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Defence Expenditure

Volume 416: debated on Tuesday 20 January 1981

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3.36 p.m.

My Lords, with the permission of the House, I should like to repeat a Statement made by my right honourable friend the Secretary of State for Defence this afternoon in another place. The Statement reads as follows:

"Mr. Speaker, with your permission I would like to make a Statement about expenditure on defence.

"In the financial year 1981–82 defence expenditure should rise to £9,753 million at 1980 Survey prices. This takes account of the reduction of £200 million in planned expenditure announced earlier by my right honourable friend the Chancellor of the Exchequer. This figure is about 8 per cent. more in real terms than the defence out-turn in 1978–79, the last year of the previous Government. So far as this year is concerned we are likely to exceed the 3 per cent. NATO aim but until the out-turn is clear we cannot assess the distribution of growth between this year and next. In cash terms, although the cash limit has not yet been finalised, next year's defence budget is expected to be of the order of £12¼ billion, more than £1 billion higher than the budget this year.

"The scale of the increase, in relation to the containment of expenditure on other programmes, fully accords with the Government's expressed determination which I re-affirm today, of giving the highest priority to our defence in the face of the growing threat from the Warsaw Pact. It also represents an increase in defence expenditure per head at a time when the proportion of our GDP devoted to defence is already much higher than that of our main European allies, and close to that of the United States. Let me make it plain beyond doubt that I share without qualification the objectives stated by my predecessor in the House to sustain and improve the front line quality of our forces and of our contribution to the alliance, which remains the cornerstone of our security and the ultimate safeguard of our freedom against any aggression.

"In accordance with these objectives, I can confirm that next year the major programme of improvements will continue. Even after trimming recruitment, there will be over 5,000 more regulars in our services than in this financial year. A nuclear-powered fleet submarine, two new air-defence destroyers, an anti-submarine frigate and several other vessels will enter service; other new warship orders, including anti-submarine carriers, nuclear-powered submarines, destroyers and frigates, together with major maritime weapon systems such as Stingray and Sub-Harpoon, will be moving forward; substantial further orders for ships and other naval equipment will be placed; and the Trident programme is under way. The Army's new Challenger tank, the new armoured personnel carrier, the Milan anti-tank and Rapier and Blowpipe air defence systems and the Ptarmigan and Clansman communications systems continue in procurement. Deliveries under the very large Tornado programme, the core of the RAF's future capability, will be accelerating.

"Contrary to some reports, development work on the Sea Eagle anti-ship missile will continue although further consideration will be needed before its place in the programme can be confirmed. Large sums will be spent on the Nimrod airborne early warning aircraft, improvement of our Harrier and Jaguar capability, and air-to-air defence missiles. We spend a bigger proportion of our defence budget on major equipment than any other NATO country. Next year we shall spend over £5 billion on equipment, which will sustain hundreds of thousands of jobs, many in the highest field of technology.

"Nevertheless, there remain hard choices, for next year and further ahead. The problems are well known to the House, but they are worth recalling briefly. The real cost of defence equipment, much of it inevitably highly sophisticated to counter the threat, continues to rise. The recession has led industry to concentrate more heavily on defence work, which means that certain equipment has come forward faster than we expected. This is to the benefit of our services but has continuing effects on our cash flow. With so much of the programme already committed, it is not easy to make adjustments quickly. Defence, like other departments, has to make adjustments every year, in all sorts of ways, to fit its programme to planned expenditure, but for the reasons I have given the scale this year is more extensive than usual.

"In order to avoid continuing speculation and uncertainty harmful to the services and to industry, I think it right to give the House before the Defence White Paper is published an early indication of the character of the adjustments.

"The main changes which I propose accelerate the phasing out of some older equipment, the deferment of certain equipment procurements, the trimming of our works and training programmes, and further reduction of overheads; in essence, to concentrate our resources where they are most valuable.

"Some older ships of the Royal Navy will be sold or scrapped; HMS "Bulwark" will be disposed of about six months earlier than planned and the planned reductions in the Vulcan force and Shackleton airborne early warning aircraft and the rundown of Canberra photographic reconnaissance squadrons will be accelerated. There will be some adjustment to the forward warship construction programme which will involve the slowing down of a number of orders. Logistic support road vehicles, Jetstream and Hawk aircraft orders will be deferred. The Skyflash Mk 1 missile will continue, but instead of the Skyflash Mk 2 we will proceed with a programme to demonstrate a new technology for short-range air-to-air missiles. To save overheads, No. 41 Commando will merge with the other Commandos, without reduction in the present overall strength of the Royal Marines and with a continuing Royal Marine presence in Deal for the time being.

"The Naval Communications Squadron at Leeon-Solent will be disbanded. The extra Lightning squadron will not be formed as planned but we shall provide for a squadron to be found out of training units which could rapidly be made operational in emergency.

"I turn now, briefly, to the future beyond next year's Estimates. In accordance with the expressed objective of NATO, it is our aim to continue from the revised 1981–82 base line an annual increase in defence expenditure in real terms in the region of 3 per cent. Even with an increase in expenditure, however, we face, as do other countries, a major task in matching resources to our clear defence needs—a task made more difficult for us than for other countries because of our low growth. Talk of apocalyptic choices between key defence tasks is wide of the mark; but we must, over the next year or so, look realistically at our programmes in order to match them to the resources which may be available. We shall do this in an Alliance context and, we hope, in close concert with our allies. But let it be clear that whatever our economic problems, the maintenance of effective security within and through the Alliance remains an overriding commitment of this Government."

My Lords, that concludes the Statement.

3.47 p.m.

My Lords, I thank the noble Viscount, Lord Trenchard, for repeating that Statement. This is more than a Statement; it should have been a prelude to a major debate on defence. I congratulate the noble Viscount, and I very much regret that the noble Lord, Lord Strathcona and Mount Royal, will not be able to deal with some of these matters. I do not think that it is any reflection on the Minister who has just spoken, but we always admired the ability of the noble Lord, Lord Strathcona, and in every defence debate he was courteous and gave us a tremendous amount of information.

I believe that this Statement should have been in the White Paper. It is a long Statement. On the other hand, it recognises that the Government must face a certain reality in relation to cuts. In real terms defence expenditure is to be increased in the region of 3 per cent. As the noble Viscount said:
"Even with an increase in expenditure, however, we face, as do other countries, a major task in matching resources …".
The noble Viscount mentioned our low growth. Who is responsible for that?—the Government. Furthermore, when the noble Viscount spoke about:
"the Government's expressed determination"
—which he reaffirmed today—
"of giving the highest priority to our defence in the face of the growing threat from the Warsaw Pact",
I believe that it should be the major thrust of the Government to achieve Strategic Arms Limitation Talks. The Americans have accepted this. The strategic talks are important. But there is a negative approach in this document.

There is another matter about armaments which I have often stressed. It may well be that our defence capability in this country could be affected by our stupid policy in relation to a major industry concerned with defence; I refer to the steel industry. I would simply say that inevitably we have had a Statement which confirms some of the press rumours which have abounded outside. I notice that in the Guardian David Fairhall—that very distinguished defence correspondent—has actually hit the nail on the head. I shall not go into his figures, and all that, but he comments:
"We all know that there has been an attempt to cut, but in reality there will be more spent on defence in the end".
I am one of those people who believes in adequate defence, but I still think that we should have had a major White Paper before committing ourselves to a policy.

My Lords, I too should like to associate myself with what the noble Lord has just said in congratulating the noble Viscount, Lord Trenchard, on his appointment. I should also like to associate myself with what he said about the services rendered by the noble Lord, Lord Strathcona, which we all deeply appreciated, as I am sure he will realise. In thanking the noble Viscount for this Statement I am sure he will realise that without much further study it is not easy, in fact it is impossible, to comment very intelligently on all the detailed proposals which it contains.

On the face of it—I say "on the face of it"—many of them seem to be satisfactory and at least to dispel the sinister rumours we have heard recently that the Government were in some way going back on their obligations to increase defence expenditure by 3 per cent. over the next two or three years. In particular I welcomed the news that the Sea Eagle is not to be scrapped, although at present its precise future is, I understand, still under consideration. Again on the face of it I personally would not necessarily object to the so-called adjustments which have now apparently got to be made, although I trust that these will not in any way affect the possibility of an increase in the stocks of materials stored in Germany which now I believe are at a pretty low ebb.

My final comment is that the sting of the Statement is surely in the tail. We must, it seems, look realistically at our programmes in order to match them to our resources. Too true; but no doubt next year, if the recession continues, we may well find that our resources are such that further grave cuts in our defence estimates may be necessary. All I can say is that if we do make such cuts while spending £500 million a year, and probably much more, for the next ten years on a so-called independent strategic nuclear deterrent which could never be used, or its use threatened, independently on a first strike, it will hardly be understood by our allies and notably by the Americans, with probably disastrous effects on the whole of the North Atlantic Alliance.

3.54 p.m.

My Lords, I thank the two noble Lords for their comments. My predecessor has heard their comments. I would only echo that, in his usual way, he has been extremely helpful to the new boy, and I am very grateful to him too.

May I start with the point made by the noble Lord, Lord Gladwyn, when he suggested that we were going to cut our announced commitment by some 2 per cent., I think he said, over the next two years.

My Lords, I said that I was pleased to find from the Statement that it was not the Government's intention to go back on their obligation to increase their expenditure by 3 per cent. over the next two or three years.

My Lords, I totally misunderstood the noble Lord, and the Statement makes clear that over the period of three years the figure will be 8 per cent.; over this year and next year it will be of the order of 5 per cent. This indeed is slightly less than the announced commitment in a huge programme where the exact out-turns and the exact control of this number of billions of pounds is, as noble Lords know better than I do, not entirely easy.

The next point I should like to take up is again one made by the noble Lord, Lord Gladwyn, about matching resources to the needs of defence. What we mean by this is not that we do not intend for the years concerned, which I have mentioned, to continue at approximately the 3 per cent. real growth level, but that due to the ever-increasing sophistication of defence equipment, and thus its much greater degree of cost, there will inevitably have to be adjustments to existing programmes. If costs for greater sophistication continue to climb at the present rate, it inevitably means that in some areas there have to be deferments or cuts. The whole of the weight of my right honourable friend's Statement is that we have tried to make those cuts wherever possible in deferments and in the phasing out of the older weapons systems, rather than in expenditure on the newer weapons systems which are so important to us.

The noble Lord the Leader of the Opposition raised the question as to whether we should not have had this somewhat long Statement in the form of a White Paper in order to have a debate. Those opportunities will come later. My right honourable friend felt that with the degree of speculation about defence expenditure in the press and elsewhere as a result of the Statement which my right honourable friend the Chancellor of the Exchequer made in November on the £200 million cuts, it was important that a Statement clarifying our broad intentions and making entirely clear the continuity of the Government commitment notwithstanding ministerial changes should be made as soon as possible. I think I shall leave the other points to detailed questions on a further occasion.

My Lords, may I ask the noble Viscount whether it would be a correct interpretation of the Statement made in another place and repeated in your Lordships' House that, apart from certain adjustments which may have validity, our committed programme has not been adversely affected, and indeed has not actually been reduced? Having regard to the totality of our military expenditure, any reduction in any event was of a comparatively minor character. May I ask him, therefore, in view of the interpretation in which I have indulged, and with which I hope he will agree, whether he can explain why it was necessary to replace the three defence Ministers, Mr. Pym, the noble Lord, Lord Strathcona, about whom I expressed high regard when some reference was made to the subject a week or two ago, and yet another? Why this mystification? Why the vast change and the shrugging aside of quite competent Ministers? So far as I know there was no objection raised in your Lordships' House to any of those Ministers.

I go further and say that Mr. Pym, who on one occasion came to meet the all-party defence group, of which I was formerly chairman but am now just a Back-Bencher, spoke with a remarkable clarity and knowledge of the subject. As for the noble Lord, Lord Strathcona, I cannot recall any serious objection or criticism while he was occupying the position of Minister of State. Can we get an explanation? Can we get an explanation as to why it was necessary to replace these estimable Members of Parliament and members of a Government? What was all the trouble about?

May I put just one further point? I shall not be long. This is a very important subject. May we have some assurance that, having regard to our total global obligations, in the readjustments which are to take place in the next year or two due regard will be paid not only to the need for nuclear weapons, but to strengthen our manpower in all our forces and in particular our territorial contribution?

My Lords, I shall deal with the noble Lord's first and last comments before dealing with his rather longer comments about the appointment of Ministers. His first point was to ask whether I could confirm that there had been little or no change. Other than the Statement made by my right honourable friend the Chancellor of the Exchequer in November, to which I have already referred—it was an important one; it was a £200 million adjustment due to the pressure on the programme caused by both the earlier delivery of military equipment and the greater costs of it—I can confirm that we are on course in the main, subject of course to the problems of the future to which I referred. I was pleased to hear the noble Lord's reference at the end to the necessity of nuclear weapons.

Coming to the middle section of his comments, I would merely say that it is not the place of a junior Minister in the Lords to give a full statement on changes at Cabinet and ministerial level. I am surprised that the noble Lord, who is himself a bit of a permanency in this House and indeed in our affairs, does not recognise that all Governments and Prime Ministers will find it necessary to make changes at certain times. He will have noticed that my right honourable friend Mr. Francis Pym is now in the all-important job of Leader of the House of Commons. It would be inappropriate for me to make any further remarks in relation to my own appointment or the position of my noble friend Lord Strathcona and Mount Royal, except to echo what I have already said in that I have the highest regard for my noble friend, and that I have in common with the noble Lord, Lord Shinwell.

My Lords, will my noble friend take it from these Benches that we—I am sure this goes for many parts of the House—are delighted at this early announcement? It was highly desirable and it will give great confidence to those interested in defence in this country and particularly to our allies in Western Europe in view of rumours that have been circulating. This has therefore been entirely helpful to both Houses. My noble friend was right to put the good news first; it is pleasing to learn that there will be an extra 5,000 men under arms in the coming year. That is very welcome after 11 years of Labour rule when the strength of our forces was cut dangerously low.

May I ask my noble friend also to note that very welcome in the warship building yards, particularly those which are seeking orders, will be the announcement that extra warships will be ordered fairly soon? That is particularly welcome from the employment point of view in those yards which are badly in need of extra work. There is one area, however, which my noble friend could perhaps clarify. He said that as a result of the early delivery of complicated equipment there was a cash flow problem for the country. Is he aware that there is a much greater cash flow problem in industry? May I ask him to remember that while the prime contractors can probably stand on their own feet, their sub-contractors and the small sub-sub-contractors cannot indefinitely carry the financial load which a further moratorium would impose on them? Will he bear those points very strongly in mind?

My Lords, first I wish to apologise to the noble Lord, Lord Shinwell, for not answering his question on the numbers in the services and in particular in the Territorial Army. The Territorial Army will increase in size in the coming year and it is certainly not our intention to do anything other than to sustain its very important place. I have already covered the fact that the numbers in the Army and Navy will also increase. Recruiting is going forward well. The effect of this Statement is that we can and will be a little more selective in recruiting and shall take a little longer to reach established strengths. I have partly answered the question asked by my noble friend Lord Orr-Ewing in those terms, but I would also assure him that the cash flow of industry is indeed very present in my mind, particularly as a result of having been at the Department of Industry for the last 18 months.

My Lords, may I make two comments and ask two questions, first associating myself with what has already been said in my pleasure at his advancement and my commiseration with the noble Lord, Lord Strathcona and Mount Royal? My first comment is that it should be clearly understood—I am sure the Minister will confirm this if it needs confirming to your Lordships—that it is no good going on about the strategic arms limitation talks, which have nothing whatever to do with this country; they are bilateral talks between the United States and the Soviet Union. We can help but we cannot either bring them forward or contribute to them.

My second comment is that the £200 million announced by the Chancellor of the Exchequer in another place last year takes no account of cuts of equal magnitude, possibly greater, imposed by the rigorous application of cash limits, which is entirely inappropriate to Defence Votes. Cash limits may be perfectly appropriate to other spending departments but they are not appropriate to Defence Votes, mainly for the reason mentioned by the noble Lord, Lord Orr-Ewing; you make things, you sell them and you expect to get paid for them, and this is not a matter which can be shoved to the right. What is going on in the back reaches of the defence-based industries is that the component manufacturers are going out of business and their people are leaving the country and going elsewhere, and when we want their components they will not be there to make them. This is a very serious matter which arises entirely from a failure by the Government to understand that the doctrine of cash limits is not applicable to the defence-based industries.

My first question to the noble Viscount is simply to ask will he please assure me that the cuts which are to come—never mind the cuts which have already been made, about which I am as well informed as he—will not apply to the sharp end? Training has been reduced in all three services below, in my professional judgment, a safe level; men cannot drive their tanks and vehicles, young men cannot fly their aeroplanes and ships cannot go to sea because of cash limits imposed on training. I should like an assurance that that will not be carried forward to the extent where we are no longer able to discharge our duties.

My second question is simply to ask the Minister whether he will do whatever he can with his colleagues in the Ministry of Defence to stop the most regrettable tendency, which is prevalent now in the press and elsewhere in the country, to polarise defence discussions between some sort of land-air strategy and a maritime strategy, because we need them both.

My Lords, I thank the noble and gallant Lord for those important observations and questions. I thank him for pointing out that SALT II, which the noble Lord the Leader of the Opposition mentioned, is between the United States and the Soviet Union. It remains true that Her Majesty's Government will take every practical step towards the limitation and control of arms, and the word "practical" of course covers noting very carefully the degree of preponderance of conventional weapons the Soviet Union currently has over the NATO Alliance, which cannot be left out of the calculation.

With regard to the question of the inapplicability to defence of Treasury systems which apply to every department, this is a subject which I, as an industrialist for some 30 years, know fairly well. However, the fact remains that no matter how long-term your projects, you actually do have to regulate your programme in accordance with what you can afford. I assure the noble and gallant Lord that the importance of the long term, and of not changing long-term programmes, is well understood in the MoD, and certainly by me.

May I give the noble and gallant Lord an assurance about cuts at the sharp end? I would agree entirely with his last point—namely, that this whole affair must not be seen, as is sometimes reported in the press, in terms of competition between one service and another. Nevertheless reviews within the services and within the MoD of which bits of sharp end are to be the most applicable in the future against the fantastic costs of these weapon systems have to be carried out continually and every year.

My Lords, is the noble Viscount aware what pleasure will have been given to the town of Deal by the statement that the barracks there are to continue in existence? The existence of the barracks means so much to the economic situation in that small seaside town.

My Lords, there has been some public speculation about the future size of British forces in Germany. I do not think that the Statement mentioned that point in particular. Can the noble Viscount tell us something about that?

My Lords, our commitments to NATO in Europe have not been altered in any way.

My Lords, can the noble Viscount say precisely how much longer we in Britain will have to stand a much greater cost for defence per head of the population than our allies in Europe?

My Lords, the history of various countries is different. We have long made a great contribution to the defence of the free world. As a result, we have a great deal of knowledge and skills in certain areas, and I as an industrialist am clear that we get a tremendous fallout from our strong position, know-how and skills in that area.

My Lords, I hesitate to intervene on an important subject like this, but we have been discussing the Statement for 35 minutes, and I think that it might meet with the approval of the House if we were to move to the next business.