Lord Bach: If America doesn't play fair, the MoD's man with a missile will go ballistic

He's taken on Gordon Brown and won. Now, the minister for defence procurement is squaring up to George Bush, as he tells Clayton Hirst

The laser-guided dart from a Starstreak missile travels at three times the speed of sound, carrying a warhead powerful enough to bring down low-flying aircraft. The weapon is designed for use in close combat, so it may come as a surprise to find a Starstreak dart perched on a desk in Whitehall.

The laser-guided dart from a Starstreak missile travels at three times the speed of sound, carrying a warhead powerful enough to bring down low-flying aircraft. The weapon is designed for use in close combat, so it may come as a surprise to find a Starstreak dart perched on a desk in Whitehall.

In his three years as minister for defence procurement, Lord Bach of Lutterworth has built up an impressive collection of military memorabilia in his oak-panelled office. As well as the replica dart, there is a scale model of a fighter jet, which would be enough to make any Airfix fanatic green with envy, and various pictures of hi-tech weaponry. But the minister - regarded as a genial politician and referred to fondly by MoD staff as "Min DP" - is preparing to launch a salvo of his own. On the eve of the Farnborough Air Show, the defence and aerospace industry's main UK shindig, Lord Bach has prepared a scathing attack on Britain's closest ally - America.

The minister is incensed over the Bush administration's defence export policy. While British companies are prepared to share some of their most closely guarded secrets, the Americans refuse to reciprocate. This, says the minister, is frustrating a number of Anglo-American defence programmes.

"We feel very frustrated about the lack of progress," says Lord Bach. "We are very close to the Americans in the defence field, but this issue is putting British industry at a disadvantage when doing business with the United States." The minister is expected to use his three-day visit to the Farnborough show, which kicks off tomorrow, to raise the issue with US delegates.

Lord Bach says that the US administration is sympathetic to his concerns, but nevertheless warns of "further protectionist legislation being passed through Congress". And he says: "Unless we see some progress in our dealings with the Americans on this issue, then I can see us being forced down a route we don't want to take."

The route Lord Bach refers to is a dangerous one. Instead of buying from the Americans, Britain would turn to European defence suppliers: "If our companies can't deal with [American ones] on a level, then inevitably we will look towards Europe as the sole source of the foreign supplies we need."

The issue of where Britain spends its billions on defence was given extra emphasis on Monday when Gordon Brown unveiled the comprehensive spending review. Before the announcement, defence had been widely tipped as a loser. Talk of a row between the Ministry of Defence and the Treasury had led some commentators to predict heavy cuts in Lord Bach's spending programme. But the fears were largely unfounded and the Chancellor awarded a real-terms budget increase to the MoD, which will see its spending rise to £33.4bn in 2007-08.

"We're pleased with the spending review," says Lord Bach. "We can now make sure the armed forces are not left behind in terms of technology. We can carry on with the transformation and modernisation referred to in the [defence] White Paper."

The Defence Secretary, Geoff Hoon, will announce on Wednesday how the money will be spent. One project to get the go-ahead will be Watchkeeper - to build a fleet of unmanned spy planes for the Royal Air Force. Mr Hoon is expected to award the £800m contract to a consortium led by Thales, the French defence company.

But Lord Bach hints that some programmes will be cut back: "The changes will represent increased investment in some aspects of defence equipment. It will also mean that we are able to take brave decisions; to say that some of [our] assets have served us well but are no longer needed."

Defence industry sources believe that the MoD will reduce its order for Type 45 destroyers, developed by BAE Systems and VT Group, and the Nimrod surveillance aircraft, also built by BAE.

However, contrary to some speculation, the controversial project to build two new aircraft carriers will not be sunk by the spending review. The £3bn project has come to symbolise the radical changes Lord Bach is attempting make in procurement. At the beginning of the year, when Mr Hoon announced that BAE and Thales would build the two carriers, the MoD was rocked by the publication of a highly critical report by the National Audit Office. This highlighted overruns and delays to major defence projects, which the spending watchdog estimated had cost £3bn.

The MoD had no defence and vowed to address the issue with the introduction of a programme called "smart acquisition". Under the new system, instead of signing contracts with defence companies and then haggling over the fine print later, most of the negotiations are being done upfront. Projects may take longer to agree, but in theory, cost overruns will be minimised.

The contract to build the carriers should have been signed three months ago. But guided by "smart acquisition", the MoD is still thrashing out the details. And Lord Bach reveals that the department could delay signing for up to another year. "We are extending the assessment phase of the carriers in order to de-risk this most important of all our projects," says the minister. "This is a brave thing to do because people expect results straight away, but we have to discipline ourselves."

The news will anger BAE. The company is already reeling at suggestions that it will be stripped of its lead role on the project, and relations with the MoD sank to new lows this year. But Lord Bach is confident that, with the arrival this summer of the new BAE chairman, Dick Olver, the two sides can work together again. "We have both learnt from the experience," he says.

The MoD's recent decision to place an order for Hawk trainer jets with BAE should have helped smooth the relationship. The MoD, with the backing of the Department of Trade and Industry, argued BAE's case with the Treasury, which wanted the contract put out to open tender. It was a rare case of the Chancellor losing the argument.

"I am not prepared to comment on that. That is history. The decision was the Government's not the MoD's," says Lord Bach.

The decision was taken under a new MoD "defence industrial policy". This rules that, when awarding defence contracts, priority should be given to companies that generate or safeguard British jobs. So while the minister admits he is "concerned" about the trend for British defence companies to fall into foreign hands (the most recent case being that of the helicopter maker AgustaWestland, sold to Italy's Finmeccanica), he insists that protecting jobs is more important. This explains why he is taking such a firm line with the Americans over trade. At stake, he says, is the future of British firms.

So, don't be surprised if Lord Bach arrives at Farnborough tomorrow with his Starstreak missile tucked firmly under his arm.

BIOGRAPHY: Lord (Willy) Bach of Lutterworth

Born: 25 December 1946

Education: New College, Oxford

1972: Called to the Bar

1976-78: Member of Leicester City Council

1993-94: Mayor of Lutterworth

1995-99: Member of Harborough District Council

1996-2001: Head of Chambers in Leicester on the Midland and Oxford court circuit

1998-99: Elected member of Labour's National Policy Forum and Economic Policy Committee

1999: Lord-in-waiting (government whip)

2000: Parliamentary secretary in the Lord Chancellor's Department

2001-present: Minister of defence procurement