BAE Systems Could Create £110m Redundancy Bill for Taxpayer
(Source: Daily Telegraph; published Nov. 25, 2011)
Taxpayers could have to fund up to £110m in redundancy costs following 3,000 job losses at BAE Systems, MPs have been told.

Conservative MP David Davis told the House of Commons on Thursday that the bill is "outrageous", adding: "A policy designed to defend and protect British jobs is being used to destroy British jobs."

Under the terms of Ministry of Defence contracts with suppliers, set by the Yellow Book of rules, the Government has to meet certain costs to provide guarantees for sensitive industries.

BAE, Britain's biggest defence group, announced the nationwide job losses in September, blaming spending cuts and a slowdown in production of key aerospace projects. The cuts included the end of manufacturing at its Brough site, where Mr Davis is the local MP.

Mr Davis said the taxpayer is likely to have to pay out between £60m and £110m in redundancy costs, under Yellow Book rules, due to the workers. "When BAE lays off 3,000 workers, it's not the BAE shareholders who are going to meet the cost," he added.

BAE came under fierce pressure during the debate in Parliament over the job cuts, with defence equipment minister Peter Luff accusing BAE of being "disingenuous".

BAE said last night: "The 'Yellow Book' procurement rules are an arrangement between the UK government and the CBI, representing all of industry. This arrangement has been in place for many years. The rules have recently been reviewed by Lord Currie and we played a full and constructive role in this review.

"Commercial negotiations between the company and the MoD on redundancy payments have begun and at this stage it is too soon to give any indication of the outcome."

Click here for the full story, on the Daily Telegraph website.

MPs Slam BAE Systems During Job Cuts Debate
(Source: House of Commons; issued Nov. 24, 2011)
(The following is excerpted from the Hansard report of a Nov. 24 House of Commons debate)
Backbench Business: BAE Systems

-- Mr David Davis (Haltemprice and Howden) (Con): 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.


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. (end of excerpt)

Click here for a full transcript of the Nov. 24 House of Commons debate on jobs cuts at BAE Systems, on the Commons Hansard website.


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