National Shipbuilding Strategy
Baroness Goldie (Con)
My Lords, with the leave of the House I shall now repeat a Statement made in the other place by my right honourable friend Sir Michael Fallon, the Secretary of State for Defence, on the national shipbuilding strategy. The Statement is as follows:
“This Government are committed to a strong Royal Navy and a strong economy that benefits every part of the UK. Today, I am publishing the national shipbuilding strategy—the means by which we plan to bring these two strategic goals together. Copies have been placed in the Library of the House and on the government website GOV.UK. The strategy will transform the procurement of naval ships, enable the fleet to grow by the 2030s, energise the UK’s maritime industry and increase skills, exports and prosperity across our country.
In the 2015 strategic defence and security review, we committed to developing a national shipbuilding strategy because we acknowledged that previous procurement of surface ships had been problematic. Sir John Parker, a well-respected expert in the sector, was appointed to produce an independent report to inform the strategy. This report was published in full on 29 November 2016. Sir John analysed where previous approaches had fallen short, and identified a renaissance in UK shipbuilding. He made 34 recommendations in total. I am pleased to report that we have accepted all of Sir John’s recommendations for government and have either implemented them already or have a plan of action to do so. I would like to place on record once again my thanks to Sir John for supporting us.
The strategy focuses on surface ships and makes clear this Government’s commitment to an ambitious programme of investment in a growing Navy. In the post-Brexit world, the need for us to project our influence and to keep reaching out to friends and allies alike will be more important than ever. That is why we propose now to invest billions in the Royal Navy over the coming decade. Our future fleet will include: our two mighty flagships, the “Queen Elizabeth” aircraft carriers; next-generation “Dreadnought” submarines; Type 45 destroyers; and a phalanx of new frigates including not just Type 26 global combat ships but a flexible and adaptable general-purpose light frigate, the Type 31e, as well of course as our “Astute” submarines and five new offshore vessels.
I am pleased to announce in the House today that this Government plan to procure the new Type 31e frigates. We will order a first batch of five such vessels. The first of these is to be in service by 2023. The Type 31e will enable us to refocus offshore patrol vessels and other craft on their core patrol and protection roles, while the Type 31e ships will maintain and project the presence we require to deliver security in an uncertain world. This then will allow the high-end capabilities of the Type 26 frigates and Type 45 destroyers to focus on maritime task group operations, particularly carrier strike, as well as the protection of the nuclear deterrent. Type 31e, as its name implies, will also be designed from the start as an exportable vessel, meeting global needs for a flexible and adaptable light frigate. We will test the concept of distributed block build during the procurement competition.
This procurement will be the first demonstration of our new strategy in practice. The new frigate will be procured competitively, providing an opportunity for shipyards across the UK to bid for this programme of work. The strategy confirms, in the clearest statement of this policy for a decade, that all warships will have a UK-owned design and will be built and integrated inside the UK. Warship build will be by competition between UK shipyards. We will encourage UK yards to work with global partners, where they meet our national security requirements, to ensure that the vessel is fully competitive on the export market.
We also encourage UK yards to participate in the ongoing fleet solid support ship acquisition programme. These several programmes will secure hundreds of highly skilled and well-paid jobs on the Clyde and throughout the United Kingdom, bringing opportunities for high-wage and high-skill employment, growth and prosperity. Our research indicates that the maritime industries in the UK employ around 111,000 people, in 6,800 companies, contributing £13 billion to the economy. The shipbuilding and repair element of this contributes around £2 billion.
This is a strategy for industry as much as for government. Delivering these new ships means that we need a strong shipbuilding sector, as part of a wider marine engineering sector. That includes the shipyards, their suppliers and those that manufacture and support the equipment for the ships, and the skilled workers who support these companies. Industry and the trade unions were involved as we developed the strategy, and I would like to thank them too for their contribution.
This programme of investment represents further opportunities for the sector to compete for and win work for the Royal Navy, and for overseas customers—enabling in turn further investment, greater productivity and growth.
The strategy makes clear how the Government now intend to work with the marine engineering sector to support and enable its growth. In turn, we expect industry to raise productivity and innovation and improve its competitiveness in the domestic and overseas markets, which will insulate shipyards from the peaks and troughs of Royal Navy business and bring more sustained growth and prosperity to the regions where those businesses are based.
The strategy also makes clear how defence will grip and drive pace into ship procurement. The department has already implemented a new governance structure that ensures early and senior oversight of ship procurement programmes. Additional expert external support will be provided to Navy Command and the Type 31e project team to ensure that they can execute their responsibilities at speed. There will also be a new structure to oversee delivery of Type 31e and Type 26, building on the lessons learned from the carrier programme.
We will reap the benefits of these changes as we build and support a modern Royal Navy that will grow in size by the 2030s. We are committed to meeting the undertakings set out in the strategy. Delivering its ambitious vision will require a joint effort between the Government and industry. I commend this Statement to the House”.
Lord Touhig (Lab)
My Lords, I think this is the Minister’s first time at the Dispatch Box representing defence and I am sure it will not be the last. I welcome her.
I am tempted to say, “Eureka!”. We have it at last—the Government’s national shipbuilding strategy. It was promised in the spring but, like so many government promises, that one did not materialise. Why is it so late in coming? Why has so much valuable time been lost? After all, it was first trailed in the SDSR 2015. Was it worth the wait? I am hoping the Minister will be able to convince us today that it was. In 2015 we were told the strategy would support innovation, allow SMEs to bid for defence and security contracts more easily, enhance and support exports and train at least 50,000 apprentices by 2020. How will this strategy paper deliver on those pledges?
In November last year, Sir John Parker produced a report to inform the drafting of the shipbuilding strategy. It was damning, to say the least. He said the MoD lacked an overriding master plan for each project, resulting in fewer and more expensive ships being ordered too late. Ageing ships were retained in service, resulting in expensive refits and maintenance costs. Not enough effort was put into exports. There was a lack of assured capital budget per ship, and this was subject to annual arbitrary change. There was a lack of empowered governance and a lack of continuity as people moved to new roles. Most crucially, he said the MoD had lost the expertise in both design and project contract management.
That last point is very important because on the “Today” programme this morning, the Defence Secretary again spoke about supporting the defence budget by finding money from “efficiency savings”. Does that mean sacking more civilian staff and replacing them with service personnel? Is that the Government’s plan to fill the black hole in the defence budget? That would have massive implications for maintaining the capability and readiness of our Armed Forces. It would be tantamount to ignoring one of Sir John’s key observations.
In 2015 the Government said they would slash staff numbers by 30% by the end of the decade. That is three years from now. In 2015 the MoD employed 58,860 civilians. Two years later, that has been reduced by 270. Are the Government having a rethink on this policy? I hope they are, because I agree with my noble friend Lord Tunnicliffe, who said the pre-2015 cuts in civilian roles were short-sighted.
How long will it take for the report to be implemented? Will Sir John continue to review its progress and, if so, how often? Will a Minister be put in charge of overseeing the strategy and taking it forward? We welcome the commitment to build the new frigates, but can the Minister give more details on the timescale for the development of the Type 31e? There is a stated aim of getting them into service by 2023—just six years away—in order to replace the Type 23s as they are decommissioned. In the Statement the Minister said industry needed to improve its competitiveness. Can she confirm whether the £250 million ceiling for Type 31e is achievable if productivity increases do not materialise?
We welcome the potential increased use of block building, as it can spread employment opportunities and economic gain across the regions of the United Kingdom, but with the apparent heavy reliance on exports, is the Minister confident that there is enough work for multiple shipyards? Similarly, we welcome the increased focus on the export market, but it is hugely important that the Government ensure that the shipbuilding industry is not negatively impacted by Brexit and the declining value of sterling. The Government need to work to promote British shipbuilding to secure a steady flow of orders.
The United Kingdom has the potential to be a centre of excellence for shipbuilding once again, and we certainly welcome the ambition to secure existing jobs and create new jobs across the country, not just on the Clyde, but I press the Minister to say something more about the use of British steel. Paragraph 55 of the strategy states that about 50% of the total value of steel needed for the Type 26s will be British-made, but is that not somewhat lacking in ambition? The national shipbuilding strategy should fit into a wider defence industrial strategy. Will the Government bring forward a defence industrial strategy, which could streamline our procurement policy?
Finally, remembering that more than 4,000 naval personnel were made redundant in the 2010 SDSR, from which the Royal Navy has never fully recovered, can the Minister assure us that we will have enough personnel to crew all the new ships?
Baroness Jolly (LD)
My Lords, I join the noble Lord, Lord Touhig, in welcoming the Minister to the Front Bench on her first defence Statement. As a general rule, we welcome the shipbuilding strategy, which is all to do with the delivery of the 2015 SDSR. We welcome the boost that it is likely to give to British engineering and the use of the distributed build model, which was so successfully used with the carriers. We welcome the opportunity that should come from this to spread enterprise and employment to shipbuilding yards across the UK, and the opportunities to export.
I should welcome some clarity from the Minister about the opportunity to open the market. I have not read the detail in the strategy, but can she indicate how this might work? As she outlined, the timescale is really tight if we are to have our first Type 31e frigate by 2023, so how long is the procurement process expected to last, and how long the build? Here, I echo concerns about efficiency savings. We clearly need to be effective and efficient, but if we start cutting corners, we will rue the day.
What gives the Government confidence that there will be men and women available to build the ships and, once built, to man them, given that unemployment is pretty much at an all-time low at the moment and the Royal Navy is not attracting recruits or retaining young men and women? Finally, what mechanism is envisaged to report to Parliament on the progress of the strategy outlined in the document?
Baroness Goldie
My Lords, I thank the noble Lord, Lord Touhig, and the noble Baroness, Lady Jolly, for their questions and express my appreciation of their kind words about my taking on this brief. I am very much dependent on the sympathy of your Lordships. It is clear that my expertise does not lie in the design, construction or build of naval ships, but I shall do my level best to deal with the issues arising. First, I will take the points raised by the noble Lord, Lord Touhig, which were comprehensive, and deal first with the issue of delay. I remind the House that when Sir John Parker produced his far-reaching, forensic and profoundly analytical report in November 2016, the Government published it without redaction. We thought it important that everybody should understand, as the noble Lord said, exactly what the challenges had been for Governments of all political hues.
It is a measure of the reaction to the report that the Government have placed such importance on trying to build a strategy on the main recommendations of the report. Yes, there was a delay. A general election intervened and, naturally, that inevitably distracted from getting on with the business as the country went to vote and had to return a new Government. But what is important now is how the Government take forward, in a very comprehensive manner, the recommendations of Sir John Parker. It is worth reminding the House that the Government have accepted all the recommendations in the report that concern the Government.
A number of issues arose and I shall try to deal with them as best I can. I was asked how we can deliver on pledges about growth, apprenticeships and training. What has been announced today is reflective of a very healthy procurement programme, and one with a certainty about it that perhaps has not attended previous procurement exercises. Our shipbuilding industry in the United Kingdom is in very good health, I am delighted to say, which is manifest in the activity reflected throughout all parts of the United Kingdom. To answer the point made by the noble Baroness, Lady Jolly, there is now within the United Kingdom good competition for seeking to build ships for the Royal Navy. Also very importantly, there will be an international competition, because we shall be looking to engage with international shipbuilders, along with our United Kingdom shipbuilders, on the building of ships that are not warships and where there are not issues of national security. That is to ensure that we get the best possible choice of vessel, at the price that is the best possible option for the taxpayer.
On the growing defence capability, the issue of employment was raised by the noble Baroness, Lady Jolly, and the noble Lord, Lord Touhig. My understanding is that the Royal Navy is at 97% levels of manning, which is very good—and it also means, if my memory serves me correctly, that we are at the lowest unemployment for the Royal Navy in 40 years. That is a very positive development but, notwithstanding that, the Secretary of State announced in the other place this morning that we shall engage a further 400 service personnel for the Royal Navy.
On the important matter of review that was raised, Sir John Parker will review progress in a year’s time. MoD directors are responsible for implementing the strategy outlined today.
An important issue was raised about apprenticeships. There are a variety of initiatives in place across the UK to allow individuals to develop the skills needed to deliver the ships. We hope that shipbuilding in the UK and the pledges that have been made today and which will come for the future will allow the industry to train skilled workers of the future. Our shipbuilding industry is in good heart, which is a very important and positive attribute to remember.
The issue of sourcing materials was raised, and again that is important. Sir John Parker referred to what he described as a “regional renaissance” of shipbuilding, which is an interesting description of what many of us know to be the case throughout the United Kingdom. I know that the Government will take an interest in discussions with shipbuilders as to how they source materials—and I think that there would be a desire, if it was possible, to source materials locally, to help local economies. But there will also be cases where specialisation and a specialised need means that that may not be an option. We have to understand that that is one of the practical obligations on shipbuilders to ensure that they have the materials that they need to produce the vessels of a quality that we require.
I hope that I have managed to deal with the main issues raised by the noble Lord and the noble Baroness, but if I have omitted anything I shall have a look at Hansard and undertake to write.
Lord King of Bridgwater (Con)
I had the privilege of working closely with Sir John Parker during his leadership of Harland & Wolff, and I was not surprised to see the quality of the report that he produced. I was particularly interested, given the seemingly inevitable increase in the cost of frigates, which is more and more prohibitive, in the proposal for the Type 31e as a utility, general purpose frigate, which might have some export potential.
I add one point, which the noble Lord, Lord Touhig, raised: there is a reference in, I think, paragraph 55 about the steel supply. I thought that I might not be the only one of your Lordships who, having admired enormously the opening by Her Majesty of the new Forth bridge, saw with some disappointment that all the steel for that bridge was Chinese. I hope that, certainly in the shipbuilding policy in the years that lie ahead, we can see a much greater contribution from British suppliers for British ships.
Baroness Goldie
Such excitement—we all have to await our turn. I will respond to my noble friend Lord King, who raised a very important point about the flexibility and the export potential of these new frigates. This is a departure from the practice that obtained over decades. We are very clear that these new Type 31e frigates have to be constructed in a modular, cellular fashion that will enable them to be attractive to the export market. That will be a very important consequence of the tender discussions with the shipbuilders who seek these potential orders.
On the Forth bridge, that is not my responsibility. The noble Lord would have to refer his remarks to the Scottish Government; they have to take responsibility for the procurement of the structure of the new Forth bridge. It is, I have to say, a very fine edifice. It is a tribute to all the designers and engineers involved that the bridge has come in, I understand, at cost. Although it was slightly delayed because of weather conditions—nothing surprising about that in Scotland—it is a very fine testament to engineering and construction skills and, indeed, a very fine reflection on the banks of the Forth of what is already happening with Babcock, for example, at Rosyth.
Lord West of Spithead
My Lords, any day that the Government say they intend to order new warships is, by definition, a very good day, but my 52 years in the Navy have made me realise that, until you stand on the actual quarterdeck of the ship, you do not have it. My noble friend Lord Touhig has come up with a number of uncertainties and concerns. I am rather worried, and I would love to have the Minister’s answer on this. If we order these five, we have orders in place for eight frigates. We are going to lose 13 Type 23 frigates at the rate of one a year—they are already old—and we have not got the orders for the other ships to make up that 13. It is commonly accepted that 13 frigates is not enough for our nation. Within the Statement it was said, at least three if not four times, that the Navy will grow in size by the 2030s. I cannot see how that can happen with the orders as they are at the moment. It will grow in weight, because the new carriers are so heavy, but the numbers of ships will not grow. If we intend to increase the number of ships, then I ask the Minister: what is the number of frigates that we will be aiming at, in terms of increasing the numbers within the Royal Navy?
Baroness Goldie
I thank the noble Lord for his question. I am probably even less familiar with quarterdecks than I am with the design and construction of ships. On the question of frigates, my understanding of the position is that, at the moment, we have 13 Type 23 frigates and that there will be eight Type 26 and five Type 31e frigates—that is 13 frigates if my arithmetic is correct. These will be supported by six Type 45 destroyers. I hope that answers the fundamental question about what is replacing what.
On the other aspect of the noble Lord’s question about how do we know that we can grow the Navy, I point out that if we take the total of eight Type 26 frigates, five Type 31e frigates and six Type 45 destroyers, it is 19 ships. We are committed to maintaining 19 destroyers and frigates—that is a government commitment and it brings balance to the Royal Navy. The Secretary of State is very clear that we want not only to energise the whole process of shipbuilding but to energise what we are doing with defence and to look to enlarge our defence facility. What we have today, with the pledges and commitments made by the Government and the explanation given as to how it proposes to develop and implement the strategy, will, I hope, reassure the noble Lord that there will be many quarterdecks to pound in the medium-term future.
Lord Lee of Trafford (LD)
My Lords, there is a huge amount to welcome in this strategy today, but, on first reading, there is also a huge amount of hype. I very much endorse what the noble Lord, Lord West, said just a moment ago. The key sentence in the whole package that is available today is:
“The Government is committed to a surface fleet of at least 19 frigates and destroyers”.
Many of us are concerned about that figure, as we just do not believe that 19 is sufficient to meet all our commitments.
Baroness Goldie
On the back of Sir John Parker’s report, a very careful assessment has been made of what he recommends. His recommendations carry considerable authority and are based on profound experience and a great degree of expertise. What the Secretary of State for Defence announced earlier goes a long way towards putting flesh on these proposals, not just announcing the text of a strategy, but also making clear what we are already doing to begin delivering it.
For example, as regards the three Type 26 frigates—in which I have a personal interest as they are being built on the Clyde—the steel has been cut for the first frigate, HMS “Glasgow”, and the contracts have been signed for another two of these Type 26 frigates. The other five, which will make up the aggregate total of eight, will be built in the Govan and Scotstoun yards. There is 20 years of work in that. That is great news for the Clyde, but there are also huge opportunities for those yards that want to tender for the Type 31e frigates. It seems to me that very much provides substance to the aspirations and the text of the strategy. There is actually stuff happening in our yards as we speak, and that is down to the Government’s commitment to make that happen and the desire of our shipbuilding industry to play a part in this and respond imaginatively to it. That is a very positive development.
Lord Robathan (Con)
My Lords, I, too, welcome my noble friend to what she may find is the somewhat vexed subject of defence. In 2010, we reduced the cost of the Type 26 global combat ship to, we thought, something below £350 million. The eight of them will now cost £8 billion, which, by my maths, works out at about £1 billion each. What guarantees will the Government put in place to ensure that these new Type 31 frigates do not come in at a similarly inflated cost?
Baroness Goldie
I thank my noble friend for his kind words. On the specific question he raises, it is down, I suppose, to the law of contract. The Government are very clear that, building on what Sir John Parker has said, there now has to be much greater clarity about both design and specification, what we seek and what we ask the shipbuilders to indicate in their tenders that they can produce. At the end of the day, we need a price tag attached to that. Contracts have been signed for three of the Type 26 ships at a price of £3.7 billion. We anticipate that very rigorous and careful assessment will be made of any future contracts for the Type 31e ships, because at the heart of what Sir John Parker recommends is that we not only have to have a modern facility suited to the needs of the modern age and the threats posed by it, but we have to have an efficient means of procuring these ships, paying for them and ensuring that we also ask our shipyards to contemplate sustainable futures by being able to diversify, and seek in many cases to tender for other vessels that may not necessarily be of the warship type.
Lord Campbell of Pittenweem (LD)
My Lords, whenever I see the words “ambitious vision” in reference to defence expenditure, I am afraid that my scepticism is aroused because, like several in the Chamber, including the noble Lord, Lord King, I remember the days when we were promised about 50 surface ships but that promise was never fulfilled. I am interested to know what effect there will be on other parts of the budget of the Ministry of Defence in the raiding which is necessary to fund this programme. Since I see the noble Lord, Lord Dannatt, in his place, I very much hope that it will not be a case of the Army helping to fund this programme. Finally, on Type 31, surely this vessel is not being built unless markets for it have already been identified. It would make little sense to embark on that part of the programme if we did not know where and to whom we were going to sell them.
Baroness Goldie
The noble Lord, Lord Campbell, raises two interesting points. On the back of the defence reviews, there is more clarity about budget. No one is pretending that budget is an easy subject—it is not—but, equally, there is a responsibility to take seriously, with regard to one of our primary services, the Royal Navy, the recommendations of Sir John Parker, and that is what the Government are endeavouring to do. The whole point about having a naval facility is that we cannot have a kind of naval facility; we have to have one that is relevant to the needs of the current age. Sir John Parker has greatly assisted in identifying not only what that should be but how we do it.
The Type 31e will be a different kind of vessel and will have an innovatory, modular type of design. It will be specifically built to introduce a flexibility that we hope will be attractive to potential export customers. The expectation in the industry is that that is a reasonable assessment, and it will be rigorously prosecuted by both the Government and the shipbuilding industry.
Lord Sterling of Plaistow (Con)
My Lords, I very much welcome this announcement. As some of your Lordships will be aware, I had a project done by King’s College London on the advantages of sovereign purchases in this country. It will give a huge amount of business to a large number of small suppliers, apart from the major companies we are talking about. From the point of view of how successful it will be, taking into consideration the points made by noble Lords, Sir John and I worked together for many years, building ships all over the world. I will make two points. First, if you are going to deliver well, you cannot have interference—too many cooks in the kitchen—as regards what you should or should not be doing. Secondly, can we do it? Do we have expertise in this country to do it? Unquestionably, yes, we do. A great deal of that expertise today is in design firms. One of the biggest problems we have had in the past in this country is that we have “prototypitis”—we go on trying to do it. That has happened, and I am afraid that, frankly, Type 26 is an extremely good example of it.
On the points which have been made by other noble Peers here, will it be enough? Many of us have said in previous debates on defence that, unquestionably, it will not. Following Brexit, the Queen’s Speech and the Prime Minister’s speeches, we are going global again—we are going back to our old responsibilities worldwide. That means presence; you need presence if you are to be seen to have hard power. I do not believe that the number of those frigates or workhorses—call them whatever you want—will be enough. When we are talking about the time it will take, we need many more. I would like to see us coming up to at least 25 of those frigates in years to come.
Finally, if you are really going to get an industry going in this country, the only way it happens from a business point of view and everything else we are involved in is that you have to have continuity. They have to know that shipping orders will be given for the next five, 10, 15, 20 or 30 years. That is how you build up the expertise, knowledge and resources to be able to do it. However, having said that, I very much welcome this announcement. If we can get our act together to get more moneys for the armed services, which are absolutely vital, and if we can get the people to join us—this will be key in the future—that will be marvellous.
Baroness Goldie
I thank my noble friend very much for making a number of helpful observations. There is the idea that you can have too many cooks and maybe that is what plagued previous processes and procedures. What Sir John Parker recommends is a new clarity, a focus and a simplicity so that everybody knows exactly how the whole business of procurement is to proceed.
A very important point is how we sustain our shipbuilding industry in the United Kingdom. Coming from Scotland, I know that there have undoubtedly been anxious moments over the past few decades, and the commissions by the Ministry of Defence for the Clyde shipyards have been of huge importance. Interestingly, many shipyards in the United Kingdom have managed to diversify, taking on other forms of engineering activity to make them slightly less reliant on Royal Naval contracts. That is a healthy development because, as the Statement identified, we want to try to protect the shipyards from the troughs and peaks of when Royal Naval tenders are available and when they are not.
Going back to the point that the noble Lord, Lord Campbell, raised and the general matter of budget, I can say only that the defence budget is growing year on year. It is very important that against that background—certainly in relation to the whole area of the procurement of vessels for the Royal Navy—we know exactly what we are trying to do and how the structure is going to work, and it is important that the shipbuilding industry knows that as well. That is why I think that today’s Statement and announcement are a watershed in how the United Kingdom embarks upon the procurement of these naval vessels.
As to what the optimum or desirable number of vessels is at any given time, I doubt that that is an issue on which there will ever be agreement. However, I think that the commitments given by the Government, particularly regarding the baseline of frigates, are very important, and in conjunction with the two new Queen Elizabeth class aircraft carriers, not to mention our submarine presence, that all amounts to a significant and important naval defence capability.
Lord Wrigglesworth (LD)
Is the Minister aware that the national shipbuilding strategy will be very much welcomed in the old shipbuilding areas, not least those in the north-east of England on the Tyne, the Wear and the Tees? Is she aware that the expertise still exists in those areas and has been kept alive by the enormous amount of offshore engineering work carried out in the oilfields of the North Sea? So the expertise and the culture remain in those areas. I make a special plea for Teesside, where we have one of the biggest estuaries and deepest rivers in the United Kingdom and which has been devastated by the closure of the steel industry at Redcar. The engineering skills that exist in that area could very much fulfil the sort of shipbuilding work foreseen in this strategy. Will the Minister and the Government please bear that in mind as they pursue the strategy in the years to come?
Baroness Goldie
I thank the noble Lord for making a very important point. Obviously, I cannot make any specific commitments and undertakings, and I know that he would not expect me to do so. However, I go back to what has been described by Sir John Parker as a sort of regional renaissance of shipbuilding. That, I think, is a very healthy indicator of where the shipbuilding industry is in the United Kingdom. When shipyards tender for these contracts, I know that there will be an interest in where they source the materials and equipment. Wherever it is practical and sustainable and not subject to specialisation issues, I think there will be an expectation, and we would like to hope, that as many of them as possible will be sourced domestically within the United Kingdom.
Lord Dannatt (CB)
My Lords, it may surprise some noble Lords that I welcome today’s announcement —I would welcome any increase in Armed Forces capability—but, as the noble Lord, Lord Campbell, suggested, one is properly fearful of not just the cost but the opportunity cost of this enhanced maritime capability, and I hope that it is genuinely an enhanced maritime capability. Costs always rise. I recall that, at the Defence Board in 2007, the two aircraft carriers were voted in at £3.6 billion; they are now costing £6.2 billion, and I am sure that that will be replicated.
In the 2010 SDSR, the Government perfectly reasonably put a priority on equipment programmes. But when one prioritises equipment, one has to find savings in manpower and most of the manpower is in the Army, so the Army has been reduced by 20%. I am concerned that, in order to meet this increased maritime capability, it is not at the expense of our land forces, or indeed our air forces for that matter.
Surely, is there not a case to increase our defence budget above the 2% of GDP, to 2.25% or 2.5%? I have raised that point in your Lordships’ House before. But when we are leaving the European Union, it would be a tremendous signal within the wider context of NATO for the United Kingdom to increase its defence budget marginally to show that we are interested not just in national security but in European security and in worldwide security to boot. I ask the Minister to take that message back. As someone who was formerly head of the Army, I welcome the increase in maritime capability, but if it is at the expense of other aspects of our Armed Forces capability, this is a bad day for the UK and not a good one. The solution is an increase in our defence budget.
Baroness Goldie
I thank the noble Lord, Lord Dannatt, for his question. I reiterate that the defence budget is rising. I suppose that many organisations, not least government departments, would like to be able to say the same thing. That the defence budget is rising is a reflection of the importance that the Government place on our defence capability.
On the specific issue of raising the percentage of budget that we spend on defence above 2%, that is a NATO commitment. We are one of the relatively few countries that have managed to do that. It is important that we are open and transparent about what we are trying to do, which is what this whole strategy is about, and how we are trying to attend to the issues of procurement, governance and fairness to the taxpayer, while attending to the very necessary needs of the security and stability of our country. At the same time, we must combine all of that in a way that gives value for money and which provides us with what we need.
I am sure that, like many other departments, the MoD would like a purse without any strings attached, but I am afraid that that is not the world in which we live. The Government have indicated that they have a responsible attitude to funding our defence needs, and this is a very positive contribution to what the Government are endeavouring to do on the broader front of defence.