THE current co-operation on defence contracts between London and Edinburgh would be illegal under EU competition rules if Scotland became independent, MPs were told yesterday, meaning Scottish firms would have to compete with others from around the world for Ministry of Defence contracts.

At Commons question-time, fears were raised that not only would direct jobs at Scottish shipyards be lost in an independent Scotland but also thousands of indirect ones too.

Iain McKenzie, the Labour MP for Inverclyde, asked what would happen to Scottish suppliers of fixtures and fittings if future UK Government defence contracts stayed within England.

Nick Harvey, the Armed Forces Minister, explained if contracts were deemed to be warlike, a government could be exempted from EU competition rules on national security grounds.

He told Mr McKenzie: "In the case of the sort of thing he is describing, this would be non-warlike and would be subject to international competition rules and Scottish companies would have to win against global competition."

Mr Harvey insisted, at present, Scotland did well in defence terms, having one of three UK naval bases, one of three RAF operational bases and an Army brigade.

In a dig at the SNP, the minister said: "Those who would seek to change that should spell out what it would be like under a separate arrangement."

Peter Wishart for the Nationalists, noting a "disproportionate underspend" on defence in Scotland, said the Scottish Government was "very much in favour of continuing defence procurement co-operation, regardless of the constitutional situation".

The Perth MP went on: "It's good for jobs, good for manufacturers and good for the taxpayers of Scotland and England."

He added: "Why doesn't the UK Government just simply concede that it makes perfect sense to continue with procurement co-operation, if the Scottish people decide they want to make defence decisions in Scotland itself?"

However, Mr Harvey replied: "Defence procurement co-operation of the sort the honourable gentleman suggests would be a complete contravention of EU competition rules. We are only allowed to go out and procure non-warlike stores on an open competitive basis and the defence industry of Scotland would have to compete with South Korea or whoever else it may be for future defence contracts."

In a separate development, Mr Harvey made clear in the forthcoming military cuts – the Army is being reduced from 102,000 to 82,000 – there will be no special favours given to Scotland.

Meanwhile, today thousands of soldiers will learn if they are to be made redundant as part of the downsizing process.