Fears for jobs as MoD awards car stipulate to General Dynamics of the US

David Robertson, Business Correspondent & , : {}

Hundreds of manufacturing jobs are under threat after the Ministry of Defence awarded an armoured vehicle contract to General Dynamics of the United States.

The future of BAE Systems Tyneside factory is in doubt after Europes largest defence company lost the 2 billion deal to its American rival.

The Government was criticised for playing politics with the armoured vehicle programme, announcing the deal six weeks before a general election. The MoD has been attacked recently for failing to provide troops with enough armoured vehicles in Afghanistan and yesterdays announcement was seen as an attempt to respond to that criticism before the election.

Liam Fox, the Shadow Defence Secretary, said: It is quite wrong for the Government to sign multibillion-pound contracts just weeks before a general election and ahead of a strategic defence review which all parties are committed to.

Related Links"I"m so angry. I want answers"500 soldiers face sack amid funding crisis

The MoD has awarded General Dynamics the contract to supply up to 600 Future Rapid Effects System lightweight tanks. This is a scaled-down version of a 1,300-vehicle order worth 4 billion that the MoD eventually hopes to place.

Despite the fanfare that came with the announcement, the deal is not as significant as the MoD sought to portray yesterday. General Dynamics has been awarded only a demonstration contract, which could be for as few as a dozen vehicles. The decision about whether or not to go ahead with the full production run will be made by whichever party wins the election.

Howard Wheeldon, a defence analyst with BGC Partners, said: This announcement is playing to a political agenda, manipulating a small piece of news into something big to show that the Government is doing something about the lack of armoured vehicles.

General Dynamics has said that 70 per cent of its vehicle, called ASCOD SV, will be built in Britain and that the project will support more than 10,000 jobs. BAE has disputed these figures. Sandy Wilson, managing director of General Dynamics UK, said: We offered the best growth potential over the life of the vehicle, the best integrated solution, the best value for money for the British taxpayer and the best deal for the UK industrial base.

Bob Ainsworth, the Defence Secretary, said: This represents a very important milestone towards replacing the ageing CVR-T.

BAE warned last year that 500 jobs could go in its land systems division if it lost the FRES contract.