UK Sovereign Capability

Lord Spellar Excerpts

Tuesday 20th November 2018 Westminster Hall

[Mr Sweeney]

Unit costs ought to come down but the problem is that the way that the shipbuilding strategy is defined makes it more likely that the cost reductions will not be maximised. That is a great shame, because it undermines the aspirations of the strategy.

I am a vice-chair of the all-party parliamentary group on shipbuilding and ship repair, and we hope to bring forward a report on the strategy very soon. It will highlight some of the opportunities to improve it, because we all share the same aspiration. We want to see a world-class industry in the UK that has the certainty to invest. We want a world-class product that is cost-effective enough to grow the size of the Royal Navy.

[John Spellar (Warley) (Lab)]

My hon. Friend rightly focuses on warships, but it is also about the civilian ships for the Ministry of Defence. Unlike every one of our European competitors, the Ministry of Defence stubbornly insists on advertising abroad. There is a point about maintaining a competent workforce and the drumbeat of production, as well as the supply chain and the supply ecosystem, which is so important for sustaining all the yards. Can my hon. Friend find a logical, rational explanation for why the Ministry of Defence refuses to behave like every other European naval country?

[Mr Sweeney]

My right hon. Friend’s point goes back to that made earlier about the Treasury’s behaviour. I feel that this is almost about an economic orthodoxy that drives behaviour and says that we must maximise competitive tendering for the sake of it, because there is some sort of axiom that it works because it does. That approach does not bear scrutiny. Shipbuilding has the highest barriers to entry of any major industry in the world. It is a hugely capital-intensive industry and the only way to make it work, and the only way to get to a world-class, market-dominant position—much like with aerospace, where, as we know, the Americans and Europeans built their own champions in the form of Airbus and Boeing—is by having that synergy between Government, industry and the research and development base that makes it work. That is what we ought to have with shipbuilding in the UK. Fragmenting it in the way proposed in the national shipbuilding strategy serves only to undermine the UK’s long-term sovereign capability in shipbuilding. It is the primary sovereign interest of the UK to have that capability. We are an island nation, a nation of islanders and shipbuilders, and we ought to maintain that capability.

There are critical issues at stake here. We have already heard that Appledore, owned by Babcock, is due to close in March, which will be a devastating blow to the local community and to the UK’s wider defence manufacturing base. It is yet another shipyard to fall. Once it falls, it will not recover and be reopened—that is a simple fact. Once it is gone, it is gone. Despite the recent contract announcement at Cammell Laird, it is also completing an HR1 notification form and making significant redundancies. That is very unfortunate, and speaks to the point about feast and famine. We cannot have these cycles in capacity any more; we need to smooth the cycle as much as possible.

In the context of major shipyard closures and significant downsizing, whether that is at Rosyth or Appledore, it is bizarre that the Government are quite happy to tender contracts overseas in international open competition. Under article 346 of the treaty on the functioning of the European Union, the Government could quite easily designate the industry as UK-protected. It is entirely at their discretion. Any notion that their hands are tied is bogus. They could do that, smooth the production cycles and build a firm and stable footprint for UK shipyards, which would enable them to get match fit and then go out into the world and compete effectively for other orders. That is exactly what they do in Italy with Fincantieri, and what they do in France with DCNS. It is exactly what happens in Germany.

I do not understand why other European Union member states can achieve the same objectives much more effectively than us, but we are so holier than thou that it hurts when it comes to the zealous application of these EU rules and we seem to undermine our own industrial base and our prosperity as a result, meaning that communities are broken and skills lost. Ultimately, we undermine our objective of building a more resilient and effective industrial base to serve our defence industry and, potentially, commercial spin-offs.

Barrow-in-Furness is another example. The gap between the end of the Vanguard programme in the 1990s and the beginning of the Astute programme meant that the shipyard was essentially unable to build a submarine and they had to go to General Dynamics in the United States to be retaught how to build them. That is what we risk losing again if we are not careful.

[John Spellar]

It was surely not just the design capability and the managerial capability, but the actual day-to-day work experience and the work teams that have been created and then broken up. It took 12 to 24 months to rebuild that capability and was hugely expensive. The Ministry of Defence and the Treasury have still not learnt that lesson.

[Mr Sweeney]

My right hon. Friend makes a very prescient point. There is no calculation of the opportunity cost when those skills are lost or of how much it costs to build them back up. The feast and famine cycle is hugely costly and inefficient, and the national shipbuilding strategy risks going back to that pattern. I think that is a critical point that the Minister really ought to address in his remarks about the national shipbuilding strategy.

Let me make it clear that we are all here to try to deliver the best outcome for defence infrastructure in the UK—we are trying to get to the same end goal. We are trying to offer the best of our understanding and experience of these issues to inform this document and improve it as much as we can, and it is fair to say that we want to achieve the same objectives.

We have also seen the development of a combat air strategy—the Tempest programme—which is laudable and looks promising, but there is a lack of an overarching objective on defence. We have already lost the capacity to build large fixed-wing aircraft through the cancellation of the Nimrod programme, which was done hastily by the disastrous 2010 strategic defence and security review and means that we have permanently lost that capability in the UK. Similarly, we have lost the capacity to build main battle tanks.

What else is at risk, and where is the risk profile of the sovereign capabilities that will be lost? What is expendable and what is indispensable? That is not defined in the national shipbuilding strategy, where there is talk of potentially putting the Type 31e combat management system out to international tender. Why do we not define what the key sovereign capability is—not just in the shipbuilding programme, but in aspects of its critical supply chain, including gearboxes, gas turbines, combat management systems, weapons systems and so on? We need to have that granularity of detail in the national shipbuilding strategy, but it is not there. That leaves it open to interpretation and extreme gerrymandering by the Ministry of Defence.

Those are the key issues that we have to highlight, whether they are across land, maritime—I am biased towards maritime, which I have focused on heavily—or aerospace. I am sure that other Members are willing to contribute and add their own thoughts to this debate, but essentially that is an overview of my main concerns about our UK sovereign capability and the risks to sustaining it.

--- Later in debate ---

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

I congratulate my hon. Friend the Member for Glasgow North East (Mr Sweeney) on securing this debate. He emphasised the lack of strategy on maritime sovereign capability, but we need to ask the broader question of why we are in this mess today.

Since 2010, this Government have had no industrial strategy on defence. Some of the short-term decisions that were taken in 2010, when the Government slashed the defence budget by 16%, have resulted in capability gaps. A revolving door has been put on the office of the Minister for Defence Procurement, which means that they have a life expectancy a bit longer than a mayfly. That is not helpful when we need a champion in that role who can argue against the Treasury.

Why is sovereign capability important? If we want to have certain capabilities for the defence of our nation, we need to invest in them. The right hon. Member for Birkenhead (Frank Field) has raised the issue of defence exports. He is right to say that if we are to nourish that industry, there is a defence export role to it. The Ministry of Defence and the Treasury have adopted Donald Trump’s mantra of “Make America great again”, because the procurements that have taken place are suggestive of an “America first” strategy. In the past few years, they have procured more than $8 billion-worth of contracts from the United States.

As my hon. Friend the Member for Glasgow North East and my right hon. Friend the Member for Warley (John Spellar) both said, those procurements were not put out to contract; they were simply awarded. There were no competitions. We have the Apache contract and the P-8 contract—direct foreign military sales—and we have the scandalous situation of the airborne warning and control system, or AWACS, and I understand the Department is now going down the Wedgetail route. From talking to colleagues in NATO, I know that the Ministry of Defence has had no role, and nor is it interested, in partnering the programme that is replacing the 15 AWACS NATO aircraft. It is going down the Boeing route again. I am not sure whether soon we will have a sign at the Ministry of Defence’s Main Building saying, “Sponsored by Boeing”, but that seems to be the way it is going.

We also have the joint light tactical vehicle contract that was awarded to Oshkosh, with £1 billion of sales to replace armoured vehicles. There was no competition at all. At the same time, the Ministry of Defence and the Treasury are saying that the contract has to go out to competition. This is dangerous for our capability. It is not just about jobs, which are important, but about our supply chain and investment in research and development in our technology. My hon. Friend the Member for Glasgow North East will not remember the Falklands war, where we faced the issue of kit procurement from abroad. It reached a situation where we wanted to use the kit independently but were told that we could not.

I have serious concerns about this off-the-shelf approach to defence strategy, because there is no commitment at all. It would not happen in any other country—it would certainly not happen in the United States. If we were to sell equipment to the United States, there would have to be some offset in terms of jobs or investment there. This Government have not even tried. They trumpet the £100 million going into Lossiemouth, but that would have had to go anywhere. Boeing is going round on a public relations exercise, with glossy adverts that say it is now a British company, but it is not. There is very little evidence of real investment going into jobs and technology. That is not just today; our technology in this important sector is in long-term decline.

The hon. Member for Berwick-upon-Tweed (Anne-Marie Trevelyan), who is no longer in her place, said that there is no indication that the Treasury or the Ministry of Defence recognises that if a contract is awarded in this country, the money will come back straightaway. That is a serious problem for them. Short-term decisions taken now will have long-term implications for our effectiveness not just at maintaining our sovereign capability in a whole host of areas including shipbuilding, which has been outlined by my hon. Friend the Member for Glasgow North East, but at maintaining our capability to use that kit in certain situations. For example, will we be able to get the upgrades on Apaches if a future US Government determine that we should not? That is why we need sovereign capability.

I hate to use the phrase “go back to basics”, but that is what the Treasury and the Ministry of Defence need to do. They need to make it clear that we need to procure and manufacture in the UK under sovereign capability, which should be the starting point for the defence industrial strategy. We have been promised it by the revolving door of Ministers for Defence Procurement, but it has never been put in place. It has to be a joined-up approach across Government that includes the prosperity agenda, which does not seem to matter when it comes to those huge contracts that have been awarded without competition. When there is a situation such as the fleet solid support ship contract, where we could have investment in UK jobs and prosperity, we put it out to foreign competition. My right hon. Friend the Member for Warley is right: no other nation in Europe would do such a thing.

[John Spellar]

Will my hon. Friend give way?

[Mr Kevan Jones]

I am sorry; I am running out of time.

This scandal needs to be highlighted. I hope the Minister, in the time he has got in his new role, stands up to the knee-jerk “America first” reaction.