BAE emerges as favourite for warships deal as Hewitt puts focus on British jobs

The CBI in Manchester: Red tape, regulation and the euro dominate debate among employers' leaders

The Government gave the strongest hint yet yesterday that BAE Systems is the frontrunner to secure a £10bn order to build two new aircraft carriers for the Royal Navy.

BAE, which is in competition with a consortium led by the French defence group Thales, has consistently argued that British design expertise and strategic capability will be damaged if the contract goes to a foreign bidder.

Pressed on the Government's attitude towards the rival bidders, the Trade and Industry Secretary Patricia Hewitt told the CBI conference in Manchester that British jobs would be a "key criterion on which the bids will be evaluated".

Ms Hewitt also criticised the fact that BAE would not be able to bid for a similar contract in France. "I think the French have got it wrong on this and other matters and we are pressing them hard to open up their markets in public procurement and utilities and so on," she added.

BAE and Thales have promised that their bids will create or safeguard 10,000 UK jobs. Thales, which bought the UK defence electronics company Racal for £800m three years ago, has also pledged that 99 per cent of the work on the two ships will be carried out in the UK.

But BAE is reckoned to have the upper hand in the contest because it has given a clear pledge that final assembly of the two carriers will take place in the Rosyth Naval dockyard in Scotland which is in the Chancellor's constituency. BAE also argues that it is better placed on security grounds to act as prime contractor because the carriers will be equipped with US F-35 fighter aircraft and BAE is classified by the Pentagon as a US defence contractor owing to its extensive American operations.

Ms Hewitt's appearance at the conference came as business leaders continued to air their grievances over the Government's tax and regulatory policies, which the CBI claim has saddled companies with and additional £60bn in costs since Labour came to power in 1997.

The Trade and Industry Secretary was quizzed by one delegate on what part the increasing regulatory burden played in Labour's pledge of "prosperity for all". The shadow Chancellor Michael Howard, who was sitting on the platform with Ms Hewitt, joined in the attack saying that Labour had claimed it was the party of deregulation while introducing 4,500 new statutory instruments last year – one every 26 seconds of every working day.

The jungle of red tape included a requirement for glaziers and home owners to fill out a form in triplicate when new windows were fitted to a house under the Fenestration Self Assessment Scheme. "If this is regulation, is it any surprise we are in the mess we are in?" said Mr Howard.

Vincent Cable, the Liberal Democrats' trade and industry spokesman, said the Government had been guilty of "gold plating" a large amount of legislation and highlighted the new rules implementing the Working Time Directive. He said the Dutch had a single sheet explaining how the law worked whilst the UK had 79 pages of guidance and instructions.

Ms Hewitt defended the Government's record, however, arguing that 1,400 of the 4,500 statutory instruments introduced last year related to road improvements. She said the Government had "learnt its lesson" on gold plating regulations and all senior civil servants were now made to go into companies for work experience stints. "We have got the Prime Minister constantly on our backs about this," she added.

Digby Jones, the director general of the CBI, said Britain's planning laws were the "best friend" that the Italians and French had and urged the Government to press ahead with efforts to liberalise its planning system and employment law.

The trade and industry secretary was also tackled over skills shortages and Britain's record on productivity which, said Mr Howard, she had blamed on "poor managers" in private industry.

John Neill, the chairman of the car parts group Unipart, said this was unfair to the private sector because the public sector made up 40 per cent of the economy and yet it had achieved virtually no improvements in productivity. "The burden of that on business has been enormous," he added.

Ms Hewitt refused to be drawn on the future of the nuclear electricity generator British Energy. A £650m government loan for the embattled company runs out this week but Ms Hewitt is expected to agree to an extension before the Friday deadline. She insisted that the fate of the company had to be seen in the context of the Government's wider energy policy and environmental targets which will be the subject of a White Paper early next year. "Getting the policy framework right for everyone is absolutely essential, it is very high on my agenda," she added.