Defence Industry and Shipbuilding

Lord Spellar Excerpts

Wednesday 11th July 2018 Commons Chamber

[Nia Griffith]

It is incumbent on the Government, though, to look again and strain every muscle to get the very best work-share agreements wherever they exist.

[John Spellar (Warley) (Lab)]

The argument from the hon. Member for Ludlow (Mr Dunne), whom I congratulate on his report, does not hold water. Of course, if we are buying these planes, we will need maintenance facilities, and if that is being done by industry, industry will provide those facilities, but they are service facilities for the RAF, and there might even be work from abroad. Where, though, are these planes being manufactured? They are being manufactured in the United States, with very little return of work coming to the UK. They have been allowed to get away with a very cheap deal.

[Nia Griffith]

On that note, I shall make progress.

--- Later in debate ---

[Mr Ellwood]

There is so much choice that I do not know where to start. Let us go with the right hon. Member for Warley (John Spellar).

[John Spellar]

Will the Minister confirm that the Korean shipbuilder that took this contract, DSME, underbid and actually lost significant sums of money on the contract? It was not a fair contract, and because of its general business practices, it came very close to going bankrupt and had to be bailed out.

[Mr Ellwood]

I am glad that the right hon. Gentleman put it like that, because I was worried that he was going to say that state aid had been involved. I am sure that he would not suggest that that was the case, because I know him better than that, even though that was hinted at by those on his Front Bench. That was the commercial decision that the company took, but we are left in a situation where Britain is getting value for the taxpayer’s money.

--- Later in debate ---

[Mr Dunne]

My right hon. Friend has been generous about my report, which was published on Monday, and I am grateful for the other comments about the report by Members on both sides of the House. On page 53 of the report, I refer to the fleet solid support ship and make the point that the fact that we are currently a member of the European Union means that we are precluded from taking advantage of the article 346 exemption to require that ship to be built in the UK. One of my recommendations is that we should take advantage of the opportunity of Brexit to consider the opportunity, after we leave the EU on 29 March 2019, to build UK content into our own procurement rules, which might allow us to change the position, but we cannot do that today.

[John Spellar]

Not true.

[Mr Ellwood]

I suggest that the right hon. Gentleman reads the report by my hon. Friend the Member for Ludlow to understand the full picture. My hon. Friend is correct that EU regulations provide guidance on building those ships. The regulations do not apply to royal naval ships because, from a security perspective, every sovereign nation is allowed to bypass them, but the rules absolutely apply to non-royal naval ships—as in Royal Fleet Auxiliary ships—that employ civilians on board. I encourage hon. Members to read the report before judging what my hon. Friend has just said.

Moving back to what I was saying, we must have an honest debate about what is happening, which is why we need to develop a modern, efficient, productive and competitive marine sector that allows us to build on the work that has been done on the Clyde, in the north, in Belfast, in Barrow, in the north-east, in the north-west and in the south-west of England. We have incredible capability, and I am pleased to see so many hon. Members representing constituencies in those areas in the Chamber today.

Our new shipbuilding strategy sets out exactly how we can achieve such a marine sector. We will continue to build Royal Navy ships only in the UK while encouraging international collaboration in harnessing open competition for other naval ships. Our new framework will ensure that the impact of UK prosperity will be considered as part of our procurement decisions. The 2015 strategic defence and security review created a new security objective: promoting our prosperity. Competition and strategic choice remain at the heart of our approach, but we recognise that there are several different models for working successfully with the industry, and we need to take further steps to bolster that and make the right decisions to enable a strong partnership between the Government and industry.[Official Report, 23 July 2018, Vol. 645, c. 7MC.]

That is part of the whole Government approach, spearheaded by the national industrial strategy, with its mutually reinforcing focus on driving productivity and supporting innovation, which provides a strong and clear policy framework in which industry can invest and grow. Key to that is how defence procurement might build economic value by strengthening UK productivity and industrial capability, including at a local level, and boosting exports sustainably. We recognise that responsible exports are now widely accepted as having a part to play in our wider national defence and prosperity objective. They are considered to be an opportunity, not a burden.

Sir John Parker’s 2016 independent review made a series of recommendations about improvements we can make, and, as I said, I am pleased that we will be accepting all of them. He did place emphasis on the dysfunctional relationships between government and industry. Old ships were retained in service well beyond their service date, with all the attendant high costs, and it is important that that changes. So our new strategy is founded on three pillars. The first is better planning, giving industry greater certainty and predictability. We are providing a 30-year Royal Navy shipbuilding masterplan to guide all future naval shipbuilding decisions, and to document the number and types of ships in which we will invest over the next three decades.

The second pillar is a new approach to design and construction. We want to challenge naval standards and introduce new ones, forcing through advances in design, in new materials such as composites, and in manufacturing methods. Our new carriers are a prime example of that. They are built in blocks, with parts built in different parts of Britain, drawing on the expertise of 10,000 people, and being brought together from centres of excellence from across the country. Thirdly, we want to focus on building exports, where there is an opportunity, as the Type 31 will be the first frigate for export since the 1970s. We know that more sales can cut costs in procurement over time and give us the potential to buy even more cutting-edge ships.[Official Report, 24 July 2018, Vol. 645, c. 8MC.]

For now, for reasons of national security, the shipbuilding strategy sets out that warships will be built and integrated in the UK via competition between UK shipyards. However, for the purposes of shipbuilding only, the national shipbuilding strategy defines warships as destroyers, frigates and aircraft carriers. All other naval ships, including the Royal Fleet Auxiliary ships, as well as other Royal Navy manned ships, such as patrol, mine countermeasures, hydrographic and amphibious ships, will be subject to open competition—that means international competition. That remains where the difference lies between us and the Opposition, but it is the cornerstone of our defence procurement policy. I remind the hon. Member for Llanelli that she talked repeatedly about value for the taxpayer, and it is important we understand that. I hope that there is a compromise whereby where we want to and can, we will utilise British shipbuilding capability, but when it comes in at twice the cost of an overseas opportunity, we will have to be very careful about which decision we make.

--- Later in debate ---

[John Spellar (Warley) (Lab)]

I will now bring us back to the real world of the defence procurement industry. The Minister wrapped himself in knots over article 346, and it very much reminded me of Madeleine Albright’s response to Robin Cook when he told her during the events in Kosovo, “Our lawyers say I can’t do that.” “Change your lawyers,” she said, “and get better legal advice.” As I will come on to later, that is what every other country does.

We are not saying that we do not want to work in partnership with other countries; we do, and we want to do so effectively, and not just for shipbuilding, which obviously we are focusing on today. We have to look forward. I am pleased that the Minister announced an announcement on the air strategy next week. In particular, we are hoping for an announcement on the future combat aircraft, which we hope will go ahead, and some indications of who we will be partnering with.

Many firms in Europe are concerned by attempts to exclude us from such developments, as we are already seeing with Galileo. It is a bit ironic, in the week of the Brexit crisis, that we are asking Ministers and the Ministry of Defence to be good Europeans—to behave like our European partners. However, the MOD seems to want to act like the three wise monkeys, keeping itself in blissful ignorance. It told the Defence Committee:

“The MoD does not hold information on how other countries apply EU Regulations for defence acquisition.”

Why the hell not? Why has it not asked those questions? Why would it not make those inquiries? It almost reminds me of the sign outside Balliol College during the student demonstrations of 1968: “Do not adjust your mind—reality is at fault.” The MOD does not even want to know the reality, in case it finds it uncomfortable.

France is a very good example. Let me make it clear that I regard France as an excellent defence partner, both militarily and in manufacturing. I congratulate the Minister for Defence Procurement on an excellent performance in front of a joint committee of our Defence Committee and that of the Assemblée Nationale. That is what we are talking about—co-operation and collaboration between our two defence industries.

Let us be very clear: the four auxiliary oilers were awarded with no competition, and furthermore the work was directed to the Saint-Nazaire yard, which was the yard that needed it. From my experience as a Minister, that is not uncommon in Europe, in defence and in many other areas, particularly transport. Not only will European countries decide that work goes to a company of their nationality, they will say which company it goes to.

My respected colleague, the right hon. Member for New Forest East (Dr Lewis), the Chair of the Defence Committee, talked about the percentage of the economy that is spent on defence. I am sorry that he is not here; perhaps he has another commitment. He ought to understand that the economic multiplier effect—the taxes that are paid, and the money that is spent, by the people who work in the yards that will build the vessels—would increase national gross domestic product, and with it the amount that went to defence.

[Bob Stewart (Beckenham) (Con)]

I thank the right hon. Gentleman, who is my friend, for giving way. Will he say quickly why we should not also support things such as Thales UK, Boeing UK and Leonardo in the UK? This is a way of doing it.

[John Spellar]

If they have locations in the UK and there is a fair share of the work, that is absolutely right, but let us look at shipyards. I have mentioned what happens in France. The Berlin-class support ships are built in Germany. The Vulcano-class tanker support ships are built in Italy. The Cantabria-class oilers are built in Spain, and of course the United States has an absolutely rigid “buy American” policy as well. That is the real world, not the fantasy world of neo-liberal economics.

It is poignant that, in the week of the National Audit Office report on the failure of Carillion, in particular through under-pricing contracts and the Government encouraging it to go for “cheapest is best”, we are still being urged to adopt “cheapest is best”. Even within that, we do not drive a hard bargain. We do not insist, in work in the UK, on compensation.

The hon. Member for Moray (Douglas Ross) talked about maintenance work for maritime patrol aircraft. Maritime patrol aircraft will be maintained by the RAF and/or by industry, or in collaboration. That is not the issue. The real issue is what actual work there will be in manufacturing. Of course, maintenance is important, but that has to be done anyway. I refer not just to our shipyards and our aircraft factories, but to the UK’s very successful defence supply chain, particularly in engineering, electronics and, with regard to shipbuilding, our steel industry, which has been so dismissed by Ministers in the past.

This is also about maintaining the necessary flow of work, partly for that supply chain but also for our yards, in particular Rosyth. Rosyth shipyard will have a gap between the completion of HMS Prince of Wales, the second aircraft carrier in 2019, and the expected refit of HMS Queen Elizabeth, the first aircraft carrier, in 2030. Work on ships could keep the shipyard operational in between those dates and would therefore be very important in maintaining flow of work. We know how important that concept is, because of what happened in Barrow. There was a break in the drumbeat in the manufacture and production of nuclear submarines. The workforce drifted away to other industries and it cost a lot of money to recreate it.

As I said at the start, I urge the Minister to look at how other countries operate; to drive out the Treasury dogma, which has been imposed on the health service, transport and defence, that the cheapest and short-term is best; to think long-term; to work with industry, the trade unions and the supply chain. Back British industry. Back British shipyards. Back British steel.

[Several hon. Members rose—]

--- Later in debate ---

[Guto Bebb]

I need to make some progress because I must cover some of the points that were touched on.

From a defence perspective, we are trying to put a coherent plan in place to ensure that we have a competitive UK defence industry that can compete with the best. The way to do that is not to be scared of competition but to embrace competition. We have a shipbuilding strategy that says very clearly that we will understand the need for a national sovereign capability when it comes to building our warships. We need to make sure that we can measure our shipbuilding industry against the best in the world. The way to do that is not to go down the route of a protectionist “Britain first” policy but to invest in the capability that we have in our shipyards. That is why we invested £6.3 billion in Rosyth when we saw the fantastic build quality in the completion of the Queen Elizabeth class. That is why we are investing £3.7 billion in the first three Type 26’s in Glasgow. That is why we are showing a degree of confidence in our shipbuilding sector that Opposition Members need to share.

[John Spellar]

In a throwaway line, the Minister just made a disparaging comment about putting Britain first. What is wrong with putting Britain first?

[Guto Bebb]

The key thing, as my hon. Friend the Member for Torbay said, is that when Opposition Members talk about threats to the south Wales steel industry as a result of the “America first” policy, they are quite happy to attack Donald Trump for his protectionist attitude. The same thing can apply to this debate in spades, I am afraid. Competition and the ability to compete internationally are based not on protectionism but on the ability to be open in the way that we deal with this issue.