Draft Defence Science and Technology Laboratory Trading Fund Order 2001

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Dr. Moonie: I shall do my best to answer all the points that have been raised. As one who made the long march through the 1980s and 1990s, from the intellectual purity in terms of Labour party economic strategy in 1982 to the present day, I find it interesting to see the Tories trying to retrace our footsteps. I only hope that they go all the way and have as much success as we did.

I congratulate the hon. Member for Salisbury on his speech, which sounded similar to one that I made twice while leading for the Opposition on the privatisation of the British Technology Group and the United Kingdom Atomic Energy Authority. If the hon. Gentleman consults the record, he will find some remarkable similarities. I am happy to say that I am providing him with better answers today than I was given on those occasions.

The hon. Member for Aldershot raised the issue of sufficient scientific knowledge. DSTL will contain the capability to provide advice on the most sensitive areas. The compliance regime will prevent NewDERA from engaging in activities such as defence manufacturing, which lead to the highest risk of potential conflicts of interest. Impartial advice is at the core of NewDERA's business. A strong commercial incentive exists not to compromise that. We shall ensure that adequate provision is made on both sides of the fence.

My hon. Friend the Member for Stafford raised a point about the inventory of assets. I assure him that a full inventory has been discussed and divided.

As I said in my opening remarks, DSTL, as a trading fund, will require income from customers, primarily in the MOD but also in other Government Departments. Budgeting planning for DSTL has estimated an income of approximately £250 million. We believe that MOD customers are able to support that through the research building block and parliamentary budgets. I may return to the issue, although I run the risk of repeating myself. However, we shall review DSTL's constitution as a trading fund after the first year of operation, in the light of whether the operations of DSTL should be returned to the block rather than left as a trading fund. A proper assessment will therefore be made.

It has been said that there has been criticism of the process. If the whole process were ready now, we would already have carried out the vesting. It is a part of a package for preparing for vesting. It is therefore only natural that some t's have not been crossed, and some i's have not been dotted.

Any Government who do not have to introduce primary legislation will be forgiven for not doing so. There have been opportunities to debate the matter on many occasions. Several Adjournment debates have taken place, I suspect, in both Houses. The Select Committee has given thorough consideration to the subject. As a result, dramatic changes have been made to the initial proposals, which shows that we have been prepared to listen.

If I start to ramble, it is because my notes are mixed up. I hope that hon. Members will forgive me.

All assets have been agreed for some months. Strategic assets will be given special protection, so that NewDERA cannot be closed or sold without MOD approval. The task of identifying which assets will be protected in that way is now in hand, but some further weeks of consideration will be required. It is a matter of refining the general division of assets and deciding which will be protected, and which will not, under the compliance regime.

Mr. Key: I should be grateful if the Minister would comment on the ranges to which I referred.

Dr. Moonie: All the ranges, including Boscombe Down, will be in NewDERA.

As I have said, DDA will be an MOD-funded centre, and consultation is taking place with staff and other interested parties. However, its staff need to be close to the technology, so they will be located in DSTL and NewDERA facilities around the country. It is essential that staff know what technology is available and how it can be used, so DDA will operate on both sides of the fence.

Mr. Key: On that point, if the headquarters will be in the MOD and DDA staff will be on both sides of the fence, why does the order make it clear that work will be pushed out to NewDERA?

Dr. Moonie: I am not sure that that is quite so clear. There is no doubt that some work will be carried out within NewDERA, but I can assure the hon. Gentleman that, as we have said, DDA's management will be retained in the MOD. Some operations will be within NewDERA and others within DSTL. Some operations will be in other parts of the country, but I reiterate that our preferred option is that DDA's management and strategic direction should come from within the MOD.

The compliance regime is an important issue and it is worth my spending a minute or two discussing it. As we have said, the regime includes retention of a special share, limitations on share ownership, and prevention of disposal or closure of strategic assets. It also includes provisions to prevent NewDERA engaging in activities that conflict with its advisory role. Alternatively, at the MOD's discretion it can agree ways in which to manage such conflicts. The regime further establishes the need for MOD approval of all NewDERA board appointments, and a prohibition on defence manufacturing. Detailed work on all those points is under way.

Under the definition of defence manufacturing, NewDERA will be specifically prohibited from manufacturing commercial quantities of any material or system that is designed, developed or assembled specifically for military purposes. Inevitably, some cases will be less clear-cut than others, and they will be referred to a compliance committee for consideration. The precise rules for enforcing the prohibition are still being discussed, but all the parties involved accept the principle behind the ban. Unfortunately, I cannot find the note that amplifies those points, but I hope that I have given the Committee the general flavour. On occasion, the work will involve systems engineering and systems integration, but it will not involve commercial-scale manufacturing, which would clearly give rise to a conflict of interest with the commercial world.

Mr. Howarth: Is the Minister saying that NewDERA will be involved in systems integration?

Dr. Moonie: I am saying that it may be involved, which is slightly different. We are not going to predict the future, nor are we going to impose an absolute ban on any involvement in systems integration.

Because work is still in progress, industry has yet to be asked whether it is content with the definition. The purpose of the prohibition is not to prevent NewDERA from participating in fair competition with the rest of industry, but to protect the MOD by ensuring that NewDERA does not operate in an area with potentially the greatest adverse impact on its ability to offer impartial advice. As a defence manufacturer itself, it is clear that it would no longer be able to be considered a provider of completely impartial advice.

The question of board membership is dealt with under the compliance regime. We intend to keep a special share because that is an effective means of protecting national defence interests. The share has no expiry date and will be retained for as long as we think necessary. That is the exact language that the previous Government used when describing golden shares, which should be grounds for Opposition Members to accept the share rather than criticise it.

Discussions with the European Commission have taken place on the basis that the special share is a mechanism to protect the UK's security and defence interests. The Commission has given no indication that it believes the proposal to be unacceptable. Such shares have been effectively enforced in the past, and there is every reason to believe that the NewDERA special share will be an effective safeguard.

I believe that I have answered the hon. Gentleman's point about the DDA, and that no further amplification is required.

On systems engineering and manufacturing, the issue turns on the point in a procurement cycle at which NewDERA would expect to be involved. Much of the systems engineering capability developed in DERA relates to overall conceptual design—the common phrase is systems of systems design—but not to the implementation of that design.

With regard to receipts, the MOD will get £250 million, as agreed. That will not be affected by the costs of the transaction, which will be borne by DERA before its disposal takes place. Exactly how much the MOD gets will depend on market conditions, as has been said. Many of the high tech shares that have lost their gloss over the past few months are scarcely what I would refer to as high tech, given the nature of the businesses involved—with the exception of the telecoms sector. The amount that the MOD gets will also depend on the value developed in NewDERA, and it is impossible for me to estimate the proceeds at present. However, I guarantee that we will not undertake a transaction that does not give the taxpayer full value for money.

DSTL will continue as a trading fund for the time being, but we will review that over the next 12 months or so, to assess whether it should be returned to the vote.

Foreign ownership is not an issue until we dispose of DERA. Until that day, NewDERA will be entirely Government-owned. We are discussing detailed arrangements, which will be finalised well before the transaction is undertaken, to ensure that its ownership is protected.

Mr. Key: On that point, a plan must already exist. People must be thinking about the extent to which they can, in practical terms, put a limit on foreign ownership.

Dr. Moonie: Yes, of course. The golden share is a mechanism for achieving that, because it effectively allows us to maintain a veto over anything that the company does for as long as we possess it. I cannot speak for future Governments in that respect, but our intention is to retain it for the foreseeable future.

I am happy to say that pension arrangements have been approved by the Government Actuary. There has been full consultation with trade unions, and I understand that they are content with our proposals. We have considered the matter carefully to ensure that employees who transfer are not disadvantaged—as did the previous Government in respect of UKAEA and BTG.

On the accusation that people are not allowed to talk to each other, there has been a great deal of rumour and anecdote but little substance. The core competence model is specifically designed to avoid problems of that sort, and has been fully discussed with the United States at all levels. At present, the United States is perfectly comfortable with the arrangements that we are making, and access of NewDERA staff to key information will not be impaired. That reflects the current arrangements whereby access to information by DERA or contractors is granted by the agreement of the originator of the information.

In my replies to the hon. Member for Salisbury, I have covered many of the points that were raised by the hon. Member for Aldershot. Strategic assets will not be kept in DSTL—the MOD will have special protective rights over them. Some strategic facilities, such as Porton Down, will be in DSTL and many, including the ranges, will be in NewDERA, but they will be fully protected from closure and disposal without MOD approval. We are aware of the problem concerning the future of the ranges and what work will be done at Shoeburyness, Eskmeals, Pendine and so on. We are keeping a close eye on that.

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