Motion to Approve
My Lords, as we look towards 2021, planning for the smooth delivery of defence and security procurement beyond the transition period is absolutely essential. This instrument will ensure that defence suppliers and buyers have the legal certainty they need beyond 31 December. It is a small instrument, but a necessary one.
In the interests of accuracy, I draw attention to a minor error in the heading to Regulation 2 of the instrument, which currently reads “Pre-exit amendments of the Defence and Security Public Contracts Regulations 2011”. Regulation headings are not an operative part of the instrument and Regulation 1(2) explicitly states that Regulation 2 comes into force the day after the day on which these regulations are made. It has been confirmed by the laying offices and the legal counsel to the JCSI that the deletion of “Pre-exit” can and shall be made editorially, prior to signature. In the interests of transparency, it is appropriate to bring that to the attention of your Lordships.
Before we consider the detail of this statutory instrument—which I shall refer to as the 2020 regulations—I highlight that this is the second EU exit amendment to the Defence and Security Public Contracts Regulations 2011. The first amendment was debated in both Houses and signed by the Secretary of State for Defence last year. The 2019 regulations, as amended by the 2020 regulations, will now enter into force on implementation period completion day, which is the end of the transition period.
This instrument ensures that the procurement provisions of the withdrawal agreement and the European Economic Area European Free Trade Association separation agreement are correctly applied to the procurement of those public contracts and framework agreements which have been launched but not finalised under the Defence and Security Public Contracts Regulations before the end of the transition period.
These transitional procurements will be regulated under that version of the Defence and Security Public Contracts Regulations which meets our current European obligations. Businesses, and indeed the MoD and our much-valued security agencies, will continue to have legal certainty beyond transition period completion day. Defence and security procurements will therefore be underpinned by solid legal bedrock.
Reflecting that, Regulations 3 and 4 of the 2019 regulations will now come into effect at the end of the transition period. The 2020 regulations replace references to “exit day” in the 2019 regulations with “implementation period completion day” where necessary. The opportunity has also been taken to update certain references to financial thresholds in the 2019 regulations, which were revised during the transition period. These are small corrections, but they are necessary.
As well as amending the 2019 regulations, the new legislation updates and corrects the original 2011 regulations. Noble Lords will note that these changes are not related to EU exit. In Regulation 12, which covers technical specifications, an outdated reference to “European technical approval” is replaced with “European technical assessment”.
I reassure your Lordships that, when drafting this instrument, care has been taken to ensure that it is as consistent as possible with other government public procurement legislation. This change to Regulation 12 brings defence and security procurement legislation into alignment with the Public Contracts Regulations 2015. It is a straightforward amendment, as the system of European technical approvals is no longer in practice and has been replaced by European technical assessments. The opportunity has also been taken to update the reference to the common military list of 2018 with the common military list of 2020.
Together, the 2019 regulations and this instrument reflect the UK’s new status outside the EU. The 2019 regulations, agreed by this House over 18 months ago, restrict automatic legal access to the UK’s defence procurements to suppliers from the UK and Gibraltar only. However, the framework and principles underlying the procurement regime remain unchanged. As your Lordships are aware, this is in accordance with the powers given to amend retained EU law in the European Union (Withdrawal Act) 2018. That Act does not allow major policy changes or the introduction of new legal frameworks. Amendments to the Defence and Security Public Contracts Regulations made under the powers given by the 2018 Act are limited to dealing with the effect and consequences of EU exit.
More broadly, freedom to consider the reform of our defence and security procurement regulations is one of the consequences of our exit from the EU. So, as we look beyond the transition period, this freedom is being used positively to develop defence and security procurement regulations tailored to better meet the UK’s needs. A comprehensive review of the Defence and Security Public Contracts Regulations is under way with a view to improving the pace and agility of acquisition. This is a significant piece of work which will take some time to complete and will require the introduction of new primary and secondary legislation. In the meantime, the amendments that these regulations make will ensure that public procurement business conducted under the umbrella of the defence and security procurement legislation will continue to flow smoothly and confidently.
I look forward to contributions from your Lordships, not least that from the noble Lord, Lord Dodds, who is making his maiden speech this afternoon. I commend the 2020 regulations to the House and beg to move.
I am conscious of the fact that we are dealing with a major sector, if not the major sector, of British industry. These draft regulations amend regulations made last year which amended the 2011 regulations, which brought into domestic law the requirements of a European directive. There must be someone whose bread and butter is procurement in the Ministry of Defence and who might follow it all.
However, my first question to the Minister is: why has the Ministry of Defence retained these confusingly amended DSPC regulations 2011? “We need legal certainty—a solid legal bedrock”, the noble Baroness said. This is a complicated maze with which bidders for contracts must grapple. Why has the ministry not brought before us a clean and transparent set of new regulations to govern procurement for our defence needs in the brave new world about to dawn on 1 January? Why are we carrying into the future a body of law which looks to the European directive and the European Court of Justice for its interpretation? “The principles remain unchanged”, said the noble Baroness, Lady Goldie, to us a moment ago.
My second question is this: according to the Explanatory Memorandum, one purpose of these regulations is to validate “ongoing public procurement procedures” that have been launched but not concluded before the end of the implementation period. To get some idea of the scale of what we are dealing with, how many contracts or framework agreements or applications are we engaged with? Is it five, 10, 100 or 1,000? How many application procedures are expected to be launched between now and the end of the implementation period? Is there a scurrying to get these procedures launched in the next 58 days or will the MoD be waiting for the new year?
Thirdly, what does the future hold? In the debate of March last year, to which my noble friend Lady Smith contributed, the noble Earl, Lord Howe, promised that we would not fall off a cliff but, to my mind, we are heading pell-mell for Beachy Head. I understand that businesses in the EU 27 will have their hitherto-guaranteed right of access to UK public procurements and will be tendering for government contracts on the same basis as other countries worldwide, but what about other bidders? Are Russia, China, Korea or the US envisaged? There are a limited number of arms-exporting nations. What about reciprocity? Please can the Minister confirm that we have reciprocally lost guaranteed access to EU defence procurements?
Finally, does Her Majesty’s Government, freed from the shackles of Europe, envisage that they will be able to prop up the British arms industry with state aid? Of course, this would put it in a far more competitive position and is no doubt a main reason why state aid seems to be the stumbling block in the current stuttering negotiations with Monsieur Barnier. Where does state aid come in the Government’s calculations for future defence procurement? How much has our pending breach of international law, compounded by Boris Johnson’s failure to respond by today to the EU Commission’s letter before action, damaged the trust worldwide that bidders can place in this Government’s commitment to meet our contractual obligations?
My Lords, I rise to add my support to this amendment to the regulations. I am conscious that I am simply a poor warm-up act before the noble Lord, Lord Dodds of Duncairn, gives his maiden speech, so fear not: I shall be brief.
Turning to the regulations, it is important that we ensure that our legislation continues to operate effectively beyond the transition period and procuring our defence needs in a way that is legally sound is vital. The instrument we are debating today is necessary as it will ensure just that. I recognise that the challenges being debated today are just the first step towards developing a procurement regime that better meets the UK’s requirements. I am heartened to hear that the Ministry of Defence is grasping the opportunities offered by our departure from the EU and that work has already begun to simplify and modernise the legislation and, crucially, improve the pace and agility of procurement activity. Reducing unnecessary regulatory burdens on government buyers and suppliers alike is one of the opportunities that EU exit has opened up for us and one it is important to exploit.
Looking further ahead, I take this opportunity to draw noble Lords’ attention to the excellent Dunne report, written by my former ministerial colleague Philip Dunne, which seeks to plot a pathway for defence to make a growing contribution to UK prosperity. As we leave the EU, we now have the opportunity to buy British and support UK industry. For example, under EU regulations, while warships could be procured solely from UK yards, non-combatant vessels, even those of the Royal Fleet Auxiliary, had to be put out to international tender. Equally, defence has been restricted from supporting local communities by offering food contracts exclusively to local suppliers. Can my noble friend assure me that, as the Dunne report recommends, due weighting is attached to the prosperity impact in the UK for future government tenders?
Secondly, I highlight the need for agility and pace in our procurement process, perhaps by adopting a culture focused more on finding the right procurement solutions and less on defining and avoiding obstacles at the outset. This requires the MoD to develop its skills base as a client, while better understanding how defence and market interactions shape each other. Building the quantity and quality of skills across defence is an important part of this work.
Finally, in reminding the House of my interest as chairman of the 2030 Reserve Forces review, I make a plug for the greater use of sponsored reserves. Supplied as part of a commercial contract with the MoD, they offer an assured supply of uniformed skills to defence. Despite being identified as a vital asset to defence over 10 years ago, their numbers have stagnated at just over 2,000 and they remain, in my opinion at least, an underutilised resource.
My Lords, it is a great honour indeed to make my first contribution in your Lordships’ House and to follow my noble friend Lord Lancaster of Kimbolton in this important debate. I thank all noble Lords for the warm welcome I have received in recent days. In particular, I thank Black Rod, the Clerk of the Parliaments and the doorkeepers, who have been so helpful, kind and patient, as well as all the administrative staff and the ever-cheerful catering and cleaning staff who look after us so well, especially in the present circumstances.
I am also grateful to the two supporters at my introduction. I have known the noble Lord, Lord Morrow, of Clogher Valley, since I first got involved in politics, growing up in the beautiful county of Fermanagh. With the noble Lord, Lord Browne of Belmont, I was elected to Belfast City Council in 1985—the first elected office for either of us. Like him, I have had the singular honour to serve as lord mayor of that great city and, although a Londonderry man by birth, Belfast has been my political home for many decades. The territorial designation in the title I have taken, Duncairn, references the historic electoral area in the heart of the North Belfast constituency, which I have had the honour to represent for some 35 years altogether—first, in the council, then in the Northern Ireland Assembly and, for over 18 years, in the other place.
As I return to Westminster, much has changed given the current pandemic, but Brexit negotiations still loom large. I reiterate my sincere message, which I have expounded since the referendum, that the Government have a solemn duty to deliver Brexit—they have now done that—but in a way that safeguards the union. That is their overriding responsibility, above everything else. In our deliberations, it is important to remember that the protection of the peace and political process in Northern Ireland is about recognising and defending unionist, as well as nationalist, concerns and interests. That is something that, at times, is missing from some of the debates, particularly on Brexit.
I hope to continue, in accordance with the traditions and conventions of your Lordships’ House, to champion the union, to work to strengthen this United Kingdom of Great Britain and Northern Ireland and, as we approach the centenary of Northern Ireland next year, to find ways to build on the progress we have made in Northern Ireland in recent years. While there are many challenges, it is important to acknowledge the vital everyday work of government in Northern Ireland, which helps to deliver a better future for all our people. Devolved government in Northern Ireland is not always easy, as we have seen recently, but it is vital, and it is vital that we continue to move Northern Ireland forward.
In doing so, it is important that no one is left behind. The many innocent victims of terrorism still deserve to see justice, proper compensation and an end to those who glorify terrorism which, sadly, still happens all too often in Northern Ireland. Continued attempts to make terrorists the equivalent of our gallant security forces must always be resisted.
Time is too short today to outline the many domestic policy areas that I passionately believe need more attention, but I will mention two in particular. My own family experience drives my determination that everything possible is done to increase awareness and understanding of people with disabilities. My experience representing north Belfast and the wonderful people of that area has shown me how our vulnerable children and their families need support and intervention from an early age, with education at the heart of growing communities.
I strongly believe that our defence and security institutions must be properly resourced and supported to defend us in this increasingly dangerous and unpredictable world. As a member for almost 10 years of the NATO Parliamentary Assembly, along with the noble Lord, Lord Campbell, who is with us today in this Chamber, I believe more than ever in the crucial importance of a strong United Kingdom at the heart of a strong transatlantic alliance. The regulations before your Lordships this afternoon will ensure the smooth regulation of defence and security public contracts at the end of the transition period. They are another piece of the complex jigsaw of legislation preparing the way for life after Brexit and as such I am happy to give them my full support.
My Lords, it is a privilege to follow my noble friend Lord Dodds of Duncairn. I congratulate him on his excellent speech. However, he has been somewhat modest about his career and achievements. He studied law at St John’s College, Cambridge and was called to the Bar. As a barrister, he served as adviser to the secretariat of the European Parliament. His experience there gave him a deep knowledge of European law, which should prove useful in the current circumstances.
My noble friend has served in three elected chambers and has attained important positions. As he mentioned, both he and I were elected in 1985 to Belfast City Council. I served for one year as lord mayor, but he had the privilege to serve on two occasions in that role, and he was the youngest lord mayor the first time. Next, he was a Minister in the Northern Ireland Assembly, serving in three different departments. As we have heard, he represented north Belfast in the other place from 2001 to 2019. In 2010, he became leader of the Democratic Unionist Party here in Westminster and was appointed to the Privy Council.
Throughout his career, my noble friend Lord Dodds has demonstrated a steadfast commitment to the union as the bedrock of his political outlook. Before the referendum on Scottish independence, he stressed that all the countries of the UK were stronger together than they could ever be apart. More recently, he referred to Brexit as a battle for the union itself, and negotiated tirelessly to protect Northern Ireland’s position in the United Kingdom. In Belfast City Hall, in the Northern Ireland Assembly and in the other place, my noble friend always sought to represent all his constituents, whatever their political persuasion. When it is remembered that, on at least three occasions, attempts were made to take his life by political opponents who regarded violence as an acceptable weapon, his adherence to this principle is all the more laudable. I am very confident that better decisions, based on coherent argument and rational debate, will be arrived at in your Lordships’ House in the coming years because of the presence of my noble friend.
Turning to the statutory instrument before us, these regulations are important to prevent what could potentially be a very bad outcome if the 2019 regulations are not amended. We simply cannot afford for there to be any unnecessary uncertainty over the law on regulating defence and security public contracts. Given that there is now a transition period that runs out at the end of the year, the 2019 regulations, which amended the 2011 regulations, are quite simply unfit for purpose in certain key aspects and must themselves be updated. I presume that, to the extent that it is relevant, the devolved Administrations have been duly consulted. These are technical but nevertheless significant provisions and we are seeing a lot of this type of legislation in the run-up to 31 December. I am very happy to support the Government in this and in their ongoing work to make the statute book ready for when the transition period finally ends.
My Lords, the nature of the world we live in means we have to have adequate defence and security provisions. Ensuring that the necessary procurement can continue effectively after our departure from the EU is clearly essential. These regulations are designed to ensure that, so I support them, but I wonder, as did the noble Lord, Lord Thomas of Gresford, why the opportunity has not been taken to draft some new and more easily comprehensible regulations than these. As the Minister tried to explain the changes that are being made and the tidying up that is being done, I sympathised with her plight: these are a real hotchpotch.
It had been my fervent hope that, after leaving the EU, the UK would seek the closest possible alignment with EU regulations, thus allowing, effectively, a continuing membership of the single market that has been such a boost to our industry. That is not the Government’s policy. I believe the decision will undermine the UK’s economy, but it is clearly important that, in the new, post-Brexit world, the UK nurtures its industrial base. The defence and security industry is a valuable contributor to that. The research and development that goes on in many of our defence businesses feeds into valuable innovation in companies in many other sectors. We need to help that in the future. Can the Minister tell us how much we are going to be able to place our own industry at the forefront when it comes to procurement? To what extent will we still have to offer contracts to the EU and beyond? Are we able to make it clear that our shipbuilding industry is the one we wish to nurture?
The noble Lord, Thomas of Gresford, referred to state aid. Can the Minister explain exactly what the position is on state aid? Many of us are confused at the moment as to why it is such a stumbling block in EU negotiations. Any elaboration she could give would be much appreciated.
My Lords, I thank the Minister for introducing this debate on these regulations. I congratulate the noble Lord, Lord Dodds of Duncairn, on his excellent and interesting maiden speech. I look forward to hearing often from him on this and many other matters.
My noble friend explained the technical effect of these measures, and I welcome the increased confidence they bring that there will be no cliff edge as far as military procurement is concerned after the implementation period ends at the end of the year. It is welcome that the proposals will make it possible for the nation to decide its priorities for procurement partnerships in defence, removing the distinction of treatment between EU suppliers and other potential partners outside the EU. This will allow new partnerships to be formed. It was good to see the recent agreement with Australia in respect of its future frigate programme, and it should enable other potential partners, such as Japan, to be considered for future defence projects.
The fiscal challenges resulting from the Covid pandemic make it all the more important that we build new partnerships to share the escalating cost burden that each new generation of military equipment requires. In forming new procurement partnerships, we will be able to invest in the capabilities that the country really needs while taking advantage of the strengths that new partners can bring.
These regulations permit the Government to abandon the requirement to offer all defence procurement projects, and indeed other procurement projects, equally throughout the EU, unless there are good reasons for exemption on national security grounds. It is right that this exemption will still apply going forward, and it is highly desirable that the UK should possess competitive, world-class shipbuilding and aircraft manufacturing industries.
However regrettable it may be, at present, UK employment costs and productivity do not compete with global norms. It is important that political objectives to maximise UK involvement should be balanced against the overriding need to procure the best equipment at the best price and on time.
On 7 October, I asked the Minister if she could confirm that in the new fleet solid support ships programme, the priority would be best value for the UK defence budget. She confirmed that she was assessing the interest of those parties that had responded to the information notice process, but I do not think she made it clear that best value is the most important factor on which the contract would be awarded.
There is growing alignment between the aspirations of Japan and the UK interests in defence equipment. We know Japan also wants to build two or three similar support ships in the same timescale. At the same time, there are indications that Japan is increasingly looking at the UK as a potential partner in its future fighter programme. Does the Minister agree that the prospects for creating sustainable, competitive defence equipment industries in the long term would be enhanced by working together with partners such as Japan, not by applying too-prescriptive domestic content criteria or a requirement that there be a sole prime contractor, which must be a British company? Would not a partnership of British and foreign companies often provide the best way forward for such contracts, which become ever more expensive?
I look forward to other contributions and the Minister’s reply.
The main legal framework for government procurement is the Public Contracts Regulations 2015, implementing directives from 2014 to 2024 in the UK. The defence and security directive introduced a tailored regime for the procurement of defence and security requirements. Those requirements are important—it is important that all procurements are made with proper tendering processes. There is a need to ensure that we do not end up giving defence procurement contracts to organisations that could jeopardise our defences. I support this regulation, as the defence of our country is paramount.
I apologise. I am so used to Oral Questions, where we are called by name, that I was slightly wrong-footed.
Delighted would not be the word to use about speaking in this short debate on the draft statutory instruments, but it is clearly an important debate. My noble friend Lord Thomas of Gresford flagged up a set of questions that have been picked up by various noble Lords.
I start with reference to the noble Lord, Lord Dodds of Duncairn, and his most welcome maiden speech. It may surprise your Lordships and, indeed, the noble Lord himself, to know I would agree with him on one part of his speech beyond welcoming him to the Chamber. It is a key point that defence and security must be properly resourced. That is clearly essential, but it is not the primary purpose of today’s debate, which is to look at a technical set of regulations to ensure that provisions are in place after the transition period or implementation date ends.
As my noble friend Lord Thomas asked, can the Minister explain why we are still looking to amend regulations from 2011? Can the Minister explain when she envisages having some legislation, which she touched on, for the UK to have its own arrangements for defence procurement? If there is one area where the National Audit Office comes back with questions time and again, it is defence procurement.
The noble Viscount, Lord Trenchard, talked about the importance of best value for money. The best equipment at the best price and on time is clearly important. We have not seen that very often in defence procurement, which tends to be over budget and over time. Therefore, I ask, as my noble friend Lord Thomas did, what contracts are currently being discussed under the present arrangements and so will be part of the change in regulations that we are looking at today. It is quite likely that there are already contracts in place or being negotiated that will take us decades into the future. How far into the future do the Government see these regulations persisting? How do they see the transition to the UK’s own regulations for defence procurement?
Further, how do the Government envisage state aid? As the noble Baroness, Lady Wheatcroft, said, it is somewhat peculiar that so much time is being devoted to discussions of state aid, particularly—and this is something that the noble Baroness, did not say—as we have a Conservative Government. Never have I heard a Conservative Government spend so much time talking about the importance of being allowed to have state aid. Is it for the defence industry? Is it to support our shipping industry? What plans does the MoD have and is the Minister able to share any of them with us?
It is important that we have legal certainty after the transition period is over, so it is appropriate to support these regulations. I hope that the Minister does not have to come forward every year with an update saying, “We are still trying to amend regulations from 2011. There is still a word or two that is not quite right.” It is important to have a defence procurement process that works effectively and goes beyond amending regulations. We need a future set of arrangements to ensure that our defence procurement process is as strong and effective as our Armed Forces themselves.
My Lords, I congratulate and welcome the noble Lord, Lord Dodds. He follows in a rich tradition of sons and daughters of Derry/Londonderry making very important contributions to the quality of public life in our country. I look forward to his contributions in the future.
Defence procurement drives the UK’s important defence industry, and with that protects hundreds of thousands of skilled jobs. The industry needs certainty to flourish, including on how contracts will operate towards the end of the transition period. As we have heard, these regulations relate to public procurement procedures which are governed by the Defence and Security Public Contracts Regulations 2011. Under the UK’s obligations in the withdrawal agreement and the EEA EFTA separation agreement, the same rules will continue to apply to procurements launched but not finalised prior to the end of the transition period. With the internal market Bill currently going through your Lordships’ House, I am glad that the Government have not fully abandoned their obligations in the withdrawal agreement.
I have a number of questions for the Minister. Can she confirm how many contracts she expects to continue operating under these rules, and for how long? This SI updates two of the financial thresholds over which the full requirements of the 2011 regulations apply. Can she explain why the higher threshold has been increased from £820,700 to £884,720, and how this was calculated? The regulations also say that procurements launched after the implementation period completion day will follow the Defence and Security Public Contracts Regulations 2011, as amended by the 2019 regulations. For those procurements, notices will be sent to the UK e-notification service, and rights and remedies under the 2011 regulations will be limited to the UK and Gibraltarian economic operators only. Will this be affected if procurement is included in an EU-UK FTA?
While clarity for procurement contracts that have begun but are not yet completed is welcome, there remains much uncertainty around the future of defence procurement, especially relating to the integrated review, the comprehensive spending review, and Covid-19. I am sure that I am not alone in worrying about delays to the review and the changing timeframes for the CSR, as well as the impact that this will have on procurement and the whole defence industry. It has been reported that the CSR will now be based on a one-year settlement rather than a three-year one, which could be very damaging to defence. Equipment procurement is a long-term business, and it is already facing a hole in the budget of £16 billion. Can the Minister confirm that the Ministry of Defence will now receive only a one-year settlement? What impact will this have on procurement projects, and on the UK’s military programmes and capabilities?
I hope that the Government realise that, as Ministers argue over budgets, our adversaries are moving ahead with new threat capabilities. We cannot afford a delay or a spending downgrade. I would be most grateful if the Minister explained what steps the department is taking to mitigate the impact of rising cases of Covid-19 and the tightening of restrictions on procurement. How are the Government protecting small businesses along the defence supply chain?
All my professional experience prior to entering the House of Commons tells me one key thing: businesses need certainty. While these are challenging times, the Government must do their utmost to provide that certainty through the procurement procedures.
My Lords, I thank your Lordships very much indeed for their contributions, which have all been helpful and informative. I will deal with them as specifically as I can.
The noble Lord, Lord Thomas of Gresford, and the noble Baronesses, Lady Wheatcroft and Lady Smith of Newnham, raised the issue of complexity, and why we have retained the regulations. There is no denying that they are complex but, at the same time, within industry they are understood, and to that extent they are predictable. That is why it was thought imperative that we maintain that clarity and continuity for the sake of businesses, so that they could understand the background against which they were operating and the solid basis on which they were being asked to proceed.
In common with these points was a further question: what about a more comprehensive review? As I indicated, that is in mind and under way, specifically to improve the pace and agility of acquisitions, but it is a very significant piece of work and cannot be done quickly. What matters is that it is being done; Parliament will receive further information about that in due course.
The noble Lord, Lord Thomas, and the noble Baronesses, Lady Wheatcroft and Lady Smith of Newnham, asked whether I had any idea of how many procedures had been launched but not concluded. I am afraid that I do not have a specific answer to that question. This is to some extent a changing and continuing scene but I shall make inquiries and, if I find something out, I shall certainly bring that to their attention.
The noble Lord, Lord Thomas of Gresford, also raised the issue of companies having access to defence procurement in the EU after the transition period. As a matter of EU law, EU member states will no longer be legally obliged to open their defence and security procurements to UK suppliers as the appropriate directive will no longer apply. However, our UK suppliers are world class; they enjoy interest and demand for their products across the globe and offer incredible experience and expertise in defence. It may well be that EU member states will choose to give UK suppliers access to their competitions to maximise the effectiveness of their procurements, just as the UK might choose to do.
I think it was also the noble Lord, and the noble Baronesses, Lady Wheatcroft and Lady Smith of Newnham, who raised the question of state aid. I imagine that their question was predicated on whether an assessment of state aid influences a potential supplier’s bid. There is no change in the ability of contracting authorities to request that tenderers explain their price or costs where tenders appear to be abnormally low. There will, of course, no longer be an obligation to report to the European Commission where state aid is the reason that a tender was rejected.
It is a great pleasure for me to be able to extend to my noble friend Lord Lancaster a warm and personal welcome to these Benches. He raised the interesting issue of the Dunne report. He is quite right that it has been pivotal, because a stronger, more competitive and sustainable defence industry brings both better value to defence for the customer and greater economic benefit to the UK. That, of course, was recognised in the defence prosperity programme launched in Parliament in March 2019. The programme was informed by Philip Dunne’s excellent report on the subject as well as by the refresh defence industrial policy.
My noble friend also raised the interesting question of sponsored reserves; they are indeed another enabler of military capability. The assurance of contracted services, which was indeed one of their characteristics provided for under the Reserve Forces Act 1996, enables them to continue to use their skills in an operational environment to support the MoD and to deliver the service that their employers have been contracted to provide.
I congratulate the noble Lord, Lord Dodds, on his thoughtful and constructive maiden speech, which had the resonance of authority from his personal experiences. I identified three principal chords in what he had to say: he seeks delivery of Brexit, he wishes the union protected, and he sees the value of upholding defence. I cannot disagree with him on any of those things. I hope that the evidence is before us that the Government are determined to deliver on all those important fronts.
The noble Lord, Lord Browne of Belmont, pointed out, I think helpfully, just how important these regulations are, because they do provide consistency and continuity. Of course, that is at the heart of why we are dealing with this business today, and it is very much in the interests of our defence industry partners that we do that.
The noble Baroness, Lady Wheatcroft, raised the issue of our relationship with the EU. I wish to reassure her that, certainly in relation to defence, that relationship is important. We remain committed to European security, which is synonymous with United Kingdom security, and we will continue to co-operate with our friends and allies on shared threats and challenges. I reassure her that we already enjoy a strong bilateral relationship in relation to defence with a number of European countries, and that these are cordial and constructive. Of course, NATO will be at the heart of our approach to defence. The UK has consistently been and will continue to be a strong proponent of closer NATO-EU co-operation, stressing the need for coherence between the two on a range of challenges where the strengths of both organisations need to be combined.
My noble friend Lord Trenchard raised the issue in general of procurement, and specifically he mentioned the fleet solid support ships. As he will understand, I cannot comment too specifically on that process, other than to say that there was a healthy response to the market intelligence-gathering exercise. I wish to reassure him that we are clear that these ships will be made by British-led teams building on the success of Type 31, and we intend to allow international partners to work with UK firms to bid for this British-led shipbuilding project.
The noble Lord, Lord Bhatia, quite rightly raised the issue of proper tendering processes, and also being very careful to be sure of who we are doing business with. I think that would be met with an echo of agreement throughout the Chamber. Part of this process today is to ensure that there is a clarity and a robustness to the procedures, and the wider review, which I have already referred to, will have very much at heart what the United Kingdom wants to have at the forefront as the singular issues of importance when it is looking at these important procedures.
The noble Baroness, Lady Smith of Newnham, raised issues about equipment and her concerns about the reports from the National Audit Office and the Public Accounts Committee. I acknowledge the existing financial difficulties with the 10-year equipment plan, but I wish to point out to her that we have stayed within budget last year, as we have in the previous two, and we are striving to reduce the future gap. I think all your Lordships will understand that managing these ambitious, complex programmes is challenging, but we have already achieved £7.5 billion of equipment efficiency savings for the next 10 years, and, of course, last year we secured an extra £2.2 billion funding for defence.
The noble Lord, Lord Touhig, raised a number of issues. I think he was concerned that legislative matters in future might cause problems with our approach to these issues today. I say to him that whatever may be negotiated in the future, we always endeavour to ensure consistency and that we align legislation appropriately. He also mentioned the spending review, and I reassure him that the Ministry of Defence is in discussion with the Treasury. He rightly identified important issues, and I would agree with him about these important issues. These discussions are obviously of significance, but I cannot comment further on that just now. He also raised the issue of Covid and the effect of Covid both on the MoD and on our industrial partners. I want to reassure the noble Lord that the MoD has very robust procedures to deal with the incidence of Covid within our Armed Forces, and we also have been engaging closely with our industrial partners to ensure we are doing everything we can to support them.
I am very grateful for the contributions offered this afternoon. I hope I have answered noble Lords’ questions and clarified the implications of the amended legislation, and I trust that your Lordships will feel able to support the statutory instrument which I have already moved.