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Defence Reform Bill

Volume 566: debated on Tuesday 16 July 2013

[Relevant documents: The Seventh Report from the Defence Committee, Session 2012-13, Defence Acquisition, HC 9, and the Government response, HC 73]

Second Reading

I beg to move, That the Bill be now read a Second time.

The defence of the United Kingdom and the protection of our national interests must be the priority of any Government. The brave men and women of our armed forces do an exceptional job, and I am sure all Members of the House will wish to pay tribute to their dedication, and to the sacrifices they make not only on operations but, as the tragic events in the Brecon Beacons at the weekend reminded us, on a daily basis.

The armed forces can perform their vital role only if we provide them with the capabilities they need to operate effectively and safely. We have a duty to them to ensure they have the tools they need in terms of manpower, training, equipment and logistical support. At the same time, we must deal with the black hole we inherited in the defence budget, and the Ministry of Defence has had to contribute its share to the broader challenge of correcting the public sector structural deficit.

I wish to respond not to the Secretary of State’s discordant point but to address his earlier comment and say that Her Majesty’s Opposition wholeheartedly share the expression of sympathy offered by the Secretary of State about events in Brecon. I know there are limits to what he can say at this early stage because it is subject to a police inquiry, but can he share any more details with the House about his understanding of those tragic events? In particular, there have been suggestions that training regimes may recently have been altered as part of efforts to boost the number of reservists, but I suspect that they are unfounded. Will he say what he feels he can say at this early stage?

I understand that the right hon. Gentleman desires to get to the bottom of this matter—as do we all—but he is right that there is little I can say. An inquiry by Dyfed-Powys police is under way, and when it is complete there will be a service inquiry into the events of last weekend. We will get to the bottom of what happened, and if there are systemic lessons to be learned, we will learn them. I give the right hon. Gentleman an undertaking that once the inquiry is complete, I will report to the House in an appropriate way.

The need to address the public sector structural deficit and the deficit in the defence budget has meant tough decisions and a relentless focus on squeezing more capability out of what remains the world’s fourth largest defence budget.

My right hon. Friend talked, quite rightly, about the first duty of government, but he will be aware that some of us on the Government Benches are concerned that misguided Army reserve plans will throw up false economies and unacceptable capability gaps. Given that the present Territorial Army mobilisation rate is 40%, will he explain how we are trying to plug a gap from the loss of 20,000 regular troops with only 30,000 reservists? A 40% figure would suggest that we need nearer 50,000.

My hon. Friend’s view on this matter is well known. Two weeks ago the Government set out robust proposals in a White Paper, “Future Reserves 2020”. I am confident we will be able to deliver the force we have set out, and that that force will support the level of ambition for deployment set out in the strategic defence and security review 2010.

Will the Secretary of State tell the House the annual recruitment targets for reservists for each remaining year of this Parliament?

I suspect the hon. Gentleman is referring to figures that were put in the public domain last year before this process was fully under way. I have said to the House that I will be transparent about recruitment and trained-strength targets. Later this year we intend to begin publishing quarterly figures, and we will set out the expected forward trajectory at the same time. As I said the week before last, and will say again now, the path will not be smooth and there will be some lumpiness in it. The structural changes we are making in the regular Army and the Army Reserve will have an impact at the front end, but in the long run it will support the growth of reserves that we all seek.

Eliminating waste and inefficiency in our procurement systems, and making best use of the skills available, whether they are in the public or private sector, or indeed in the regular or reserve forces, are at the heart of our plan for sustainable and effective defence in times of austerity. The Government have set about transforming the way that defence is managed and delivered. Starting with the strategic defence and security review in 2010, we have looked hard at how we can carry out our activity to see whether it can be improved. As part of that process, my predecessor asked Lord Levene of Portsoken to conduct an in-depth review into every aspect of how we manage defence, and we are well advanced in implementing the changes he recommended.

Ensuring our forces have the right equipment, delivered on time, is essential if we are to maintain our capabilities in the future, and ensuring we do that cost-effectively is critical if we are to sustain them. Making full use of the expertise and skills of our reserve forces is crucial if we are to meet the security challenges that we face with smaller regular forces. In most areas, we are able to deliver defence transformation through changing the way we are organised and the way we do things in the Ministry of Defence. In two areas—procurement and the use of reserves—primary legislation is required to complete the programme.

I am glad that the Secretary of State is about to expand on procurement. Will he confirm that in securing a reliable and cost-effective supply of equipment, there will be open competition for a wide range of suppliers—including those such as Joseph Gleave & Son in my constituency, which has supplied the Department for many years—and that the Government procurement model will not squeeze out smaller businesses that have been supplying in the past.

The Government have a focused initiative to increase participation of small and medium-sized enterprises in the defence supply chain. Such businesses provide a tremendously important part of our defence resilience. Because they are often buried in complex supply chains led by a large prime contractor, their contribution is not always noticed as much as it should be, but they are an important part of the equation. I will come later to the balance between open competitive procurement and single-source procurement, which is at the heart of part 2.

The Bill has three main parts. Parts 1 and 2 deal with defence procurement and part 3 deals with our reserve forces. Turning first to procurement, I think that few in this House would not agree that the way in which we develop, specify, procure and support defence equipment can and must be improved. We have already made significant progress, but we recognise that fundamental change is needed if we are to sustain that progress and to deliver the equipment that the armed forces need and the value for money that the public are entitled to expect. Now is the time to make those changes.

For decades, our defence equipment programme has suffered from poor time and cost forecasting and poor project and programme management, leading to delays, cost overruns and specification failures. We have to address these issues by challenging the pattern of incentives and behaviours once and for all. That is why, after success on military operations, my priority as Defence Secretary has been to establish, for the first time, a fully costed and deliverable 10-year equipment plan. This has now been achieved and published. Our armed forces now have the certainty that the equipment they are expecting has been both planned for and is properly funded. However, if we are to deliver this programme consistently and to entrench a better method of working to provide a better service to the front line in future, we need fundamentally to reform our defence acquisition processes and structures.

The previous Government were of course aware of this problem. Towards the end of their time in office, they commissioned the independent report by Bernard Gray into the acquisition process. That report found serious structural and cultural problems in the way in which we procure defence equipment. We have considered carefully its analysis and the options available for reform of Defence Equipment and Support. My predecessor appointed its author as Chief of Defence Matériel, with a remit to take the reform agenda forward. The results of that work are set out in the White Paper, “Better defence acquisition”, which I published on 10 June this year.

Our preference is to transform the existing Defence Equipment and Support organisation into a Government-owned, contractor-operated organisation—a GoCo. We believe that this model is the one most likely to embed and sustain the significant behavioural change required to transform defence acquisition. However, belief alone is not enough, and we will test this proposition through a commercial competition and against a public sector comparator. If, at the end of this rigorous evaluation process, a GoCo is assessed to be the best-value-for-money option, a private sector partner will be appointed to manage DE&S on behalf of the Secretary of State. This will be a radical change, but not quite as radical as some of the more lurid headlines have suggested.

I am most grateful to my right hon. Friend for his compelling speech and for giving way. May I ask him about the timetable for the process he has outlined? When will these things actually happen?

We expect to reach a decision point in the commercial process next spring. If we go down the route of appointing a GoCo, we expect the GoCo operator to be appointed late in 2014 or at the very beginning of 2015.

I am grateful to the Secretary of State for explaining what is happening with the GoCo. A number of international companies would be interested in applying to run it. Is there any requirement that it needs to be run by a British company, or would it be open to tenders from across the world?

The proposition is that a GoCo would be a UK-registered and domiciled company paying its taxes in the UK, but we expect that its shareholders will include international partner firms. The GoCo that runs the Atomic Weapons Establishment includes three non-UK companies in its shareholder register, and I see no reason to expect that the result of this competition would be different. We would expect British and non-British companies to be involved in the ownership, but the GoCo itself will be a British company.

The Secretary of State will be aware that there are concerns among those in industry that their intellectual property may not be protected. Given that there is a very high degree of competition between the United States and the United Kingdom, the admission of a US company into the inner workings of the British Ministry of Defence across a wide range of areas would not be the same as the co-operation on the Atomic Weapons Establishment at Aldermaston, where the United States and the United Kingdom are completely in agreement.

I am grateful to my hon. Friend, who will have thought very carefully about these matters. Of course, this goes to the heart of the deliberations that we have been having. We are confident that we can put in place a model that will protect intellectual property—an issue to which I shall return.

On a similar theme, what have been the discussions with the United States about the transfer of classified information in this context?

I shall talk about confidential information later in my speech. DE&S has access to certain confidential information at the moment. The arrangements will provide for the GoCo to have access to that confidential information under a regime that retains its confidentiality and ensures that it will be maintained. If the hon. Lady will bear with me, I shall address that very shortly.

If, at the end of the evaluation process that I have described, a GoCo is assessed to be the best value-for-money option, a private sector partner will be appointed to manage DE&S on behalf of the Secretary of State. As I said, this will be a radical change, but not quite as radical as some have suggested. The GoCo will always act as the Secretary of State’s agent. All contracts entered into will continue to be in the Secretary of State’s name, and strategic governance will be provided by a governance function that will remain within the MOD. The GoCo’s customers will be the front-line commands and the MOD itself; it will work to their agenda and their priorities. I can therefore assure the House that this is absolutely not about handing over billions of pounds of taxpayers’ money to a private company and leaving it to decide what kit to buy for our armed forces.

The commercial competition is under way, and we expect it to be completed by spring next year. In parallel, we are developing a robust public sector comparator, which we call DE&S-plus, that will explore how far it is possible to go in reforming the organisation, making the maximum use of freedoms and flexibilities that we can negotiate within the public sector. If, at the end of this process, the GoCo model is indeed the chosen option, legislation needs to be in place so that we can move quickly to sign a contract with the successful bidder once a final decision is made.

The Secretary of State might address this point later, but how does he envisage that the GoCo will be accountable to Parliament? Would it appear in front of the Public Accounts Committee or the Defence Committee?

The Secretary of State will remain accountable to Parliament, but we expect that the GoCo will have an accounting officer, probably its chief executive officer, who will therefore be liable to be called before the Public Accounts Committee.

Part 1 of the Bill sets out the provisions and safeguards necessary to underpin the operation of a GoCo. The most important element of almost any organisation is its people, and the smooth transfer of the DE&S work force to the GoCo operating company will be vital to its future success. The Bill confirms that the initial transfer of civil servants would be covered by the TUPE regulations. By virtue of being a contractor-operated entity, the GoCo would have considerable freedoms, particularly relating to its ability to recruit and reward its staff at market rates—freedoms that are not usually available to public sector bodies. The Bill confirms that in its activities on behalf of the Secretary of State it will enjoy certain statutory immunities and exemptions that are currently enjoyed by the Crown—for example, in relation to the Health and Safety at Work etc. Act 1974 and the Nuclear Installations Act 1965.

In addition to those freedoms, we also need to put in place a number of safeguards to protect Government and taxpayer interests. Therefore, the Bill provides the Secretary of State with the power to create a scheme to transfer the business to another contractor or, in extremis, back to the MOD, should that prove necessary. The Bill also provides for the Ministry of Defence police to have clear jurisdiction to investigate any offences that may relate to defence work carried out by contractors. It also makes provision to allow the Secretary of State to disclose information that he has received in confidence to a contractor, and to authorise the use of intellectual property. Clause 7 and schedule 2 put in place appropriate safeguards to prevent the unauthorised use or disclosure of confidential information by either the GoCo or its employees.

I am determined to drive a step change in the way in which the MOD carries out its defence procurement business, and to do so rapidly. The gradual erosion of skills and capability in the organisation over recent years cannot be allowed to continue if we are to ensure the MOD’s ability to deliver equipment to the front line. The measures in part 1 of the Bill will allow us to make the transition to a GoCo at the conclusion of the commercial competition, subject, of course, to the bids representing value for money for the taxpayer.

Part 2 relates to single-source procurement. Open competition remains the best way of ensuring value for taxpayers’ money. However, sometimes there is only a single provider of a capability we require, such as nuclear propulsion units. Sometimes the need to maintain critical national industrial capabilities or sovereign control of the intellectual property in equipment programmes requires us to place contracts with UK companies without a competitive process. European Union public procurement regulations specifically allow this for military equipment.

This so-called single-source procurement typically accounts for about 45%—about £6 billion a year—of the total that the MOD spends on Defence Equipment and Support, and it is likely to remain at that level for at least the next decade or so. Clearly, in the absence of the disciplines of the marketplace there needs to be a set of rules governing single-source procurement in order to ensure proper protection for the taxpayers’ interest.

The MOD currently uses a framework for single-source procurement that has remained largely unchanged for the past 45 years—the so-called yellow book. Under this system, which is voluntary, the profit that contractors can earn is fixed, but there are few if any incentives for them to reduce costs. Clearly, this does not serve the best interests of the taxpayer and neither does it help industry to maintain a competitive focus that will allow it to succeed in export markets. It is therefore in the interests of both the MOD customer and its industrial suppliers to create a framework with incentives for efficient and competitive behaviour.

In 2011 the Government commissioned Lord Currie of Marylebone to undertake an independent review of the yellow book. He recommended a new framework based on transparency, with much stronger supplier efficiency incentives and underpinned by more robust governance arrangements. Based on his recommendations and following extensive consultations with our major single-source suppliers, we have developed a framework that will be introduced through regulations provided for in part 2 of the Bill. At its core is the principle that industry gets a fair profit in exchange for providing the MOD with transparency on costs and the protections we need to ensure value for money. It will align the MOD and industry by allowing additional profit to be earned through delivery of defined efficiencies, sharing the benefits between industry and the taxpayer. A statutory basis for the regime will ensure widespread coverage across our single-source supply base and allow application of the regime throughout the single-source supply chain.

To police the new framework we will create a small, arm’s length body, to be known as the single source regulations office, with approximately 30 staff. Its role will be to keep the statutory framework under review and to monitor adherence to it. It will replace an existing non-departmental public body that has little power other than to oversee a voluntary framework that can be amended only by consensus. The existing regime has failed to evolve to reflect changing circumstances, largely because either party can block any change that it regards as contrary to its own interests.

The single source regulations office will ensure that we do not have to wait another 45 years to update the regime. It will be a source of expert advice to the Secretary of State and it will also act as expert adjudicator in disputes between the MOD and our single-source suppliers. Crucially, it will advise the Secretary of State on the setting of key profit rates for single-source contracts.

Critical to ensuring that the MOD is able to negotiate prices that are fair and reasonable to both suppliers and taxpayers is the generation of better quality and more standardised cost data. Therefore, regulations enabled by this Bill will introduce a requirement for standard reports throughout the life of single-source contracts worth more than £5 million, allowing the MOD to build up a database against which future pricing assumptions can be judged and on the basis of which more robust, long-term cost forecasts can be made.

On contracts above £50 million, suppliers will also have to provide quarterly contract reports to support effective contract management, report any relevant events and deliver information about their overhead costs, allowing us better to align the industrial capacity the MOD is paying for with our long-term capability requirements. Clause 25 also creates a power for the MOD to gain access to suppliers’ records.

In order to ensure that suppliers fulfil their reporting and transparency obligations, the Bill includes a compliance regime. Failure to provide the required information on a timely basis will result in a penalty being applied under a civil penalty regime. Penalties will vary with the value of the contract and the single source regulations office will act as the appeal body for the compliance regime.

We recognise that we are requiring our suppliers to provide unprecedented levels of sensitive commercial information that would be of great value to their competitors or to market analysts. We need this information to ensure we get value for money on what is a significant proportion of defence spending, but obtaining proprietary information by statute imposes on Government a duty to secure its proper protection. In order to ensure that the increased level of transparency and reporting we require is not subject to abuse, the Bill creates a new criminal offence of unauthorised disclosure of sensitive information obtained under the new single source framework, such as forecast financial performance and investment or rationalisation plans.

Given that confidential and commercially sensitive information is already exempt from freedom of information requests, we do not think it will be necessary to bar release under the Freedom of Information Act in order to protect the information. However, I am clear about our obligation to our suppliers in respect of their sensitive information and the Bill creates an order-making power to allow the Secretary of State to invoke a full statutory bar on disclosure under FOI if the routine exemptions prove inadequate to protect the exceptional level of information that we are requiring to be disclosed to us.

The framework being described by my right hon. Friend is largely welcome, but it seems odd that it is being applied to only part 2 and the 45% spent on single-source procurement. Many of us support in principle the idea of the GoCo, but introducing more commercial entities to the organisation that buys the other 55% of the kit could expose more commercial-in-confidence material to outside bodies than would be the case under a single-source supplier.

I assure my hon. Friend that the arrangements for our relationship with the GoCo, which will be largely contractual but partly regulatory, will also protect confidential information and make appropriate arrangements for the use of intellectual property held by the Secretary of State. I am dealing with the specific regime that will apply to part 2 contracts with single-source suppliers.

The new single-source regime will incentivise efficiency in operating costs and the minimisation of overheads. It will align the interests of the MOD and its suppliers, and support the competitiveness of the UK defence industry in both domestic and foreign markets.

Finally, I turn to the third part of the Bill, which relates to our reserve forces.

I am grateful to the Secretary of State because he has given way many times. Before he turns to the reserves, may I ask him about defence research? As he will know, my hon. Friend the Member for Mid Worcestershire (Peter Luff) and I feel strongly that we are not spending enough on defence research in this country. How does he see the protection of that important base being secured? Will it be handed over to the GoCo? What will be the regime to govern research?

My hon. Friend knows well, because he was a Minister at the time, that we made a commitment that a fixed minimum percentage of the defence budget will be spent on research and development. That is a matter of policy and such matters will remain for the MOD to determine. If a GoCo is appointed, it will execute policy, not make policy. I am happy to give him that reassurance.

Our reserves make an essential contribution to delivering the nation’s security at home and overseas. They are a valuable and highly valued part of our armed forces who work alongside their regular counterparts to deliver our military capability. Earlier this month, I published a White Paper that signalled a step change in the offer that we make to individual reservists and their employers. It set out a range of measures to revitalise the reserve forces and reverse the decline of the recent past, including paid annual leave and pension entitlements in respect of training days, access to key defence health services, greater predictability of reservists’ liability for call-out and a £500 per month per reservist award to small and medium-sized enterprises when their reservist employees are mobilised. There will also be substantially improved equipment and training opportunities.

I asked the Secretary of State a parliamentary written question because the centre in Bishop Auckland in my constituency is to close. I asked what that will save the Government. Instead of answering the question, I received the information that the Government are investing £8 million in the reserve estate. I would like to give him another opportunity to answer the question. How much is being saved? Quite honestly, if nothing is being saved, do not close it.

I do not know whether the hon. Lady was in the House for my statement on the reserves. If she thinks that closing Army Reserve bases is about saving money, she has the wrong end of the stick. It is about delivering the commitments that we have made to the Army Reserve about training, equipment and proper organisation. It is about reflecting the changes in the regular Army and our commitment that reserve units will be paired with regular Army units.

I cannot answer the hon. Lady’s specific question at the Dispatch Box, but I will write to her. The vast majority of sites from which we are withdrawing Territorial Army or Army Reserve activity will remain because they house cadet units that will continue, so that is likely to be the case. This is not about saving money; it is about organising the reserve forces in a way that allows them to make their vital contribution to Future Force 2020.

The White Paper details a comprehensive package of changes that will allow us to create the integrated regular reserve force of the future. A small number of the planned changes require primary legislation. The first of those is the renaming of the Territorial Army. The TA was founded in 1908 and has served this country superbly in peace and in war. However, today’s TA soldiers have a function that is far wider and more important than the original home defence role envisaged by Haldane. As we reshape the Army—regulars and reserves—for the 21st century, it is right that we change the name of the TA to the “Army Reserve” better to reflect its future role. The Bill also provides for the consequential renaming of the Army’s ex-regular reserve force as the “Regular Reserve”.

Reflecting the integral role that reservists will play in almost all future military operations, the Bill extends the powers to mobilise reservists across all three services. Under the Reserve Forces Act 1996, reservists can be mobilised only under specific circumstances. The Bill will enable reservists to be mobilised for the full range of tasks that the armed forces may be asked to undertake.

This is just a small point, but I recall that the Territorial Army was deployed to the 1st British Corps of the British Army of the Rhine, so it has not dealt just with home defence.

My hon. Friend is absolutely right. The role of the Territorial Army has evolved and it will evolve further. My point was that when Haldane introduced it in 1908 by consolidating the county militias, he had in mind a home or territorial defence role, which the name reflects. I am happy to agree with my hon. Friend that the role that the TA has played over the years has been substantially greater than the role envisaged for it originally.

Hon. Members on both sides of the House have raised concerns over the possibility of employment discrimination against reservists. The Bill provides improved employment protection by allowing a right of access to the employment tribunal without a qualifying employment period for an unfair dismissal claim where the dismissal relates to the employee’s reserve service. Separately, there is already a criminal offence of dismissal because of call-out for reserve service.

However, we recognise that there is a perception among many reservists that they are disadvantaged in the workplace by their reserve service. We believe that the changes that we have set out in the White Paper will greatly improve relations between reservists and their employers, but we take the issue of discrimination against reservists very seriously. We have established a webpage through which reservists can report incidents of perceived discrimination and we will investigate them. If we find that there is a case for further action, we will take it. We will consider whether further measures may be taken in the next quinquennial Armed Forces Bill, which is due to be introduced in this House in 2015.

I am delighted with what my right hon. Friend has just said. Will he consider, among the further measures that might be taken, action to help reservists who find that their promotion is held back by their being in the reserve forces?

I am grateful to my right hon. Friend. That example fits exactly into the category of discrimination in the workplace. We must look objectively at the examples that we are given to establish whether they constitute actual and systemic discrimination against reservists, rather than mere perceptions. The time scale that we have set out is appropriate. We have set up the webpage and are starting the process now. In 2015, when the next quinquennial Armed Forces Bill is introduced, the time will be right to analyse the information that we have received and to consider what action is appropriate.

The support of employers is crucial to delivering our future reserve forces, and we seek to strengthen the reservists and the MOD’s relationship with them. The White Paper set out a range of measures to deliver a sea change in those relationships. While small and medium-sized enterprises will benefit from all of the measures, I have acknowledged previously that reserve service can have a particular impact on them as a result of their scale. Therefore, by amending clause 44 of the Reserve Forces Act 1996 to allow the introduction of a financial award of £500 per month per reservist for SMEs when any of their reservist employees is mobilised, we will target additional resources at this sector and explicitly recognise the additional impact SMEs may have to absorb when a reservist employee is mobilised.

The measures in part 3 support the package of proposals set out in the White Paper. They will ensure that we have the well-trained, well-equipped and integrated reserve forces we need, which are able to deploy with their regular counterparts as part of Future Force 2020.

The driver for change running through the Bill is the requirement to deliver the capabilities our armed forces need while ensuring value for money for taxpayers, whether that is through better procurement or more efficient and effective use of the reserves. The measures contained within it allow fundamental change to how we procure our military equipment, and ensure that we will be able to make full use of our reserve forces in the future.

Whatever else we may disagree on, all of us in this House place the utmost importance on properly equipping and supporting our armed forces. The Bill will ensure that we can be confident of our ability to do so in the future. I hope the measures will command widespread support, and that we will be able to take them forward through this House and the other place on a consensual basis. I commend the Bill to the House.

Like the whole House, I listened intently to the Secretary of State’s necessarily detailed analysis of the specific points he announced in advocating the Bill. At the start of his speech he reflected on the tragedy in Brecon, and I associate the Opposition with his comments. After the controversy relating to today’s Health statement, I wish—I suspect to your satisfaction, Mr Deputy Speaker—to seek a more consensual approach to the tone of our debate. The principles driving the reforms in the Bill have the potential to unite all parts of the House.

Reform to defence procurement is vital to ensuring value for money, while upholding the highest possible standards and timely delivery of world-class equipment to our personnel. It is essential that increasing the number and enhancing the role of the reserve force be a success, in order to strengthen our front-line Army capability at a time when it has been subject to cutbacks. The Opposition’s aim is to ensure that these objectives are met through effective delivery, scrutinising the military as well as the financial implications of the Government’s proposals.

On Government-owned contractor-operated procurement, it is crucial that defence procurement practices be modernised to serve both the front-line overseas and the bottom line back home. Both parties agree that some of the issues that have plagued defence procurement have been insufficiently tackled by successive Administrations. In all Governments, momentum on modernisation has been lost. Major projects such as Eurofighter-Typhoon have grown greatly in cost and have been delivered years late. The roots of that lay in the late Baroness Thatcher’s Administration, showing just how far back some of these issues go.

Shared blame, however, is not as important as shared resolve, which is necessary to achieve meaningful reform. Such reform will come from greater professional project and programme management within Defence Equipment and Support, faster decision making, fuller accountability for outcomes, and longer-term integration of military expertise.

The Opposition are genuinely open-minded about the management structure that will deliver this change, which is why we accept the proposed legislation that will enable a GoCo model to be established. Supporting assessment of GoCo’s feasibility, however, is not the same as supporting its creation. The comparison between a GoCo and DE&S-plus, as it is inelegantly named, should, we believe, be based on the following principles.

First, reform must strengthen value for money within programmes, with industry adhering to targets on time and on cost. Secondly, the chosen procurement management model must retain parliamentary accountability for decision making—the point made by my hon. Friend the Member for Birmingham, Edgbaston (Ms Stuart)—so that oversight and scrutiny of multi-billion pound contracts is not hampered, but if possible enhanced. Thirdly, any change in management model must protect the rights of staff and engage with their trade union representatives, and finally, the procurement process should be characterised by talent and skill, with clear lines of responsibility, proper reward and career structures and a culture of consequences for those tasked with project management. Within that, military expertise has to be maximised without a single-service interest dominating decision making. The Opposition welcome a rigorous examination of all the options for achieving that and wish to see a genuine comparison made between the two options of GoCo and DE&S-plus.

I am delighted with the right hon. Gentleman’s tone. I do not want to put words in his mouth, but can I take it that he has no objection, in principle, to a GoCo, but that he wishes to see how it works out in practice?

The right hon. Gentleman anticipates my point entirely. We wish to see reform. It is difficult to defend the status quo, which, despite the many efforts of the professionals involved, has ill suited successive Governments and has not delivered value for money. In addition to testing the logic of GoCo and DE&S-plus against the three principles I mentioned, we will consider the points the Defence Committee raised.

Further to the point made by the right hon. Gentleman, it is important that the comparison be genuine and be seen to be genuine. I say gently to the Secretary of State, however, that so far he has failed to guarantee that the Government will publish the findings of the two value-for-money studies. I hope they will take the opportunity, today or in Committee, to commit to doing so. It is essential that Parliament, industry and our armed forces have full confidence that affordability is a determining factor in this process, but that can be achieved only if we have public transparency in the findings prior to a final decision being made and Members being asked to vote in favour.

I hope, too, that we will receive reassurances about the role of Parliament and the National Audit Office in scrutinising the internal decision-making process of a GoCo. It is understood that the Secretary of State is ultimately accountable—to be fair, he said the same again today—but the decisions taken by the contractor in the handling of multi-billion pound projects should not be free from public oversight. It will also interest the House to know how reform will impact on one of the centrepieces of the 2011 Levene review, which was for service chiefs to

“take responsibility (and ultimately own the budget) for detailed capability planning”.

Any enhanced power for a contractor could contradict the increased control over budgetary management and planning given to the service chiefs.

I am happy to clarify that point. As the right hon. Gentleman knows, we are in the process of devolving budget responsibility to the front-line commands, including responsibility for equipment procurement and support, starting with the smaller equipment procurement projects, but eventually including all but the very largest and most strategic. They will be the customers for the GoCo, just as in the current model they are the customers for DE&S. One of the disciplines that the proposed change will introduce is a harder boundary between the customer and the provider. At the moment, we suffer from a permeable boundary that allows decision making sometimes to be a bit woollier than it should be.

I thank the Secretary of State for that genuinely helpful intervention. In Committee, we will have to interrogate the expertise of the civil servants operating at that interface. I mean no disrespect to anyone, but they are up against remarkably talented negotiators with an entirely legitimate commercial interest, so we have to get that interface right. The simplicity the Secretary of State spoke about is important.

I apologise for intervening on the right hon. Gentleman again, but that is exactly the point: the civil servants and the military people in the front-line commands—who are the customers—will interface with DE&S-plus or GoCo, which is their service provider. It is the service provider that will have to deal with the hard-nosed negotiators of the multi-billion pound international defence companies, and which will need to hire and fire in the marketplace at market rates in order to face them across the table on a level playing field—if I may mix my metaphors.

We are looking for a level playing field and a level negotiating table—if a metaphor it is—because this issue is so significant. I welcome what the Secretary of State said about hopefully simplifying and strengthening the process. However, procurement might have become a little more complicated as a consequence of a speech given today by the Chief Secretary to the Treasury in another place—which would normally mean the second Chamber, but which on this occasion appears to mean the Royal United Services Institute. We are pretty clear: Labour have always said that we are committed to the minimum credible independent nuclear deterrent. Actually, I should correct myself: we have not always said that.

You know me well, Mr Deputy Speaker. Since we were serious, we have always said—[Hon. Members: “Ooh!”] Sorry: since we are being serious about our nation’s defence and have a passing affection for the public’s opinion, we have always said that we are committed to the minimum credible independent nuclear deterrent, which we believe is best delivered through a continuous at-sea deterrent. It would require a substantial body of evidence for us to change that view, but the review published today does not appear to offer such evidence. We will continue to scrutinise today’s report on the grounds of capability, cost and disarmament. Labour will also continue to look at ways in which a minimum, credible, independent nuclear deterrent can be delivered most efficiently, based on protecting our capability, delivering value for money and advancing disarmament objectives.

If you will permit me for a moment to continue straying off the topic slightly, Mr Deputy Speaker, may I put on the record the fact that the shadow Defence team deserves a great deal of credit for keeping both sides of the House on the right path, both for the thousands of jobs in my constituency and for our future defence for generations ahead?

Order. May I suggest to the hon. Gentleman that he should try to hold back his speech for tomorrow? I would not want him to use it all up today, and I think he got the point across.

I take your strictures about our not using the speeches we intend to give tomorrow, Mr Deputy Speaker, but I am not making a speech tomorrow—my hon. Friends will be speaking then—so I thought I would say it today.

The point I am making is about procurement, GoCo and DE&S-plus, and the complexity of the deterrent programme in that process. However, what we have learnt today is that the Lib Dem part of the Government has taken two years to review a policy and spent thousands of pounds of taxpayers’ money, only to conclude that the Lib Dems’ past policy was unachievable. Today they appear to have managed to advocate both a Trident-based system and part-time unilateralism simultaneously. That is a real achievement. The British people will marvel at the incompetence of suggesting that we should pay tens of billions of pounds to send boats to sea, while the media are now being briefed that on occasion they will not even carry missiles. That is like someone having a new, expensive burglar alarm at their home with no batteries and a sign above the door saying, “Come on in—no one’s at home”.

The right hon. Gentleman must understand and be accurate in his descriptions. This was not a Liberal Democrat review; it was a review by the Government, insisted on by the Liberal Democrats, which says:

“The analysis has shown that there are alternatives to Trident that would enable the UK to be capable of inflicting significant damage such that most potential adversaries around the world would be deterred.”


Order. We are in danger of running tomorrow’s debate today. I do not want to do that; I want to get back to the Bill. [Interruption.] No, you are taking the bait, Mr Horwood. It is no use looking to Mr Murphy; we know he is not here tomorrow, but you will be.

Thank you, Mr Deputy Speaker. To be fair to the hon. Member for Cheltenham (Martin Horwood), it was impossible for him not to take the bait. [Interruption.] The Secretary of State sensibly says, “He’s the only Lib Dem here.” There is no audience, as it were, from his party for him to perform for, although the Chief Secretary to the Treasury will make the Lib Dems’ policy clear tomorrow in the Chamber—I hope. However, there is an issue—I will finish on this matter after this point, Mr Deputy Speaker—about how taxpayers’ money has been used to inform a Lib Dem process. I accept that the Government will say that the review is a Government document, but it was intended to inform the Lib Dem manifesto.

One of the primary arguments for a GoCo is its supposed ability to attract and retain higher skills and prevent a loss of talent from DE&S. The Opposition are clear about the need to increase the skill levels in our armed forces, but we recognise that this requirement limits itself to those in uniform. Those at the front line of defence procurement within government should be the equal in experience of those within industry—a point to which the Secretary of State has alluded. We will carefully scrutinise the procedures in place to ensure that the assessment phase is fair and transparent, and that sufficient controls are in place to ensure that those involved in the possible preparation of a GoCo cannot immediately go and work in that GoCo, a point to which we will return.

While we are on this theme, it seems unacceptable that the Government have not yet fully published their findings on The Sunday Times revelations on cash for access within the Ministry of Defence. The Secretary of State, of course, wrote to me on the matter, explaining the outcomes, but this was a private letter and I was not at liberty to disclose its contents and have chosen not to do so. I think it important, however, for the Secretary of State to provide the full details to the House.

I am grateful to the right hon. Gentleman but I was not aware that I had not explained the situation publicly. If he would care to ask me a written parliamentary question, I will publish in the public domain the full information I have provided to him.

That is a kind offer from the Secretary of State, although he could have done so off his own back, and the problem is that we are running out of time for named day questions and replies. The alternative, with his permission, would be for me simply to tweet his letter. That would be quicker and I would be happy to do so if he so wishes. [Interruption.] With the Secretary of State’s permission, I will now tweet the letter I received some months ago detailing the Government’s response to The Sunday Times revelations.

These issues, alongside the impact of any reform of our strategic and working relationships with major international partners, particularly the US, and providing clarity on the ownership of risk, will be priorities for the Opposition. The restructuring of DE&S, however, should also be seen as part of a wider structural reform of defence procurement.

There is much else that I could have said, but time is against us today and my colleagues will raise in Committee additional points about sovereign capabilities, long-term planning and predictability for British industry, so I shall now turn briefly to reform of the reserves.

The Opposition want to ensure that reservist recruitment is successful so that the reserves can work alongside regulars to project force globally. Our reservists make an enormous contribution here at home in many ways. About 2,000 of them, some of whom I saw for myself when I went to see the Greco-Roman wrestling, helped to protect the London Olympics. Many serve overseas in far-away terrain in the name of national security. We should pay tribute to each one of those who have served, and above all to those who have lost their lives serving our nation.

While we champion the reserve force, we recognise the need to modernise. The name change to “Army Reserve” will reflect a modern composition and hopefully help to attract a new generation of recruits. The task ahead is, however, enormous and we should not pretend otherwise. The plan to double the size of the reserve forces to 30,000 by 2018 is now central to the Government’s ability to deliver their planning assumptions—originally, of course, designed for an Army of 95,000, but after further cuts now reliant on a regular force of just 82,000.

The scale of this task is underlined if we consider that the reserve forces of the US, Canada and Australia make up between 40% and 50% of their armies, as opposed to 20% here in the UK. Many analysts worry that, rather than reform of the Army being synchronised with that of the reserves, both are disjointed and the reserve uplift will not complement the regular Army but supplement lost capacity. Cuts in the regular Army are happening regardless of the success of any uplift in the reserves, rather than the one being contingent on the other.

This development comes as Army reserve recruitment has hit real trouble. The figures are publicly available—that recruitment targets were missed by more than 4,000 last year. Great care has to be taken to ensure that the loss of 26 Territorial Army centres does not make civilian communities in certain areas more disconnected from the military and disinclined to volunteer for the reserves.

I echo the tone adopted by the shadow Secretary of State, but I am concerned by his direction of travel. Will he not take some responsibility for what happened to the TA during the previous Government’s tenure? The size of the TA fell by 40% and recruitment was down by tens of thousands. As a member of the TA, I remember an announcement from this place that training was to be cut and that no funding would be provided. He must acknowledge that the previous Government have some responsibility for where things are today.

That would be a very fair point if it was based on a fact. I suspect that our conversation today will be less productive if we repeat some of the debates of recent times, but the fact is that we increased the size of the Regular Army, whereas this uplift in the reserve forces is happening at a time of reductions in the Regular Army—that is the significant difference.

I did not mention the Regular Army, but the TA. When Labour came to power in 1997, TA numbers were 62,000. When Labour left power in 2010, they were 37,000. It does not take a maths degree to realise that that is a massive reduction in TA capability.

My point is that in the same context, Regular Army numbers increased. I do not want us to bat each other about the head on this; I am assessing how we can make a success of the boost in reservist numbers. The comparison the hon. Gentleman invites me to draw, however, is with the Labour Government, and we boosted the size of the Regular Army. His party said that it was not big enough; it wanted an even bigger Army and was elected on a manifesto of going in that direction. The comparison is clear: we boosted the number of regulars. Of course, there is always pressure when it comes to reservists, who were under-recruited for about nine decades, so this is not a short-term problem for us or the current Government to grapple with.

Will the right hon. Gentleman clarify two points? Does he accept that the six-month cancellation of TA training announced by the previous Government in October 2009 was not the way to stimulate TA recruitment and confidence? Also, as he is talking about Regular Army numbers, does he now accept a Regular Army of 82,000 as the basis for Future Force 2020, or does he still hanker after a reversal of that reduction?

As the Secretary of State knows, the previous decision on training was based on the recommendation of the Regular Army and the best available military advice. It was the type of situation that he faces whenever it comes to considering the best available military advice. We will make the detailed shape of the formation of our forces clear in our strategic defence review and in advance of the election.

The Opposition support moves to improve the training for reservists and ease their deeper integration with regular forces. We also support moves to use niche civilian skills, for example on cyber, in a military setting as well as to expand occupational health services. There are, however, areas where we believe the Government could go further. It is essential that the changes, particularly the extended periods of training and deployment, be compatible with employment patterns and that the reforms be designed in collaboration with employers.

It is worth noting the huge impact the changes could have on employers, particularly small employers. More than 600,000 businesses in the UK employ between two and four people. I suspect that we Members all employ a similar number of people in our parliamentary offices. We should ask how we would cope with losing a staff member for up to a year. Although I am sure that each and every one of us would be enormously supportive of a staff member’s military ambition, we might struggle to fill that space. Once we reflect on how we would feel about that, it gives us a better understanding of what many within that core group of 600,000 businesses will be confronted with.

Our view is that the reservists in those businesses will be a remarkable bonus and asset for them, but we must do more together to make that argument. A survey by the Federation of Small Businesses found that for one in three businesses, nothing would encourage them to employ a reservist, whereas almost 40% of those who had employed or would consider employing a reservist said that they believed that the Government’s proposed reforms would have a negative impact on their business. I do not agree with that; nevertheless, it is a sentiment felt by all too many businesses.

I welcome the announcement about access to unfair dismissal tribunals, but, as we have said before—and the Secretary of State referred to this—we believe that Ministers could go further. Current legislation clearly states that an employer has a duty to re-employ a returning reservist in the occupation in which he was employed before his service, on the same terms and conditions. There is, however, no legislation to prevent employers from discriminating against reservists in their hiring procedures on grounds of military affiliation.

We hope that, rather than embarking on a new consultation, the Government will work with employers on new legislation to provide further protection against discrimination in the hiring of reservists, which would need to be coupled with an obligation for reservists to make a transparent declaration at the interview stage. We believe that that should be part of a wider collaborative approach, and that a permanent employer engagement committee should be established to enable Governments to take the lead in advocating the employment of reservists.

There has been some debate about whether £1.8 billion is the right amount to invest, but we should also consider whether it will provide value for money. We hope that Ministers will be able to shed light on that in Committee. We shall want to know what proportion of the money is intended to fund financial incentives for employers and the “reservist award”, which tops up reservists’ salaries to match their civilian salaries. We shall also want to know whether the £1.8 billion covers reservists’ training, medical costs and pension payments, or whether those will come from another part of the MOD’s core budget. We are keen to establish what elements of the Reserves 2020 plan have clear funding streams, and where there may be unknown liabilities in a budget that involves competing interests.

The Bill has the potential to help the United Kingdom develop world-class procurement procedures that will be the envy of every nation. It gives us an opportunity to make a success of the enormous challenge of doubling the reserve force. The Opposition will support and scrutinise its proposals in Committee, and will give it a fair passage today.

I echo what was said by my right hon. Friend the Secretary of State about the quality of our armed forces and the amount that we demand of them. We are putting them through a lot at the moment.

Once upon a time, before most Members were born, I was a Defence Procurement Minister, and I was delighted by the publication of the Bernard Gray report under the last Government. Sadly, the then Prime Minister tried to suppress it, although he should have recognised that it covered not just the period of a Labour Government, but the period during which I was in charge of defence procurement. The report revealed a great many failings in the procurement process. It showed, for instance, that the programme was overheated, that a weak interface between the MOD and DE&S was resulting in poor discipline and very little change control, and that there were insufficient skills in the DE&S. Subsequently, I was both delighted and highly amused when Bernard Gray was put in charge of sorting out the mess that he had identified.

The Bill was designed to achieve that. Like Gaul, it is divided into three parts—although, according to its drafting, there are four—dealing with defence procurement, single-source contracts and reserves. Each of those issues, but particularly procurement, raises a great many questions. I shall ask some of them now, because in the case of a change as fundamental as this, the devil is in the detail. The change is fundamental and it is being made against a background of fundamental change at the MOD as a result of the Levene reforms, severe reductions in funding and huge redundancies, not to mention the fighting in Afghanistan and the withdrawals from Afghanistan and Germany. As I have said, we are asking a lot of the Ministry of Defence, and it will need help to achieve the major changes set out in this Bill. It will need help from Parliament and from industry, and from academia and the country, and it should be willing to ask for and accept help, and everyone else should be willing to give it.

I shall start with the defence procurement process set out in the Bill. In December 2011 the Chief of Defence Matériel set out four options: first, the status quo; secondly, a trading fund; thirdly, an executive non-departmental public body with a private sector partner; and fourthly, the GoCo. We are now down to two options: a value-for-money comparison between the GoCo and what we hear is called DE&S-plus. Most unusually, there is no option to stay as we are. It is perhaps surprising that the MOD non-executive directors have not insisted on there being a stay-as-you-are option.

The GoCo option is reasonably clear, and I will come on to it in a moment, but DE&S-plus is not at all clear. The White Paper devotes a massive four lines to it and does not define it. In fact, so far as I understand it, DE&S-plus is designed to be unclear in order to be the basis for a negotiation between the MOD and the Treasury as to the freedoms the Treasury can offer. In other words, if DE&S-plus can pay more for its personnel and so attract much needed skills—more than current civil service terms and conditions allow for—the GoCo will become less attractive. But how, in practice, can the Treasury loosen the rules for the MOD without loosening those same rules for other Departments with similar problems? If the answer is that in practice it cannot, does that mean that in practice this decision has already been made—so it is GoCo or nothing, and there is no public sector comparator? Has my right hon. Friend the Secretary of State made up his mind? How will the private sector companies bidding for a GoCo be confident that their bids are being fairly compared with DE&S-plus, whatever that may be?

ADS, the organisation of defence companies, suggests that the proper metrics might be better value for money for the taxpayer; shorter and cheaper bidding processes; improved skills and expertise; and greater stability in the funding of the defence budget. That is a potential set of metrics, but what does my right hon. Friend say are the proper comparators, and how will he avoid this being a wholly subjective guess about future behaviour?

This brings me to the GoCo itself. I am not instinctively opposed to this idea—in fact, I am rather attracted by it—but the Defence Committee has asked lots of questions, some of which remain unanswered. No other country has gone down this route, so this is courageous, Minister. That does not mean it is wrong, but there are some questions. First, if a foreign company is the lead partner within a GoCo, how will the MOD deal with any conflicts of loyalty that arise? The Atomic Weapons Establishment does not create such conflicts and is not as widespread in its coverage. Secondly, there are concerns about the issue of intellectual property, as some of my colleagues have said. That is covered in the single sourcing part of the Bill, but it is not covered in the defence procurement part.

I am not sure whether the right hon. Gentleman is about to mention how the GoCo will affect current alliances and agreements for joint contracting between the UK and our partners. I was in the USA last week for the NATO Parliamentary Assembly, and I spoke to many alliance partners in NATO and to Congress members in Washington. The best that they could say was that Britain was very brave, that they would like to see whether we succeeded and that they would leave us to get on with it. Concern was also expressed, however, about whether they would be willing to share confidential contracting and technological information. Does the right hon. Gentleman agree that that is a concern?

As I have said before, the hon. Lady performs a valuable service on the Defence Select Committee. She has put her finger on an extremely important point, which was also raised by the Select Committee in our report on defence acquisition. She is right; this matter has to be covered. I asked my right hon. Friend the Secretary of State a question about how the United States and France were reacting to the proposal, and he was able to say that he had received a supportive letter from the United States that very morning. I also know that there is a working party in operation with the United States to try to ensure that any problems are ironed out. It is true that other countries think we are being very brave. If we are indeed being so courageous, and if this works, we may well forge the way for other countries to follow us. It may well be that whichever company succeeds with the GoCo in this country could find vast new opportunities opening up for it. For example, it could take over the defence procurement of the United States, which would make somebody extremely rich.

The next question, which has been raised by ADS and by the Federation of Small Businesses, relates to how the GoCo proposition would affect small and medium-sized enterprises. The FSB has said that it is broadly supportive of the Government’s proposal, as contained in the Bill, but that it is vital that the needs of SMEs be considered when the reforms are implemented. I echo that, and I am sure that my right hon. Friend the Secretary of State will do so as well.

The time line involved is ambitious. I understand that there is a suggestion that we might reach a final conclusion in April 2015. That must remind us all of another fixture in our diaries for May 2015—the general election. Surely the risk of this project running up against the next election is huge.

Perhaps I can help my right hon. Friend. The expectation is that the competitive process will be completed by the spring of next year, with the contract award in the late summer and with the GoCo standing up, if that is the solution we choose, towards the end of next year or at the very beginning of 2015—around December or January.

Oh, good. One problem is that the date for the invitations to negotiate has already slipped. That was meant to take place this month, but it is now taking place in August. Let us hope there is no further slippage. We have not heard that any is expected; let us just hope.

My right hon. Friend is making an important point. I hope that when the Minister winds up the debate, he will provide some clarity about the invitations to negotiate. They must not be allowed to slip beyond August, as any further slippage would put at risk the rather challenging timetable that the Secretary of State has outlined.

My hon. Friend, as a former Minister responsible for defence procurement, has a great deal of expertise. Despite the enormous qualities of his successor, I was very sad to see him leave his job. He has got this point absolutely right.

I am going to divide the final question on this defence procurement issue into three. We understand that the process of moving towards a GoCo, if a GoCo is accepted, will be taken in two stages, with perhaps one domain paving the way to be followed by the rest of defence procurement. My questions are: first, what will be included in the first domain? Secondly, how long will it take for the Government to work out whether it has succeeded, so that the remainder of defence procurement joins the first domain? Thirdly, how will anybody work out, within a period of less than 10 years—many of these defence contracts run for so long—whether this approach has succeeded? My suspicion is that the success of this entire process will be able to be judged only in about 2020. I wish it well and, as I said at the beginning, I am attracted to the idea.

On single-source contracts, the House will be relieved to hear that I have not got very much more to say. I am not sure why this matter requires legislation, because for many decades we have been spending 40% of the defence budget without legislation. It may be that there is a tearing and pressing need for legislation or that the setting up of the regulator is what requires legislation, but no doubt that can be explained. It is startling that the MOD will be able to challenge a contract price already agreed between the parties up to two years after the completion of that contract. I would have thought that would make it a bit difficult for industry to decide how to invest, but, again, no doubt the Minister will deal with that in his wind-up. Will these new rules apply to overseas contractors? Apparently they will not. Does that not create an incentive for UK defence contractors to move abroad? That would be a shame.

Part 3 of the Bill deals with the reserves—once again, I declare an interest because my daughter is one of them. I keep asking this, but I am told that repetition is no shame in a politician: what plan does the Prime Minister have to form an alliance with the Leader of the Opposition and to go out and make it absolutely plain that this reserve forces project must succeed, in the national interest. It must succeed because there is no plan B. Much of the plan has already been welcomed by industry. I think there is a greater job to be done by industry in saying that this must succeed in the national interest, and by the FSB, which, as I say, supports it. Some measures in the Bill—for example, the extra notice for the deployment of reservists—will certainly make things easier for employers. The £500 extra payment has been welcomed by the British Medical Association, as well as by the FSB and others. Perhaps there is more to be done in order to sell this, but the success of the entire process is essential. I welcome this Bill and this part of it as being in the national interest, and I hope that the Prime Minister will be able to get out there and say so himself.

Obviously, I have spent some time on the Defence Committee, along with the Chairman and others. We have spent a number of years studying some of these things, from Governments who have come and gone. Clearly the Bill is central to our discussion about how we make our MOD efficient, so I do not approach it from the point of view of opposing change and reform. This is a debate about how we get the correct reform. On the question of GoCo or no-GoCo—or “NoCo” or whatever it is or is likely to be—or “NDPB-plus”, I am not going to go into great detail, because the previous speech raised many of the concerns. As for the freedoms required in the individual terms and conditions given to a chief executive of an organisation, who can pick and choose people and so on, I am a little worried that we should build structures around individuals, as they also come and go. That cannot be the only reason for reform, however; there must be broader reasons for making such a change.

Let me deal with the organisation in the context of the rest of the Ministry of Defence, because the remainder of the Levene reforms must be considered. The heads of individual services and joint services will be procurers. They will not sit on the central board, but they will buy things from various parts of the organisation, as there will be single contracts in addition to DE&S requirements. We can make DE&S as efficient as we like, but we must consider the broader context of whether changing DE&S will make the whole process more efficient, so a lot more work needs to be done on that.

My personal prejudice—I was glad that the Secretary of State spoke about where risk will be retained—is that if we are not careful, a further risk is created by moving things too far away from the political organisation. It will never abdicate responsibility, so if anything goes wrong, it might lack the strategic capacity to direct in such a way as to change the process. Care needs to be taken about the extent to which things are pushed out into a private contracting organisation.

Let me turn to the organisation of the reserves. It is a shame that the Secretary of State has left the Chamber, because I have written to him about this and received something of a reply. I was concerned by the weekend’s events because my constituents were involved, in the sense that my local mountain rescue and search team—Central Beacons mountain rescue team—effectively became the initial primary support for the rescue activity. I do not want to get this wrong, because there will be police and coroner inquiries, but if the Secretary of State were in the Chamber, I would ask him at least to thank the team publicly and to acknowledge its activities on that day.

The team was subsequently supported by Rescue 169 from Chivenor and various other highly professional people to help with the co-ordination of the activity, and they did their best in the circumstances. I thank the rescue team publicly, and my local community expresses its sympathy to those affected during the exercise and the families and friends of those who died. There are lessons to be learned from the weekend, so when that happens, I hope that the exercise will include those people involved. I saw volunteers rescuing volunteers. There is nothing intrinsically wrong with that, but if the support process is going to work, those volunteers should participate properly in that lessons-learned exercise, because they have much to contribute.

I am not a shrinking violet who wishes to downgrade the rigorous nature of training, but an exercise such as the Fan dance must be managed well, and monitored and supported correctly, or it should not be done. The sun had not been out in Wales for about nine months, but local people were expected to run around in the heat at the weekend. Perhaps certain exercises should be graded and there is something to be said for considering how a number are conducted, but the weekend’s activity was a selection exercise, not a training exercise. While many lessons could be learned from what happened, we must be careful, because there is a constituency that will want to downgrade the exercise. There is no need to do so, however, because with proper management, monitoring and support, such a downgrade can be avoided, and the legitimacy of the process will be unaffected.

Wales provides something like 7% to 8% of armed forces personnel, yet our population represents 3% of the UK. Hon. Members may draw their own conclusions about why that is the case, but it is due to many things, such as commitment and history. However, people will look at the proposals and say, “What is this new reserve force we’re being offered? How will we relate to the regular forces? Do I want to play this game and get involved or not?” Others will ask, “Do I want my son, daughter or godson to go into this?” It is not just about money. There are important changes, giving people extra rights, but it will not be possible to make the numbers unless the legitimacy of joining is recognised within the community where recruitment is to take place.

I recognise my hon. Friend’s expertise in this area. The exercise has been carried out in the beacons over many years, yet two people died and a third person is seriously ill. That is sending shock waves of concern throughout the families and friends of those seeking to join the reserves. Is it not crucial that, if mistakes are found to have occurred, the Ministry of Defence is clear about what those mistakes were and how they will be rectified, so that people may volunteer without anxiety, and families can feel confident that the reserves is a safe and credible option for their family members?

I agree entirely. There is also the question of what people are required to do. There is some description in the White Paper about what reserves will and will not be required to do and how those are linked, but there is a broader question about the type of organisation and the support provided.

I shall come on to the duty of care, which is related to that. The call-out of reservists will be the same as that of regulars. That suggests that they are the same, but they are not necessarily going to do the same things. There may be legal issues involved that we need to explore. I understand why the present narrative is the way it is. It is trying to make things clearer, but at some point we may not be achieving that, and we may need to look to the White Paper to help us do so. The title includes the words “valuable and valued”. The reserves are both; that is absolutely correct, but they will be called out on the same legal basis as regulars. The training is to be the same, but it is not really the same. A lot more work needs to be done.

The Defence Committee is undertaking some work on one aspect. As in the case of the accident at the weekend, about which I will not go into detail, there is a duty of care to people when they are put in certain circumstances. We all know that and we see the latest decisions by the Supreme Court and so on. There is the potential for lawfare, when people might seek to use domestic legislation as a weapons system, all the way through to the development of universal jurisdiction. That is the background to the way that people might operate, and in the Defence Committee we are going to look at these things. We have an inquiry offer out now and people should put evidence to us to try to clarify how the system will work.

Regulars may not be the same as reservists in certain circumstances. The law will not necessarily provide the architectural background to some of the decisions that people think they have made. We are concerned about that and we need to inquire into the position and make sure that the law does that. Money is supremely important, as we all know. For some years we have been trying to drive more efficiency into the Ministry of Defence, yes, but it is not just about the money. The MOD should not degrade the quality of the response that it will get, by talking only in those terms.

I follow the Secretary of State, the shadow Secretary of State and others in paying tribute to those brave young men who have just lost their lives in the hills of the Brecon Beacons. My thoughts and prayers are with their families, as I am sure are those of the whole House. I remember some uncomfortable times there many years ago.

It is a pleasure to follow the hon. Member for Merthyr Tydfil and Rhymney (Mr Havard). He and I work together closely on the Select Committee. I associate myself with his tribute to the mountain rescue service in his constituency. We must not prejudge the inquiry, but I hope its role in averting a much worse problem will be fully acknowledged.

Let me be very clear that I strongly support the Bill and I am delighted that the Under-Secretary of State for Defence, my hon. Friend the Member for Ludlow (Mr Dunne), will be taking it through Committee—if I am very lucky, perhaps I will be allowed to serve on it. I support almost all the Bill’s provisions. I just want to say a few words on procurement before focusing mostly on part 3.

I am happy that we are evaluating the possibility of a GoCo. There are a number of very successful GoCos in our current set-up, including Aldermaston and the special arrangements that Babcock has with the Royal Navy. However, to echo what my hon. Friend the Member for Aldershot (Sir Gerald Howarth) said, there is one feature of the GoCo that I am very concerned about: the possibility that there might be a substantial foreign element in its running. My reason for saying that is not xenophobic at all. There are two main reasons why there should be a serious concern about foreign companies or foreign employees being involved in the management company: one relates to intellectual property rights—state secrets—and the other relates to reasons of commercial confidentiality.

Many years ago, just before I was elected to Parliament, I did a consulting project in Aldermaston for the management of a small Swedish firm that I was working for at the time. I cannot see how the commercially in confidence question could possibly arise in Aldermaston with regard to the American companies involved in the management. It simply is not an issue. The point about IPR is that we are already collaborating with the Americans and, arguably, they are pretty uniformly ahead of us; so the IPR reason does not arise, because there is no parallel.

The plain fact is that if we were to employ foreigners in a management company, whether or not they work for foreign companies, there is a danger that they might then be cherry-picked. Even if we put the clear criminal sanctions set out in part 2 of the Bill into part 1—slightly oddly, they are in part 2 but not in part 1—there would be no way of enforcing them if, for example, an American employee of an American company was then head-hunted by one of the big American defence contractors so that it could pick his brains on commercially confidential material.

I think that I can reassure my hon. Friend on that point. The risk he identifies exists already. The risk of people being head-hunted from Defence Equipment and Support because they cannot be paid the right sum of money means that intellectual property can already transfer out of the organisation too readily. I think that those risks, whatever the nationality of the companies that have an interest in the contract, will be reduced significantly by the change to GoCo status.

My hon. Friend’s point is well taken, and I support the concept of the GoCo, but the plain fact is that, however strong the protections we try to put in place, there is no way of enforcing them in relation to foreign employees. It is that straightforward.

If my hon. Friend will forgive me, I will move on to the main burden of what I want to say today, which relates to reserve forces. I strongly support the measures set out in part 3. [Interruption.] My hon. Friend is clearly agitated, so I will take his intervention before moving on.

I think that I can offer further reassurance. All employees in sensitive areas of DE&S will be required to be “UK eyes only” personnel, so no foreigners would be working on the sensitive stuff that worries my hon. Friend.

If the sensitive areas were for UK eyes only, that is a protection normally for intellectual property rights. The problem for the defence industry is what is commercially in confidence—increasingly being called “soft IPR”—which is in no way covered by the provision my hon. Friend mentions, as he knows. The problem is that knowing how a particular contractor has structured a particular contract, which the management company must know—otherwise, there is no point in having it—means that that kind of information must be known to it, and it is extremely valuable material. He was quite right to say in his previous intervention that the danger already exists. However, the only way to produce an enforceable mechanism that deals with it cannot cover foreign employees who go back to America, or indeed anywhere else, although I think that we would be unlikely to take employees from another country.

My main point concerns reserve forces. I strongly support part 3 of the Bill and the Government’s measures on reserves, and I was delighted to hear the shadow Defence Secretary give a broad welcome from the Opposition Benches to those measures. I will not go into the provisions in the Bill except to say that one or two—special support for SMEs, for example—are especially welcome, as is greater protection for employees who are reservists. Instead, I suggest that the Bill could provide a vehicle for reforms in the governance of reserves. Such reforms were highlighted in the report by the independent commission to review the United Kingdom’s reserve forces, on which I was privileged to serve, as we are a long way out of line with arrangements in other English-speaking countries.

Our report looked at three areas of governance, one of which was for transition. The other two areas were senior appointments, and the role of the reserve forces and cadets associations and, when considering those two matters, it is important to ask what is happening abroad. I have focused on English-speaking countries because there is little point in looking at countries that have recently given up conscription. The most obvious example of a country that gave up conscription a long time ago—France—has gone down a route that Britain will never follow in having an armed gendarmerie trained effectively as an army reserve, including a big reserve component of its own. Therefore, the US, Canada and Australia seemed to the commission, and seem to me today, to be the best comparators.

In truth, those countries—I say this with no pride at all as somebody who has extensively visited their armed forces—have consistently had, year after year, much lower personnel turnover than our reserve forces, and they often get better turnouts for periodic training. The National Guard units that I visited in Afghanistan had a staggering 98% turnout for that operation, and the officer recruiting level of all those other countries is much higher than in the UK. Reserve forces in those countries have a larger place in society than our Army Reserve, and I fully endorse and totally support everything the Government are doing to expand that role in society. Above all, reserves in other countries have much more experience than us of deploying formed capability rather than simply being used as a part-time personnel service, as has been forced on the reserves over the past few years.

I totally understand and accept the majority of what my hon. Friend is saying, but to compare us with the National Guard is somewhat misleading. National Guard units are often mobilised and deployed for long periods of time, whereas our system will bring someone in for six months’ operations, presumably with three months of training before and three months afterwards. That is not as long as National Guard units serve, which obviously makes them almost regular, at least in spirit.

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.

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?

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.

It is a pleasure to follow the hon. Member for Canterbury (Mr Brazier), who is respected in all parts of the House for his vast knowledge of defence matters. I associate myself with the thoughtful and heartfelt tribute that he paid to the two men who tragically died in the past couple of days in the Brecon Beacons.

I will concentrate on part 1 and, to some extent, part 2 of the Bill. The provisions in part 1 are fraught with risk. I agree with the Chair of the Defence Committee that the devil is in the detail and that no other country in the world has attempted to outsource the means by which it equips its armed forces. The notion that a GoCo—the Government’s preferred option—will act as the agent of the Ministry of Defence and negotiate and sign new contracts on behalf of the Secretary of State is an inherently risky one that needs to be explored during the passage of the Bill.

A defence procurement strategy should have three objectives. First and foremost, it should provide the equipment that is necessary to ensure that this country has the protection and security that it needs. Secondly, it should provide value for money for the taxpayer in the pursuit of the first objective. I also believe that it should have the third objective of supporting and enhancing our manufacturing and innovation capability. I am concerned that the Bill, particularly part 1, does not provide for all three objectives.

I heartily agree with the Defence Committee report on defence acquisition that was published earlier this year, which stated:

“We believe that the absence of a defence industrial strategy which supports appropriate national sovereignty puts the UK at a disadvantage against competitor countries.”

In evidence to the Select Committee’s inquiry, the European Aeronautic Defence and Space Company stated that the Government’s

“feeble support to British Industry is in striking contrast to the model in continental Europe, where for major projects a cross-Departmental approach focuses on cost and value to the nation as a whole. There appears to be no mechanism in the UK to measure the cross-government impact of a contract going overseas, where short-term redundancies and long-term loss of skills shift the problem from MOD to the DHSS and other Departments: good value for money for MOD perhaps, but poor value for the nation.”

I agree with that analysis.

Why do the Government not add defence to their sectoral industrial strategies for aerospace, automotives and the life sciences? The defence industry is economically vital as well as strategically critical to this country. It has annual revenues of more than £22 billion and directly employs more than 100,000 highly skilled workers. The defence growth partnership, which is chaired jointly by the Minister of State, Department for Business, Innovation and Skills, the right hon. Member for Sevenoaks (Michael Fallon) and the managing director of MBDA, which was an excellent appointment, is a good, tentative start, but it needs to be translated into an active strategy that maintains for the long term our operational capability and our economic and industrial competitive advantage.

The Bill, if anything, takes us further away from that objective by creating additional pressure to focus on the narrow definitions of cost, value for money and off-the-shelf solutions. It fails to take account of the long-term impact that procurement decisions have on manufacturing, industry and innovation in this country. In the long run, overemphasising price and purchasing defence equipment off the shelf at the expense of value and national capability may cost us more in terms of our defence flexibility and our defence manufacturing base, and may cause a reduction in the levels of research, investment, intellectual property and design capability in the UK.

I agree with every point that my hon. Friend has made so far. One area that he has not addressed is accountability. For example, will we be able to call the chief executive of the GoCo before the Defence Committee to be challenged on the spending of public money? Is accountability of concern to my hon. Friend and will he address it in his speech?

The question of accountability is important, and I seem to remember that my hon. Friend mentioned it in a telling intervention on the Secretary of State. The House needs assurance that we are getting the best value possible for public money. There is a risk that we will focus too much on price without thinking about value. My hon. Friend raises another important point on accountability. As I understand it—the Minister might contradict me, as he will have far more of an understanding on this than I do—GoCo contracts will be up to nine years long, subject to performance. However, there is no opportunity for contract extension. After nine years, a full review of a GoCo contract will be carried out and put back out to the market.

I have some concerns about that. First and foremost, the project lead-in time for defence projects is often decades. If a project is at least 10 years long, how can a nine-year contract provide any degree of certainty? If a project—whether the development and roll-out of a new ship or a new fighter—takes 15 years to develop and is in operation for a further 30 years, where is the inbuilt institutional memory and stability that allows for truly effective project management if the contract changes three or four times? Will that not make a project more expensive and prone to risk?

The overriding consideration of business, especially in such a vital sector, is certainty. A lack of certainty, and a correspondent increase in risk, increases costs within the main contractor and throughout the supply chain. As ADS has said:

“Industry needs both transparency of future intent and stability of intent to enable essential strategic business planning. Since SDSR there has not been the necessary clarity.”

The manner in which the GoCo might be set up makes that instability even worse.

I mentioned that a nine-year GoCo contract cannot be re-awarded. I fail to see how the re-awarding of a contract can be inherently negative. I hope the Minister can explain some of the thinking behind that. Surely the notion that a contractor is up for a contract again would at least keep them on their toes when it comes to performance.

On part 2, I share the understanding and concerns of the Chair of the Defence Committee about how the single source regulations office might put UK companies at a disadvantage. My understanding is that clause 14(7) allows the Secretary of State to waive the new regulations from any single-source contract he wishes, but that overseas suppliers will be outside the jurisdiction of the new single-source contract regulation. Does that not create an unlevel playing field, where only UK companies will be subject to the new pricing and reporting requirements? If we are to have a true industrial strategy—long-term stability, with co-operation across Government —how will this help to provide UK companies and their supply chains with a level playing field?

The UK brand is strong when it comes to defence capability: we are the envy of the world. Our defence capability is part of a strong, modern and innovative manufacturing offer. While I strongly believe that the overriding consideration has to be whether a piece of equipment is compatible with the objectives of our armed forces in theatre, we undermine our economic competitive advantage if we fail to recognise how strong that offer is in the global market. A quarter of annual revenues in the UK defence sector, some £5.4 billion, is derived from exports. However, defence manufacturers tell me that export opportunities are being lost because some countries are saying in response to the narrow off-the-shelf approach, “If it is not good enough for the British armed forces, why should it be good enough for us?” How will the Bill deal with that, and will the GoCo system have an explicit remit to promote defence exports across the world?

Clauses 7 and 8, which are concerned with intellectual property, have been mentioned by other hon. Members. The provisions allow the contractor access to confidential and commercially sensitive information. Our intellectual property regime is one of this country’s competitive advantages, with knowledge-based firms feeling that their invention and creation will be protected in law, yet clause 7 reduces the restrictions on the disclosure to, and use by, the contractor of confidential information. A defence firm, highly protective of its technological knowledge, which might be its unique selling point and give it its advantage in the marketplace, might be happy to share IP directly with the Government, especially if it was trying to establish a long-term relationship. Indeed, I would encourage that. It would also aid the MOD by providing it with sector intelligence on the pipeline of technological innovation over the next few years, which might aid operational planning, and I know the Minister has put in place other things in that regard. However, a company might be less happy about sharing such knowledge with a competitor. A small company in the supply chain might feel particularly vulnerable to the takeover of IP by a huge contractor conglomerate, so what safeguards will the Minister put in place to ensure that suppliers’ IP is adequately protected?

I welcome the commitment on the procurement of equipment for our armed forces. Our servicemen and women fight for our country and deserve the best-possible equipment. In order to fulfil its objectives in theatre, this country deserves the highest-possible level of sophisticated, innovative military equipment. As part of that, consideration should be given to value for money for the taxpayer, but we should also be thinking about our defence industrial capability. So I finish where I began. The provisions in the Bill are fraught with risk and uncertainty and might undermine Britain’s defence industrial capability. I hope that these issues will be resolved appropriately during the Bill’s passage through the House.

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.

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?

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.

I do not make interventions like this very often, but my hon. Friend is being too bloody modest—excuse my language, Mr Deputy Speaker. He must take some of the credit for that extraordinary achievement.

I am most grateful to my hon. Friend. I am very proud indeed to have been part of the team that achieved that. In fact, the only change being made to the budget now is to put new bits of equipment into it, which is a huge sea change from the world that all of us involved in defence have known over many years.

The Government have set out a clear policy to sustain those improvements. I say to the hon. Member for Hartlepool that if I were publishing now the White Paper that I published last January or February, I would call it “Defence-Industrial Strategy”, because that is what it is. At that stage, there was a degree of nervousness in the Government about the phrase “industrial strategy”, but the Department for Business, Innovation and Skills has now won that argument. I see what we have now as an effective defence-industrial strategy that will drive up the competitiveness and effectiveness of British industry, particularly by protecting investment in science and technology—again, that is a debate for another day. My argument with the hon. Gentleman is this: it is broken and it does need fixing. I agree that there are risks with any change, but this is a change that needs to be made. I am conservative by nature, and one of my favourite quotations is from Viscount Falkland, who said in 1641:

“When it is not necessary to change, it is necessary not to change.”

On this occasion, I believe it is genuinely necessary to change.

I will quickly work through the Bill in reverse, if I may. On reserves, I will not add to the excellent remarks of my hon. Friend the Member for Canterbury (Mr Brazier), to whose work in this area I pay mutual tribute. He really has done a first-rate job on our reserves, and the whole House—indeed, the whole armed forces—owes him a great debt of gratitude. Concerns have been expressed about the number of reserves we need to fulfil the Government’s aspirations. I always divide numbers by parliamentary constituencies to get a sense of their scale, and in this case we are talking about an average of about 50 for each constituency. That is not a huge number. I genuinely believe that what the Government are doing will help us to recruit some of the specialists we need, as the White Paper says, particularly in the area of cyber-security. Keeping skills up to date is important in the real world as well. The reserves have a hugely important role, and I am sure the Minister will respond to my hon. Friend’s comments when he winds up.

Let me turn to the single-source pricing regulations. It was time for a radical review. I commend page 20 of the impact assessment to the House, which lists the major structural changes to have taken place since 1968, when the yellow book was first introduced. Let me emphasise the point—this cannot be said too often—that this is not an attack on the profit of the defence industries; it is an attack on their cost base. A reasonable rate of return is what the defence industries need to sustain their activity in the UK. This is not an attack on their rate of return for their shareholders, but, as I say, on their cost base. Frankly, I have seen past examples of the cost base being—shall we say?—artificially inflated in a way I found totally unacceptable. There has been abuse.

We in this House also ought to say a big thank you to Lord Currie of Marylebone, who did so much hard work to produce the “Review of Single Source Pricing Regulations”, the document published in, I think, October 2011. I will quote my own words—because I said them better then than I could today—from the foreword to that report:

“Tackling industry’s cost-base and improving the MOD’s procurement process are at the heart of this Government’s transformation agenda for Defence.”

Importantly, I also said:

“Making industry more efficient should not only achieve value for money to the taxpayer, but also lead to a more competitive role for the UK industry in the export market.”

I was particularly pleased by the emphasis that Lord Currie put in his report on small and medium-sized enterprises. Again, I said in my introduction:

“Small and Medium Enterprises…would have fewer data reporting requirements and a simplified profit rate process. Larger contractors would be expected to provide an annual statement on how they have engaged SMEs in their supply chain.”

It is a hugely important development in the single-source pricing regulations review that we will now ask contractors to say what they are doing to help SMEs in their supply chains, because so much of the innovation in modern defence comes from SMEs. We want to know that they are being helped and encouraged by the primes—the big contractors—and I am sure the report will be important in ensuring that that happens.

I agree with the hon. Member for Hartlepool and my right hon. Friend the Member for North East Hampshire (Mr Arbuthnot), the Defence Committee Chairman, about single-source pricing regulations and possible exemptions for foreign companies. In fact, the Bill gives the Secretary of State the power to exempt individual qualifying contracts from the process, but I agree that it could be used to exempt foreign companies. I cannot think at present of many examples of a non-competitive contract going to an overseas contractor, and this would not affect FMS—foreign military sales—as I understand it, so the Tomahawk missiles, for example, would not be covered by the regulations.

There is a powerful point here about the risk of creating a perverse incentive, should foreign companies be exempt, for British contractors to move more of their operations overseas to escape the new regulations. I hope there will be a truly level playing field and that the American defence contractors—who typically will be affected by the regulations—will genuinely be affected and not exempted from them. I also obviously expect the Single Source Regulations Office to be truly independent and sympathetic to the needs of small and medium-sized contractors, as the industry suggests.

Turning to Defence Equipment and Support itself, potentially the most controversial part of the Bill, getting the budget balanced was the easy bit. It did not seem so at the time—certainly not for my right hon. Friend the Secretary of State—but keeping the budget balanced is going to prove a lot harder. Acquisition reform is going to be central to achieving that.

I am delighted about the bipartisan process that has been adopted, and I have a bit of an apology for the hon. Member for Plymouth, Moor View (Alison Seabeck) who is on the Opposition Front Bench. Last year, we worked through the complex issues associated with this development but did not keep her properly informed about how things were developing. I am grateful for the sympathetic meeting we had in my office some time last year, when we brought her up to date on our thinking. I apologise, in that we got too obsessed with the internal processes of government and did not do enough to communicate how our thinking was developing.

Bernard Gray was a special adviser to the last Labour Government and is Chief of Defence Matériel for this Government. His report of 2009 called for a GoCo. That was not the initial view of Ministers in this Government, but we changed our minds as we listened to the argument. I was rather amused by the response of officials to his report. When I took on the ministerial portfolio it was all, “Well, we all knew it was like that; we don’t need Bernard Gray to tell us this. It will all be absolutely fine. He told us nothing new at all”. Actually, he did tell us something new. He put it all together in a powerful and punchy way, and I am sure the issues had never been analysed as coherently and consistently as they were by Bernard Gray.

I was presented with the document entitled, “The Defence Strategy for Acquisition Reform”, which was a product of the last Government. It was a classic piece of Sir Humphrey-like bureaucratic obfuscation and box-ticking, with apparent action being the substitute for effective change. It provided a mass of detailed actions that gave the appearance of doing something while doing absolutely nothing whatever. Now, we all speak with unanimity about the dangers of an overheated equipment programme, about the conspiracy of optimism on programme costs, about the high price of requirement creep—huge steps forward—and about the lack of key commercial and engineering skills at DE&S.

I was struck by some of Bernard Gray’s comments in an interview in Civil Service Worlda publication I like to read every week or month when it comes out. He said:

“If industry wants to go out and hire the best lawyers, the best programme managers, they can; and all the choices they make create costs that we bear. So we’re paying them to upgrade their side of the equation, but we don’t pay to have those skills available to our own side.”

That is a very important point indeed. I think we now understand that we have to keep the equipment programme balanced, to create proper boundaries between DE&S and the customers and to ensure that DE&S has the skills, processes and incentives to keep costs down.

DE&S does most of its work extremely well, and its staff deserve a pat on the back and to be congratulated more often than they are. The phenomenal work done recently on urgent operational requirements and operations should be a cause for deep and warm congratulations. Sometimes the staff are unfairly pilloried by some members of the national media, and there are nowhere as many of them as is sometimes said. The current headcount—I look to the Minister for reassurance here—is some 14,000 or 15,000 after a series of very steep reductions in recent years. I believe that only some 8,000 civilians would transfer to the new GoCo if such a transfer were to take place, with around 2,000 military secondees—some 10,000 people, which is much smaller than the 29,000 figure one often hears quoted by cynics.

I have three specific concerns about the GoCo. First, could we write the contract? I have been reassured on that and believe that the suggested phased approach addresses the issue sensibly. Secondly, would it offer value for money? I believe it will, and we will know very soon. It is right for the House to be exposed to this argument in as much detail as possible, consistent with commercial confidentiality and not prejudicing the Department’s commercial position.

Finally, would our allies be happy, especially about the security question? I have seen some alarmist reports in the specialist media about the American view and I am confident that that can be addressed. We have a GoCo already for the most secret thing we do—that is, nuclear warheads—and there is no reason why we cannot address those concerns. Our nuclear propulsion plants and our submarines are already built by the private sector and there is no reason why we cannot write the kind of guarantees our foreign allies would seek.

I have a number of questions, some of which echo points that have already been made. First, on the point made by the hon. Member for Hartlepool, will DE&S be incentivised to support exports? That is an important question and we need to know how that will be achieved. Secondly, will the system have enough flexibility to cope with sudden surges caused by operations? Will there be sudden meetings of lawyers and specialists to discuss contract amendments, or will we be able to deal with sudden and rapid surges in demand? Industry is right to worry about intellectual property protection, and clause 7 and schedule 2 will need particularly careful scrutiny in Committee.

Above all, I am worried about the speed of progress. I intervened on my right hon. Friend the Chairman of the Defence Committee about the invitation to negotiate. Time is slipping through our fingers and—call me cynical—I still fear there might be people in the Treasury, the Cabinet Office and the higher echelons of the MOD who do not like the idea and might like to kill it by civil servants’ favourite device of time-wasting. I hope there are no such processes under way and that my hon. Friend the Minister can reassure me that after the rapid progress we have made, there will be no slippage in the invitation to negotiate, as urgency is needed.

I believe that only radical change will secure the behavioural changes we need in defence. It is not just about numbers on a bit of paper but changing people’s mindset. We need to ask what the taxpayer’s relationship is with the armed forces and what we need to do to improve the way we operate. Even if the value for money case is finely balanced, the behavioural changes a GoCo would introduce would make it worth deciding to go for a GoCo. I hope a modest, finely balanced judgment will not be used as an excuse for not proceeding. Only if the value for money case was clearly negative would there be grounds to pause and think again.

In the preface to his 2011 report, Lord Currie of Marylebone summed up my attitude to the procurement aspects of the Bill:

“The reward is a more stable environment for the single source defence sector, where industry is more cost competitive in export markets, and the MOD maintains a balanced budget. That balance will avoid the need to cut or delay programmes and greatly reduce the level of waste that results, with benefit to the MOD and industry, including SMEs. This is a much healthier position for both parties, and one that should help to take them out of the spotlight. The real prize…will be better value for money for taxpayers and a better equipped front-line.”

That is what the Bill will deliver.

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.

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.

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.

I draw the House’s attention to my interest as a member of the reserve forces. I should like to start by paying tribute, as others have done, to the two reservists who died on the Brecon Beacons. My thoughts are with them and their families, and with their colleague who is still ill in hospital. I would also like to associate myself with the comments of the hon. Member for Merthyr Tydfil and Rhymney (Mr Havard) about the volunteers who assisted the reservists on that day. I am glad that he was able to put our thanks to them on record.

There clearly needs to be an inquiry into the incident, but I want to take this opportunity to put on record my sadness at the line being taken by some people, whom we might call “reservist sceptics”, that the death of those two young men is evidence that we cannot rely on reservists. We have lost those two young men, but in the past we have lost people from the regulars, too. We need to wait for an inquiry to find out what went wrong in this case, and there should be no attempt in the meantime to draw conclusions or wild and false deductions from this tragic event. I hope that all Members will support those sentiments.

I thank my hon. and gallant Friend for letting me speak. As a company commander, I very nearly lost two regular soldiers on a 12-mile march in Akamas early one morning. They suffered heat exhaustion followed by heatstroke, but their lives were saved because we were near water—the Mediterranean. We chucked them in until the rescue helicopters came. Anyone who suggests that the two young men died on the Brecon Beacons because reservists are in some way substandard is way out of line. I suspect that all hon. Members would agree that such an assessment is fallacious and wrong.

I am grateful for my hon. and gallant Friend’s intervention, as his experience in this matter will back up my point.

In my experience, reservists are extremely dedicated individuals who have to reach the same standards as the regulars. The joint training between the two, instigated in the past few years and which it has been my privilege to experience, has been very powerful indeed. To achieve the recruitment and training we need for our future reserve forces, we need to focus on the detail and the dry administration: we need to ensure that people are getting their medicals swiftly; and their identity cards, joint personnel administration accounts and insurance cover need to be processed quickly if we are to retain interest from new recruits and deliver the throughput we need to regenerate that capability.

I am extremely pleased at the attention given and the offer made on strengthening the package not only to reservists, but to their employers. That is an excellent piece of work. I also hope that we will be able to focus on problems that lie in particular professions, where reservists are having real difficulty in meeting their training and deployment commitments. Anecdotally, teachers always seem to top that list, but one would think that that profession would be well geared up to cope with reservists, given the supply teaching system. I hope the Minister will be able to give that some attention.

There has been much focus on the issue of reserve forces as the major challenge facing the MOD, but I would argue that it is tiny in comparison with the challenges on Defence Equipment and Support. What we have had has not been fit for purpose; earlier in this Parliament, I highlighted the case of a frigate that was deployed to Libya with no defensive weapons on board. Historically, we seem to have been incapable of getting what we needed, where we needed it and in a state in which we could use it. It will be some time before these reforms come into effect. They are very much needed and I very much welcome them, but they will not take effect immediately. I hope that the Minister can provide reassurance that the status quo will not remain in the interim. We cannot wait for this Bill to take effect for further progress to be made; we need further improvements now. I very much recognise the considerable progress that has already been made, but it must continue and pick up pace.

Immense changes lie ahead for our armed forces and in how we procure for them. We must seek to protect our sovereign capabilities and the unique research, development and supply chain networks so evident in constituencies such as mine. We need to have a clear vision of what industrially is in our national interest. We need to consider: what technology should we be investing in with our research and development funds? What do we build enough of over a given cycle? What is genuinely innovative? What kit could we be using in trade deals, for example? To which countries should we be exporting? Clearly there are countries to which we do not want to sell particular kit, but it might be to our advantage, for diplomatic and defence reasons, to sell them naval assets to protect their oil platforms, for example. Outside the MOD we need a more sophisticated view on exports.

Much scepticism has been expressed in the Chamber this afternoon about an off-the-shelf approach, but people could be very reassured by reading the White Paper produced by my hon. Friend the Member for Mid Worcestershire (Peter Luff), who is no longer in his place. [Hon. Members: “He is over there.”] I am glad that he is here for the pat on the back that I am giving him. That excellent White Paper captured the necessary subtleties when considering whether to retain particular sovereign capabilities and focusing on our national interests. We need to learn from the example of the MARS tanker contract, which he cited, because although a proposal might seem on paper to be the best decision for the budget and the procurement process, we must be aware of its knock-on effects on the supply chain. A number of companies would have found it difficult to get a foot in the door to supply kit for that project, including large companies with an export rate close to 50% of what they produce. We must learn from such experiences and guard against throwing the baby out with the bathwater.

For understandable reasons, the previous strategic defence and security review was not strategic enough. We therefore must ensure not only that the next one is strategic, but that a strategic approach permeates our defence procurement, because only then will we get the best value from our budget.

If the Minister will forgive me, I shall conclude by returning to a campaign about which he has heard me speak many times. As he sorts out the tangled mess of contracts that he has inherited, I hope that he will consider the case that building two ocean patrol vessels for the Royal Navy would be the best use of the budget. Obviously, I would want them to be built in Portsmouth, which would give the city a couple more years to put in place an excellent plan for the future of the dockyard. It would provide the overstretched Royal Navy with a couple more hulls, as well as freeing up the existing and future frigate fleet from undertaking tasks for which, frankly, frigates are not needed. I have bored the Prime Minister, the Chancellor and Ministers from the Ministry of Defence to the Department for Environment, Food and Rural Affairs about this, and I thank them all for giving up their time to listen to me.

I hate to interrupt my hon. Friend’s compelling speech, but may I suggest that she could not possibly bore on that subject? She is absolutely right from a shipbuilding angle, as well as from the point of view of flexibility and value in the Navy, so full marks to her.

My hon. Friend is absolutely right that the proposal would be a good idea for the Royal Navy and the taxpayer, as well something that would cheer him up no end. If the Minister agreed to my proposal, my happiness could be topped only if he also announced that he intended to revive the names HMS Portsmouth and HMS Penelope, which have been absent from the surface fleet for far too long. I thank him not only for listening, but for all the work that has gone into this excellent Bill.

It is a pleasure to follow the hon. and gallant Member for Portsmouth North (Penny Mordaunt), who speaks with a great deal of personal experience from her commitment to her reserve career.

My thoughts and prayers are also with the families and friends of the two service personnel, including Lance Corporal Craig Roberts, who perished in the Brecon Beacons at the weekend, as well as with the soldier who remains seriously ill in hospital. Although our service personnel—regulars and reserves—are aware of the risks and challenges inherent in their service selection and training, and while we must all accept the necessity of gruelling and challenging assessment procedures, especially for our special forces, such processes should never be exempt from appropriate scrutiny by the MOD and external authorities. I hope that there will be a full and thorough investigation of the tragic events as a matter of urgency, especially in the light of the equally tragic death of Captain Robert Carnegie in the Brecon Beacons some months ago, also during a selection process. Like my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr Havard), I pay tribute to the work of the mountain rescue services and other rescue services in the Brecon Beacons that had to deal this weekend with not only the events I mentioned, but two tragic drownings in reservoirs in my hon. Friend’s constituency and in Brecon and Radnorshire.

Those tragic events occurred at a time when the Government are about to make some of the most significant changes in a generation to the make-up of our armed forces, especially with regard to the crucial relationships between the regulars, ex-regulars and reservists who make up our armed forces. The increasing demands that will be made on our reservists in operations, training and levels of recruitment will have a series of wide-ranging consequences that we may not be able to foresee in their entirety at this stage. I hope the Government will keep those under continuous assessment and ensure that if any further changes are needed in future, those are made.

I associate myself with the comments of the hon. and gallant Lady. I have no doubts whatever about the capability and commitment of individual reservists. I have seen that for myself in Helmand, where I saw reservists fully integrated into our operations there and doing incredible work. I met a senior civil servant who was a reservist contributing to our operations at Camp Bastion. I have also seen the work of our reservists at home. I have seen that in Wales in my constituency and in the region, where they play crucial roles, from preparing for civil emergencies to liaising with merchant shipping and to protecting the Olympics, which Cardiff was delighted to play its part in hosting last summer.

I was delighted a few weeks ago to be able to watch veterans, regulars, ex-regulars, reserves and cadets all march down the street together in Penarth in my constituency in recognition of Armed Forces day, and a few days later to see a similar gathering of regulars, reserves and others to celebrate Armed Forces day in Cardiff and, in particular, to learn about the work of the Royal Naval Reserve from the commander of HMS Cambria in Sully on the border of my constituency—work which draws on many of my constituents. I am well aware of the excellent work done by the other three facilities—the newly named Army Reserve in Cardiff at Morgan street, again on the borders of my constituency, Maindy barracks, which brought my father to Cardiff many years ago with the Army youth team, and in Gabalfa avenue.

The image that I saw of our regulars and our reserves marching together united down the street in a coherent and seamless fashion is clearly the Government’s intention in the reserve forces changes set out in the Bill, but I hope the Government show more coherence in the execution of that strategy than they did in the confusion surrounding announcements in the House recently.

I shall make a few brief remarks about the recruitment of reservists and in particular the move to a 70:30 split, which is a significant change predicated on a successful available uplift of the reserve capacity, while the regular Army, as we have heard from many hon. Members, faces a loss of 20,000 troops. The uplift is planned regardless of the timing and the coherence of the two changes and one being contingent on the other. We should be careful that no gaps in capacity or capability occur as a result. The Secretary of State admitted in a statement the other week in the House that many current reserve units remain heavily under-recruited, which is the justification for closing or rationalising a number of them.

From the details of the strategy, I am not yet totally convinced that the recruitment levels will meet expectations, particularly in view of the barriers to bringing reservists in that many hon. Members have spoken about and despite the measures in the Bill, a number of which are extremely welcome. The Bill sets out a number of measures to help us recruit more reservists and retain them in their employment. There are measures in clause 44 to deal with additional payments and measures in clause 43 to deal with unfair dismissal. As we have heard from others, little is said about the barriers that some reservists or potential reservists face in squaring their reserve career with potential new employers.

Before my hon. Friend moves on to the particulars of the people being recruited, does he agree that one important consideration is that the figures given relate to ambitions for 2018 and 2020? We are on a journey from here to there. Therefore the sequencing of the number of reserves against the number of regulars may need to be monitored very carefully in order to see whether the ambitions set out can be achieved against the timings set out.

I absolutely agree. There are some real questions that must be asked. Other significant changes are going on at the same time as this transition in the composition of our armed forces, such as the return of troops from Afghanistan and Germany, which are major logistical challenges.

I hope that all employers would see the value of having reservists on their staff, quite apart from demonstrating their commitment to wider national purposes, but sadly the reality is that we often see differences. Even when employers recognise that value, there are some genuine challenges, as my right hon. Friend the Member for East Renfrewshire (Mr Murphy) outlined, particularly for smaller companies. Obviously, that will be particularly so given the increased number of conditions under which our reserves can be deployed and the length of those deployments.

Therefore, will the Minister assure us that clear measures will be set out to support reservists in handling difficult questions from new or existing employers about the changes proposed by the Bill? The Bill and recent announcements have generated a great deal of media interest, which might have put worries or concerns into the minds of new or existing employers. I want to ensure that reservists and those who wish to join the reserves are properly equipped to deal with those challenges when asked questions by employers.

I understand that the MOD has outlined its intention to gather further evidence of any disadvantages faced by reservists and perhaps take further measures in a future armed forces Bill. The Secretary of State mentioned a website, but I would be interested to hear from the Minister whether there are any plans for a more comprehensive survey of those challenges, particularly over the transitional period in the months ahead. What surveying and information gathering will take place to ensure that there will be a response to any challenge that arises, whether in a particular sector of employment or particular areas of the country?

As my right hon. Friend the Member for East Renfrewshire said, there is evidence of real concern resulting from those comments, as last year the Army Reserve recruitment target was missed by more than 4,000. I want more assurances from Ministers that we will not see a rise in that figure. A worrying survey from the Federation of Small Businesses has shown that a third of employers said that nothing, including the measures set out in the Bill, would encourage them to take on reservists. What assessment have Ministers made of the impact on some reservists—hopefully only a few—who might to choose to leave the service given the changes in the length of deployment and other changes outlined in the Government’s proposals that might not fit their personal circumstances or the expectations they had when they first signed up?

I do not want to paint a bleak picture. I would certainly be willing to speak to any employer in my constituency who is worried about employing a reservist and to talk about the benefits for them and the employee. Nevertheless, we must recognise that there will be a major shift in numbers and expectations. I worry whether the Government might simply be over-reaching themselves, which could leave us with gaps in capability or put stresses and strains on our overall reserve forces that are not sustainable. The Secretary of State tried to brush off that concern earlier by describing it as a potential for “lumpiness” in the transition process, but that might understate the risk. How long does he expect that “lumpiness” to persist and what exact impact does he think it will have on capability? As I said, that comes alongside some major logistical changes resulting from the return of troops from Afghanistan and Germany.

Finally, I will turn briefly to some of the concerns that have been raised about procurement. I share the concerns my hon. Friend the Member for Stretford and Urmston (Kate Green) raised about the potential squeezing out of smaller companies in defence supply chains. I certainly am aware of that from conversations I have had with companies in my constituency, such as BCB International, which provides excellent services and products to UK and other NATO armed forces. It provides a significant majority of camouflage paint and a significant proportion of survival gear, non-lethal devices and blast-protection equipment, and it does some excellent and innovative work. I want to hear more assurances from Ministers that such companies will not lose out as a result of these changes and that they will continue to play a valuable and innovative role in our defence supply chains.

This has been a constructive and positive debate, and I am happy to follow the hon. Member for Cardiff South and Penarth (Stephen Doughty), who made a valuable contribution to the debate along those lines. A discordant note was sounded by the right hon. Member for East Renfrewshire (Mr Murphy), who is no longer in his place, when he deviated into tomorrow’s debate on Trident and launched a bit of a pre-emptive strike on Liberal Democrat policy. Since Labour’s policy on nuclear weapons over the decades has itself been a bit of an unguided missile, it might be wise for Labour Members to look at the evidence and consider the possible value of the Trident alternatives review before finalising their policy too quickly.

Other hon. and gallant Members have made valuable and interesting contributions, including the hon. Member for Canterbury (Mr Brazier), who is no longer in his place, who mentioned the allocation of command. The hon. Member for Dunfermline and West Fife (Thomas Docherty) made a stinging indictment of past procurement policy and outcomes, and we would all echo the hon. Member for Portsmouth North (Penny Mordaunt), whose remarks about the reservists who died recently in the Brecon Beacons were well made. In a debate such as this it is right to pay tribute to the courage, commitment and loyalty of all our armed forces, and to emphasise that those who die in training are people of no less courage, loyalty and commitment than those who die on active service.

This enabling Bill does not directly mandate the creation of a so-called GoCo procurement system, and neither does it set the terms of single-source contracts, the shape of new reserve forces or the plan for implementing them, as that is done in more detail in the White Paper. It does, however, give the Secretary of State power to change defence procurement and the way reservists are recruited and supported, and I think there is general consensus that such powers are badly needed, and that particularly for procurement, the existing system has not delivered. Let us consider some of the statistics: average timing overruns of 80%; cost overruns often 40% over estimate. Bernard Gray’s 2009 report suggested that we might be wasting as much as £1.5 billion a year through poor procurement. Clearly that cannot go on, and it is right for the Government to take tough decisions to tackle the issue.

That does not mean, however, that there are no possible criticisms of the GoCo model—we have heard some in this debate, and in another place Lord Lee made pointed criticisms about the possibilities of a GoCo. I raised in this Chamber the possible complexity of having various bodies involved in procurement and trying to align it. Those bodies obviously include NATO, the Ministry of Defence, the armed forces and eventual contractors, and now we are inserting the GoCo level into that process. I highlighted to the Secretary of State the possible risks of inefficiencies and complexity entering the system, and his reply was good. He said that any structure contains the risk of inefficiency and waste creeping into the system, and that whatever structure we create, we must focus on good management and monitoring, and good assessment of cost effectiveness and management of contracts. I am sure that is right. It is clear that something has to change, and the Bill is going down the right path.

Part 2 creates the regulatory framework for single-source contracts, which is an interesting case. The explanatory notes to the Bill explain the relevance of EU law, which requires most Government contracts to be subject to an open process involving

“publicly advertising the fact that the contract is available for tender, and then a competitive process to select the successful contractor.”

We have taken advantage, as have other states, of the exemption in the European treaties for

“measures which a Member State considers necessary for the protection of the essential interests of its security”.

That is how single-source contracting has managed to develop on such a large scale. However, it has created the strange anomaly whereby there is currently no legal framework regulating defence single-source contracts, and so we are now putting in place something that will, in effect, regulate those contracts. I could make a small point about the value of the European Union on occasion, when we see exposed the fallacy of the argument advanced by some Members that we are beset by EU rules on all these issues. In this case, we find that where an EU rule does not apply, we feel the need to invent a substitute, and I am afraid that that would be the case in many other examples often cited in this Chamber. This is absolutely the right thing to do. I think we all instinctively know that where there are single suppliers, with no competition and no regulatory oversight, there is a real risk that uncompetitive results will be the outcome. We must address the obvious risk in the procurement of single-source contracts, and the Government are right to do so in this Bill.

Part 3 makes changes to reserve forces. This is a sensitive area to deal with but it is very necessary to do so. As we move further into the 21st century, the threats that our military are asked to counter and the demands on them are changing, and we need to look at a more flexible and light-footed model of personnel. The Government plan by 2020 to change the numbers in the Army from 102,000 to 82,000 regular soldiers but to balance that by increasing the number of reserves from 15,000 to 30,000 by 2018, with smaller increases in the maritime reserve and the Royal Auxiliary Air Force, giving us a total reserve armed forces of about 35,000 people. That is a different model that will prove more flexible and more cost-effective but make certain demands as well. If we are to have that level of reliance on our Army Reserve forces, we need to take some of the steps that the Government have considered in providing access to and use of the same equipment and vehicles as regulars, increasing reserves’ training commitments to 40 days a year, and pairing reserve units with regular units for training and deployment purposes.

I might add some ideas such as those put forward by my hon. Friend the Member for North Devon (Sir Nick Harvey) about trying to promote reserve liability. He has particularly identified the Gurkhas as a group who might figurehead and lead that process. Automatic reserve liability for the Gurkhas would send a positive signal that we are aiming for parity of esteem between the regular forces and the reserves. We should also be encouraging ex-regulars consciously to engage with the reserves.

I would like to draw attention to work that is being done in a slightly different context by a company based in my constituency. This may sound like a shameless plug for a local company, and perhaps it is, in a way. It is called Omega Resource Group and it is doing interesting work with 1 Rifles based on the employment of veterans, taking ex-regulars and trying to place them in civilian jobs in a way that makes the best use of their skills and markets those skills effectively. Although that might not seem immediately relevant, I think that it is. If we are to try to increase the demands on employers on behalf of our reserve forces, employers have to understand even more than before the value of having soldiers and military people as part of their establishment.

Omega has made a very good case for that. It says that there are widespread myths among employers—for instance, that soldiers have institutionalised thinking and are incapable of thinking out of the box. Omega points out that exactly the opposite is true—that modern soldiers are brilliant at thinking out of the box, problem-solving, and thinking tactically and differently from the way that might be expected. That kind of skill, resilience and flexibility is exactly what we should be trying to sell to employers. We will have to do that selling job because we will be putting greater demands on them if these increased reserve commitments are to be successful. We need to look at companies like Omega and, I am sure, many others that have experience of military personnel—some will already employ ex-military personnel—who can help to make a success of the whole process.

This is an enabling Bill that will allow us to move to a more flexible, light-footed, effective and, not unimportantly, cost-effective armed forces. For that reason, I am happy to join the seeming consensus throughout the Chamber in support of this very important measure.

It is a pleasure to be the tail-end Charlie in this important Second Reading debate. I begin, as others have done, by declaring an interest as a member of the reserve forces and the military stabilisation and support group.

While listening to this very interesting and informative debate, I had flashbacks to my time serving as a regular officer and some of the procurement problems our troops had with equipment, including the ever-promised better radio. The Bowman radio is now in use, but back in my day it was just a vision. We had the old Clansman set and must have been one of the few armies across the world still using open voice procedure that was not even encrypted. The SA80 was issued to us, only to be recalled because of problems with the catches. It was then mended and given back to us at double the cost of the original contract.

I am grateful for the opportunity to speak in this debate and to place on record my gratitude to the Government Front Benchers for the work they have done not just in this area but right across defence. They deserve to be commended, particularly on procurement, as does my hon. Friend the Member for Mid Worcestershire (Peter Luff), who worked very hard when he had that portfolio.

The Bill is a reflection of how seriously this Government take defence matters and is another significant milestone in Ministry of Defence reforms since 2010. We have seen improved operational decision making, thanks to the National Security Council, and the creation of the Defence Board, the primary MOD decision-making body, which under the previous Government did not include the Secretary of State. We have seen the introduction of real-time control of major equipment programmes in order to stop spiralling costs and delays, and the major projects review board is taking note of and monitoring the top 20 programmes. A focus on British exports has led to an increase in the world market share, boosting support for our small and medium-sized enterprises, and the completion of the long overdue basing review ensures that Her Majesty’s forces are now represented right across the Union. We have also developed an exit strategy from Afghanistan after inheriting a war that had no clear mission, and we have enshrined in law, through the military covenant, the nation’s lifelong duty of care to those who serve in the armed forces. Finally, as has been said time and again, the Secretary of State and his team have, after inheriting a defence budget in deficit, managed to balance the MOD’s books.

Those reforms continue with this Second Reading debate, which has focused on two main areas: the way in which equipment is procured, and the balancing of our regular and reserve forces. It is important to understand the landscape this Government inherited. I am afraid that a glance at Labour’s efforts on procurement makes worrying reading. The majority of the equipment projects ran over budget, as explained in detail by the National Audit Office major projects report of 2010. The hon. Member for Dunfermline and West Fife (Thomas Docherty) and others are right to say that many legacy issues go further back in time, but during my time in the British Army—and certainly during my time in Parliament —we always asked why the issue of procurement was not being grasped in the way it has been today.

I thank my hon. and gallant Friend for allowing me to intervene. I was a staff officer in the Ministry of Defence in 1984, when the world was black and white. I well remember Michael Heseltine introducing a system called “lean look and sharp sword”, which we were told would sort out procurement for ever. I totally agree with the hon. Member for Dunfermline and West Fife (Thomas Docherty), who implied that we have not got the answer to a maiden’s prayer. Whatever we get, we will still have—

There is no question; it is a statement. We have not got the solution and we will still have a problem.

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.

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.

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?

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.

I accept your guidance, Mr Deputy Speaker, so I will not mention the AirTanker project or the fact that the last Government got rid of the Sea Harriers; I will certainly move on. There was a lack of clarity and direction under Labour and, I concede, under previous Governments. That was not just because of procurement, but because of the unclear strategies—

Order. We are going to discuss the Bill. We are not going to keep going back in time, as much as Mr Docherty is tempting you to do so, Mr Ellwood. I know that, as the tail-end Charlie, you want to deal with the Bill.

Again, I am grateful for your guidance, Mr Deputy Speaker.

If I may, I will talk about the complications in procurement projects that can cause costs to increase. The hon. Member for Dunfermline and West Fife gave the example of the Typhoon and said how the costs had ratcheted up. However, the F-16 is now seen as one of the most successful aircraft in the world, if the hon. Gentleman wishes to listen. It went through a torrid procurement process, but the unit cost has now shrunk because the problems have been removed and enough units have been sold to drive the price down. We are just beginning to grasp the nettle and we need to ensure that we can sell such equipment across the world.

With your permission, Mr Deputy Speaker, I will turn to the Bill. In debating defence procurement it would be remiss of me not to mention the work of Bernard Gray, who first highlighted the worrying state of UK procurement of military equipment, which consumes approximately 40% of the annual defence budget. In his 2009 report, he described the MOD as having a

“substantially overheated equipment programme, with too many types of equipment being ordered for too large a range of tasks at too high a specification”.

That, as successive NAO reports confirmed, is completely unsustainable. I am pleased that the Minister is willing to take up many of the 53 recommendations in Lord Levene’s report on defence reform, and Lord Currie’s report on single-source pricing regulations included the requirement to upgrade the yellow book and a recommendation to introduce a single-source regulations office.

In an intervention, I posed a question on the concerns that I and others have about a possible clash of interests if a GoCo is owned by a foreign operator, an issue that perhaps needs to be explored in Committee. “Off the shelf” has been mentioned as a possible way forward: instead of procuring ourselves, we could simply purchase whatever we need. We saw what happened in Afghanistan when there was a rush to recognise that the Snatch Land Rover was inadequate for our troops there. We suddenly saw the Cougar, Vector, Jackal and Bulldog being purchased off the shelf at huge cost to the taxpayer, until eventually something was found—the Mastiff—that was adequate for the troops. Going shopping and hoping that we hit on the right thing is the not the way to look after our troops on the front line.

On the balance of regular and reserve forces, as I mentioned, I am a member of the reserves and my last exercise was in Laikipia in Kenya. Halfway through the two-and-a-half week exercise, we came together to discuss the future of the TA and its impact on each of us. Round the table, we had to say what would happen if we were required to break away from our jobs for nine months. Not one person in my group was able to put up their hand and say that their employer would be able to grant them permission to be away from work for that period. I hope we can pursue this issue in Committee. We need to secure employees’ rights to ensure that jobs can be protected, otherwise we will struggle to meet the demands of increasing the size of the reserves.

Due to the changing nature of warfare, greater emphasis is now being placed on stabilisation operations. That has been illustrated in both Iraq and Afghanistan, where the kinetic phase of war ended quickly but there was no unconditional surrender. I am reminded of the study by General Charles Krulak, who described the concept of the three-block war: soldiers can be fighting one week, doing stabilisation operations the next and engaging in peacekeeping the week after. Reserves often have civilian skills that regulars do not have, which can be used for those peacekeeping and stabilisation roles.

I am also pleased to see that the relationship between the MOD and the Department for International Development has changed substantially since the Iraq war, when DFID was told that the war was illegal and that it was not allowed to support our military operationally. That was absolutely wrong and I was astonished that Clare Short, in a debate on Iraq, admitted to that. [Interruption.] The hon. Member for North Durham (Mr Jones) is shaking his head. I will show him in Hansard where she said that she thought the war was illegal and therefore did not want to participate in it.

Order. I do not think that DFID is relevant to the Bill. I have allowed a little leeway, but I am worried that the time is being used to discuss what has happened previously. I want the debate to continue on where we are now.

I am grateful for your guidance, Mr Deputy Speaker. I shall come to a conclusion.

The Bill will introduce some of the biggest changes since the creation of the TA in 1908 by the Secretary of State for War, Richard Haldane. Today, the TA represents more than one quarter of our manpower in the British Army. It was never intended to go overseas, but the first world war changed that, and it is now used in all sorts of circumstances to provide not just military but civilian support. The Bill will bring greater job security to those in uniform, result in more funds for training and provide better equipment for the reservists. It is fair to say that we owe all those who serve a debt of gratitude. It is we politicians who put soldiers, be they regulars or reservists, in harm’s way, and I join others in paying tribute to their and their families’ commitment. I welcome the Government’s reforms since 2010 and I very much welcome the Bill.

I draw the House’s attention to my entry in the Register of Members’ Financial Interests.

This has been a wide-ranging, interesting and thoughtful debate that has raised a series of concerns, including the basic one of whether we should go down the GoCo route. Many speakers raised the issue of intellectual property, particularly commercial confidentiality and our relationships with partners and other nations. That was vocalised by my hon. Friend the Member for Bridgend (Mrs Moon), who has established herself in this place as a bit of a defence expert. The hon. Member for Canterbury (Mr Brazier) mentioned the need to ensure that if foreign companies or employees are to be included, the protections around IP and commercial confidentiality are not insubstantial. Despite assurances from a former Minister, the hon. Member for Mid Worcestershire (Peter Luff), who is back in his place, that will require further exploration in Committee.

The hon. Member for Canterbury also spoke with great knowledge about the reserve force. I hope he will bring that experience to bear in Committee, because clearly this is something that many hon. Members would like to debate further. There are issues to do with the recruitment of reservists, the policy of cutting the Army, particularly before we have a clear idea of where recruitment to the reserves will come from, and the protections for those signing up.

I thank the Chair of the Defence Select Committee, the right hon. Member for North East Hampshire (Mr Arbuthnot), for his contribution, which brought his wisdom and knowledge to bear, and for his many questions. He flagged up the risk Ministers have taken, going, as it were, where no one has gone before, and asked where the risk would sit. Will it sit with the Secretary of State, the GoCo or the taxpayer? He also expressed concerns about time slippages and the lack of a plan B for the reserve force.

My hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr Havard) raised several questions about the bigger picture and concerns about the totality of the reforms. He asked if control would be pushed too far away to be meaningful. I think the whole House listened with great sympathy to his comments about the role of the emergency services during the tragic events in Brecon. I am sure the Minister will respond at length on that.

We also heard from the hon. Member for Cheltenham (Martin Horwood). I shall not be drawn into a debate on the nuclear deterrent or whether the Trident review is half-baked.

Yes, perhaps not even half-baked.

The hon. Member for Cheltenham made some valuable points about the GoCo, its complexity and the treatment of reservists, and he dallied tantalisingly with European legislation—very dangerous territory in this place.

We also heard from the gallant tail-end Charlie, the hon. Member for Bournemouth East (Mr Ellwood), who was frankly lucky not to be shot down by my hon. Friend the Member for Dunfermline and West Fife (Thomas Docherty). The hon. Gentleman had a very selective memory of the projects he discussed, which distracted from his important opening point about flagging up some of the problems that the Gray review and this Bill seek to correct.

No, I will not; I will carry on, if the hon. Gentleman will bear with me. He has had more than his time to make the points he wanted to make. Perhaps he will be on the Committee and we can discuss the issue further.

In opening the debate, my right hon. Friend the Member for East Renfrewshire (Mr Murphy) talked about the background to the need for change and the importance of not jeopardising the ability of our defence industries to deliver world-class equipment to our front-line forces. We have to say loudly and clearly that, ultimately, we have to get this right if we are serious about giving our soldiers, sailors and airmen and women the kit and support they need when carrying out their role of protecting our nation. We cannot cut corners; we need to sharpen up our act. The question is therefore this: does this proposal cut the mustard?

Procurement and the problems associated with it are issues not just for the public sector but for the private sector. As we have seen, getting large projects delivered on time and to budget is a problem not just for the Ministry of Defence but for companies outside. Wembley stadium is an example. It is neither easy nor straightforward to procure for large projects and contracts, which is why we on the Labour Benches have been interested to see the results brought forward by the Chief of Defence Matériel, based on work started under the last Labour Government. The Government will also need to convince Members of this House, the Public Accounts Committee and those outside that they are capable of negotiating and supervising a contract that will be one of the most complex undertaken, given past history—a point touched on by the former Minister, the hon. Member for Mid Worcestershire. I would add that anything that this House decides must not risk destabilising our defence industrial sector, our prime contractors or their supply chain—which is made up of innovative and high-quality small and medium-sized enterprises—in a way that might reduce our ability to deliver in the UK the projects that are vital to this nation’s security.

My hon. Friend the Member for Hartlepool (Mr Wright) talked about the focus on price rather than value. He was concerned about the arbitrary nine-year contracts and the potential instability and uncertainty. He also intimated that there was a need for a wider defence industrial strategy.

The much respected former Minister the hon. Member for Mid Worcestershire waxed nostalgically lyrical about the Bill. He also made the point, in a non-partisan way, that our armed forces are currently well equipped. His observations on the single source regulations office were acute, and he is correct that the weighty impact assessment is an interesting and valuable document. I am sure that the Minister has noted his remarks about the potential exemptions of foreign companies—as well as the concerns others have raised—and the need for a level playing field. I thank the former Minister for his gracious acknowledgement that whatever the party political differences, we have a shared interest in getting the best possible legislation through this House. Scrutiny and engagement from Her Majesty’s Opposition are part of that process.

I thank my hon. Friend the Member for Dunfermline and West Fife for delivering a speech that had great depth and was very probing of all parts of the Bill. He has been assiduous in his preparation, and I hope he will want to serve on the Committee. He also asked legitimate questions about the Department’s finances and the need to avoid a revolving-door culture. Again, that is something on which we might want to seek reassurances in Committee.

The jury is still very much out on whether the GoCo approach in part 1 of the Bill is a panacea. The points made by many right hon. and hon. Members bear out some of those anxieties. It is vital that the Committee set up to scrutinise the Bill does so with great care and attention to detail, because the devil is always in the detail and this is a very techie—if I may use that term —piece of legislation. It is in no one’s interest—that of the Government, the Opposition, business or the work force—for us to rush the Bill through or simply assume that it must be better than the status quo or DE&S-plus.

We are still not clear about the view of our key allies and partners, especially the USA, towards these proposals. On the other side of the channel, too, the French are looking at them with interest—and, I suspect, with some concern. Indeed, the impact assessment highlights the fact that one of the key risks associated with the Bill is that our international partners might not fully accept the proposals. The MOD itself has acknowledged that although the Minister has received assurances from the Americans, rumours still abound, so they will need to be put down firmly in Committee with some evidence to back up the assertions made. As we know, the Americans have set up a taskforce to follow the UK’s proposals.

My hon. Friends and I will want to be convinced—I am sure that the Treasury will need convincing, too—that this is the best option. We will also need convincing—in the light of major concerns about outsourcing, particularly to G4S, and the history of failures that we have seen—that this model is significantly different, that the safeguards in place are robust and that the taxpayer will not be at risk of having to pick up the pieces. We all witnessed armed service personnel stepping up to the plate when G4S failed in its Olympic delivery. Now we have further horror stories to add, so what protections will there be to ensure that it does not happen again?

Members in the other place will look carefully at the way in which the discussion moves through Committee and, given the wealth of expertise—former permanent secretaries, former Secretaries of State for Defence and former heads of the armed services—I have no doubt that the Bill will be given an extremely thorough and testing passage.

We broadly support the proposals to create an SSRO and, specifically, to replace the yellow book, designed to bring rigour to the process and to drive cost savings. However, we will want to probe a number of issues, including the level of power that the Secretary of State will hold over this “independent” body. My hon. Friend the Member for Hartlepool voiced concerns about specific clauses and exports in this regard.

Part 3 is, of course, about our reserve forces, and many Members have spoken to the four relevant clauses. We support an enhanced role for the reserves, which have historically made a significant contribution to the armed forces and UK security. Tragically, some have paid the ultimate sacrifice. Our thoughts are with the family and friends of the two young men who lost their lives this week. I would like to endorse the comments of the hon. Member for Portsmouth North (Penny Mordaunt), who spoke with such good sense about the need to avoid speculation about what happened in the Brecon Beacons and made thoughtful comments about how to expand our reserve force.

We are concerned that the reserves are being used to regain capabilities lost through the cuts made to our regular forces, which have gone above and beyond those outlined in the strategic defence and security review. We are concerned that the cart has been put before the horse, and we are concerned, too, about recruitment and retention levels and whether we can reach the level cited by the Government. I thank my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty) for bringing to this debate his relatively recent but clearly quite deep expertise on the issue of reservists.

We have concerns about whether employment patterns will be compatible enough to allow for prolonged deployment, which could become more frequent under these reforms. That is of particular concern to SMEs’ employees, as my right hon. Friend the Member for East Renfrewshire made clear in his opening speech.

In winding up, I would like to thank right hon. and hon. Members who have contributed to what has been a thorough and thoughtful debate. I hope some of them will volunteer for the Public Bill Committee. In closing, I say simply that we Opposition Members do understand the rationale for all the changes in Bill, but we will need to be satisfied that there are no unanticipated consequences and that, ultimately, the defence of our realm, the industry and people who support it will be at no additional risk in the long term because of a failure fully and openly to scrutinise the measures that are being brought forward.

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—

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:


(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.