Defence Reform Bill

Thomas Docherty Excerpts

Tuesday 16th July 2013 Commons Chamber

[Mr Brazier]

My hon. Friend has been misinformed about that. An impressive airborne cavalry unit that I visited in Kabul was one of a small number of units that had had the misfortune a few years ago of being part of the only experiment by the Americans in recent memory of trying to call people out for more than 12 months. The US has the same limit as us in the UK and has agreed never to repeat that experiment because of the painful experience. Such units operate on the same 12-month cycle as we do.

I do not say this to run down our reserve forces in any way, but when those forces were used as formed bodies, they served extremely well despite the handicaps they faced. One thinks of a company of reservists from the London Regiment, who in their time in Afghanistan were reputed to have killed 45 members of the Taliban. They got an incredible endorsement, which I quoted in the House, from their Brigade Commander, Brigadier—now General—Lorimer. I also think of my own former unit, which deployed a squadron that got three military crosses. However, I want to make the point that, in terms of yardsticks, we are behind the curve. I welcome all the Government’s efforts to move us up the curve, but we have to recognise that governance is an important part of this.

[Thomas Docherty (Dunfermline and West Fife) (Lab)]

I am slightly confused by the excellent answer that the hon. Gentleman gave to the hon. Member for Beckenham (Bob Stewart). When he says that reserves in the US deploy on a 12-month basis, does he mean that their total call-out is 12 months and they are not doing 12 months in theatre?

[Mr Brazier]

They have almost exactly the same total span as us—basically, 12 months. Unlike us, they typically do three months’ work-up and nine months’ deployment—this is for formed bodies up to brigade level—whereas we do six months and six months, but it is still a 12-month limit. The Australians, who have sent a number of formed bodies to Afghanistan, do three months and three months.

I am explaining these points because it is worth looking at the difference in governance arrangements, some of which we set out in our commission report. In all three of these countries, the vast majority of reserve units are commanded by reservists, and the vast majority of those units are in brigades, also commanded by reservists. The National Guard has a whole mass of legislation protecting its special status. Australia and Canada do not have the same legal arrangements, but both countries have a set of widely accepted customs and practices that work in lieu.

That brings me to the main point that I want to put to the House. I suggest that there are four things—two pairs of things—we can do to redress the balance a little, all of which build on the spirit of what the Government are doing. The first two are about people. Sir Peter Wall anticipated our commission report with a very good move that has been pivotal in delivering progress when he announced overnight that he was creating a new post that has existed since time immemorial in Australia and Canada and in the National Guard in every state in America—a de facto commander of the TA in the shape of the Deputy Commander Land Forces. The Duke of Westminster was the first incumbent and General Ranald Munro is now doing the job. They are both fine reserve officers.

Sir Peter Wall said that that was a tied post, but there is nothing laid down anywhere to say that some future, less enlightened Chief of the General Staff, with a selection committee entirely composed of senior regular officers, and one token civil servant, should not at some future stage retire an existing two-star general and say “Here we have a reservist who can do the job.” That is the current arrangement with the reserves in the RAF. I propose that a list should be laid down of certain jobs that are tied to people, many of whom may be ex-regulars, who have for a number of years earned their living in the civilian world and served as reservists at the same time. The selection committee should include an outside element, perhaps the chairman of the Reserve Forces and Cadets Associations or the outgoing incumbent.

My second recommendation on people is that we must address the issue of reserve primacy for unit-level command. I am not asking that we have reservist brigade commanders, like all these other countries, although we do already have reservist deputy brigade commanders. In 2011, a week before we published our report, the military secretary’s department broke completely new ground by announcing, unbelievably, that whereas other countries have 80% to 90% reservist commanders, and historically we have had 40% to 50%, 24 out of 30 of the reserve commands were to go to regular officers. I have to say that I was so angry about this that my fellow members of the commission had more or less to tie me down.

The subsequent year—2012—the department did something that was arguably even worse. Although it put the word out that it wanted more reservists, it applied a de facto reverse quality filter and made such an unreasonable demand with regard to man training days for TA commanding officers that most of the people with the best jobs said, “I’m not putting in for that.” The result was a great deal of unhappiness with some of the command awards. The generation who will take on those units—the two years between recruits mean that this relates to almost every Territorial Army unit—are not necessarily the kind of people who would have been selected if the process had been similar to that which is used abroad.

The good news is that the new military secretary is working very hard on this and trying to sort it out. A strenuous effort is being made to encourage and develop good-quality people to be the next generation of TA commanding officers. None of this, however, is laid down anywhere. I think that TA primacy—which, incidentally, exists in the Royal Naval Reserve—should be formally laid down.

That brings me to my last two points, which are on the RFCAs. I was delighted that the Government adopted in their Green Paper our report’s recommendation for an annual report from the RFCA Council on the state of the reserve forces. It was right that the Secretary of State saw that first and I was glad when he published the Green Paper for Parliament. Unfortunately, it was then suddenly announced in the White Paper that, rather than having a wider remit, the report should focus on progress with integration and that it should stop when integration is completed in 2018. That was not our recommendation. It is after the political spotlight has moved on that the role of this independent report will be most important.

It is worth remembering that when Haldane set up the reserves, who served so bravely six years later in the first world war, he gave to the County Associations—the forerunners of the RFCAs—a large part of the budget as well as the responsibility for managing recruitment, basic training and property. Today the only responsibility left to the RFCAs is the control of property, which they do vastly more effectively than the Defence Infrastructure Organisation, with less than a third of the percentage overhead. They also make use of all the free expertise available from the people on the individual regional councils, including estate agents, lawyers and entrepreneurs.

For the past 10 or 15 years, the RFCAs have been handicapped in that work because, despite the fact that they own most of the estate, they are no longer allowed a free hand to manage it properly. They are constantly subject to trying to drive deals. For example, in Yorkshire an excellent deal with a local supermarket that would enable essential renovation work to take place has been on hold for several years. Now that the basing plans are sorted out, I think we should put in legislation the role of the RFCA as owners of most of the property.

In summary, the word “integration” is at the heart of this. The Government are committed—in a welcome plan that I strongly support—to the integration of regular and reserve components. We have tried assimilation and it failed. The findings of our commission’s report on an assimilated structure with no separate chain of command for Army Reserve—in fact, the structure did not even include a reserve branch at Land Command; it just had a few people scattered around—were dismal. Integration is about recognising that each service has a separate ethos. Someone who serves as a reservist and does something else for their main living has a different ethos. The White Paper says a great deal about moving from being service personnel to providing capability—I strongly support that—but in order to make it work we have to hardwire certain structures into the system, and I believe that this welcome Bill offers us that opportunity.

--- Later in debate ---

[Peter Luff (Mid Worcestershire) (Con)]

I am provoked by the speech from the hon. Member for Hartlepool (Mr Wright) and tempted to tear up my speech and demolish his instead. I shall resist that temptation, however, save for one thing: we should be careful what we say about exports, because often, by acquiring a capability overseas, we can build a defensive strategic relationship with another country that brings much greater long-term benefits to the UK. The classic example of that was the acquisition of the military afloat reach and sustainability—MARS—tankers for the Royal Fleet Auxiliary in South Korea, which led to a family of tankers being developed in consultation with BMT, the excellent British design house, and a range of equipment being fitted on to those tankers, not just by the British Navy but by other navies too. More importantly, however, that deal led to the South Korean Government deciding that they would like a strategic relationship with the UK, as a result of which, Rolls-Royce got into the marine market there with its propulsion systems, and now AugustaWestland is sending AW159 helicopters there. Sometimes a short-term decision to buy overseas—such decisions are often deplored by the Daily Mail, which does not understand defence acquisition at all—can actually be the right decision for Britain’s strategic interests globally and for British jobs, so I advise caution about that. The South Korean example is a model of how to acquire capability in the best interests of the country, economically and strategically.

Returning to the Bill, it is a Bill I feel rather nostalgic about and that I would like to be supporting from the Front Bench, rather than the Back Benches, but I am delighted by the challenging yet consensual nature of the debate. It has been conducted in exactly the right spirit for something so important. I was particularly heartened by the remarks of the shadow Secretary of State. I genuinely believe that the Bill will help to secure the improvements made by my right hon. Friend the Member for North Somerset (Dr Fox) when he was Secretary of State, and now by my right hon. Friend the Member for Runnymede and Weybridge (Mr Hammond), the current Secretary of State. Big changes have happened. The armed forces are now well equipped, and we want to keep it that way. I remember hearing Brigadier Bob Bruce speaking to the media when he took 4th Mechanized Brigade to Helmand last year. He described the taskforce as

“the best prepared and best equipped task force the United Kingdom has ever put into the field”.

That is a big step forward from what we are used to in this country and one the whole House should welcome. That process began under the last Government. It is an example of where improvements have been made and sustained, and we are now in a much better place than we were.

The taxpayer’s interests are better protected too. The equipment black hole has been closed. The hon. Member for North Durham (Mr Jones) is not in his place, so I cannot provoke him on that point, but there certainly was an overheated equipment programme. How big it was is a matter for debate. If anything, I think the £38 billion figure is an underestimate, but it was a black hole and it has been closed.

[Thomas Docherty]

Standing in for my hon. Friend the Member for North Durham (Mr Jones), let me challenge this point yet again. The National Audit Office report, which the hon. Gentleman referred to in a roundabout way, said that if there had been no uplift in spend, over a decade there would be a £38 billion black hole. Therefore, it was not that big in 2010, when he was in post. Does he accept that point?

[Peter Luff]

I do not want to get bogged down, but I agree that the £38 billion figure depends on the assumptions made. Those assumptions were too generous, actually, to the last Government and the true size of the black hole was nearer £60 billion or £70 billion, but that is another debate. That is my sincerely held view.

On the whole, I do not think it right for ex-Ministers to boast about their achievements, particularly as anything achieved in a Department is always shared with many other players. However, I was pleased that the National Audit Office’s major projects report for 2011, dealing with the 16 major biggest defence acquisition programmes, said—among some words of criticism, of course, for how things were being managed; it was not a totally clean bill of health—the following:

“In recent years we have reported several times that the Department has had to slip projects or cut equipment numbers to bridge the gap between estimated funding and the forecast cost of the defence budget. These decisions were not value for money and meant that new capabilities were not available on time. There are no such instances recorded this year”.

That is the way we need to keep it. I believe that this Bill is the way to achieve that massive step forward.

--- Later in debate ---

[Thomas Docherty (Dunfermline and West Fife) (Lab)]

Let me begin by following up on the point made by the hon. Member for Mid Worcestershire (Peter Luff), who said that ex-Ministers probably should not boast about their achievements. I say gently to the ex-Minister that if they do not do the boasting, there is probably no one else who will do it on their behalf.

I think we have been greatly served over the past two decades by a succession of good, generous and genuine procurement Ministers, not least Lord Gilbert who so sadly passed away just a few short weeks ago. The spirit of the debate on both sides of the House is testimony to the fact that we believe that providing our men and women who serve so bravely with the correct equipment is an issue on which we should not make too much of a party political point—although Members will forgive me, as we are in Parliament, for making some observations in my speech.

I have a specific question for the Minister, which he may wish to consider, on the reserves and the territorial extent of the provisions. The explanatory notes state that the Bill’s scope on reservists will extend to the Channel Islands and the Isle of Man—so, to Crown dependencies—but do not mention the overseas territories. It is my understanding that Bermuda and Gibraltar raise TA units, and it would be helpful if the Minister could explain why the provisions will not extend to Gibraltar and Bermuda. I know that the Minister is already thinking carefully about the answer he will give me.

There has been some suggestion that the budget is now balanced, but unfortunately the Defence Committee’s view has been that as the Secretary of State has consistently refused to show us the books, we have no way of upholding that judgment. The Prime Minister—he is only the Prime Minister and not Lynton Crosby, so he is not actually running the Government—has said that his preference is for a real-terms increase from 2015 or 2016, but there is some confusion about the date he meant. Perhaps the Minister will explain what will happen if there is no real-terms increase. Will the books go out of budget? This returns me to my exchange with the hon. Member for Mid Worcestershire. If the books are balanced only in the event of a real-terms increase beyond 2015, I am afraid that we shall have another black hole, whether the Minister likes it or not.

I am something of a sceptic when it comes to a GoCo, for a reason that the Minister heard me give only last week when he met members of the Defence Committee representing both sides of the House. There are three reasons for the overruns and programme delays that have led to some of the biggest procurement problems in the last 20 years: those involving the Type 45 destroyer, the joint strike fighter and the Queen Elizabeth class carrier.

First, there is the conspiracy between the defence industry and the services. The industry wants the work and the services want the kit, so they artificially drive down the cost that they declare to Ministers for each project. Surprisingly enough, once the main gate decision has been reached, the costs start to rise to fairly extreme levels. We also see decisions being pushed to the right. As was pointed out by my right hon. Friend the shadow Secretary of State, Labour must take some responsibility—our hands were not entirely clean in this regard—but it is not a new problem.

Secondly, there is the chopping and changing of programmes. We saw that when, following the strategic defence and security review, a carrier decision was changed in favour of a sea variant. After £100 million had been wasted in 18 months, the new Secretary of State made the correct decision to return to the B variant, but unfortunately we are where we are, and, regrettably, the taxpayer is down £100 million. Thirdly, there is the problem of immature decision making on the part of the MOD and the services. They do not necessarily understand what their requirements are in the longer term, and that drives up costs.

The GoCo will not solve any of those problems, but strong ministerial leadership would help to alleviate at least two of them, if not all three. I hope that the Minister will explain how the MOD will tackle the buy-in conspiracies, the chopping and changing, and the lack of mature decision making.

As was made clear by my hon. Friends the Members for Hartlepool (Mr Wright) and for Merthyr Tydfil and Rhymney (Mr Havard)—and, indeed, by the right hon. Member for North East Hampshire (Mr Arbuthnot)—the Committee feels quite strongly about the research budget. We spend only 1.2% of the defence budget on research and development, and not all that money is going to United Kingdom companies. We are, in effect, subsidising other nations. The Defence Committee has an aspiration—it cannot be described as a pledge—to reach a spending level of 2%, and, crucially, we think that that money should be spent on UK companies. We must support our own companies, as the Americans and the French do. We should welcome an update from the Minister on the progress of, for instance, the remotely piloted aircraft programme. I understand that Sentinel will not be funded beyond 2015, and it would be helpful to understand the implications of that now.

May I press the Minister to say more about how two programmes will be dealt with under either GoCo or single source? I will not make my speech about Trident today, because we shall have a three-hour debate on the subject tomorrow, but it would be helpful if the Minister could explain how the common missile programme will be dealt with, in practical terms, under the new arrangements. I should also like to know how the joint strike fighter programme will be dealt with, given the genuine concern that has been expressed by our closest ally about GoCo and the new arrangements.

I am slightly disappointed that the Bill contains no provision to tackle the “revolving doors”. The Committee is concerned not just about the revelations in The Sunday Times about generals and admirals leaving on a Friday afternoon and popping up in the defence industry on a Monday morning, but about the more general policy. I am not specifically criticising the Bill here, but it would be helpful if the Minister outlined what steps he intends to take, so that we avoid this culture and what appears to the Committee to be an unhealthy relationship between some of our senior military leadership and the defence industry is tidied up.

It is easy to knock civil servants. Politicians have never lost a vote by having a go—[Interruption.] Except in Cheltenham, where I suspect that if a politician knocked the civil servants, they would probably lose quite a lot of their votes. On the whole, however, knocking civil servants is not a difficult gig, and successive Governments have perhaps been guilty of doing that. I think we must recognise the contribution made by our civil servants, however, as we would not have a procurement programme or a functioning defence industry without them. I hope the Minister will say that this is not going to turn into an exercise in beating up civil servants.

I cannot see anything in the Bill about how the pay and conditions for those for whom Bernard Gray wants greater flexibility will be set. The Defence Committee is very concerned that Mr Gray may be seeking to have the power to set the pay and conditions for his management team without ministerial buy-in. Will the Minister explain how he will ensure that there will be ministerial accountability for all the pay and conditions awarded to Mr Gray and his team? We understand the argument about increasing competitiveness, but we must not get into some of the situations that have developed elsewhere, with personal contracts and off-the-books arrangements and tax avoidance, such as for the chief executive of the Student Loans Company. Will the Secretary of State still have to sign-off all individual packages, or does the Minister expect that to be delegated to Mr Gray and his successors?

On the point about invitation to negotiate, it is my understanding that we have seen a slippage from July to August. Can the Minister confirm whether that is indeed the case, and does he understand the concern felt by me and many other Members across the House in respect of the aspirational timeline he has set and the possibility that it will become harder to meet the deadlines? I might not attribute this to the same cynical reasons as the hon. Member for Mid Worcestershire, but can the Minister assure us that if the date has indeed been moved, there will be no rushing of the later stages to get us back on track?

I appreciate the sentiment behind the aim of trying to transfer financial risk from the MOD to defence contractors, but does the Minister accept that in reality that is impossible, partly because we are talking about buying kit for our men and women serving on the front lines? The MOD will have to own and take accountability for those decisions, therefore, and any slippage or risk will ultimately be borne by the politicians, not BAE or Babcock or whoever else. I am also yet to be convinced that there is a practical way of transferring the financial risk, because. given the types and the size of the contracts, in the final analysis the MOD will still have to be the underwriter for those projects.

I have asked the Minister this question before, but I did not get a clear answer, so I will ask again: which country does he hold up as a good example of defence procurement? We often hear about the bad examples, but I have yet to hear that there is any good example. Perhaps the Chinese, for the obvious reason they tend to chop people’s heads off when it goes wrong? Which country would the Minister hold up as doing procurement well? The United States has some of the worst examples of procurement. We need only to look at the strike fighter to see that. That project’s costs have increased 100% in the past 10 years, from $100 million per airframe to $191 million.

[Mr Brazier]

Sweden, a country of just 8 million people, developed its own fast jet fighter. Its defence industry has an astonishing record of not only using high-quality equipment but finding diverse civil applications for many of its products.

[Thomas Docherty]

I am grateful to the hon. Gentleman; he has made that point about Sweden to the Defence Committee as well. I take on board the point that he is making about the Saab Gripen. My understanding is that the Swedes would say that they procure less badly than us or the United States; they would not say that they were a great procurer. The hon. Gentleman is probably right, however, and he has probably helped the Minister to avoid doing some homework. Sweden might be a reasonable example, although it does not have a fantastic track record on procurement schemes.

Let us bear in mind some of the problems that we have coming down the road, including the strike fighter. I apologise to my colleagues on the Defence Committee for having been something of a sceptic about the whole procurement system. An example can be seen in air-to-air refuelling. The A-variant of the strike fighter, which the US air force, Australia and most of our European allies are procuring, uses a probe and drogue refuelling system, whereas the B-variant and the C-variant, which we and the US Marine Corps are buying, use a boom refuelling system. Unfortunately, the two systems are not compatible with each other, so if the RAF were to win its argument for the A-variant, it would have to retrofit the Voyager tankers to enable them to be refuelled. That is an example of the UK, the US and others not being joined up, and it is absurd that we have got into such a situation. I shall not rehearse the arguments about the carrier, but the Defence Committee found that there had been an “immature understanding” of the decisions on the strike fighter and the carrier, and that not enough detailed work had been done before decisions were made. Will the Minister tell us how he is going to fix that problem?

There is a great deal to commend in the Bill. The fact that we have heard supportive remarks from the Opposition Front Benchers and from Back Benchers, who are not always sympathetic to the Secretary of State’s arguments, bodes well for the legislation. We all wish the Bill God speed.

--- Later in debate ---

[Mr Ellwood]

I am very grateful for that statement. My hon. Friend makes an important point. A concern that dates back even to those times is that many of those who have been in charge of procurement have not stayed in their posts for long. Indeed, the people in uniform who filled those posts would spend six to 18 months on a project and, once they were conversant with it, would be rotated out and back to a front-line posting or elsewhere, and all that knowledge would be lost. The mistakes were made because the knowledge was not passed on correctly.

I want to look at some of the big issues that have been mentioned in this debate. The Queen Elizabeth class carriers project, which started in 1998, was deliberately delayed by the last Government at a cost of more than £1 billion. The cost of the Nimrod spiralled out of control. Nine aircraft cost as much as three space shuttles. That was outrageous spending. When we came into government, we decided to stop that process, because not one of the aircraft was able to get an airworthiness certificate and get into the sky.

The Typhoon has also been mentioned many times: an example of procuring for the last war rather than looking ahead. It is a cold war fighter plane that is unable to hit anything on the ground. Not only does it have no ground attack capability—[Interruption.] If the hon. Member for Plymouth, Moor View (Alison Seabeck) wants to intervene I will happily give way; if not, I ask her please to listen to what I am saying.

[Thomas Docherty]

Will the hon. Gentleman give way, then?

[Mr Ellwood]

Let me finish this point about the Typhoon; then I will be delighted to give way. Unlike other aircraft of its generation, the Typhoon has a flight control system designed by one country and a weapons release system designed by another. That means that every time a missile system upgrade is required, two complex computer systems have to be reconciled, which makes it far too complicated and costly to do any major upgrades to the software or the missiles. That is why there is a delay in converting the Typhoon from an air-to-air aircraft to a multi-role aircraft with ground attack capability.

[Thomas Docherty]

My concern is that, as the tail-end batsman, the hon. Gentleman is bringing a level of partisanship to the debate that we have not had so far. He needs to say sorry for the part he played in the Defence team that did two ridiculous U-turns on the aircraft carrier, which opened a capability gap on carrier strike that would not otherwise have existed and that led to more money being wasted. I agree with his point about our time in government, but does he accept that his Government have also made mistakes?

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. I might be able to help everybody. I know that Mr Ellwood is going to discuss the Bill and will not continue discussing the theme of past events.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Defence (Mr Philip Dunne)]

Let me start by adding my sympathies to those expressed to the families of the two reservists who have died so tragically on the Brecon Beacons during this hot weather. I also join the hon. Member for Merthyr Tydfil and Rhymney (Mr Havard) in paying tribute to the volunteer mountain rescue teams who were so helpful in that rescue effort.

I am pleased to be able to follow the hon. Member for Plymouth, Moor View (Alison Seabeck) and to welcome the tone that she and the shadow Secretary of State, the right hon. Member for East Renfrewshire (Mr Murphy), adopted in their speeches. Frankly, that tone has been adopted in virtually every speech. It is interesting that in a debate on a subject that the hon. Lady describes as technical but others might describe as dry, Members on both sides of the House—my predecessor, my hon. Friend the Member for Mid Worcestershire (Peter Luff), who showed an intimate knowledge of the subject, Members who serve on the Defence Committee, those who serve gallantly in the reserve forces, and my hon. Friend the Member for Canterbury (Mr Brazier), who undertook the reserves commission work earlier this year—have demonstrated a great deal of expertise. I am sure that many of them will be looking forward to serving on the Public Bill Committee for a number of weeks in the autumn. The debate has been a good start to the House’s scrutiny of the Bill and I hope that we can look forward to its continuing in the same tone.

It is clear that the objective of the Bill is shared across the House: we need to provide our armed forces with the support they need and to take appropriate measures to ensure that the reserve forces can be used as part of the integrated Future Force structure, with individual reservists appropriately protected in their role and their employers better rewarded for the contribution they make in supporting the reserve forces. Many points of detail have been raised in the debate and I shall try to cover some of them, but I am sure that those which I fail to cover in my summing up will be picked up in Committee.

It is encouraging that we have developed a clear sense of consensus across the House and I want to assist in that process in Committee. I shall ensure that draft regulations under part 2 are available when the Committee undertakes its detailed scrutiny, as the single source provisions are some of the most complex. By the time the Bill is scrutinised in the other place, we will have draft regulations available for part 3.

The measures set out in the Bill represent a real change to how the Ministry of Defence will conduct its business in future. They will allow us fundamentally to reform Defence Equipment and Support and to strengthen the regime governing single-source procurement. That will help to ensure that equipment and capabilities are delivered on time, on budget and to the right specification. The Bill will also enable us to make the best use of and offer the best support to our reserve forces and their employers. The sooner we make these changes, the sooner the benefits to both the armed forces and the taxpayer will become reality.

The Bill covers three main areas, including two aspects of procurement—DE&S and single source—and the reserves. Let me pick up on some of the comments by reviewing the contributions of hon. Members before I conclude my speech.

The shadow Secretary of State made a broadly welcome series of comments about the Bill and asked a couple of specific questions that I think I can address now. One was about the FSB survey and whether small employers were critical of our proposals for the reserves. Of course, the survey of FSB members was undertaken in advance of the publication of the White Paper. Since then, as my hon. Friend the Member for Canterbury and the Chairman of the Select Committee, my right hon. Friend the Member for North East Hampshire (Mr Arbuthnot) mentioned, the FSB has endorsed many of the points we have made, which is clearly helpful.

The right hon. Member for East Renfrewshire also asked whether we would introduce employment protections for staff. The staff in the DE&S who will transfer into a GoCo, if we go down that route, will fall under the TUPE regulations, which would all apply. There would be no special risk to those individuals. I shall come on to some of the other employment points shortly.

The right hon. Gentleman asked whether the Bill would require additional costs for funding of the reserves. We have set aside £1.8 billion for that purpose, which includes the cost of payments to small and medium-sized enterprises, and there will be no net additional costs. Incidentally, we have defined SMEs as businesses employing a maximum of 250 staff with a turnover of £25 million or less. There are a number of possible definitions.

My right hon. Friend the Member for North East Hampshire posed some specific challenges. He suggested that there had been a slippage in the timetable for the commercial contracting. I can confirm that we expect the invitation to negotiate to be dispatched later this month. We are merely waiting for cross-Government final approvals, which we expect to receive this month. There should therefore be no slippage in our programme, and, as my right hon. Friend the Secretary of State said in his opening speech, we expect conclusions to be reached next year.

My right hon. Friend asked which domain would go first. In the White Paper, we predicted a phased approach. The identity of the domain to go first will be disclosed in the ITN, which will be made public. He also asked whether we would make public some of the internal documentation that we have used when considering the various options. We intend to publish the business case for the initial gate review which was undertaken earlier in the year.

My right hon. Friend asked why we needed a statutory procedure for the single-source arrangements. The existing arrangements, which are voluntary, have been in place for 45 years, and do not work. We have concluded that, as Lord Currie recommended, they should be given the force of statute to ensure that the contractors honour the undertakings given under the single-source arrangements. The system will be policed independently by the new single source regulations office, whose staff will be selected by an appointments committee and whose chairman and chief executive will be recommended by the Secretary of State. It will subsequently appoint its own staff, and will be funded jointly by the MOD and the companies themselves. My right hon. Friend asked whether the single-source arrangements would apply to foreign military sales to the United States. They will not, but we expect the vast majority of single-source contracts to be covered by the new regimes.

My right hon. Friend and others asked a number of questions about intellectual property protection. The Bill contains a number of safeguards to cover both the intellectual property owned by the companies and the international property rights that protect state secrets and sovereign data. We are confident that, in the event of a GoCo operation, sensitive information will not be passed up to parent companies through the corporate veil, regardless of whether those companies are owned by the United Kingdom.

The Bill controls the handling of confidential information supplied to the MOD by contractors under previous and existing contracts. Those will be passed to the GoCo so that it can carry out its tasks. Schedule 2 makes detailed provisions relating to unauthorised disclosures and unauthorised use of the information by the GoCo. The contract will also include a comprehensive suite of provisions to protect the MOD’s own confidential information, including new confidential and security-classified information, which is generated as a consequence of procurement activities. The provisions specifically include restrictions on the passing of information to parent companies. Other provisions will prohibit the transmission of sensitive information to foreign nationals, or to individuals who do not have the correct security clearances and the need to know.

The contract will also include requirements for employees to meet nationality restrictions—for example where access to information is restricted to UK eyes only—as they are at present for a number of contracts within DE&S. Only potentially contracting entities will have to satisfy us that they can meet all these requirements and manage these restrictions. It should also be noted that the Official Secrets Act will also apply where appropriate to those staff in the GoCo, who will also be subject to confidentiality clauses in their own contracts as now. Given all these safeguards, I am confident that sensitive information within the GoCo will remain within the GoCo and we will be able to address concerns hon. Members have raised in that regard.

We have also been asked by a number of Members about the impact of foreign shareholders in a GoCo entity. Clearly the national security interests of the country are the primary responsibility of Government and we will make sure they are protected. If we have concerns in that area, that will be a reason not to select a GoCo route. Given the scale of activity it is likely that the winner of a competition for a GoCo will be a consortium. It is highly likely that members of the consortium will include US companies who have made approaches to us thus far, and we will ensure that a future GoCo is suitably constructed in order to protect UK interests. The contracting entity will be UK-domiciled and UK-registered and we have specified that the overwhelming majority of the contracts shall be performed in the UK, where the company will, of course, pay tax, as the Secretary of State has said.

That addresses issues raised by my right hon. Friend the Member for North East Hampshire. Other Members have raised concerns about the risk of transferring activities of the GoCo into the private sector and whether that would impose undue risk on the contractor. The hon. Member for Merthyr Tydfil and Rhymney (Mr Havard) asked about this. A GoCo contractor would act as agent of the MOD so the principal risk would reside primarily with the MOD. The risk that would transfer would be risk of non-delivery, which would form part of the performance fee of the contractor operating the GoCo. That element would be at risk, but the principal risk for fulfilling contracts would reside with the Secretary of State.

My hon. Friend the Member for Canterbury raised a number of points in relation to reserves provisions. Many of these matters are not properly part of the Bill. I am sure he will seek to press some of these points in Committee, however, and I will be happy to discuss them with him if and when we get there. On his point about whether there should be officers dedicated to reserves and whether they should hold senior posts, the intention is for the reserves to be more closely integrated within the regular forces, as he identified. We are looking at a whole-force concept and command structure. I will be happy to talk to him further about those points in Committee.

The hon. Member for Hartlepool (Mr Wright) raised some questions about the potential challenges of a nine-year contract for a GoCo and about whether that might be too short. We envisage that there will be pricing points within that period. We wish to maintain a competitive tension during the course of that contract, and at the end of the contract a successful bidder would be in prime position to renew their contract but we would retender it.

The hon. Gentleman and several other Members raised a number of points regarding MOD policy, such as how we will ensure that exports remain encouraged. That will be a matter for MOD policy-setters. The GoCo entity will implement policy introduced by the MOD. We are in the process of introducing exportability as part of our contracting arrangements for existing contracts, and we envisage that would continue.

I have already paid tribute to my hon. Friend the Member for Mid Worcestershire as one of the authors of the measures in this Bill. He gave a very good example in relation to exports of the reciprocity that we are seeing from countries such as South Korea. I will be in Korea next week visiting some of the companies that he knows from the work that he did, and seeking to identify further examples of reciprocity affecting British job prospects. My hon. Friend also asked about the speed of our work. I think that I have already addressed that point in response to my right hon. Friend the Member for North East Hampshire.

The hon. Member for Dunfermline and East Fife (Thomas Docherty) touched on—

[Thomas Docherty]

West Fife.

[Mr Dunne]

West Fife—my apologies. The hon. Gentleman touched on the need to maintain research and development and asked how that would work in the GoCo structure. He mentioned the figure of 1.2%. It is a policy commitment of the MOD to spend that percentage of our budget on science and technology. Our research and development budget is somewhat larger than that, however. In fact, we are spending approximately £1 billion on research and development within our programmes in addition to the science and technology budget. It will be an important part of the policy setting, should a GoCo be the successful outcome, that we should to continue to direct the science and technology spend and the research and development spend, as we would for any normal procurement.

I need to bring my remarks to a conclusion. I want to thank all the Members who have contributed to the debate for the quality of their contributions and the penetrating issues that they have raised. I am looking forward to working with them in Committee. There is clearly widespread support for the need to reform the way in which we procure defence equipment, and a real commitment to ensuring that we get these reforms right.

The Defence Reform Bill provides the legislation that we need to make far-reaching changes to the way in which we procure our defence capabilities. The changes will not only improve the support we give to our armed forces but make specific improvements for reservists and for their employers, who are an integral partner in enabling the reserve forces to function. The measures will also ensure that the taxpayer gets value for money. We must not miss this opportunity to make essential changes to the way in which we manage and deliver defence. I therefore commend the Bill to the House.

Question put and agreed to.

Bill accordingly read a Second time.



defence reform Bill (programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Defence Reform Bill:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 24 October 2013.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other Proceedings

(7) Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Mr Dunne.)

Question agreed to.

Defence reform Bill (Money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Defence Reform Bill, it is expedient to authorise the payment out of money provided by Parliament of:

(1) any expenditure of the Secretary of State required by the Act to be paid out of money provided by Parliament;

(2) any expenditure incurred under or by virtue of the Act by the Secretary of State; and

(3) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Anne Milton.)

Question agreed to.