute to all those who contributed to its design and manufacture, as well as to our service personnel who flew and supported them. Accordingly, I am pleased to announce that we plan to offer two Harrier aircraft to museums in order to preserve the UK’s aviation heritage.

On the points made by my right hon. Friend the Member for Haltemprice and Howden about the overseas production of British aircraft, conditions in the international marketplace do influence commercial choices and outcomes —it is not just a matter of what the Government say. It is increasingly unavoidably the case that export customers are demanding that their orders be satisfied mostly or wholly by means of local production and technology transfer. There is often a need to satisfy that critical condition in order to secure an order. That is certainly a feature of many of the potential Typhoon and Hawk export orders. My right hon. Friend regrets it—I may regret it, too—but it is a fact of life. If we want to win business, this is the way we have to do business.

The insistence on local involvement by the customer becomes even more likely and significant with larger export orders. The choice is to offer that condition or not to compete for the contract at all. That would reduce the viability of the businesses themselves and would be bad for UK employment. Last year’s deal to sell 57 Hawk to India was worth several hundred millions of pounds for UK companies, even though the final assembly was in India itself, so it is good for both sides of a vital strategic partnership for this country.

However, we also fully recognise our responsibility to those whose livelihoods are threatened by changes in the market. Work will continue for some time at Brough and the Skills and Jobs Retention Group and the Jobcentre Plus rapid response service will assist skilled workers there and at the other sites in finding new roles.

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[Mr David Davis]

I think everybody takes the point that, in the modern defence market, there will be offset. Everybody has offset; we have offset. As has been made clear, offset arrangements do occur. It is problem when those offset arrangements become the permanent new manufacturing base for the aircraft, which is effectively what has happened with Harrier and seems at least to have been discussed with the head of Hindustan Aviation with BAE.

[Peter Luff]

I agree that when overseas production becomes a source of rival manufacture for export purposes, there is an issue for us. We have to accept, however, that the success of the Typhoon contract in India will depend on significant participation by Indian aerospace industries in the manufacture and upgrading of the aircraft. That is the price for winning the contract, and it is a price that we have to be prepared to pay.

Additionally on the subject of support for those who are sadly affected by these decisions, last month the Chancellor invited strong and viable proposals for enterprise zones in the areas surrounding the sites, with a view to enabling those zones to be up and running by April next year. As the right hon. Member for Kingston upon Hull West and Hessle said, attracting new industry to these existing manufacturing hubs could soften the impact of BAE’s change in structure without undermining the lives of these highly skilled workers.