Lord Garden: My Lords, I too thank the noble Lord, Lord Truscott, for arranging this short debate on the important topic of the defence industrial strategy. I declare an interest as a member of a small group of defence specialists known as the RUSI Acquisition Focus. We have taken as our task to follow the DIS and its implementation closely. When we think it is helpful, we publish reports on various aspects as they happen.
The first report from the RUSI Acquisition Focus concluded: “Implementation is the key. It needs to change the fundamentals, particularly culture and behaviours in both industry and MoD, but however worthy the aims of the initiative, it will fail, as the promising Smart Acquisition initiative failed, unless there is strong commitment and leadership from the top over an extended period”. As we have heard from your Lordships tonight and in the past, we think that we have someone who can give that commitment and leadership from the top. The question is whether it can be over an extended period.

As I opened the now 10 month-old defence industrial strategy White Paper, I turned again to the photo gallery at the front of all the signatories from the Ministry of Defence, the DTI and the Treasury—all the Ministers who signed up to the strategy. I have to tell the noble Lord that he is the only one still in the same job 10 months later. That is more than a cheap shot about turbulence in Government. It is important that there is continuity for the introduction of this complex and long-term initiative. The problem of turbulence in posts and keeping engaged people who know what is going on is also true at the lower levels. Has the Minister had any success in reducing the personnel turnover within his area of management?
When I responded in your Lordships' House on15 December 2005 to the Statement which launched the defence industrial strategy, I said that I welcomed, “the strategy’s clear set of priorities; number one: the operational capability and getting the technology to do the job; and number two: value for money”.—[Official Report, 15/12/05; col. 1411.]It is against those criteria that we must keep judging progress. As the noble Baroness, Lady Dean of Thornton-le-Fylde, said, it has been going only a fairly short time in which to judge progress. We cannot expect to see great changes and there will be undoubted tensions over how it develops. Given that we are in a co-operative mood this evening, perhaps the Minister will share with us in his reply the areas that he thinks are moving less fast than he would have hoped. Where are the difficult areas at the moment?

In that first debate, I also highlighted the potential tension between the desire to give industry long-term planning stability and, at the same time, to meet the near-term operational demands. I happened to choose section B5 on helicopters as my example. As I pointed out then—nearly a year ago—we needed, “heavy-lift helicopter capacity for Iraq, Afghanistan, for UN operations, for conflict prevention and for humanitarian relief. We cannot provide it if we are putting all our money into attack and maritime helicopters in order to promote an industrial strategy. So what I see is that, even at this early stage, we are shaping the future of our operational requirements around an industrial strategy”.—[Official Report, 15/12/05; col. 1413.]

The Minister’s response was to say:
“We recognise that we must address that within our overall rotor-craft strategy and we are doing so. We are making the extra investment to enable us to do so”.—[Official Report, 15/12/05; col. 1416.]

Yet, as we know only too acutely, the near-term problem is still with us a year later. I do not ask the Minister to rehearse again all the urgent work that he is doing to get lift-helicopters for our current operations. It is the wider point that I hope he will address. How does he see a long-term strategy for stability for industry working when the strategic context is changing so rapidly, and often unpredictably?
Of course, it is not just the security environment that is in a state of flux; there is also the question of the industrial environment. Indeed, the intervention of the noble Lord, Lord Hamilton, in the gap highlighted one aspect of that. BAE Systems is very much favoured by the strategy as a repository of national defence and aerospace capability, yet it is an international company. It now has as many employees in the United States as in the United Kingdom. This week, the Sunday Times was speculating, as the noble Lord, Lord Hamilton, said, about the prospect of a takeover of BAE Systems at some stage by Boeing, and there is also the possibility of Rolls-Royce being taken over by an American company. I think that both are unlikely in the short term but they are not impossible scenarios in the medium term. I would be interested to hear how the Minister views his ability to factor in those uncertainties into a defence industrial strategy which has to project national capabilities into the long term.

The noble Lord, Lord Levene, as always, with his great experience, made an important contribution to this debate. I remember his time at the Ministry of Defence, balancing how much we favour particular industries and what that means in terms of their ability to develop into efficient industries.

On the implementation side, the Defence Select Committee identified some areas for further work, some of which have been mentioned already. I am sure that the Minister will update us on how they are progressing. The key area that has been mentioned is research and technology. It has seen a long-term decline in funding; something that everyone involved in this business has worried about.
This afternoon, I was delighted to claim the only copy of the defence technology strategy available in the House of Lords. I went to the Library where I was told, “You will be careful with it, won't you? We have only one copy”. I went to the Printed Paper Office where the staff said “That is very interesting: it has no command number, no reference number and no date, so we cannot order it”. Actually, they said that they would try to order it from the Ministry of Defence. Obviously, we have not had time to absorb everything in this document but its status is a little uncertain. It is not a White Paper; and it is not a dated document from the Ministry of Defence. Is it a pamphlet giving us the thoughts of the Minister or is it government policy? How are the companies that will read this with great interest to take this document? Certainly those in the Printed Paper Office have not seen a document come out in such an anonymous format.

Nevertheless, we have been asking for priorities in terms of research and the strategy gives us that. I was grateful to the noble Lord, Lord Truscott, for telling me what I did not know: that we have a figure for the funding of the R&T side, which is going to rise in line with inflation. In other words, it will not rise in real terms at all. The funding is too little; it has declined; and we have a problem because we are not investing anything like the amount invested in the United States. How does the Minister think, at that kind of funding level, he will close or stop the gap increasing in relation to United States technology? What thoughts are there for doing more with our European colleagues, in terms of pooling resources—each nation spending little packets of money and not achieving anything very much?

The Defence Select Committee also looked at small and medium-sized enterprises. They are a vital part of the United Kingdom’s defence industrial base, but they have great problems in getting their voices heard in the Ministry of Defence against the big companies. In my quick skim of the technology strategy document, I saw mention of how SMEs will be involved. But in terms of bidding for the main contracts and getting involved, what has the Minister managed to do this year to try to bring in the SMEs?
The Select Committee also highlighted the further work required in the maritime sector. The noble Lord, Lord Truscott, also mentioned that. The press has suggested that the Minister has been applying pressure to speed up developments in this area. I hope that this evening he will share with us what progress he has made.

Since we last debated the DIS, as the noble Lord, Lord Levene, and the noble Baroness, Lady Dean, highlighted, we have had the July announcement of the merger of the Defence Procurement Agency and the Defence Logistics Organisation. That is a massive amalgamation. I agree with the noble Lord and the noble Baroness that it is right and overdue. However, we have only just completed the creation of the DLO, where the savings that were assumed were rather slower in coming than had been planned for. I would be interested to hear whether the Minister is confident that the DLO is ready for this next big step change and what assumptions have been made about new savings. One of the problems is that one cannot get this done if the savings are forced too quickly.

Everyone who looks at defence acquisition seems to agree that the key need is for cultural change. Does the Minister agree that that is fundamental and, if so, how does he think he is going to achieve it?
As the noble Lord, Lord Truscott, highlighted, looking ahead, the most important issue is resources. At the moment, funds are needed for urgent operational needs. We hear of them every day: operational bonus payments, vehicles and helicopters. Yet funds are needed to make this strategy work. Is the Minister confident that he will get the funding to support his strategy?

Then there is the balance of the equipment programme. I have avoided using tonight as an occasion to debate progress on particular procurement projects, but the noble Lord, Lord Jones, mentioned a number of them. They are important, but I want to focus on strategic issues for the future. As we look forward, we have the problem of a somewhat unbalanced programme, which now focuses on maritime issues—the carrier programme and the possible replacement of Trident—at a time when all our current operational needs are on the land warfare side. We are buying aircraft that do not have close air support capabilities, but that is what we need. Does the Minister agree that we are at a stage when his colleagues in the Ministry need to look at reviewing defence policy so that they can better inform his defence industrial strategy?