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David moves a motion in the house, calling for BAE to act to preserve Britain’s defence industry

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David’s contributions with Hansard links attached:

”I beg to move,That this House urges BAE Systems to act to preserve the UK’s defence production skills base and, as a recipient of enormous resources over many years from the UK taxpayer, to deploy those resources in such a way as to protect the nation’s manufacturing capability.

On 27 September, BAE Systems, which is Britain’s biggest engineering employer, delivered an agonising shock to its work force. It announced that it intended to lay off 3,000 employees in its plants across the country. In this process it will be closing the production plant at Brough in my constituency, thereby terminating the jobs of almost 900 skilled workers and staff. That was a shock, but not a surprise because the previous weekend the newspapers had published a leak about those plans, which were in breach of all BAE’s codes of corporate responsibility. This cruel treatment of a loyal, decent and hard-working work force was, frankly, a disgrace. As I shall point out, that was not the only disgraceful aspect of this decision.

The symbolism of this retrenchment could hardly be starker. Both aerospace and defence are massively important businesses for the United Kingdom. BAE is by far the biggest company in either industry in Britain. The size of the cutback is grievous and grimly symptomatic of the decline in manufacturing in this country—so far, so bad—but there is a risk in this storm of statistics and grand economic strategy that we lose sight of what really matters. What matters most is the misery that the decision visits on individuals, families and communities: the destruction of their hopes and the blighting of their lives.

In Brough—a community that thinks of itself as the home of the Hawk, centred on a factory that has been building military aircraft since 1916—the shock was visible. It is one of those factories where grandfathers, fathers and sons all work, thus maintaining a proud tradition of skilled work through the generations. A number of married couples who work there met there. Therefore, after Christmas this year, whole families will be looking for work, and what a time and place to look for work. Many of them live in a part of Hull that has more unemployed people chasing every job than anywhere else in the country. In the past four years, the city and area have lost 7,500 manufacturing jobs—a quarter of all the manufacturing jobs now left there.

Brough’s closure is not only an industrial tragedy, but a human tragedy—all so painful, and all so unnecessary. While Brough was announcing job losses across Yorkshire and Lancashire, Airbus was opening a £400 million factory, which increased jobs by 650 and underpinned 6,000 other jobs. That factory makes Airbus wings. In past years, Brough and other parts of the BAE empire have made the struts, spans and other parts of wings for Airbus.

Until about five years ago, BAE maintained a stake in Airbus. The close relationship meant that Airbus components of all sorts were made by the BAE work force. That was a smart strategy. Although civil and military aviation operate on different business and economic cycles and different demands at any time, the manufacturing skills and requirements are interchangeable to a large extent. Until then, the company could switch resources backwards and forwards to whichever sector had the demand.

Despite the counter-cyclical nature of those businesses, profits were stabilised—as, of course, was employment—but five years ago, before the banking crash and the sudden constraints on public spending, defence sales looked lucrative and profitable, and civil aviation looked just a bit too competitive. Now, all is reversed of course: defence sales are hard to come by anywhere in the world, and commercial aviation is booming.

In 2006, in what must count as an astonishing piece of strategic myopia, the company made a hideously short-term decision and disposed of its stake in Airbus and withdrew from civil aviation. Britain is the country that created the first jet airliner. We now own no production capacity for civil airliners. That is not the only strategy error to hit the work force.

Over the years, BAE and its predecessor companies have had a symbiotic relationship with the Government that is all too characteristic of defence industries. In the largely cost-plus environment of defence procurement, the British taxpayer funds the development and production of weapons and aircraft. British test pilots risk their lives testing, proving and improving those aircraft. In exchange, the nation receives the aircraft, equipment and weapons necessary to defend our shores and interests, but it also obtains a defence industrial capacity that supports us in time of war.

In addition, the Government go in for defence sales support, specifically to maintain the viability of that domestic capacity. That is the theory. It seems to me that what has been happening is almost the opposite. Let us take, for example, the Harrier, perhaps the most iconic post-war British aircraft. Without it, we might have lost the Falklands war. It was developed with British taxpayers’ money and tested by British test pilots. Today, it is an American aircraft. As far as I can tell, the Americans paid little if anything for the transfer of intellectual property in the most innovative aircraft since the war, yet they now manufacture that aircraft: British money; British skill; American jobs and capability. Sadly, that appears to be happening again.

If we win the potentially huge American order for the T-X aircraft, between 350 and 1,000 advanced Hawks will be manufactured not in Britain, but in Texas. What that means is demonstrated by what has been happening with the sales of the Hawk to India. In the past decade, about 150 Hawks have been sold to the Indian air force. The vast majority of them—all except the first 24, I think—have been built in Bangalore. BAE will tell anyone, as they told the right hon. Member for Kingston
upon Hull West and Hessle (Alan Johnson) and me at the time, that it was a necessary offset and that it did not mean that it was moving Hawk production abroad.

I looked in the Indian papers and the defence journals that cover both sides of the story to see what is happening on that project. Ashok Nayak, the chief executive of Hindustan Aviation, which builds the Hawk in India, said this year:

“Last year, while negotiating the contract for 57 Hawks, BAE Systems wanted to give HAL”—

Hindustan Aviation—

“additional work in building Hawks in the future. HAL is looking for a large role in that build. What exactly, is still being discussed.”

That was quoted in the Indian newspaper, Business Standard, but such things are said in not just one paper. The journal, Defence Now said much the same thing:

“BAE was discussing moving more production to Hindustan Aviation”,

effectively to create export sales out of India. Separately, reporting at the Paris air show earlier this year, the journalist David Donald said in another journal:

“BAE Systems envisions no problems in maintaining the Hawk’s production status for many years, with the production line in India now driving and sustaining the all-important supply chain.”

It is plain to see that, whether by accident or design, BAE is effectively moving to a position where the emblematic British aircraft, the Hawk—the Red Arrows aircraft—will be made abroad. That is where a serious part of our jobs are going now. What happened to the Harrier yesterday and what is happening to the Hawk today, if we are not careful, will happen to other aircraft in the future. In summary, successive British Governments have maintained a policy to keep a cost-effective British defence industry on British soil. BAE Systems has gained from that strategy, with the effect that we have exported those jobs and capability to foreign soil.

It gets worse. Since the 1960s, to maintain a viable defence industry, successive British Governments of all parties have operated under a set of rules, known as the yellow book, that determine which costs the company meets and which costs the taxpayer meets. It transpires that when BAE lays off 3,000 workers, the BAE shareholder will not meet the cost, as is reported on the front page of the Hull Daily Mail today: “Taxpayers face £100m BAE bill”. Given how the system works, between £60 million and £110 million—we do not yet have the number—will be paid by the taxpayer, not by BAE, to lay off 3,000 people and destroy their jobs. That is outrageous.

A policy designed to defend our defence capability is being used to make us subsidise the destruction of that capability. A policy designed to defend and protect British jobs is being used to destroy British jobs. If I were the Minister, I would not pay BAE a penny. I would tell BAE, “This is your decision. This is the outcome of your strategy. If you don’t like it, I’ll see you in court.”

I should tell the Minister that I have spoken to the Chairman of the Public Accounts Committee about this matter, and she has agreed to have a National Audit Office investigation. I hope that that helps to stiffen the Ministry of Defence’s spine. I have also discovered that BAE has already benefitted to the tune of hundreds of millions of pounds from such yellow book subsidies for failure. I will ask the PAC to investigate that, too.” [Columns 472-4]

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”Frankly, I will resist making this a Labour versus Tory argument, for a simple reason. For the past 10 years, when it comes to BAE Systems and employment in our constituencies, the right hon. Member for Kingston upon Hull West and Hessle and I have studiously aimed solely at protecting jobs, sometimes demurring from scoring political points. My hon. Friend the Member for Wyre and Preston North (Mr Wallace) makes a good general point: there is a central planning approach—a bad one—but the raw truth is that it was designed to ensure that our defence capability and defence employment were stable, and would be there in time of war. That has been turned, and it has effectively been used to destroy those jobs and that defence capability.” [Column 475]

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”The right hon. Gentleman is absolutely right on both counts. It would suit very well the people whose mind we are trying to change if we fought against ourselves on party political or geographical grounds. Much as I look back with amusement and fondness on past cricketing experiences in the wars of the roses, those wars need not be repeated here and now.” [Column 475]

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”There is another side to the coin, but since my hon. Friend draws me on that point, I am afraid that on one side there is a pound, and on the other there is a ha’penny. I was the Public Accounts Committee Chairman for five years, and I looked at the issue in close detail, and I have to tell him that the Americans are far more aggressive and effective than we are when it comes to protection of their intellectual property.

The proposals have all sorts of strategic implications. One of the things that we looked at 10 years ago—I am probably not breaking too many secrets—was the advanced medium-range air-to-air missile. We were not even allowed technological knowledge of AMRAAM because of the Americans’ defences, and that made it less effective for us. This is quite an area of battle. Indeed, the previous Defence Secretary made quite an issue of this, as my hon. Friend the Member for Bournemouth East (Mr Ellwood) will know, and will understand only too well. We have not fought our corner very well, and I am afraid that BAE Systems is culpable, as part of that. It has been very poor in terms of its strategic decisions on civil and military aviation, and when it comes to protecting our intellectual property.” [Column 475/6]

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”It is certainly the consequence of deliberate decisions. Whether the management intended this outcome at the beginning, or whether it is sheer crass misjudgment, I will leave the House to judge. What I am trying to do is lay out the facts as starkly as I can, because it was long ago time to open up the process to public scrutiny.

That brings me to the decision today. The company is in the middle of a 90-day consultation period. From the start, the right hon. Member for Kingston upon Hull West and Hessle and I, and a number of colleagues—probably every Member of Parliament involved in the process—told the company that we would hold it to its legal responsibilities on a 90-day process. Those legal responsibilities involve being transparent and open, and looking in good faith at all proposals put to it. I repeat that: looking in good faith at all proposals put to it. Unfortunately I have to tell the House that, based on the company’s behaviour to date, it seems to me entirely possible that it has broken its legal responsibilities. It has not looked in good faith at all the options available to it, but I will leave it to my right hon. Friend—I beg his pardon, the right hon. Member for Kingston upon Hull West and Hessle; he is my friend—to say more on that later.

I certainly expect the company to demonstrate why it turned down the options that it was looking at before it made the decision. As far as I can see, it has not even done that. Secondly, I expect it to give proper consideration to the plan drawn up by its management to preserve employment at Brough in my constituency, albeit at lower levels. Again, I think that the right hon. Gentleman will touch on that point.

The work force at Hull are the best, in terms of attitude, productivity and skill, I saw in my 20 years in business before I came to the House, and BAE Systems senior management agree. The work force’s attitude is positive, their productivity is high, and the right hon. Gentleman and I have always been told that they are competitive on cost and quality. They deserve a proper chance.

If the company does a proper, open-minded review, and the figures do not add up—I accept that is possible—its responsibilities do not end there. We have been fortunate: the Civitas think-tank has invested £50,000 in looking at the Brough site to see what it can be used for, how the skills can be deployed, and what we can do without destroying the skills base. For that, I thank it warmly. The chairman of the Government’s skill retention taskforce came to see us yesterday, and it is at work, looking for alternatives. The Government acted within two weeks and put in place two enterprise zones, one on each side of the Pennines, to help us in all this, but if we cannot come up with an alternative, we will again lose a critical mass of skilled workers that will not be replaced once it is dissipated. That is the nub of the matter.

The job losses in Brough and on the other side of the Pennines are, to a large extent, a direct consequence of the company’s strategy over the years. The company’s profits come, to a very large extent, from taxpayer support.” [Column 476/7]

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”My hon. Friend, who has been very active in this campaign, brings me to the nub of the issue. It is precisely because the company had, until five years ago, experience in civil aviation; precisely because it is the biggest employer of engineers in the country; and because of its knowledge, access, contacts and understanding of the markets, that it is best equipped to find an alternative use for Brough—full stop. That is what I—and others, I am sure—demand. It is not just Brough; I keep saying Brough because it is closest to my heart, but the company must find alternative employment and use for the assets and the work force across the country. That is what it is best equipped to do. Frankly, as far as I can see, so far it has not lifted a finger in that direction.

There has been a lot of criticism in recent weeks of high levels of executive pay. Recently, the statistic came out that, over 30 years, senior executives have had a 4,000% increase in pay. Despite severe criticism of senior management by investors and others over the years, the pay of BAE’s chief executive grew by 8,000% over the same period, double the national average. I am not one of those who believe that people should not be paid large sums of money, but I expect them to earn it. They could perhaps justify their salaries—the chief executive’s is £2.4 million—by doing a better job not only for shareholders, but for employees and the country.” [Column 477]

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”The Minister is making a very courteous and informative speech that is very helpful to us. Will he ensure that the response of the Public Accounts Committee and the National Audit Office to my request that they investigate some of the yellow book operations is taken on board in that consultation?” [Column 484]

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”I think everybody takes the point that, in the modern defence market, there will be offset. Everybody has offset; we have offset. As has been made clear, offset arrangements do occur. It is problem when those offset arrangements become the permanent new manufacturing base for the aircraft, which is effectively what has happened with Harrier and seems at least to have been discussed with the head of Hindustan Aviation with BAE.” [Column 487]

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