423. To maintain the capabilities of the Royal Air Force's E-3D Sentry Airborne Early Warning fleet against modern aircraft and missiles, we joined the United States production programme in January this year for a new radar upgrade under the Radar System Improvement Programme, undertaken in co-operation with NATO.

424. A contract was signed with GKN Westland Helicopters Ltd in June for 22 Utility EH101 HC Mk1 medium support helicopters. In addition, a contract was signed with Boeing in July for a further 14 Chinook MkII aircraft, including six to maintain the size of the current fleet taking into account expected future attrition losses. The first of these new Chinooks will be delivered in November 1997, with the first Royal Air Force EH101 following in June 1999.

425. The ASRAAM programme remains on schedule; the Missile should enter service in 1998. The Invitation to Tender for the Future Medium-Range Air-to-Air Missile (FMRAAM) for Eurofighter was issued in December; we expect other European countries with a similar requirement to join us in the FMRAAM assessment exercise. These two missiles will provide Eurofighter with a modern and effective air-to-air capability. Responses to the Invitations to Tender for an Advanced Air-launched Anti-armour weapon and for a Conventionally-Armed Stand-Off Missile are currently being assessed; we expect to be able to make an announcement later this year. Deliveries of the new PAVEWAY III laser-guided bomb are well advanced.

Table 9: Royal Air Force Equipment Programme

DEFENCE PROCUREMENT AND THE DEFENCE INDUSTRY

Procurement Policies

426. The momentous changes in the international security environment since the end of the Cold War, and the resulting changes, described in previous Statements, in the size and structure of our armed forces and in our procurement plans, have had their effect on the defence industry in this country, as elsewhere. Over the last year, we have reviewed our procurement policies to ensure that they remain valid for the future. Our review has taken into account the joint report and recommendations of the House of Commons Select Committees on Defence and Trade and Industry (HC 61 and 62), the Government response to which was published earlier this year (HC 209 and 210). We have also consulted industry, through the National Defence Industries Council.

427. Our obligation is to deliver to our Service personnel the battle-winning equipment they need in a manner which is cost-effective for the taxpayer. Our procurement policies therefore continue to be based on achieving value-for-money through the use of competition wherever practicable. These policies have produced real gains in value-for-money, and have also contributed to making the United Kingdom's defence industry efficient and highly competitive.

428. The Department is British industry's largest single customer. Our procurement decisions can therefore have a significant impact on the shape of the defence industry. We recognise the need to take defence industrial factors fully into account in our decision-making and have reviewed our procedures to ensure that this is done systematically as part of our programming and project evaluation process. Key criteria are the need to support the equipment we have, maintain our competition policy in the longer term, meet our operational needs without unacceptable compromise and contribute to cost-effective collaboration. Where relevant, we consider the defence case for seeking to retain particular United Kingdom-based defence industrial capabilities against these criteria. These assessments will ensure that our decisions will be informed by a thorough examination of any defence industrial implications.

429. The defence industry, in the United Kingdom and abroad, is itself evolving in response to the changing demand for its products. Mergers in the United States have led to the creation of several very large defence corporations. Within Europe, mergers and strategic alliances are also reshaping the defence industry, partly in response to the competitive challenge from across the Atlantic. We recognise the importance for European economies and security of a healthy defence industry in Europe; and we welcome moves by British industry to improve its competitive position, by building on existing relationships both within Europe and with North America. It is for industry, rather than the Government, to lead this process. Nevertheless, we have made clear that, in principle, we welcome cross-border industrial joint ventures or mergers, both European and transatlantic, subject to the satisfaction of any concerns about such matters as the continued availability of competition and security of supply.

430. We have strengthened the already extensive channels of communication between the Ministry of Defence, the Department of Trade and Industry, and industry. As part of this process of consultation, a small tri-partite working group has been set up to provide a new focus for the involvement of industry in defence procurement policy. The group reports to the Ministerially-chaired National Defence Industries Council.

431. The defence programme, and our procurement policies, are driven by defence needs. These will not always coincide with the commercial interests of business; but it is right that, as far as we can, we share our forward plans with industry and take account of their concerns.

Collaboration

432. One way of meeting the challenge of retaining key defence industrial capabilities while facing the rising costs of developing advanced equipment within a limited budget is through collaboration with other nations. Collaborative projects offer the double advantage of improved value-for-money and potential new markets and industrial alliances for British firms.

433. We are playing a significant role in promoting collaborative options. As described above, we are involved in Eurofighter and the Common New Generation Frigate. We are also an active contributor to the activities of the Western European Armaments Group (WEAG), which operates under the auspices of the Western European Union (WEU) and which provides a forum for armaments co-operation and the harmonisation of operational requirements. Its work also involves the promotion of moves towards the liberalisation and rationalisation of the European defence equipment market and the creation of opportunities for joint research and technology programmes.

434. Together with our WEU partners, we have also been pursuing the possible establishment of a single European Armaments Agency. Such a body might initially provide a forum for joint armaments research projects while opening the possibility, under the right conditions, of enhanced European co-operation in procurement.

435. The United Kingdom has agreed, in principle, to join with France and Germany in their current work on setting up an armaments agency which offers the potential to maximise the benefits of defence equipment collaboration. This follows the decision to collaborate with these two nations on our requirement for an armoured utility vehicle. The decision underlines the Government's commitment to play a full role in European defence collaboration at both the political and industrial level.

436. Collective transatlantic co-operation is co-ordinated by NATO's Conference of National Armaments Directors, which has an increasingly close relationship with the WEAG. One area in which there has been considerable transatlantic co-operation is in the development of the Alliance Ground Surveillance Capability. A study is being undertaken into the possibility of a NATO-owned and -operated capability, supplemented by interoperable national assets.

Text Box: International Research Collaboration

Table 10: Collaborative Projects involving the United Kingdom at 1 April 1996

Reliability

437. Our programme to improve the reliability of defence equipment has been acknowledged by the National Audit Office as having contributed significantly to increasing equipment availability and reducing support costs. To sustain the drive for quality, we will deal only with contractors who have demonstrated their commitment and ability to deliver high-quality equipment and services.

DEFENCE RESEARCH

438. This year we expect to spend 570 million on the two reconfigured defence research programmes recommended in the Defence Costs Study: the Applied Research Programme and the Corporate Research Programme.

439. The aim of the Applied Research Programme (ARP) is to support the specification of Operational Requirements for equipments having in-service dates within the next 20 years. The ARP provides independent scientific advice on threat assessment, on the formulation of concepts of operations, and in the definitions of Staff Targets and Staff Requirements. Most ARP work is let with the Defence Evaluation and Research Agency (DERA), although about 30% of the combined research programmes is carried out by industry through extramural contracts let by the DERA. Each year, the balance and scope of the ARP is reviewed by the Defence Research Council in the light of evolving defence policy. This process informs the construction of management plans which underpin the annual long-term costings exercise and ensures that the resources available to the ARP are applied to areas of highest priority.

440. The Department seeks solutions which provide value-for-money and risk reduction in equipment specifications. One way of doing this is through technology demonstration, to confirm technology maturity and capability before the setting of Staff Targets and Staff Requirements, thus enabling cost-effective trade-offs to be made in performance specifications and reducing risk in the procurement cycle. We shall continue to support a range of technology demonstrators, to spin off the benefits of defence research into the private sector, for the benefit of both the armed forces and for wealth creation; and to take full advantage of civil technologies for defence.

441. The aim of the Corporate Research Programme (CRP) is to advance scientific and technical knowledge in areas of major interest to defence. The Programme also sustains and develops our science and technology base, on which we can draw in meeting technical needs which cannot be achieved by other means. The CRP is organised into eleven Technology Groups, each with identified Research Objectives, and related Technical Areas, defined in terms of equipment and technology capabilities. The Programme is subject to peer review by scientists drawn from the Department and academic institutions and is guided by Customer Advisory Groups to ensure relevance to defence users. The Programme is also reviewed to identify areas of potential "pullthrough" into the Applied Research Programme. It is expected that better value-for-money within the CRP will be obtained through increased collaboration, both national and international.

442. We have identified the technologies which we judge are likely to be important for military activity in the future and will keep these under review. An important element in our approach is the sharing with industry of our evaluation of our technological and research priorities, through our annual Pathfinder process, run by the DERA, and through a number of briefings.

443. Two new initiatives have been developed to obtain additional gearing by identifying new opportunities for collaboration with both the defence and civil sectors, and to provide a co-ordinated response to the Government's Technology Foresight initiative. The first is the BEACON fund, which is intended to encourage greater collaboration, nationally and internationally, and which involves Government, industry and academia. Secondly, we intend to establish a national programme to bring together industry (both civil and defence), the academic community and the DERA on collaborative research projects of common interest. We intend that this purely national programme should be run on LINK lines, under which contributions of up to 50% of project costs may be made from Government sources.

444. The Department needs access to a science and technology base which will support a wide range of defence activity, from policy development through equipment procurement to operations. This year will see the introduction and implementation of a Technology Strategy specifically aimed at underpinning that base. The Technology Strategy is intended to ensure access to an appropriate range of technology for defence needs. Its publication will also serve to inform other Government Departments and industry of our technology plans.

Text Box: Application of Science and Technology in the Former Yugoslavia

DEFENCE EXPORTS

445. Defence exports remain very important to the British economy and to British defence equipment manufacturers, who, with the help of the Defence Export Services Organisation in many cases, secured contracts worth about 5 billion in 1995. This gave the United Kingdom its second highest market share ever, and maintains our position as the world's second largest exporter of defence equipment. Indeed, in no other major industrial sector is the United Kingdom achieving some 20% of the world export market. The British defence industry as a whole supports nearly 400,000 jobs, and between a third and a half of the industry's output, in monetary terms, is for export. Exports also help maintain Britain's essential technology base and reduce the unit cost of equipment purchased for use by our own forces.

446. During the last 12 months, the Defence Export Services Organisation, in conjunction with industry, has developed a Strategic Plan to cover marketing activities in those countries identified as being the United Kingdom's 20 or so priority markets. For each of these core markets, which are forecast to provide more than 80% of future British defence equipment orders, the Defence Export Services Organisation has produced a separate strategy which integrates all active sales campaigns into a fully co-ordinated, pro-active five-year national plan. The plan will ensure that British companies and their marketing efforts become mutually supportive. They will also, for the first time, enable activity by Ministers, the armed forces, the Export Credits Guarantee Department and the Defence Export Services Organisation to be co-ordinated and prioritised to achieve maximum effect.

447. This new approach will enable destructive competition between British companies in overseas markets to be avoided. The Department has therefore adopted a policy of selectively supporting only one British company in those cases where the spreading of support equally among competing British manufacturers would seriously damage the chances of the United Kingdom beating foreign competition.

448. The Government believes that the responsible transfer of defence equipment is consistent with Article 51 of the United Nations Charter, which recognises the inherent right of all states to self-defence. That right cannot be exercised unless states also have the right to acquire the means by which to defend themselves. The transfer of conventional weapons, when conducted in a responsible manner, can enhance the ability of states to meet their legitimate defence and security requirements; contribute to the deterrence of aggression; encourage negotiation for the peaceful resolution of potential conflict; and enable states to join effectively in collective measures decided on by the United Nations for the purposes of maintaining or restoring peace and security.

449. All applications to export defence equipment are considered on a case-by-case basis. In deciding whether to allow an export to proceed, the Department of Trade and Industry seeks advice from both the Department and the Foreign and Commonwealth Office. Before an export licence is granted, particular attention is paid to the use to which equipment might be put. If necessary, the Government obtains assurances from end users that British equipment and expertise will not be made available for purposes of repression. The bulk of our defence exports go to friendly nations in the Middle East, to states with rapidly-growing economies in the Pacific Rim and to our principal NATO Ally, the United States.

The Scott Inquiry and the Department's Response

450. The Report of Sir Richard Scott's Inquiry into the export of defence equipment and dual-use goods to Iraq, and related prosecutions, was published on 15 February. The Government believes that the Report demonstrates clearly the United Kingdom's responsible approach to the export of defence equipment. No lethal equipment was supplied to Iraq between 1984 and 1990 and a restrictive policy remained in place in relation to the export of non-lethal equipment throughout this period.

451. The Government is considering carefully the Report's recommendations and has accepted that lessons need to be learned from the issues it raised. A memorandum was presented to the Public Services Select Committee of the House of Commons on 12 March setting out the timetable for the further actions the Government intends to take. The Department has a significant role to play in three areas in which further work is under way.

452. First, in the area of intelligence handling, the Report acknowledges that improvements have been made in the Defence Intelligence Staff (DIS). In particular, there is now a clear focus within the DIS on proliferation and improvements have been made in the use of information technology when the DIS advise on applications for defence-related exports. The Department will ensure that these improvements are sustained. It will also work closely with other Government Departments and agencies in the further consideration of the Report's recommendations on the handling of intelligence.

453. Second, the President of the Board of Trade has accepted that the Department of Trade and Industry should review the Government's existing export control powers and procedures, and will be preparing a consultation document by the Summer. The Department will participate fully in this review.

454. Third, the Government has accepted Sir Richard Scott's recommendation that it should review the convention, observed by successive administrations, that details of individual defence exports should not be disclosed. The Department will take the lead in this review and will consult widely. The aim is that, following consultation, the Government should be able to make proposals for future practice by the Summer.

   


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Reviewed 1 October 1996