BAE chief warns MoD row may worsen

The chairman of BAE Systems, the country's biggest arms contractor, warned yesterday that its dispute with the Ministry of Defence over procurement policy could escalate.

Sir Dick Evans told MPs on the Commons Defence Select Committee that BAE's relationship with the MoD was already "pretty robust'', adding: "They could get quite a bit tougher.'' However, Sir Dick also said that BAE, which is locked in a fierce wrangle with the ministry over cost overruns on the Eurofighter Typhoon project and the future of a £3bn aircraft carrier contract, was prepared to eat "humble pie'' if it was felt it had been too offensive in its criticisms of the MoD.

The BAE chief's comments came as the company launched a renewed attack on Britain's defence procurement strategy, warning that the UK arms industry was in danger of being reduced to an "American metal basher''.

Sir Dick said he was pessimistic about prospects for the UK defence industry because support for research and development had "virtually dried up'' and the MoD was not prepared to support a national arms champion. He also warned that unless policy changed, BAE would move facilities abroad with heavy job losses. "It is going to be pretty painful for us,'' he said.

The BAE chairman contrasted the attitude of the UK with that in the US where the developments costs on big equipment programmes were picked up by the government. "The great threat is coming from the Americans because they are investing huge amounts in R&D. If this process continues the UK is simply going to become an American metal basher. There will be no intellectual capability left in the UK,'' he said.

BAE is threatening to sell its naval shipyards and pull out of the carrier contract because of the MoD's decision to strip the company of its role as prime contractor and turn the programme into an alliance led by senior ministry officials. Sir Dick said the MoD should be concentrating instead on creating a UK naval shipyard champion.

Earlier he faced a barrage of hostile questions from arms protestors at BAE's annual meeting over the alleged use of slush funds to win military contracts and the company's record of arming undesirable regimes. Sir Dick said the slush fund allegations were false, insisting: "BAE rigorously obeyed the laws of the UK and indeed all countries where we operate."

There was a moment of light relief when the comedian Mark Thomas stood up and told Sir Dick: "It has been obvious to many of us for years that you should be in prison. Can you assure us if you do end up in prison that you won't follow the example of your fellow arms dealer Jonathan Aitken and write a book of psalms?''

Despite the number of arms campaigners who slipped through the heavy security surrounding the meeting at the QE2 Centre, it was the first time in seven years that no protestors were ejected from the meeting.