HC Deb 10 April 2002 vol 383 cc22-44WH

11 am

Mr. John McWilliam (Blaydon)

It is a distinct pleasure to be in Committee Room 10, and I echo the thanks offered in the previous debate by my hon. Friend the Under-Secretary of State for International Development to the staff of the House for working so hard to enable us to continue our debates despite the tragic loss of the Queen Mother and the necessary effects on Westminster Hall and its Chamber. I also thank the Minister for Defence Procurement for meeting me, along with colleagues as well as trades unionists, on 11 February to discuss this subject, and all the hon. Members who have signed my early-day motion.

Royal ordnance factories have a long history. They were set up because King Henry VIII needed to secure the quality and quantity of ammunition and guns for the navy and his other military objectives—he could not rely on private industry then. Henry VIII was not noted for his socialist tendencies, but he set up the first nationalised industry; the royal naval dockyards could arguably be the first, but I will return to that subject later.

The royal ordnance factories were privatised in 1987. I remember that because I was privileged to be Opposition Whip on the Bill that privatised them. I distinctly remember the assurances given—from almost exactly the spot on which I am now standing—about the future of royal ordnance factories and, most importantly, about the supply of ammunition, guns and ordnance for the British military.

British Aerospace bought Royal Ordnance plc—there have since been many mergers—and almost immediately set about rationalising the company. Among other sites, it flogged off Enfield for massive sums; effectively, Royal Ordnance was given away. Since then, Birtley has been under continuous threat.

The Select Committee on Defence, on which I had the privilege of serving, produced several reports on supply, notably one on Bishopton. In preparing that report, we questioned BAE Systems about the rationale behind privatising Bishopton and what was manufactured there. We collected some extremely interesting evidence. For example, we were told that Bishopton had to import gun cotton from Holland—but interestingly, that was originally manufactured at Bishopton and exported to Holland for return. It took much probing and prying to find that out.

In the brief that has been kindly donated by BAE Systems, it is asserted that Bishopton closed because of its failure to get the extended-range ammunition contract. That is interesting, because our evidence at the time did not suggest that that would happen, nor did the Government's reply suggest any direct link between that contract—which is running into serious trouble—and the future of Bishopton. BAE Systems, acting as a private company—as indeed it is—was merely looking out for the interests of its shareholders, not protecting the defence needs of the country. It is important to remember that BAE Systems operates under company law, and its principal duty is to its shareholders. That was known at the time of privatisation, and the results can be seen in the proposals being made by Royal Ordnance.

There has been a continuous threat to Birtley since privatisation. Birtley is an area of very high long-term adult male unemployment. Indeed, unemployment there is so high that when the Conservative Government were confronted with a proposal to close the unemployment and benefits office there, Ministers decided not to, thanks to submissions made by Gateshead council, and a meeting that I had with the Ministers. The office still exists.

Mr. James Gray (North Wiltshire)

I am enjoying the thrust of the hon. Gentleman's speech, and I agree with most of it. However, he seems to be trying to blame everything on privatisation. He says that the Conservative Government decided to keep Birtley open, but his Government are closing it.

Mr. McWilliam

No, the Government are not closing the unemployment and benefits office in Birtley; they are keeping it open. There is no threat to it. Indeed, they have just spent an awful lot of money relocating it and doing it up. We should not get the Governments mixed up.

Mr. Gray

I meant the factory.

Mr. McWilliam

We shall see.

There has been a huge increase in productivity at Birtley since it became part of my constituency in 1983 after a boundary redistribution. That is to the credit of the management, the staff, the co-operation of the trade unions and the way in which we reorganised things. The BAE Systems brief says that there has been huge investment in royal ordnance factories. I do not know where it went to, but it did not go to Birtley. All the machines brought to Birtley since then have been transferred from other factories. Birtley has not received investment. It has been trying to rationalise on its large site and has succeeded to some extent, but a lot more still needs to be done.

The company are considering five options for the Birtley factory. Option one, the consolidation of the factory to reduce overcapacity, is designed to reduce overheads and take out loss-making activities so as to increase profits. The trade unions support that activity and have driven that option from the outset of the current crisis. That is being carried out in line with confirmed orders within the company sales plan, and includes firm orders only. It would include a reduction in the number of workers—but that is assuming that no further orders are placed in the meantime.

The second alternative is to look for another location in the region. The trade unions also support that option, which must support the projected work load and the needs of the current workers, as the skills base must be maintained. They are currently working with One NorthEast and Gateshead council on it—but I must say that that alternative is proving extremely difficult.

The third option is a delayed closure in line with the current sales plan. That would ensure a significant reduction in the work load by 2005–06, assuming that no other orders are placed. The trade unions and employees do not support that option. The fourth is a transfer of all work to alternative BAE Systems factories in the UK, and that is not supported by the work force either. The fifth, which has been bitterly opposed and which I am totally against, is closure.

The company has accepted that the original closure plan was flawed and has reluctantly opened up the debate. The major stumbling block from the trade unions' point of view is the company's claims about the costs of outsourcing Birtley's work. The prices divulged to the trade unions are extremely ambitious, and validation of those prices has so far proved impossible, with the company declaring that the detail behind the prices is commercial in confidence.

Another price about which the company is extremely ambitious is that for revalidating all the ammunition currently made at Birtley. If orders are outsourced, that ammunition must be revalidated, which will involve not minor price increases but costs involving many millions of pounds. I ask hon. Members to remember what is made there, and the fact that when it is filled and fired it is extremely dangerous—to the people firing it, as well. It must be validated and revalidated so that it is as safe as possible for people on the firing end.

There are several more points that we must not forget. The company's strategy to outsource overseas is a real threat to the continuity of supply to the Ministry of Defence. BAE Systems owns 30 per cent. of Denel, and the other 70 per cent. is owned by the South African Government. One of the options that the management proposes is outsourcing to South Africa. Although I have no reason to believe that South Africa is unstable, it is in an extremely unstable region. I caution Members to realise that if our forces were in action somewhere else in Africa, it is not necessarily guaranteed that we could rely on that source of supply.

Before the Gulf war, cases and shells for 155 mm FX70 ammunition, which is our mainstay artillery ammunition, were manufactured at Birtley. The contract was transferred to Rhinemetall of Germany, which discovered that it could not make them and subcontracted to a Belgian company. During the Gulf war, for political reasons, Belgium, an ally and a member of NATO—indeed, it is the home of NATO headquarters—refused to supply us with artillery ammunition. That artillery ammunition was desperately needed to support the major assault that our armoured corps was making through Saudi lines to retake Kuwait.

That is one of the problems of relying on overseas manufacture—and presumably that is why Henry VIII set up the royal ordnance factories in the first place. I do not for a moment suggest that the Minister has any responsibility for BAE Systems as a company; he does not. However, he does have total responsibility for ensuring that our armed forces are supplied in time of need.

There is another problem. If we were to go by purely commercial considerations, the royal ordnance factories would be slimmed down and the end result would be outsourcing, and filling at Glascoed. Quite apart from the security implications of concentrating on that one site, there is the problem of surge. I sincerely hope that this will not happen, but what will happen if we become involved in a major conflict? How will we surge our manufacturing capability to supply our forces?

Mr. David Clelland (Tyne Bridge)

I apologise to you, Mrs. Roe, and to hon. Members, for the fact that in a few moments I may have to leave to attend a meeting.

The threat to ROF Birtley follows the recent bad news that Vickers Defence Systems in my constituency failed to secure an order from the Greek Government for Challenger 2 tanks. As a result, the future of that company, too, is now in doubt and hangs in the balance, awaiting a decision by the Government on the allocation of an order for Terrier support vehicles. Ironically, the other competitor is BAE Systems. Does my hon. Friend agree that if the Government seriously want to maintain a viable defence manufacturing capability in this country they may have to intervene as well as support through the distribution of orders?

Mr. McWilliam

I agree with my hon. Friend. Many people employed at Vickers are my constituents; it is just across the river from my constituency. Before I return to my original subject, it might be worth noting that BAE Systems is also tendering for the two aircraft carriers. On the one hand, it says, "We are a great British company," but on the other hand it says, "Except for ammunition; we'll make that in South Africa or somewhere else."

As I said, there is a threat to supply—to our ability to surge, to our defence strategic capability and to our defence manufacturing base. That is serious. Please recall that Birtley makes all the metal bits. It does not make explosives, but it does make all the bits that fly through the air, or that contain explosives or propellants.

A further problem is that technology transfer to overseas competitors cannot be in the United Kingdom's interest. Under present defence procurement arrangements, intellectual property that was developed by BAE Systems, Royal Ordnance—some developed at Birtley and some developed in conjunction with QinetiQ—is being handed willy-nilly to our competitors.

At present, one reason why the Ministry of Defence can buy ammunition cheaply abroad is that other countries with defence manufacturing capabilities that are by and large owned by their Governments are selling to us at marginal cost, to keep things ticking over. However, if we did not have our own capability, those countries would sell at the price that they think the market would bear. That would be more expensive, and that has not been taken into account, although it clearly has been taken into account by BAE Systems management because it is trying to reduce costs and increase profits. The major customer—the British Government and our armed forces—is not being looked after.

There are specific examples, too. Birtley manufactures the 4½-inch naval shell. Nobody else uses 4½-inch guns on their ships, so where will we get the shells from? They would be expensive to import. The latest version of kinetic anti-tank ammunition, which will not contain depleted uranium, is being designed and developed at Birtley. The Charm ammunition makes the Challenger 2 tank, which my hon. Friend the Member for Tyne Bridge (Mr. Clelland) mentioned, such an effective hunter-killer tank. If we cannot get ammunition of that quality, our army's ability to use Challenger 2 tanks to their full advantage will be threatened, so we also have technical problems.

There is the prospect of the loss of 300 high-quality jobs at Birtley, with the possibility of more being lost—that will be inevitable if the company is allowed to get away with this. I have no doubt that the company wishes to outsource all the Royal Ordinance work, and its recent history supports that idea. Closures at Bishopton, Nottingham, Blackburn, Faldingworth, and Featherstone ROSM—that is where the depleted uranium was manufactured—are threatened, in addition to those at Chorley, Bridgwater and Birtley.

My hon. Friend the Member for Chorley (Mr. Hoyle) wrote to me apologising for the fact that he could not be present today. He has an important meeting with Leyland Trucks about a contract for future military vehicles; otherwise he would be here to speak about Chorley's future and the worries of its work force.

Joyce Quin (Gateshead, East and Washington, West)

My hon. Friend mentioned the recent history of the company. Does he agree that there has been a history of underinvestment that has caused much insecurity for the work force? They thought that that insecurity had been lifted by recent orders. There are lessons to be learned about how to value work forces and how to plan for the future of such an important part of our country's needs.

Mr. McWilliam

My right hon. Friend is right. When it was announced, the recent agreement between BAE Systems and the Ministry of Defence regarding the 10-year rolling supply programme was greeted with great relief by the work force at Birtley. It seems, however, that the company thinks that it can get round that. I am not sure how, but it seems to think that it can, given that there is a contract. Not only the work force but the whole community in Birtley and in the surrounding constituencies is concerned. People from that part of Tyneside and Wearside travel a long way to work in the factory. I am pleased that so many of my right hon. and hon. Friends who represent those constituents—some of them are precluded from speaking in the debate because of the offices that they hold—are here this morning.

We have been told that the future is in insensitive ammunition and that Birtley is not to be involved in that. Fine, but who will make the shells? Who will make the cases? BAE Systems has a history of playing other games. For example, several ammunition contracts were deliberately lost to BAE Systems and Birtley, in my cynical view to offset commercial aircraft sales by other sections of BAE. It is appalling that that was not supported by a memorandum of understanding on offsets or anything else.

That is illustrated in the BAE Systems company brief, which was issued to all employees: In 2000 BAE SYSTEMS and Saab signed a contract with the South African government to deliver 24 Hawk and 28 Gripen aircraft plus associated offset. The combined industrial offset commitment associated with this contract is valued at over 8 billion US Dollars, made up of direct offset activities at 1 billion USD and indirect offset activities at 7 billion USD.…We need to explore all avenues for claiming offset credits against this commitment and need to hear from you at the Hawk South Africa Programme office at Brough, if your Business Unit, or one of your suppliers or partners, has placed or is planning to place work in South Africa as the value of this work may be able to be claimed as a credit by the Company. That is fine for the 24 Hawks, but the 28 Gripens is a Swedish job. We have no memorandum of understanding with Sweden to offset, but that is what is being suggested. BAE Systems is serious in its intentions.

I am confident that the discussions with the trade unions are bearing fruit, that the analysis of costs and the talks with the company are effective and that, on an objective stance, Birtley will remain open. However, I am not confident about the ammunition commitment of the board of BAE Systems to the defence capability of the United Kingdom. I remain sceptical. I accept that the Minister has no responsibility for the board of BAE Systems, but he has every responsibility to maintain supply. As the largest customer of BAE Systems, my hon. Friend must bear in mind that he has a huge say in what decisions are made and not made, and which contracts are acquired from abroad and which are not.

I thank all my colleagues who have turned up to support me this morning, and other hon. Members who have royal ordnance factories in their constituencies, or who have an interest in the subject. I thank Gateshead council for its help and the work that it has carried out—Councillors Neil Weatherley and Kathy King are listening to the debate now. I also thank the Newcastle Evening Chronicle for its campaign to save ROF Birtley. It is an important defence resource. We are an island. We must maintain our defence manufacturing capability as one of our strategic objectives, and that is why I introduced the debate.

11.24 am
Mr. Peter Luff (Mid-Worcestershire)

One of the privileges of being an Opposition Whip is that one is allowed to open one's mouth in Committee. The problem with being a Government Whip—and in particular a Government Chief Whip—is that one cannot do that. I think that the record should include an explanation of the rather cryptic remark of the hon. Member for Blaydon (Mr. McWilliam) about office holders, which was made when the Government Chief Whip was present, listening to her constituency concerns being expressed, although she was unable to express them herself. She is leaving the room now, as she obviously cannot stand hearing Opposition Whips speak.

I am glad that we have gathered in Committee Room 10, rather than in Westminster Hall. We should make better use of existing House resources, rather than build expensive new facilities next to Westminster Hall. I am glad to be in this Committee Room, and I hope that our presence here sets a precedent that will be followed many times in the future—although the reasons why we are gathered here, rather than in the Westminster Hall Chamber, are profoundly sad.

I was glad to hear the concluding remarks of the hon. Member for Blaydon, because I had a simple philosophical objection to much of what he said: the Government, rather than private sector companies, are responsible for the defence interests of this country. However, I entirely endorse his concluding remarks. I want to speak mainly about my own constituency facility, Summerfield, which is part of the Royal Ordnance network, but if the hon. Gentleman's analysis is correct with regard to his constituency facility, a heavy burden of responsibility rests not on the board of BAE Systems but on the Minister responsible for defence procurement. Therefore we look forward to hearing what he has to say when he winds up.

I am glad that the hon. Member for Tyne Bridge (Mr. Clelland) intervened to make the case, implicitly, for increased defence expenditure. I think that that was what lay behind the intervention, because when a business such as BAE Systems is competing in a difficult environment, with the Government cutting expenditure in wide-ranging areas of defence procurement, it has a problem. Its brief to all hon. Members says that at the privatisation of Royal Ordnance, the Ministry of Defence ordered ammunition products to a value of circa £250 million per annum. That figure has now declined to less than £100 million. That is an example of the problems that defence contractors are currently facing, for which they cannot share any responsibility or blame.

My interest is in Summerfield, the rocket motors division of Royal Ordnance. It is a very large employer, employing about 360 people at a site that is largely in my constituency, although a small part of it is in the constituency of the hon. Member for Wyre Forest (Dr. Taylor). I have frequently visited the factory, and it is extremely impressive; the work done there is of a high order. Rocket motors involve dangerous operations; incredibly advanced chemical processes are used, but it is always a joy to go to Summerfield and see the work done there.

I have always made a point of supporting bids by the company, and I recently wrote to the Government about the next generation of light armoured weapons systems. I think that a decision on that is due soon. That would bring modest but useful benefits to my constituents, and I hope that the contract goes to the right consortium.

On my visits to the company, it has always been made clear to me that foreign partnerships are inevitable for the future of the rocket motors division; that is the way the world is. The question is not if a foreign partnership should be arrived at, but how and when.

I strongly hold the view that politicians should not seek to second-guess business. Many hon. Members gave up business careers to enter politics, and we are now politicians rather than business people. We should applaud an attempt by a company to find stability in a changing world, and the world of defence procurement has changed enormously in recent years, since the end of the cold war.

My judgment is that. BAE Systems is right to proceed with its proposals for Summerfield, although I appreciate that there will be a degree of unease among some people, as change is never comfortable. It plans to enter in to a joint venture with a French company, Celerg, which will make a new company twice the size of the present one. That company will be much better positioned to compete in the very difficult world that the separate companies now face. The new company will be 50 per cent. owned by the French company SNPE, which is currently a 50 per cent. shareholder in Celerg, and the other 50 per cent. will be owned by MBDA, which is the successor company to the Matra BAe Dynamics missile company, which was formed in 1996. That highlights the bewildering rate of change.

In December 2001, the company announced its extension to include the Italian Finmeccanica missile business. The new name is MBDA. I am glad to say that all BAE Systems guided weapons business is invested in MBDA, and that BAE Systems, through its 37.5 per cent. shareholding in MBDA, enjoys a right of veto on all strategic matters affecting the company. Therefore the right balance has been struck: a bigger company and a foreign partnership has been established, but there is also still a great deal of UK control, which gives my constituents the comfort that they should look for, as those very important manufacturing and scientific jobs will be maintained at Summerfield.

To quote from a letter from Shaun Mills, a director of the rocket motors division: In other words, strategic decisions affecting the Rocket Motor business require the unanimous approval of all three MBDA shareholders and hence of BAE Systems. A UK subsidiary of the joint venture will be established, with a majority of directors being British nationals, and this will in effect manage the site and business at Summerfield. I am content with those proposals. Links with MBDA are hugely important: it is the major European contractor for guided weapons systems in which BAE Systems has a shareholding of more than one third. The proposals for my constituency, at least, offer stability in a changing world. I have no complaint about what the company plans to do.

11.30 am
Mr. Kevan Jones (North Durham)

I congratulate my hon. Friend the Member for Blaydon (Mr. McWilliam) on initiating this debate on the future of Royal Ordnance Birtley. Before being elected to the House last June I was a senior official with the GMB northern region, and I have been involved over a number of years in the discussions about the site's future. I declare my membership of the GMB and draw attention to my declaration in the Register of Members' Interests of the support that the GMB gave my constituency at the general election.

Although Royal Ordnance Birtley is in my hon. Friend's constituency, many of those employed there live in my constituency. The discussions about its future have been numerous and frequent, and they have led progressively to a contraction of the site and a decline in the numbers employed. I add my thanks and give credit to the trade unions, management and work force who have resisted closure and adapted to change to keep the site open.

The factory currently employs 298—a massive drop from the halcyon days when it employed upwards of 3,000. The number of people who face possible redundancy is one of the issues that I wish to cover today. Another issue is the scandalous way in which BAE Systems has dealt not just with Royal Ordnance Birtley but with Royal Ordnance as a whole since acquiring it in 1987 from a Tory Government. The third issue that I wish to raise, which is of direct concern to the Government, is the security of supply of ammunition to the armed forces if Royal Ordnance Birtley is allowed to close.

My hon. Friend mentioned the effects of unemployment on his constituency. Similar effects will be felt in North Durham if the closure is allowed to go ahead. We have had a good news story in North Durham since 1997: unemployment has fallen by 45 per cent. But unemployment remains doggedly high in some communities, including many in which people working at Royal Ordnance Birtley live. They face a bleak future if the closure is allowed to go ahead.

We are talking not only about numbers of jobs, but about types of jobs. The jobs at Royal Ordnance Birtley are skilled. Expertise has been built up over many years, and the economy of the north-east cannot afford to lose it. To close Royal Ordnance Birtley will be another hammer blow to the manufacturing sector in the region. The skills are not those of a inefficient smokestack industry, but are some of the most technically advanced in modern engineering. The loss of those vital skills to the north-east would be of great significance and would clearly be a personal tragedy for many of those who have given lifelong service.

The manufacturing and defence sector is important to the economy of the northern region. The work being carried out by the Northern Defence Initiative, with its 90-strong membership, demonstrates the vibrancy of that sector and its importance to our regional economy. Closure of Royal Ordnance Birtley would damage the confidence of the sector in the region.

I now turn to the scandal of the way in which BAE Systems has dealt with Royal Ordnance at Birtley. Its approach is one of determination to squeeze the last bit of value from Royal Ordnance with no regard at all to the loyal service of the work force or to the wider economic effects on the economy of the north-east. British Aerospace, now known as BAE Systems, acquired Royal Ordnance from the Conservative Government in 1987 at what was, as my hon. Friend the Member for Blaydon said, a knockdown price. Its strategy since that acquisition has been slowly to dismantle what was a great company.

Mr. Gray

Will the hon. Gentleman answer two questions? First, although I do not accept that the company was bought at a knockdown price, let us imagine that it had been bought for a higher price than that paid at privatisation. Does the hon. Gentleman believe that that would have made the company more or less likely to be making cuts now? Secondly, let us imagine that the company had stayed in public ownership. Had that happened, can he guarantee that his party's Government would still be buying the £250 million worth of ammunition that was being bought at the time of privatisation? If so, what other aspects of health and education would the Government be cutting to pay for the jobs that he describes?

Mr. Jones

The hon. Gentleman is clearly expressing an idea that is now common in the Conservative party—the idea that before 1997, politics somehow did not exist. The fact that the company was sold cheaply, at £190 million, is quite clear. My hon. Friend the Member for Blaydon referred to the sale of Enfield, which recouped most of that investment straight away. As for the reduction in ammunition, clearly the hon. Gentleman has not realised that the peace dividend since the fall of the Berlin wall and the Soviet Union has led to a reduction in the amount of ammunition that the British armed forces, and armed forces throughout Europe, need.

Mr. Luff

Exactly. That is precisely the point.

Mr. Jones

That does not detract from the fact that the company was sold by the Conservative Government with very little regard to the future of jobs in that important sector, or to the long-term future of the arms industry in the UK.

Mr. McWilliam

May I remind my hon. Friend that after the 1987 privatisation, two Conservative defence reviews slashed our armed forces? That had to be put right by the present Government when they took office.

Mr. Jones

I thank my hon. Friend. Clearly, the Conservative Opposition also have a selective memory of their attitude to defence expenditure during their time in office. We saw that recently in their attitude to the Territorial Army, which was badly slashed in the reviews that took place under the Conservative Government. Somehow, they conveniently forget about that.

Mr. Gray

The hon. Gentleman did not understand my point. Let us imagine for one second that he is correct and that £190 million was too low a price for BAE Systems to pay. For the sake of argument, let us say that BAE Systems had been required to pay £300 million or £500 million, or who knows what price. Does the hon. Gentleman believe that if it had paid a great deal more—if it had paid what he believes to be a correct market price—for what was then the royal ordnance factories, closures such as those under debate today would have been less likely to happen than if it had received what he sees as a giveaway?


I accept that the Conservative party is an apologist for BAE Systems, but it is a matter of record that Royal Ordnance was sold very cheaply. Since then we have seen the asset-stripping of a company, with no regard at all for its work force, either in Birtley or elsewhere in the UK. It is all very well for the hon. Member for Mid-Worcestershire (Mr. Luff) to shake his head, but I want to defend workers in the UK defence industry, not necessarily the companies that generate the profits that the hon. Gentleman and his colleagues seem to want to protect at all costs.

BAE Systems' strategy since acquisition has been slowly to dismantle what was a great company, and to maximise the disposal of its assets. The list of site closures reads like a regimental battle list: Enfield 1998; Waltham Abbey 1989; Bishopton 1998—my hon. Friend the Member for Blaydon referred to that—and Nottingham 2002. Chorley and Birtley are other possibilities. Those are just a few sites that Royal Ordnance has withdrawn from since its acquisition by BAE Systems in 1987. This is a sorry tale of the dismantling of a once great company into a shadow of its former self.

Who is to blame for the contraction? I wilfully admit that the arm's-length approach of the Ministry of Defence to competitive tendering has led to costs being driven down. I also admit that competition from overseas companies—usually vigorously supported by their Governments—has been a factor. Those two issues were identified in the May 1999 Select Committee report on the security of supply and the future of the royal ordnance factory at Bishopton. I accept that other factors exist, but a major influence has been how BAE Systems has handled the management of Royal Ordnance since its acquisition.

The Select Committee report states: At the same time, it appears to us that Royal Ordnance may well have compounded its problems by a failure adequately to invest in and to modernise Royal Ordnance's manufacturing plant and intellectual property. If this is so, it is particularly disappointing in view of the easy terms on which British Aerospace acquired Royal Ordnance, and the latter's guaranteed MoD work following the sale. That is clearly true of ROF Birtley, which the work force and management say has seen little of the investment outlined in the letter that my hon. Friend the Member for Blaydon received from BAE Systems yesterday. The site has been starved of investment over several years, although £1.5 million in rent is paid to BAE Systems each year, so the site has been paid for many times over.

By exposing hidden costs, local management and trade unions were able to counter BAE Systems' assertion that Birtley should close on economic grounds. The proposed closure is scandalous. Birtley has sufficient orders to cover the work force until 2005, and the firm has a viable order book of work for the MOD to maintain current levels until 2010. We are not talking about a site that is uneconomic; that is why the Royal Ordnance Birtley proposal angers me.

The loyal work force at Birtley are having to deal with a BAE Systems that is determined to squeeze the last bit of value from a company that it acquired on the cheap in 1987. That strategy has left the country littered with closed former Royal Ordnance sites, and unemployment has followed in their wake.

One of BAE Systems' options, which has been referred to by my hon. Friend the Member for Blaydon, is for production to be switched to overseas supply. Some might say that to allow that would be a disgrace. BAE Systems prides itself on its Britishness, which is why the MOD should procure equipment from it. During the past few months, I have heard the argument strongly put forward by BAE Systems and its supporters that it should be considered as a prime contractor for the new aircraft carriers for the Royal Navy because it is a British company. I ask people to remember that when BAE systems is laying off workers at Royal Ordnance Birtley, and exporting those jobs abroad to countries such as South Africa.

BAE Systems acts like a chameleon: it picks and chooses when to wrap itself in Britishness. There is no clearer demonstration of that than the possible export of jobs to South Africa. I say to BAE Systems that if it wants to demonstrate its Britishness, it could secure 300 highly skilled jobs at Birtley in the north-east. The loss of those jobs will not be lightly forgotten in the north-east. Any promises that BAE Systems makes to the north-east concerning guaranteed work on two future aircraft carrier orders must be taken with a pinch of salt, and will ring hollow to the BAE Systems workers at Royal Ordnance Birtley.

I now turn to the Government's role and the wider security implications for the United Kingdom. In June it will be the 20th anniversary of the retaking of the Falkland Islands. Birtley and the other royal ordnance plants worked flat out and with pride to produce high quality munitions for our armed forces in their time of need. That is easily forgotten, but on that 20th anniversary, it should not be.

Security of supply for the armed forces is an important issue, and was the subject of the Defence Committee report in 1999. It is universally agreed that Royal Ordnance Birtley produces high quality products, covering a range of munitions, which the armed forces take pride in using. Clearly the MOD is under pressure to get value for money, but not at all costs. It must ensure that quality and continuity of supply are guaranteed. I agree strongly with the conclusions of the 1999 Defence Committee report: Governments cannot, for strategic supplies, claim that their responsibility ends with the signing of legally enforceable contracts. In matters of national defence they have a duty to exercise more direct control. I ask the Minister and the Government to take more direct control and ensure that we continue to provide high quality munitions for the British armed forces. They must also ensure that BAE Systems is not allowed to close a highly successful site at Birtley, and that people who have been loyal to the company, and to this nation in times of need, are rewarded.

11.47 am
Mr. Ian Liddell-Grainger (Bridgwater)

I am delighted that the hon. Member for Blaydon (Mr. McWilliam) secured this debate. There is a tie-up; I came to this place from the north-east, and I know the plant at Blaydon well. I also know the Vickers plant—we destroyed the tanks that it built, because it was our job to examine how to stop them. The factor that connects the three plants is that one builds shell cases, another builds the explosive, they are put together in Wales and the military fires the end product. It is a British operation—British manufacturing—and it works well. That is, it did until now.

In 1986, David Greenwood of the Centre for Defence Studies in Aberdeen was asked to produce a report examining the future of the royal ordnance factories. That was before privatisation. The report, which the Amalgamated Engineering and Electrical Union and the Transport and General Workers Union paid for, was to examine where we would be in the future. No one understood at the time—certainly not David Greenwood—that a system on which we depend for national security could be sent out of the country. I am talking about the packaging, the explosive and the means of supply—the heavy guns, which are now made in America.

The report considered the way in which PBX and other high-polymer explosives would be made. Now, the difference is between sensitive and insensitive explosives. Insensitive explosives are what the Americans build; we build sensitive explosives. If we are to maintain continuity with partners, surely we should be in a position to build the same materiel, so that it can be used by our armed forces in all theatres. Otherwise, we would be starting from the wrong basis.

Bridgwater employs about 150 people and puts about £4.5 million into the local economy. Obviously, if it shuts down, unemployment and demands on social services would increase in a manufacturing area that is slowly recovering from past changes, and it would lose the skills of a unique work force. Who nowadays teaches people to make explosives? No one. Once those people go, we will not be able to replace them. One cannot easily find explosives manufacturers. We will lose a unique work force and, once they finish, no one in this country will take over.

Why are we in that position? Let us consider the Bridgwater plant. It is not new, as it was built in 1939. Why was it built? We wanted continuity of munitions supply, in case of war. There was a war. Since then, Bridgwater has made explosives of the highest grade, but it has not done so on a fair or level playing field. It is not its own profit centre. It has always been part of an organisation. It has been making a small loss, because costs there cannot be broken down to show the company's true position. That would not be a problem if the plant made only the explosive, but that does not happen. British Aerospace will not allow Bridgwater to be its own profit centre, and it has to absorb the costs of operational inefficiency. The plant, which has been in use for 60 years—a very long time—could be renewed and made very efficient.

If one were inclined to negotiate with British Aerospace for continuity of supply, why not consider a five-year dispensation? Why not set up a joint fund to diversify the factory's products and make civilian explosives and other propellants that could be sold to other countries? The hon. Member for Blaydon also mentioned responsibility to buy the products.

We are also discussing the way in which Royal Ordnance has changed. The point made by the hon. Member for North Durham (Mr. Jones) about the figure of £250 million at privatisation is valid; it is now about £100 million. To an extent, that is understandable because, since privatisation, we have experienced the fall of the Warsaw pact, the total disappearance of our traditional enemies and the changes, which we have been delighted to see, in Northern Ireland. We also buy more equipment from overseas—for example, the Milan anti-tank missile and other longer range artillery such as the AS90—so I understand that the value has decreased, but that does not explain the situation during the Gulf war.

As the hon. Member for Blaydon said, we could not buy ammunition then because people disagreed with what we were doing. If our explosives manufacturing industry went to America and a Democratic President decided that he did not like something that was happening in Britain—perhaps, God forbid, Northern Ireland going back to how it was—he might refuse to supply us with ammunition.

In a written question, I asked the Minister what will happen when the 2001 Security Assistance Act, which is going through Congress, becomes law in America. He replied that he does not expect it to make any difference, as it does not deal with exports. I cannot believe that a nation—any nation, of any persuasion—would not question exports to a country with which it does not agree. One cannot expect a nation simply to say, "We'll send the stuff, but we don't agree with what you're doing."

If we are to make propellant overseas, we should remember that it is the most fundamental component. We may be able to build the shell case, but we may not get the propellant if we do not have the work force to make it. We could end up with no bombs, shells or bullets. What would we go to war with—the pikes in the museum at the Tower of London? We could do little else.

There is concern at Bridgwater. Royal Ordnance at the site has been in negotiations at the highest level with Jack Dromey of the Transport and General Workers Union to resolve the situation. We are discussing a unique work force in a unique organisation, and we cannot replace them. There is something fundamentally wrong if Jack Dromey cannot get the hearing that he requires to defend a work force who may disappear and to keep them together to build propellant.

Mr. McWilliam

I may be able to assist the hon. Gentleman. BAE Systems has acquired a propellant and explosive manufacturing company in the United States of America, which, of course, is covered by American law, not British. Therefore, his Democratic President scenario could easily come to pass.

Mr. Liddell-Grainger

I thank the hon. Gentleman. I was just coming to the plant in Tennessee. I thought that we might build to a crescendo, Mrs. Roe, as that always makes debates much easier and more fun.

I received a copy of a letter that Lord Bach sent to a Member of this place on 2 March, saying that the Ministry of Defence entered a framework partnership agreement that came into force on 1 April 2000. The agreement covers the design, manufacture, supply and…life support of ordnance and ammunition sub-systems. Gainshare is one aspect of the Agreement". In other words, the MOD will make savings, which would be passed on. However, the letter continues: Security of Supply and Value for Money are the key criteria that underpin the procurement of safe and reliable ammunition. On the matter of the alleged refusal of Belgium to supply ammunition for the Falklands conflict, this incident, in fact, occurred during the Gulf War. In one letter, therefore, the Government tell us that the new arrangement is cheaper, but that they cannot get the supply right. Something is fundamentally wrong with that.

Let me deal with the Tennessee plant. Some $3.7 billion has been spent and 22,000 people are employed on the biggest explosives site in the world, which covers 6,000 acres at Holstein, Tennessee. There is a joint venture between BAE Systems North America and the American military to produce insensitive ammunition. What have they got? Four months ago, they were awarded nearly $12 million to operate and maintain the Holstein ammunition plant and to undertake scope work for future contracts that they will be allowed to seek around the world.

The contract, which has a title value of $163 million and lasts 25 years, is for building high-grade explosives for anyone who wants to buy them, such as the MOD. Some 25,000 people in the area now benefit from changes that this country could lose out on. Some 113 British companies have set up in the United States to supply us with the ordnance that we require—shell cases, propellant and the finished article—and which they will ship over here to our own people. I worry about Democratic Presidents.

The first $88 million of the contract is intended to be used over the next five years to produce RDX and HMX explosive—the very stuff that Bridgwater makes to fill the shelves in Birtley and which is finished in Wales and sent to the military. How on earth can we achieve continuity and a guarantee of supply, given the situation that may arise in the near future?

My predecessor, Lord King of Bridgwater, was Secretary of State for Defence during the Gulf war, and he could not get the explosive that was required because we were not allowed to have it. Continuity of supply is by far the most important consideration. The work force at Bridgwater make a unique product. If that source disappears, where will we get it from? Surely, the prime responsibility of any Member of Parliament and of any Government, whatever their political persuasion, is the defence of the nation. That must be this Government's overriding priority.

12 noon

Mr. David Laws (Yeovil)

I am grateful for the opportunity to take part in the debate on this important issue, and I congratulate the hon. Member for Blaydon (Mr. McWilliam) on giving us the opportunity to debate a wide range of topics, including, due to the ingenious interventions of the hon. Member for North Wiltshire (Mr. Gray), the history of the privatisation of Royal Ordnance, which I shall not touch on.

The primary issues that we have discussed are the constituency implications for many hon. Members of the reorganisation of Royal Ordnance and the related national policy issues highlighted in the fifth report of the Defence Committee, 1998–99 Session, to which many hon. Members, including the hon. Member for Bridgwater (Mr. Liddell-Grainger), have referred. I do not intend to talk about the impact of the reorganisation of Royal Ordnance on constituencies, not only because it does not affect—

Mr. Liddell-Grainger

What about the Hellfire rocket, which will be put on the helicopters built in the hon. Gentleman's constituency?

Mr. Laws

The hon. Gentleman should contain himself, because I shall come to those issues in a moment.

I do not intend to spend my time second-guessing the commercial decisions made by the company that we are discussing. Hon. Members have commented on the fact that the Ministry of Defence ammunition budget has diminished by about 60 per cent. since 1987, from £250 million a year to nearer £100 million a year. In addition, defence expenditure in all the major defence expenditure countries has fallen by about a third, so the company has had to deal with an extremely difficult commercial background. In the light of that, reduced employment in that part of the military sector is inevitable, as has been the case in most other parts of the defence industry.

The issue that I most want to touch on—the national interest and the security of supply of key defence equipment—has been discussed by many hon. Members, most recently the hon. Member for Bridgwater. It was also raised by the Defence Committee in 1998–99, because the Royal Ordnance reorganisation involves outsourcing supply to other countries. That is an issue of great importance, which the Government need to consider and respond to. It is inevitable that any company operating in a commercial environment will have to make judgments about its commercial interests and the interests of its shareholders. Such companies do not necessarily have to consider issues relating to security of supply, which are national policy concerns, but the Government most certainly do. That matter was highlighted by the Defence Committee.

Mr. Kevan Jones

I take the point about the commercial world in which BAE Systems finds itself, but does not the hon. Gentleman accept that the partnership agreement has provided the long-term stability that BAE Systems has been asking for? That was certainly referred to in the Select Committee report. The company has not invested in sites, but has callously considered sites in terms of their value. It has asset stripped where necessary, has not taken a long-term view and pays no regard to the long-term security of supply of the British armed forces.

Mr. Laws

I am grateful to the hon. Gentleman for that point. Anything that the Ministry of Defence can do to secure greater certainty about its procurement activities should be welcomed. Such certainty helps small companies, including some major manufacturers in my constituency. I remain more nervous about second-guessing in the manner suggested by the hon. Gentleman, although I understand why he advocates it—the matter is extremely important to him and his constituents.

In terms of the commercial activities that such companies engage in and the decisions that they make, it is easy for hon. Members to argue that particular companies have under-invested in certain areas, but we do not always have easy access to the information required to make such commercial judgments. In this debate, I am more concerned about national policy issues relating to security of supply.

In that regard, it is important to consider ammunition procurement. Fortunately, conflicts in the years ahead are unlikely to last as long as those of the previous century, which continued for many years—at least, I hope that that is the case. So, in terms of procurement and security of supply, we should concern ourselves not so much with large items such as aircraft carriers and whether they can be rebuilt or procured during a conflict, but with our ability to get our hands on ammunition speedily in conflicts that often involve its rapid use.

The Government's response to the Select Committee's 1999 report dismisses to some extent the Committee's concerns about the speed of ammunition use in conflicts such as the Falklands and Gulf wars. However, as is often the case with pronouncements made by Governments of all parties, what is significant in their response is what is missing from it. Specifically, Mr. Chairman—

Mr. Deputy Speaker (Mr. Nicholas Winterton)

Order. I have gained very little in 31 years in this House, but I do have the title Deputy Speaker for sittings in Westminster Hall.

Mr. Laws

I apologise, Mr. Deputy Speaker. As a new Member, my ignorance is showing.

The Government's response referred to security of ammunition supply during the Falklands war and said that there was sufficient ammunition for the land forces. However, they made no mention of the air or naval forces. Many of us recall the difficulties that British forces had in procuring and replacing items such as the Sidewinder missile, which was used a lot and was important in the Falklands. Although stocks of such expensive weaponry are necessarily kept low, because of the cost of holding them, they can be used very rapidly in certain types of conflict. I hope that the Government consider those issues of security of supply.

The hon. Member for Bridgwater referred to Governments making decisions about which wars they approved of or otherwise. He is concerned about Democratic US Presidents making such decisions, but I am just as concerned about Republican Presidents. First, there is the issue of the countries on which we rely for the supply of ammunition deciding that they support or do not support conflicts in which we are involved. Secondly, there is the issue of the priority that they would give us in a more broad-based conflict in which we may be merely one of several countries that they supply with ammunition.

Other hon. Members have touched on the security of classified information. In the Falklands war, there was a strong incentive for our opponents in Argentina to get hold of information on the weaponry that we were using. The same was true for us with respect to the Exocet missiles being used by the Argentinians. We need to be sure that such classified information can be protected, so that in a conflict situation the countries with which we are at war cannot get sensitive and important information about the weaponry that we are using from a third country.

There are several issues that the Minister must address when he wraps up that relate specifically to security of supply. First, what are the key procurement national interests? Which weapons must we either make for ourselves or, if they are produced abroad, stock in large numbers, because of their sensitivity in particular conflicts? Secondly, what are the Government doing to ensure that ammunition stocks are appropriate to take us through serious conflicts? In their response to the Select Committee's 1999 report, and privately, the Government acknowledged that there was a shortfall in artillery shell stocks. Have such deficiencies been dealt with? What security of supply guarantees can the Government secure from those countries that manufacture key defence items such as ammunition? Will any letters of intent that the Government are able to establish with those countries involve guarantee of supply rather than softer words saying only that they will not hinder the supply of such items?

Those are key national policy concerns that the Government must address. I hope that the Minister addresses them and deals with the legitimate constituency concerns raised during a debate that the hon. Member for Blaydon was right to seek.

12.11 pm
Mr. James Gray (North Wiltshire)

First, I congratulate the hon. Member for Blaydon (Mr. McWilliam) on securing an extremely important debate. It is significant not only for hon. Members on both sides of the House who, as the hon. Member for Yeovil (Mr. Laws) said, have important constituency concerns and are not unreasonably worried about job losses, but, perhaps more so, for the strategic national standpoint. The truth of the matter is that we are facing what could be the end of ammunition manufacturing in the United Kingdom.

Hon. Members have referred to the helpful briefing paper sent to us yesterday by BAE Systems. In a truly Sir Humphrey-ish way, it seeks to avoid being straightforward about what is planned; it is full of management speak: Over the past two years RO Defence has been integrating these two businesses and determining a forward strategy for consolidation and growth…That volume has now declined to an annual order value of less than £100 m. We consider this to be a permanent market adjustment and this downturn in volume production has greatly impacted on the utilisation of our production capacity. That means that if the Government buy less ammunition, the company will need fewer factories, but I wish that it would say so rather than use such obfuscation in an attempt to persuade trade unions and others that it will somehow keep the factories open.

The notion has been expressed that privatisation may be responsible for the royal ordnance factory closures that we face. If so, two things would have to have happened. First, we would still be producing as much ammunition as was required at the time of privatisation—it was then worth £250 million a year, but is now worth only £100 million a year. It will be interesting to hear whether the Minister chooses to blame privatisation for that. He will also have to guarantee that the Government would still be spending £250 million today. Even if the company had not been privatised, however, they would presumably still have had to consider closing the factories as a result of reduced production.

Secondly, it has been said that the business was sold at a cut price, and that that price led to the factory closures. That is entirely incorrect. As I told the hon. Member for North Durham (Mr. Jones), had the price been higher, British Aerospace would have had to make even more reductions, more closures and more job losses to pay off the extra price that was paid. The lower the price, the better in respect of subsequent job losses. I do not accept that what BAE Systems is facing has anything to do with its privatisation.

Mr. Luff

Will my hon. Friend confirm that the briefing tells us that the company has made losses for many years and that it does not plan to return to profit before interest and tax before 2004? The impression of a greedy company asset stripping is way off the mark.

Mr. Gray

That is indeed the case. However, the hon. Member for Yeovil was right to say that we should not enter into company's commercial difficulties. We should lay to rest the notion that privatisation has somehow led to the appalling closures at Bishopton and elsewhere—and, if we read between the lines of BAE Systems' briefing, the other closures that the company faces. For instance, the hon. Member for Blaydon seems to think that Birtley might be saved, but BAE Systems says that the initial findings of the working group at Birtley are now available and the Company is actively considering alternative proposals introduced by the trade union team. That means that it would like to blame the trade unions. The briefing continues: Two options seem to be emerging, the first would involve the closure of the site and the second would involve a reduction of 50 per cent. of the employees".

I find it hard to believe that the trade unions are proposing and are happy with either the closure of the site or a 50 per cent. reduction in the work force.

Mr. McWilliam

Briefly, the figures used by the company include more than £1 million in alleged annual rent, offset against the costs that would affect profitability. Since the site was acquired for nothing and its commercial value is zero—the company tried to sell the lot last year, but could not—why is it charging that rent?

Mr. Gray

That, of course, is a fair point, but I am certain that the trade unions would not have been content with the notion that the operation might close, which is what BAE Systems appears to suggest. Reading between the lines, the BAE Systems briefing indicates that the trade unions have a plan— [Interruption]. It is here. British Aerospace suggests that the trade unions came up with the plan that would result either in closure or in the reduction of the work force by 50 per cent. The hon. Member for Blaydon might be right in saying that they did not do so; I am ready to accept that, as it would be an extraordinary trade union that came up with such a plan. I do not suggest that the unions want that to happen, but I am saying that BAE Systems is trying to suggest that they are happy with it. However, plainly they are not. I spoke to some today, so the hon. Gentleman and I must not cross swords over the matter.

Companies across the nation face closure. The Chorley factory is another example and the Summerfield rocket motor business, which is becoming part of an Anglo-French joint venture, might be another, depending on whether the French decide to keep it in the UK. Those, the Minister might argue, are matters for the Department of Trade and Industry—jobs and the economy concern the DTI, not him. However, I agree with a number of hon. Members who have spoken that the Minister bears a direct personal responsibility, because he is the prime customer of the royal ordnance factory. He cannot wash his hands completely of the matter.

I want to put to the Minister four simple questions, which he might wish to answer when he winds up the debate. First, does he believe that indigenous ammunition manufacturing is a strategic capability? Would he be content, for example, to see all ammunition manufacturing disappear from within our shores? If not, how much would he be prepared to lose before he pressed the panic button?

Secondly, can the Minister foresee any circumstances in which Her Majesty's Government should subsidise domestic producers for strategic reasons or should all contracts be awarded on a purely competitive basis?

Thirdly, what strategic safeguard should be built into contracts with overseas suppliers? Can the Minister imagine surges of demand in which an overseas supplier might look after its home Government's demands ahead of ours? In the Belgian example, of which we heard earlier, or one in which a German or South African Government happened not to agree with a war in which we were engaged, would those countries' manufacturers decline to give us the ammunition that we needed?

Fourthly, how large should war stocks of ammunition in this country be? Should the Government pay a premium to maintain a surge capability? Does the Minister accept that increasing reliance on overseas ammunition suppliers ought logically to mean a proportionate increase in war stocks held within these shores? He has so far declined to talk about war stocks and surge stocks. Are surge stocks held in the UK increasing? What action has he taken on the matter?

Since the Government came to power, manufacturing industry has declined—450,000 manufacturing jobs have been affected by recession, partly, no doubt, because of the unsustainable general defence cuts that the Government have introduced and partly because of the fall in the purchase of ammunition from £250 million to £100 million—and, from our side of the Chamber, it seems that there are signs that Royal Ordnance plc is no longer a viable company due to increasingly worrying numbers of factory closures, job losses and contracts placed overseas. Apart from the local consequences for many parts of Britain, there is a real risk of deep and lasting damage being done to our national defence capabilities when our global defence ambitions are becoming ever larger.

Labour Members will not like it, but the Prime Minister returned home this week after apparently agreeing with the President of the United States that we would take an active military interest in Iraq. That is the next thing coming our way. Our global defence ambitions are ever larger, but our ability to meet them is ever more undermined. Our increasing inability to supply our own ammunition for our own guns is symptomatic of a general malaise and deeply worrying for the defence of the realm.

12.20 pm
The Parliamentary Under-Secretary of State for Defence (Dr. Lewis Moonie)

I congratulate my hon. Friend the Member for Blaydon (Mr. McWilliam) on securing the debate. I listened with interest to the points that he and other hon. Members made about the future of facilities owned and operated by Royal Ordnance Defence plc, and I am grateful to him for giving me the opportunity to set out the facts, and the Government's position. However, I must point out that although I speak on such matters in this House, I am not the Minister for Defence Procurement.

I shall briefly put the status of the factories into historical perspective. After 400 years in Government ownership, the royal ordnance factories were passed into private hands in April 1985, and were taken over by British Aerospace in 1987. After further mergers, the business unit became what is now Royal Ordnance Defence. That was, and remains, a private company wholly owned by BAE Systems. It is important to remember that Her Majesty's Government have no financial stake in the company, and that the factories and facilities mentioned today have not been in Government hands for the past 15 years.

Mr. Deputy Speaker

Order. I ask the Minister to speak up a little. I can see that Members all around the Room are finding it difficult to hear.

Dr. Moonie

I do not think that that is usually a problem when I am speaking, Mr. Deputy Speaker.

During those 15 years, and especially since the ending of the cold war, there has been a sharp decline in the worldwide demand for defence equipment, and it is against that background that Royal Ordnance Defence has operated. To put that into perspective, at the time of the takeover in 1987, Royal Ordnance received orders for ammunition from the Ministry of Defence to the value of about £250 million a year. The average value is now down to probably slightly less than £100 million. It is the view of the industry generally that the adjustment is permanent, especially in the munitions sector.

Royal Ordnance Defence is thus competing in a fiercely competitive international market for a shrinking amount of business. Like any other commercial company that competes in world markets, it has had to take the hard decisions necessary to optimise its manufacturing capacity and remain viable and competitive in the sector. The company simply cannot afford excess capacity and overheads that the market does not justify. I emphasise again that the hard commercial reality applies to all private enterprises, not to Royal Ordnance Defence alone. It is against that background that the company has embarked on its latest rationalisation plan.

The reviews undertaken of factories at Chorley, Birtley and Bridgwater are part of the process that began in 1987. At that time, Royal Ordnance business was on 15 sites and employed about 16,000 people. It was clear that the prevailing market could not bear that capacity. Since then several site closures and other rationalisations have occurred. Those actions, and other more recent consolidation and closures implemented at Blackburn, Bishopton, Featherstone and Nottingham, have resulted in a reduction of about 50 per cent. in overhead costs.

When we buy equipment from Royal Ordnance, the Ministry of Defence spends taxpayers' money. We have no interest in using those scarce funds to support facilities that are not needed by the private sector to deliver the requirements of the Department.

It is useful to dwell on the subject of the factory at Bishopton for a moment. In 1998, Royal Ordnance failed to win the contract to supply the new propelling modular charge system for the shell for the AS90. The contract was awarded to an overseas company on technical and cost grounds, and Royal Ordnance took the commercial decision to close its propellant factory at Bishopton because it was no longer viable. The Ministry of Defence took the view that it would have had to pay a significant premium to keep the Bishopton factory open, and that such a premium would have supported the factory for only about another five years. It was concluded—I believe correctly—that such a premium would not secure value for money for the taxpayer.

The Defence Committee's inquiry has been mentioned. Verbal evidence was given on the matter in 1999, and the Committee was in general satisfied that the decision to place an order for the modular charge system contract with Somchem was justified on technical and value-for-money grounds. The Committee also examined the security of supply of propellant following the closure of Bishopton, and noted that sources were available in other allied nations. I understand that Royal Ordnance has secured alternative supplies of propellant in Germany. Much has been made of the so-called problems of supply during both the Falklands and Gulf wars. On neither occasion did the Government of the day run out of supplies of any form of ammunition. The resupply from Belgium rightly posed a problem for what was a coalition Government, and the Government decided to secure supplies from elsewhere—mainly from Holland—to provide back-up.

It is inevitable that when munitions are consumed—especially the larger, more expensive ones—there may be problems in obtaining full supplies, but the idea of our fighting a large-scale conflict on our own is risible in military terms nowadays. It will not happen. When we are involved in a conflict, we are involved jointly with allies such as the United States of America, which will be able to resupply us with some key larger munitions that would be consumed in certain circumstances.

In general, for strategic reasons we have maintained very large stocks of the ammunitions that we need—enough to fight a serious conflict. The military, not ministerial, orthodoxy is that we would have ample notice of a major conflict, so we could build up stocks still further. We cannot envisage a situation in which we would be fighting with less than six months' notice. That is just not the way of the world.

Mr. Gray

Is the Minister therefore now building up stocks for the Iraq conflict?

Dr. Moonie

I will not be lured into answering that question.

Royal Ordnance has informed us that it intends to invest heavily in its plant at Glascoed, and that it is retaining its expertise in the crucial areas of propellant charge design at Bishopton, ordnance engineering design at Leicester and small arms ammunition design and manufacture at Radway Green, near Crewe. There is no doubt that the company possesses and retains world class research and development personnel and facilities. It also has a growing reputation overseas; indeed, it operates a United States Government-owned high explosives facility in Texas. The MOD has no reason to believe that Royal Ordnance Defence will exit the business of providing munitions for the UK armed forces.

However, it would be wrong to pretend that the company does not have some hard decisions to make. The partnering agreement that we have put in place is not intended or designed to protect the company from prevailing market forces. As I stated previously, the world market for munitions continues to shrink, and the Department has been informed by Royal Ordnance that it is undertaking another review of its facilities. It seems that its record in implementing hard decisions shows that it is taking its responsibilities seriously. It has a consultation process, and it is willing to listen to counter-proposals. It has demonstrated that it is not just closing factories without listening to the people in the workplace.

The need for explosives and munitions has fallen. Rationalisation is inevitable. Coming from a similar area of manufacturing and military contact in the east of Scotland, where we have lost our traditional industry of mining and much of our military industry that was based on the dockyards, I assure hon. Members that I have great sympathy for the points that have been made.

My hon. Friend the Member for Blaydon spoke about the Royal Ordnance Defence factory at Birtley. He will know that the factory manufactures metal components for most of the company's munitions, including shot, shell and cartridge cases. It still forges and machines the shell cases on site and uses its own machine shop. The resultant components are sent elsewhere for filling with explosives and assembly. Although some doubt has been expressed, we understand that the trade unions have been involved with the review and have come up with a proposal whereby the forging may be carried out elsewhere, but the machine shop work will be retained, although with fewer workers than at present. That is still being assessed by the company, and the outcome will be announced later this month.

During our debate we have also discussed the factory at Bridgwater, which manufactures high explosives. It has been running at a loss for several years because of a lack of demand for its products. We are now committed to the introduction of insensitive munitions, which are less likely to detonate in an uncontrolled or unexpected way. In response to that policy, the company is proposing to introduce the appropriate technology based at its Glascoed plant. That in turn could undermine the case for the retention of Bridgwater.

We continue to keep ourselves closely informed about Royal Ordnance Defence's plans for the future. We are obliged to ensure security of supply for our munitions. That involves maintaining a large stock and being satisfied that our contracts are handled in such a way that companies can resupply us when we need them to. I regret that manufacturing and other supply facilities might go abroad—

Mr. Deputy Speaker

Order. I regret that we have run out of time. However important the debate is, we must move on to the next subject.

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