National Shipbuilding Strategy

Lord Beamish Excerpts

Wednesday 8th February 2017 Westminster Hall

[Douglas Chapman (Dunfermline and West Fife) (SNP)]

I beg to move,

That this House has considered the National Shipbuilding Strategy.

It is a pleasure to serve under your chairmanship, Mr Evans. I stand before you with the sense that we have been here before, and indeed we have. It is déjà vu on a grand scale, because at Defence questions, during Westminster Hall debates, in answers to urgent questions and in ministerial statements, the Government have had the chance to put at rest the minds of the various parties interested in the shipbuilding strategy. Yet again, we find ourselves hoping that the Minister will give us something more than the usual scorn sometimes reserved for SNP Members.

Any time I tire of waiting for answers, I simply remind myself that many people have been waiting much longer, whether they be the men and women who serve us in the Royal Navy or those in the yards on the Clyde and at Rosyth. That is not to mention the average taxpayer, who demands nothing more from the Government than that their money is well spent on equipment that actually works and the assurance that the Government are doing their utmost to fulfil their most basic duty—defending our homeland.

In 2021, it will be two decades since HMS St Albans slipped from Yarrows on the Clyde and became the last-of-class Type 23 frigate, meaning that the state that has always prided itself on being a maritime power will not have built a single frigate for the best part of 20 years. Furthermore, as the first-of-class Type 23, HMS Norfolk, left that same shipyard in 1990, it found that the mission for which it had been specifically designed had all but ended. It is quite incredible that in 2017, we are still unable to see a signed contract to begin the replacement of the Type 23s, which are a cold war platform. No one I have spoken to through my work on the Select Committee on Defence, whether fellow members, academics, shipbuilders, trade unionists or even civil servants, sees that as an acceptable way forward, yet here we are.

Its cold war mission may have ended, but the Type 23 has certainly done all that was asked of it, and more. Let us not forget that the range of tasks the Royal Navy has undertaken in the post-cold war era has dramatically increased, yet paradoxically, as the senior service’s task list is increasing, the number of frigates and destroyers available to it has sunk to an historic low. It is that paradox that I hope the Minister will help me with today. Although the Ministry of Defence has long been able to exploit the convoluted and confusing history of the Type 26s and Type 31s, there is no way to hide its failings. I will make it easy for the Government by posing three straightforward questions that I hope they will take in good faith and respond to appropriately.

First, and most simply, when will we see the national shipbuilding strategy? Secondly, the MOD has made much of 2017 being the year of the Navy, but 2023 is a much more appropriate choice, as that is when the MOD completes the purchase of 24 F-35B planes to fly from the carriers, and when HMS Queen Elizabeth becomes fully operational. Will the Minister reassure us that the Royal Navy will be able to form a fully functioning carrier group with Type 26s, Type 45s and the requisite Royal Fleet Auxiliary Service ships? Thirdly, on a related note, various media outlets have reported in recent days on the bandwidth problems in the procurement budget, which were highlighted in a National Audit Office report. So far as the equipment plan is concerned, how will the shipbuilding strategy ensure that surface naval ships are prioritised in procurement decisions?

When the Government committed to the national shipbuilding strategy as part of the 2015 strategic defence and security review, many of us thought we were reaching the end of a long journey with respect to the modernisation of the Royal Navy. How wrong we were. Early studies of what in 1994 was called the “future surface combatant” certainly thought outside the box. A whole range of options were considered, including a radical trimaran hull design. After a decade, the FSC had become the “sustained surface combatant capability”, which had as many as three designs. It was not a concept that would survive the financial crash. Indeed, by 2009, it was possible for my friend the right hon. Member for New Forest East (Dr Lewis), who chairs the Defence Committee, to call for a future surface combatant that was as “cheap as chips”. How did we get from as “cheap as chips” to building £1 billion frigates in less than a decade?

I contend that the blame lies squarely at the door of the MOD. One thing has become clear from the numerous conversations I have had with both management and unions at BAE Systems: it is a global company with a world-class workforce that is able to turn its hand to whatever design and specification is provided by the MOD. Up to this point, it has done that. Quite simply, the MOD’s unerring ability to change horses midstream has added to the cost, timescales and uncertainty of the ongoing naval procurement programme.

That continued after the shipbuilding strategy announcement in 2015. The initial reassurances we were given were replaced with disquiet last spring, when no contract for the Type 26s was signed. When The Guardian broke the story in April about potential job losses at the Clyde yards, there was a crushing realisation that, yes, it had happened again. Any hope that a refreshed team in the main building over the summer would lead to clarity on the Type 26 or the shipbuilding strategy did not last long. When the Minister repeatedly assured us in the Chamber that we would see a strategy by the autumn statement, we knew she was using alternative facts. When my colleagues and I on the Defence Committee released a report that concluded

“it is now time for the MoD to deliver on its promises”,

I imagine we already knew that it had no intention of doing so—although I am interested to know if that report played any part in delaying the strategy, or if Ministers simply chose not to tell Parliament of their intentions.

It was not entirely clear, when Sir John Parker’s independent report was announced, whether informing Parliament was part of the original strategy. When the report was finalised, we thought that it would be the formal strategy going forward. There is plenty to agree with in Sir John’s report. Many of its findings chime with my experiences of MOD procurement, namely that there was a

“vicious cycle of fewer and much more expensive ships being ordered late and entering service years later than first planned”,

and:

“The Government must drive cultural and governance changes in Defence that inject genuine pace into the procurement process with a clear grip over requirements, cost and time.”

However, we are now getting to a stage at which the report, far from being too little, too late, is too much, much too late. It will once more allow Ministers to take us around the houses and hope that we forget that they are running out of time to fulfil previous promises made to the House, the Royal Navy and the men and women on the Clyde.

While there is

“no precedent for building two ‘first of class’ RN frigates in one location in the UK”,

there appears to be no real alternative to the Clyde, as I am sure we will hear from my hon. Friend the Member for Glasgow South West (Chris Stephens). Let us get on with signing the Type 26 contract and ensure that the Type 31 is ready to go as soon as possible.

[Mr Kevan Jones (North Durham) (Lab)]

Can the hon. Gentleman shed any light on what the Type 31 is? There have been generalised views of what it will do and what it will be, but I understand that there are no plans and no actual specification. Is the Type 31 not one of those pipedreams that seems to be put out there to reassure the industry, when actually there is a lot of work to be done not only to design it, but to find out where it fits into the broader naval strategy?

[Douglas Chapman]

The hon. Gentleman makes a good point. We are constantly told that the Type 31s are also for the export market. I have asked parliamentary questions on whether the Government could provide details of their homework on what that export market might look like. I am afraid that, to date, there are no answers. We need to make progress with the information we have, which is why we are questioning the Minister today.

Anyone who has taken an interest in this matter will know that BAE Systems has two possible designs. It is important that we get on with picking one, so that we can ensure—to follow up on the hon. Gentleman’s point —that we have an exportable product that we can take to market. However, we are falling behind. The Franco-Italian Aquitaine class frigates are already in service with La Royale and have been exported to Egypt and Morocco, so we are already missing the export boat with regard to the Type 31s.

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[Mr Kevan Jones (North Durham) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Evans. I congratulate the hon. Member for Dunfermline and West Fife (Douglas Chapman) on securing this very important debate. He raises some very interesting points. Certainly I have been trying to get answers to them through parliamentary questions, but we are getting the usual stonewalling from the Ministry of Defence, which has become a habit in recent times.

The important thing is to ask this question: what is the status of Sir John Parker’s report? It was announced in the 2016 Budget, which stated:

“The government has appointed Sir John Parker to lead the national ship building strategy, which was confirmed in the Strategic Defence and Security Review 2015.”

It also stated that the report would be published in the autumn of 2016, which in MOD-speak means anytime between December and the following June. The press release stated that it was a Treasury-led, not a MOD-led review. That is important. It was announced by the right hon. Member for Tatton (Mr Osborne) when he visited Portsmouth naval base.

The report was published, strangely, not as a Government report but as Sir John Parker’s own report. The jungle drums in the MOD tell me that there was a bit of concern about whether the Secretary of State would put his name to this report, and he decided not to. That has left the report in limbo in terms of what influence and status it will have in the forward thinking about not only our naval shipbuilding strategy, but our wider industrial strategy.

I am also concerned about how this matter fits into broader defence industrial strategy. I asked the Minister on 12 January when we would publish a defence industrial strategy, only to be told that there are no plans to publish a separate defence industrial strategy, but that the national shipbuilding strategy—Sir John Parker’s report—would be added into a broader cross-Government piece of work on industrial strategy. That is important because we have basically abandoned having a separate industrial policy and strategy in this country. That is important because of the jobs that are relied upon and the important capabilities that we need in this country. The Government seem to have just mashed that into the rest of wider industrial policy.

A basic question needs to be asked about shipbuilding: do we want sovereign capability to produce complex warships in this country—yes or no? It is a very simple question that the Government need to answer to give reassurance about the future of the jobs—which the hon. Member for Dunfermline and West Fife raised—and the technical expertise. The problem is that people look at a warship and think that the bulk of the cost and expertise has been met on the outside. It has not. The main value and technology in it are the skills that go into designing it and into systems integration. Our supply chain goes way beyond the Clyde—there is a national footprint of companies in leading-edge technologies. We need to ask whether we want those skills in this country or whether we will just buy from abroad.

When I was first involved in shipbuilding in the late 1980s, the then Government competed at different yards. We had Swan Hunter, Yarrows and Cammell Laird around the country and the Government used to compete contracts between them. At the end of the day, it was pork barrel politics as to who got the contract and that ultimately meant that Swan Hunter closed. Clearly, the strategy after that was to concentrate complex warship building in one yard. That made absolute sense. That one yard is on the Clyde, whether we like it or not. There is no other way of doing it.

The concern I have about Sir John Parker’s report—there are some points in it that I agree with—is that it is a bit naive. It has looked at building the carriers, which are on a huge scale in terms of block modular build, and then more or less said that we can start building Type 26s and others in a modular format. Well, I am sorry but I do not think we can—no disrespect to my hon. Friend the Member for Jarrow (Mr Hepburn). These ships are on a different scale. We need one yard to do the integration—the actual build. The idea that we are going to build them around the country to try to get some competition goes back to an argument we had in the late 1990s. I come back to the basic question of whether we actually want complex warship building in this country.

The issue is not just the capability. There is naivety among some people who think that they can order these ships like ordering their next car. They decide what colour they want, go to the showroom and say, “I will have a blue one and we will have a yellow one next year.” That is not how this happens. These are very complex warships and pieces of defence equipment. We need to retain not only the technological capability but the skill base in the yards and in industry, and we need a drumbeat of work going through to ensure that we do that. A classic example of when we got that wrong is when the Conservative Government in the 1990s took us out of submarine building. That led to all the problems we had trying to regenerate the capacity in Barrow for the Astute programme. Unless we keep that drumbeat going, we will get into a situation whereby we cannot rely on the fact that when we need a complex warship, there is one there to be delivered. We cannot turn these skills and capabilities on and off like a tap when they are needed.

[Carol Monaghan (Glasgow North West) (SNP)]

One of the real dangers is exactly what the hon. Gentleman describes. As the yards in Glasgow await the commencement of the Type 26 project, engineers—highly skilled workers who can work in many different fields—will not wait around forever.

[Mr Jones]

The hon. Lady makes a very good point. The issue is not just about generating the skills in the first place—the key investment that companies need to make in apprenticeships and other things. This is now an international market. There are perhaps engineers working on the Clyde who, if there is no work, will move elsewhere in the world. In some cases, they will not come back to the industry. We found that with the Astute programme; nuclear engineers left and trying to get them back, or regenerating those skills and expertise, was very difficult.

[Martin Docherty-Hughes]

The hon. Gentleman is making an excellent point. Critically, the Canadian suppliers were actually in Glasgow the other week looking for such people to take to north America.

[Mr Jones]

Again, the hon. Gentleman makes a very good point. This is an international market and these skills are very sought after. This comes back to my point that if we want this capability in the UK, we have to nurture and protect it and the only way to do that is by having a throughput of work.

The hon. Member for Dunfermline and West Fife raised the issue of the Type 26. The delay is adding to that uncertainty. The wider piece really concerns me. To give the impression that we are going to have that drumbeat of work, we have had the Type 31 inserted into the programme. I have studied in detail to try to find out what the Type 31 actually is; no one has been able to tell me yet. It is a bit like the mythical unicorn—everybody thinks it exists, but no one has ever seen one. If the MOD can say that there is a budget line for it, it should please identify that—in the current procurement there is no budget line for it at all in the programme.

[Chris Stephens (Glasgow South West) (SNP)]

Was the hon. Gentleman concerned, as I was, to read in an article in The Daily Telegraph a suggestion from a Ministry of Defence source that there is no budget for Type 31s and that they might not even happen?

[Mr Jones]

As people know, I am a bit of an anorak on this subject and I actually study the MOD accounts, but I still cannot find where this budget line is. Another point that has never been answered is what this ship will actually be used for. I am not sure where it fits into any naval strategy. Will it be able to meet, for example, Britain’s NATO capabilities? Will it have capability to fulfil those roles? If it has not got the air defence capability, it will not. The other thing that people have completely missed is that this is about not just building the ship, but running it afterwards. We all know that there is a crisis in recruitment and manpower in the Royal Navy. Again, where is the budget line for not only building but running this generation of ships?

The hon. Member for Dunfermline and West Fife makes a very important point. The Government say that the great thing about the ships is that they are exportable; I am sorry, but we are bit behind the game on this. He rightly identifies at least two other nations that have product out there.

There is another point about strategy. This is about not only skills but the defence of our country, because if we have the gap between the Type 23s going out and the Type 26s coming in, there will also be a gap in the nation’s capability. I understand that there is an ongoing extension programme for some Type 23s, but we need clarity, because if there is a gap, we will not be able to protect the carrier groups or some of our other capabilities.

That leads me to the wider piece about the Government’s strategy in this area. The Prime Minister argues that she is batting for Britain and that Britain is the key market, but we have a situation in which the Ministry of Defence, obviously leant on heavily by the Treasury, is happy to have multimillion-pound contracts with the United States—the Apache and P-8 contracts, to name just two—with no commitment whatever that proportionate workshare will come back to the UK economy. I asked the Minister a written question about the Apaches, and I think Boeing said that 5% of the programme’s value will come back into our supply chain. That point is important not just for the number of jobs, but to keep the capability that we need in this country. I cannot imagine for one minute the United States doing something similar, even before President Trump took office, and things will get even worse now. Exporting highly paid jobs and capability from this country is inexcusable. I do not want to see the same thing happening in shipbuilding, so that we will perhaps just buy ships off the shelf from the United States or anywhere else.

A few weeks ago I asked the Minister in a parliamentary question what she was doing to monitor whether Boeing, for example, would put enough jobs into the economy. She fudged the answer, saying, “We don’t monitor this area.” I am sorry, but that is inexcusable. What really irritates me is that if a British company sold a piece of defence kit to the United States of America, there is no way that we would not have to give guarantees about workshare and jobs in the United States. My fear is that without joined-up thinking on shipbuilding, if we are not careful, a time will come when the Treasury says, “Isn’t it cheaper just to buy these from abroad—from the United States or somewhere else?” We would then lose not only the sovereign capability that is so important to this country, but the skill base and jobs that come with that.

I come to my final point. It is about time that the Ministry of Defence fessed up that it has a huge problem, which is only partly of the MOD’s making, because this is actually a Treasury issue. The National Audit Office report is clear about the procurement budget. The Ministry of Defence is falling into an old habit—as a former Minister in the Ministry of Defence, I know this is easy to do—of just pushing the budget sideways, which is what has happened with the defence budget. However, there are other pressures on the day-to-day in-service budgets. Ships are being laid up, for example, because the cash is not available to run in-service services. In addition, there is a huge black hole—it was highlighted in the NAO report—that the MOD has to deal with. We are not talking about separate money; it will have to find £8 billion over the next 10 years for the defence estate. All that falls within the defence budget, so if does not come out of one place, it will come out of another.

The Government need to be honest about where they are with the equipment budget. The Opposition got lectures from the incoming coalition Government about how frugal they would be, in terms of ensuring that they did not over-commit on defence, but they are clearly doing that now. The shipbuilding strategy needs to be published soon. If we are going to answer yes to the question, “Do we want a sovereign capability for shipbuilding in this country?”, we will have to put the money behind it and ensure that the work is of a nature that allows the industry to develop its skills and retain that capability.

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[Steven Paterson]

Yes, I think that is a concern that many of us have—that the priorities identified in the risk assessment done for the document I have quoted are not being followed in Government spending. Perhaps that is why there has been delay after delay in the project.

[Mr Kevan Jones]

Does the hon. Gentleman also recognise that the Dreadnought programme is putting money into the Scottish economy? A success story in that regard is that Babcock is doing the missile tubes at Rosyth.

[Steven Paterson]

If we are going to take the SDSR process seriously and look at the assessment of what we need for the defence of the country, we must deal with tier 1 threats first—that is why they are tier 1 threats. Clearly, if we are to meet the threats identified, the shipbuilding programme is essential.

As my hon. Friend the Member for Glasgow South West (Chris Stephens) noted, the Government promised that 13 Type 26 frigates would be built on the Clyde, then revised that substantially, to eight, with five multi-purpose frigates. At paragraph 90 of its report on the 2% level of spending by the Government, the Defence Committee correctly identifies the risk to the Type 31 programme:

“Should...the ‘concept study’ to investigate the potential for a new class of lighter, flexible general purpose frigate be unsuccessful, we wish to be informed at the earliest opportunity of the MoD’s contingency plans to deliver the extra ships to satisfy the total originally promised.”

The Government’s response to those concerns merely indicates a willingness to keep the Committee informed. We are looking for some more concrete answers from the Minister today. Furthermore, we still await confirmation that the frigates will be built on the Clyde. Should that not occur, it will be a betrayal of the Clyde workers, as my hon. Friend said. They would be entitled to feel betrayed; it would threaten the yards’ capacity to deliver complex warships in the future and would undermine the UK’s ability to meet the challenges identified in its own national security strategy and the SDSR.

My second concern is that the shipbuilding strategy will not be affordable. I am concerned that there will be further backtracking on the commitments. It is fine to have a strategy, with many large new procurement projects, but if there is no money to actualise the strategy, what is the point in the exercise? According to the National Audit Office’s report “The Equipment Plan 2016 to 2026”—which the hon. Member for North Durham (Mr Jones), among others, has already alluded to—the price of the plan has ballooned by 20%, to £82 billion, in a single year. That means that the Department has allocated all headroom previously set aside in the plan, removing all the flexibility to accommodate additional capability requirements. That is why we need reassurance today.

Given that the Type 26 project started at a projected cost of £343 million per hull, according to the 2015 major projects report, and is now £1 billion per hull, according to oral evidence to the Defence Committee, the MOD does not have, and never has had, a proven track record of acquiring big-ticket items on time and on budget. Rather than dealing with those pressures in the past, it has pushed the programmes further down the list and allowed service dates to slip, exactly as has been described today.

[Mr Jones]

Does the hon. Gentleman agree that there is added pressure on the defence budget because of Brexit, in terms of the value of the dollar, which is made worse when we procure large-ticket items from the United States?

[Steven Paterson]

The hon. Gentleman must have read my mind, because I am coming on to say that point 18 of the NAO report summary states:

“Changes in foreign exchange rates, such as those that happened after the EU referendum, can pose a significant risk to the Plan’s affordability in the future. As at 10 January 2017, the pound was 21.4% below the exchange rate with the US dollar and 4.2% below the exchange rate for the euro used in the Department’s planning assumptions. Approximately £18.6 billion of the Plan is denominated in US dollars and £2.6 billion in euros over 10 years.”

That will have a major impact.

I understand that the Department has a certain amount of protection against foreign exchange rates in arranging its finances, but does it not worry the Minister that such a large amount of the plan is predicated on foreign exchange rates, with the Government appearing to be gambling that the rate will not go up further? Given the Government position that economists cannot be trusted, which is what many current Ministers said during the recent referendum—and going by even a cursory look at the financial predictions before Brexit—can we really have any confidence that the envisaged programme can be afforded? That is why we need reassurance today.

The shipbuilding strategy is long overdue and, given the current state of the Department’s books, it is badly needed to provide clarity for those working in shipbuilding and those monitoring our national defence readiness going forward.

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[Harriett Baldwin]

I thank the hon. Gentleman for an obviously irresistible invitation. I hope I will be able to take him up on it in the not-so-distant future. For the record, I say to the hon. Member for Jarrow (Mr Hepburn) that I am in Newcastle tomorrow. I look forward to meeting a range of manufacturers. I will not specifically be meeting A&P Tyne on this occasion, but I met A&P in Falmouth only last week.

In the SDSR we announced our plans for a naval programme of investment. We are investing in two new aircraft carriers, which are currently being completed at Rosyth. We are investing in new submarines to be based in Scotland at Faslane. We have announced our plans for frigates. We are building five new offshore patrol vessels on the Clyde at the moment. We have ordered new aircraft, including the maritime patrol aircraft, the P-8, which will be based at Lossiemouth. Scotland is clearly doing well out of defence, and the UK is doing well in defence with Scotland, and 2017 is the start of a new era of maritime power, projecting the UK’s influence globally and delivering security at home. I do not have time in this debate to list all the different ships we have deployed across the world’s oceans.

I know the appetite of Members for publications. They will have all read the 2016 equipment plan, which we published last month. It laid out the plans in more detail and announced that the total amount that will be spent on the procurement and support of surface ships and submarines over the next decade amounts to some £63 billion. It is all part of the continued modernisation of the Royal Navy in the coming years, which will be underpinned by our national shipbuilding strategy. It is very much our intention that the strategy will be a radical, fundamental reappraisal of shipbuilding in the UK, with the aim of placing UK naval shipbuilding on a sustainable long-term footing. It will set the foundations for a modern, efficient and competitive sector, capable of meeting the country’s future defence and security needs.

[Mr Kevan Jones]

Can the Minister point out in the Budget where the budget line is for the Type 31?

[Harriett Baldwin]

The hon. Gentleman will have read the equipment plan. I do not have the exact quote here, but clearly we have a very ambitious equipment plan. We are expecting to spend some £63 billion on ships, support and submarines.

I want to convey to Sir John Parker the thanks of all Members who have spoken today for his excellent report. He is clearly a highly respected expert. Importantly, he has taken an independent approach to the report. He has had a high level of engagement with stakeholders. Members asked about his engagement. He has visited all key industry leaders and all the companies across the UK that design and build ships, including in Northern Ireland. He has visited small and medium-sized businesses in the supply chain. Industry stakeholders were engaged at all levels. He brought strong strategic direction and guidance to the work, for which we are immensely grateful. He also met trade bodies, trade unions, Ministers, civilian and military officials and, indeed, the hon. Members for Glasgow North West (Carol Monaghan) and for Glasgow South West (Chris Stephens). He has been thoroughly engaged with everyone.

I have not got much time left, so I will speak very briefly about exports, which a range of Members raised. The report makes an important recommendation about exports. We have already started that work, working closely with the Defence and Security Organisation in the Department for International Trade. Members can expect to hear more about that in the coming weeks and months.

The Type 26 programme is a key element of our investment plans. To meet our needs, we require eight to replace the eight anti-submarine-focused Type 23 frigates. Members will be aware that the Defence Secretary announced in November last year that, assuming successful completion of the negotiations, we expect to sign a contract for the first batch of the eight planned Type 26s and cut steel on the first ship this summer. That would give BAE Systems on the Clyde work until the early to mid-2030s. Commercial contract negotiations are intense and ongoing, so I cannot make any more information available to the House today. The investment will sustain shipbuilding skills at the shipyards on the Clyde and continue to provide opportunities in the wider supply chain around the UK. The ships will provide an anti-submarine warfare capability, which is essential for the protection of our nuclear deterrent. SNP Members had a bit of a political pop at me, but they would do well to remember what I have just said. Their two political obsessions—Scottish independence and ending our continuous at-sea nuclear deterrent—would be two of the worst things that could befall the Scottish shipbuilding industry.

Briefly on the Type 31e, Sir John recommended that a new class of lighter general purpose frigate should be given priority. He was clear that it should be designed to be exportable, but capable of incorporating the needs of the Royal Navy. A lot of work is under way on that in the MOD. It is in the pre-concept phase, and further information will be made available in the national shipbuilding strategy.

In summary, the MOD is working with colleagues across Government and with industry to examine Sir John Parker’s report and its recommendations in full. I recognise that Members value the shipbuilding jobs in their constituencies, and I assure them that the Government are committed to an industrial strategy that will increase economic growth across the country and refresh our defence industrial policy.