John Robertson
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John Robertson (Glasgow North West) (Lab)
My speech tonight might be about shipbuilding, but it is fundamentally about commitment—to a tradition, to an industry and to the people who rely on it. I am glad to have secured this debate and hope to catch the Chancellor’s ear when he makes his future plans. I hope it is not too late, but I doubt it.
I must begin by mentioning how disappointed I was at last month’s decision to award a £452 million contract for support tankers to the South Korean ship company, Daewoo, at the expense of the UK sector. Not only was this sneaked out in a written statement, but a Westminster journalist reported that the Under-Secretary of State for Defence, the hon. Member for Mid Worcestershire (Peter Luff) said, “It’s okay, we’ve got away with it. It’s only on the BBC website”. I hope that the Minister will put the record straight today about these reported comments and about why the decision was made.
The four military afloat reach and sustainability—MARS—tankers, from which military helicopters will be able operate, are due to enter service from 2016. Owing to the timing and nature of the contract, it is especially tough on the UK sector. For example, there will be gaps in order books after the carriers and Type 45 destroyers are finished. Placing orders for those four ships in UK yards was essential to retaining those skills and capabilities in the UK. I remind the Minister that retaining that capability is also a strategic issue, so the Ministry of Defence is risking UK defence capability by placing this order in South Korea, as well as undermining the UK shipbuilding industry.
There have been suggestions in the past that South Korea has won orders at prices below production cost, and the EU has reported South Korea to the World Trade Organisation for its behaviour.
Speaking as a local MP, I would say that given that there are at least three years before the steel work on the carriers being built in the shipyards in my constituency and that of my hon. Friend the Member for Glasgow South West (Mr Davidson) is finished, these contracts mean that there would have been enough time to find work to keep other highly skilled workers busy until the Type 26 frigates came along at these shipyards. Instead, however, as a result of losing out on this contract, the shortfall will lead to the loss of 1,000 jobs. Given that unemployment in my constituency is up 66% since February 2008 and in Glasgow city by 80% since summer 2007, we can see that this is of major concern not only to me but to the people of the city of Glasgow. That will be mirrored in other areas of the country.
What really annoys me, however, is that these four MARS tankers for the Royal Navy were deemed to be “warlike” ships. As a result, under the previous Government’s procurement rules, they would have been built in the UK. I secured that commitment from the previous Government in 2003 at a meeting of the Scottish Affairs Select Committee, when they guaranteed that all “grey ships” or “warlike ships” would be built in the UK.
My local GMB shipbuilders’ trade union certainly considers these tankers for the Royal Navy to be “warlike”, so like the Type 45 destroyers, the aircraft carriers and the future surface combatant ships, the Type 26 frigates, they should be built in the UK too. The reason is that they could be put into a war zone to refuel warships and to provide support for amphibious and land forces close to the shore. They need to be equipped with proper defences to protect the Royal Navy personnel on board, the helicopters that operate from them and, of course, the ships themselves—let us not forget them and the men in them. For that reason alone they should be built in the UK.
I fear, however, that the commitment that I secured from the previous Government is being broken and that the current Government are sending out signals that they will continue to break it. In fact, I believe that it is the Government’s policy to break it. This fear is supported by the equipment, support and technology Green Paper published on December 2010. It stated that the Government intended to buy more defence equipment off the shelf. As defence companies in the UK cannot afford the costs or accept the risks of developing major pieces of defence equipment without Government support, the clear implication of the Green Paper is that the Government mean to buy more equipment from foreign suppliers. Moreover, there is no mention of arrangements for licensed production, suggesting that the Ministry of Defence envisages buying more from the company’s own production line—another potential blow for UK manufacturing.
At the end of August 2011, the Government announced an order of 14 Chinook helicopters from Boeing, at a cost of £1 billion, which was fully in line with the approach I have outlined. At the beginning of October, AgustaWestland announced that it would make 375 staff redundant, owing to a shortage of work. That means that the Government are setting a dangerous precedent, which may have changed the commitment that I received from the previous Government on “grey ships”. With fewer than 10,000 highly skilled workers in the shipbuilding industry, any further loss of commitment to support the yards will result in the total collapse of UK shipbuilding and the loss of a highly skilled and motivated work force. Investment over the last few years has created a fantastic opportunity for UK shipbuilding to be recognised as it was a number of years ago—highly respected for quality, efficiency and cost-effectiveness. Many navies in the world are looking at our Type 45 destroyers with envy. They are without doubt the best ships of their class and type anywhere in the world.
The Government say that no UK yard made a bid for the MARS ships. However, I am the chair of the all-party shipbuilding and ship repair group, and a meeting was held last week. I have approached companies that should have bid, but did not do so, for which there were two good reasons. First, they were discouraged from doing so; and secondly, the decision had already been made on cost. Will the Minister comment on that, verify whether those are the facts, and if so, say what he will do to rectify the situation?
Mr Russell Brown (Dumfries and Galloway) (Lab)
In view of my hon. Friend’s discussions with the all-party group, will he tell the House why those companies appear to have been discouraged?
John Robertson
My hon. Friend will appreciate that the companies do not want to be named, for obvious reasons—their orders might be looked at in future—but the fact of the matter is that they seem to have been pretty well warned off, being told that it would be a waste of time, energy and money for them to tender for the ships. I find that despicable to say the least, and it is also a slight on our great work force, who work in the shipyards in my constituency and many others.
The previous Labour Government deserve to be congratulated on saving shipbuilding on the Clyde, as the Conservative Government from whom they took over did their best to ensure that those yards closed. The present carrier project, initiated by the last Government, is not only boosting the shipbuilding sector’s profile, but having a knock-on effect in the manufacturing sector as a whole. At a time of high unemployment, we should remember that the industry cannot afford to lose skilled workers, because as we have seen, once gone, they do not return to the industry. The industry needs skilled workers over the next 10 years. The young people entering the industry need to be trained, but it is not easy with people leaving the industry owing to lack of work or retirement. The shipbuilding work force are ageing and need new blood now. With youth unemployment at an all-time high—I might add that it is above the national average in my constituency—what better time than this to employ more young people? I congratulate BAE Systems in my constituency on its apprenticeship policy and on doing a great job to keep apprenticeships going in the last 10 years, but let us face it: the industry on the Clyde can ill afford any redundancies.
All this raises the question of where the ships should be built. We could, of course, build them abroad, as the Government appear to want to do. After all, it might work out cheaper to do so. However, we are not talking about a simple commercial ship that can be built more cheaply in a low-wage economy; in this case, we are talking about complex, highly integrated systems that happen to be housed in ships. We have the necessary skills here in the UK, and we cannot run the risk of losing crucial shipbuilding skills to other countries, let alone the cost of unemployment. Ultimately, the Government could find that they have nowhere at home to turn to for their systems requirements, if they continue to act as they currently are: penny wise but pound foolish.
The Minister will be aware of a recent report by the Royal United Services Institute which looked into defence procurement. The report found that the tax revenue implications of a given choice are frequently overlooked. Given that the Government, including the Ministry of Defence, are committed to reducing the budget deficit—a function of spending and revenue—this issue is highly pertinent. Using an actual contract and an explicit accounting method, the RUSI report found that the tax revenues are significant; they can yield to the Exchequer over a third of the value of the contract.
The same study found that the Government could get back more than 28% in income tax and national insurance payments alone by buying British in defence procurement. That figure is of obvious procurement policy significance at a time when there is such concern over the Government’s budget deficit, and this is something that the Chancellor should consider this week. The thousands of people in the shipbuilding industry could not care less about the 50p tax rate; they just want a job that allows them to be able to pay tax. The report also suggested that if the UK were to spend a third of its defence budget on off-the-shelf foreign systems, as outlined in the Green Paper on equipment, support and technology, the Treasury would lose about £1 billion in revenue. That could have a negative effect on Government revenues and thus on the public sector deficit. Will the Minister tell us whether the Government have considered the RUSI report?
There is also a human aspect to all this that we miss in the faceless statistics and figures that are quoted. How can families in my constituency, and constituencies like it, plan for their own future when they could see their jobs go? How can we expect them to cope with such insecurity, especially when they are working in an industry of national importance? We are talking about generations of families who have worked in the industry, and about the traditions that go along with that. If the Government cut first and think later, it is those people and many others like them who will ultimately pick up the tab. So I call on the Minister and the Government to honour the commitment of the previous Government to the proud people in the shipbuilding industry of this country, and to ensure that all “grey ships” continue to be made in Britain.
The Minister of State, Department for Business, Innovation and Skills (Mr Mark Prisk)
I congratulate the hon. Member for Glasgow North West (John Robertson) on securing the debate, and on his heartfelt remarks. He knows the shipbuilding industry in its entirety well. I am sure that he will not be surprised to learn that I do not agree with all his conclusions, but I nevertheless respect the fact that he takes a considerable interest in the industry.
I should like to set out the UK’s current market position on defence and, indeed, on the broader issue of marine engineering, because that is crucial to underpinning many of the engineering businesses to which he referred. I shall respond to his specific concerns on defence, and explain the Government’s strategy for helping marine engineering in the round to grow over the next few years.
I want to put this in context. The foundation of UK marine manufacturing and shipbuilding derives from our historical position in relation to merchant shipping and to the defence of our nation. Today, the equipment that we develop in this country is still highly favoured by ship and boat owners around the world. The marine industries manufacture and provide important support services in not only the naval market but the leisure, commercial and offshore renewable markets, and generate some £10 billion for the UK. Furthermore, the UK is still the fourth largest shipbuilder in Europe in terms of gross value added. However, the global market is not static, as the hon. Gentleman acknowledged. Today, our expertise and facilities are being adapted for new clients and new markets. Of course, that also means that they face new challenges from new competitors who were not there 10 or 15 years ago.
Our worldwide reputation for naval ships, marine equipment and systems, marine science, ports and infrastructure, ship repair and recycling is now migrating into a broader sphere, which includes offshore renewables manufacture, super-yachts and high-value sailing yachts. Let us take, for example, South Boats, which designs and builds aluminium catamarans on the Isle of Wight. It sells to a market for the operators of offshore wind farms in the whole field of support and crew transfer vessels. Four years ago—in 2008—its turnover was in the region of £8 million, but it exported merely 5% of its output. By 2011, the turnover had increased to £23 million, with 21% exports. That is an example of positive signs in shipbuilding and ship repair, but it is not the only one.
Let us take the revival of the Cammell Laird Birkenhead shipyard. The firm that went into administration in 2001 was bought back by former employees and now once again, I am pleased to say, is a thriving shipbuilding and ship repair business. It specialises in commercial repair and upgrading heavy fabrication engineering, but also operates in military refit markets. It is located, as we know, in an area where there is a major cluster of marine service expertise. It is currently responsible for the maintenance of vessels from the Royal Fleet Auxiliary, which recently saw service in Libya, and is working on a number of commercial conversion projects.
What is encouraging about this—it is something to which the hon. Gentleman specifically referred—is the important commitment to training. The current chief executive at Cammell Laird, John Syvret, started as an apprentice shipwright. Today the company employs 70 apprentices alongside a core work force who average almost 700 direct staff. These are good signs for the prospects, and, indeed, the ambition of shipbuilding in the UK, but we recognise that this company, among others, has to compete in a tough and challenging global market.
We have, of course, seen this country and others facing a substantial financial crisis in past years, and many of the markets that shipbuilders sell into have either just come out of recession or, in some cases, are still in it. That is why when we started as a Government we wanted to put manufacturing back at the heart of our economic strategy. It is why we believe our job is to make sure that we maximise industries’ competitive advantages. That is why we are ensuring that we have one of the most competitive tax regimes—not just in the G7 but in the G20. It is crucial to get that long-term investment that is important to industry generally and to shipbuilding specifically. This also explains why we are investing in skills, as with the substantial expansion of apprenticeships. It is why we are investing in key infrastructure, with our £200 billion package of civil engineering projects incorporated into our national infrastructure plan.
John Robertson
The Minister, with his limited time, is generous in giving way. Does he agree that the reason why we have these apprentices and why we are investing in skills is that we have lost those skills over the decades, so it is more by necessity than design that this is happening?
Mr Prisk
The hon. Gentleman is absolutely right to say that we have seen a wind down so that over the next 10 to 15 years there will be a substantial loss through retirement of a whole generation of engineers. We do not see this is a necessity, however, but as an important part of shifting the balance of the economy. We want to see a strengthening in apprenticeships, so I would go further than the hon. Gentleman suggested. We believe that supporting supply chains and technological innovation is the way in which shipbuilding in the UK and elsewhere can keep ahead, so we need to make those investments.
Let me deal specifically with defence, on which the hon. Gentleman focused—not surprisingly in view of his constituency. It is, of course, a significant market for the UK’s shipbuilding sector. Supporting this, the Royal Navy is in the middle of a major building programme of both warships and submarines. Looking at the broader industrial issue here, partnering and industrial collaboration are key elements of the programme.
The warship programme is a significant investment, including six Type 45 destroyers, five Astute class submarines and two Queen Elizabeth class carriers, and they are all being delivered by UK shipyards. Subject to Ministry of Defence approval, new contracts are anticipated for two further Astute class submarines, the future strategic deterrent submarine and a new generation of frigate—the Type 26 global combat ship. The Type 26 frigates will form the backbone of the Royal Navy until the middle of this century and, I suspect, beyond. It is clearly too soon to speculate on precisely where the ships will be built, but I will say that the programme provides a real opportunity for strong ties to be formed between the United Kingdom Government, the Royal Navy and British industry as it progresses.
The work on the Queen Elizabeth class carriers, which it is important to consider in this context, has brought about a reinvigoration of the apprenticeships programme on the Clyde. Some 270 apprentices will be employed by BAE Systems, and 154 by Babcock in Rosyth.
Mr Prisk
I must tell the hon. Gentleman, with respect, that the debate was initiated by the hon. Member for Glasgow North West. I do not know whether he asked permission to intervene, but it appears that he did not, so I will now turn to the broader strategy.
If we are to achieve sustained improvements for the sector as a whole, we shall need a joint industry and Government strategy, whether it is in defence or on the civilian side. That is why, last year, we created the Marine Industries Leadership Council as a forum for the industry. We have launched the first ever strategy for the growth of the marine industries, which seeks to draw on the strengths of the whole sector. Having been a member of the Government for two years, I was surprised to learn that this was the first ever integrated UK strategy for the growth of the marine industries. Our goal is that by 2020, the UK marine industries will be renowned for the quality and value for money that they provide in their products, services and systems. A specific part of the goal is that we ensure that by 2020 the marine industries and maritime services sector sees the value of its contribution to our economy rise to £25 billion, up from £17 billion. That is a clear and important tangible goal, and I hope it will give some comfort to the excellent work force in the constituency of the hon. Member for Glasgow North West.
John Robertson
Does the Minister not accept, however, that the rules we in this country play by are not the same as those that other countries play by when bidding for orders to build our ships? There is not a level playing field. We allow companies from other countries to make bids when we know—particularly in respect of South Korea in the past—that money that has been given for development has been ploughed into the shipbuilding industry, to enable other countries’ companies to make ships cheaply.