National Shipbuilding Strategy

Julian Lewis Excerpts

Thursday 11th July 2019 Westminster Hall

[Mr Jones]

I am envious of the hon. Lady for going back to Cornwall. I spent my summer holidays there last year, and it is a wonderful part of the world.

[Dr Julian Lewis (New Forest East) (Con)]

So is Durham!

[Mr Jones]

But Cornwall is, equally, very nice.

The hon. Lady makes an important point. It is about not just the build, but the through-life support. For a lot of the systems that we procure for the armed forces —certainly in shipbuilding—we look at the initial procurement, but we should also be looking at the through-life support. That is where the jobs are, and where the value is for the original, prime companies. As she rightly says, there is also value for smaller companies and others. If we are to spread prosperity around, we should see the contract as an investment in Britain. As she rightly argues, it is an investment in skills going forward. When looking at whether we can afford to make that investment, we should ask the Treasury, “What is the prosperity agenda?” The right hon. Member for Ludlow (Mr Dunne) did a very good report that tried to explain that the prosperity agenda should be linked to procurement in the Ministry of Defence. One of the GMB trade union’s reports argued that 20% of the value of the fleet solid support contract comes straight back to the Treasury anyway, through taxes and national insurance.

That has to be taken into account, but it is the throughput of work that will ensure that the shipyards and supply chain are maintained. We have a great opportunity to do that with the FSS contract. Unfortunately, for reasons that I am not sure even the Minister understands or privately supports, it has been put out to international competition. We will make the same mistakes that we made in the 1980s if we think this will somehow lower the price or get a better deal. I am sorry, but no other country in Europe does the same thing.

We can dance on the end of a pin over whether EU procurement rules apply to the FSS vessels—I have made it very clear that they do not. The French have just ordered four new Vulcan class support ships. Did they think about putting that out to international competition or asking British yards to tender? No, they did not; they ordered them directly. It is the same for Italian and Spanish ships. That is the difference.

The South Koreans and Daewoo have now pulled out of the competition for the FSS contract, but we are not dealing with a level playing field. Those companies have huge amounts of Government subsidy, which is not open to UK shipbuilders. If we are to procure the ships and build them abroad, it is quite clear that the Exchequer will not get back 20% straightaway in tax and national insurance. We will also lose the ability to support our shipbuilding and ship repair businesses.

Since 2010, the Government’s industrial strategy on defence has been disappointing. When I was a Defence Minister, I had the privilege of working with Lord Drayson, who understood this issue. As part of his wider industrial strategy on defence—I think it ran until 2010—he rightly argued that if we want to build complex warships in this country, we need to put in the investment, get the drumbeat of work going, and ensure there is certainty for industry.

Since 2010, we have been promised various defence strategies, but what we really need is an overarching defence industrial strategy. I know the Minister will say that the Department for Business, Energy and Industrial Strategy or other Departments are dealing with these things, but I am sorry: a particular strategy needs to be developed for defence industries, including the maritime sector.

Sir John Parker’s strategy was an attempt but, as I said, I think it misses the point. It tries to reinvent some of the wheels of competition that failed in the 1980s. There is a fixation in the Ministry of Defence—I cannot understand where it comes from—with the idea, “Isn’t it terrible to give the work to BAE Systems?” BAE Systems is the only company in the UK capable of building complex warships. There are ways of incentivising it, but also ensuring that we get value for money and that we have the necessary systems. The hulls are important and the steel is important, but being able to invest in combat systems, engine technology and other things related to shipbuilding is vital, because they are exportable.

The carriers were a good example of Babcock, Thales and BAE Systems coming together in an alliance that worked. I do not understand why that alliance should be broken up on completion of HMS Prince of Wales, which will happen soon. That alliance seems an obvious way forward in terms of skills for the FSS. I understand that the new Secretary of State wants competition to be reviewed, which is welcome. I hope we can get understanding of the points that I and a lot of other Members have made about the importance of shipbuilding in the UK.

Let me conclude where I started. This is a vital sector if we are going to keep sovereign capability for complex warship building in this country. It needs to be invested in. It is not a smokestack industry; properly invested in, it is an industry for the future. Off the back of contracts such as that for the fleet solid support vessels, I would like to see investment in not only technologies but skills. We need urgently to ensure that companies such as BAE Systems, which do a fantastic job of recruiting apprentices, have the certainty to invest in skills. If we do not, we will fall behind: even with the political will to build complex warships in this country, we will not have the skills to do so. As I said, we have only to look at Barrow and the submarine programme to see the problems with trying to regenerate skills from scratch.

I am pleased that we are having this debate and putting shipbuilding on the agenda. I hope that that incentivises the Government to make an early decision to award the FSS contract to British yards or a British consortium.

[Dr Julian Lewis (New Forest East) (Con)]

As an old schoolmate of yours, Mr Evans, it is a particular pleasure for me to contribute to this debate under your able chairmanship. I pay tribute to the right hon. Member for North Durham (Mr Jones) for continuing his relentless and entirely justified campaign to ensure that the defence footprint, particularly as regards naval shipbuilding, is not shrunk still further in this country.

Mr Evans, you will know, having been in the House even longer than me, that one of the few benefits of having spent more than two decades here is that we get to see trends over decades. What has happened with our naval shipbuilding does not make for a pretty picture. I remember the 1998 strategic defence review undertaken by the then new Labour Government of Tony Blair. It set out a policy for the Royal Navy that seemed to leave it in quite a winning position. Although the Royal Navy was asked to sacrifice three of its frigates or destroyers, thus reducing its total from 35 to 32, the review put forward the concept of carrier strike and amphibious strike, which meant that the two large aircraft carriers would be built.

Had it remained in that formulation, the Royal Navy would have had every reason to be satisfied. We all know, however, that that was not the case. Successive Governments reduced the total from 32 frigates and destroyers, first to 31, on the basis that these were much more capable ships and therefore 31 would be able to do the work of 32. When that little stratagem succeeded, the 31 were reduced to 25, and the 25 were then reduced to our present pathetic total of 19 destroyers and frigates—six destroyers and 13 frigates, to be precise. Before anybody starts lecturing us about the change in the nature of warfare, it is worth reflecting on the fact that one of those 13 frigates, HMS Montrose, is in the news today, having performed the very important function of protecting British shipping from Iranian attempts to respond to the impounding of a large vessel of theirs that was believed to be carrying contraband oil to Syria.

It is rather hard to have a strategy when we are dealing with only a relatively limited number of vessels, even though those vessels may well be much more potent, powerful and versatile than their predecessors. However powerful, versatile and potent they are, each can be in only one place at any one time, and that means that each can be built in only one place over a particular period. That makes it harder to have a versatile and flexible strategy to match those qualities in the ships that are being built.

One of the encouraging results of the publication of the national shipbuilding strategy was that, in identifying the general purpose frigate, the Type 31e—the cheap and cheerful version of the next generation of frigates—as one that should be designed for export, Sir John Parker, to whom we should again pay tribute for everything he did, also specified that, as a result of those vessels being built in modular fashion, they would be very flexible and adaptable over time to what is sometimes called incremental acquisition. In other words, we get the ship hulls built and get them out to sea, and then, over time, because we have built compartments in the vessels that can be used for a variety of purposes over a period of years, we sow the seeds of their future adaptability and additional potency.

We should remember that this was the first time there was talk of an increase in the total number of vessels. Instead of just being told, “We will be replacing 13 Type 23 frigates on a like-for-like basis,” we were told that there would definitely be eight of the Type 26, specialising in anti-submarine warfare, and at least five—not a limit of five—of the Type 31e general purpose vessels. It will be interesting to hear from the Minister whether there are plans to exceed the figure of five for the Type 31e.

Slightly less than a week away on Tuesday 16 July there will be another debate in this Chamber about defence expenditure. Of course, all these issues, including the important one about the fleet solid support ships raised by the right hon. Gentleman, generally come back to defence expenditure and—it must be said—the inadequacy of defence expenditure.

I regard it as one of the achievements of the Select Committee on Defence that, with members representing no fewer than four different parties, it has consistently come to the view, irrespective of party allegiance, that too little is spent on defence in the United Kingdom—far too little. Our expectations were managed downwards to such an extent that it was believed to be some sort of triumph when we did not dip below NATO’s basic recommended minimum guideline of 2% of GDP. To coincide with next Tuesday’s debate, the Committee will bring out an updated report, following on from our 2016 report in which we laid out the decline in defence expenditure as a proportion of GDP compared with rises in health, education and, above all, pensions and benefits, and how defence had declined in our scale of national priorities to such an extent that the size of the armed forces was becoming unsustainable.

The national shipbuilding strategy gives us an opportunity to reverse that decline, and I would be grateful to hear from the Minister what plans there are to do that. It will be no easy task, given that we will remove the Type 23 frigates from the fleet at the rate of one a year between 2023 and 2035. It will be no small task to replace each of those frigates at that sort of rate with a new, modern, complex warship.

[Mr Kevan Jones]

The right hon. Gentleman is talking about the number of ships. Does he agree that the crisis point in the Navy is also about people and not just in number? I referred to skills in the shipbuilding industry, but there is also a need for particular skills in the Royal Navy.

[Dr Lewis]

That is true, because if we fall below what one might call critical mass, we will not be able to maintain the necessary footprint to support the construction and manning of vessels on a consistent basis. That is why the question of the fleet solid support ships is so important. Those vessels can be classified as warships or, if we choose not to, simply as auxiliaries. We have that choice, and it is a choice that we feel, on a cross-party basis, it is necessary to exercise.

The trouble that the Ministry of Defence runs into is that every time a long-term strategic view suggests to it that we ought to make an investment of this sort, it runs up against the short-term imperative that the defence budget is so small that cuts must be made at every opportunity, even where, as in this case, they are short-sighted and storing up problems for the future.

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

I thank the Chair of the Defence Committee for giving way. Is there not another priority for the MOD—the increased submarine activity we are seeing from Russia? The lack of Navy surface vessels could contribute to that. The modernising defence programme really needs to address that issue.

[Dr Lewis]

I entirely endorse what the hon. Gentleman said, and I am glad that he mentioned the modernising defence programme. I will take a moment to talk about that exercise. It was felt at the time that the programme was not a very substantial document, but it did rescue the armed forces from what I can only describe as a bureaucratic ambush laid out for it by something called the national security capability review.

Right hon. and hon. Members will remember that that mini-strategic defence review was an exercise that I believe began in 2017 and was conducted not by the Ministry of Defence but by the National Security Adviser, who is currently also the Cabinet Secretary. It was designed to consider security, intelligence, cyber-warfare and defence all in the round. I even heard Sir Mark Sedwill in front of a Committee on which I sat refer to a £56 billion defence and security budget, thus taking all the budgets and putting them together, as it were, in a single basket. There was only one snag with that. If the review decided, as it was minded to do, that much more money needed to be spent on what was called “21st century threats” such as cyber-warfare and ambiguous or hybrid warfare, as there was to be no extra money for anything, the already depleted conventional armed forces would have to be cut further.

The hon. Gentleman’s point is therefore particularly pertinent. Although we live in a world where we face new hybrid warfare, cyber-warfare and other highly technological threats we have not faced before, that does not mean that the traditional threats on the sea, under the sea, in the air and on land have gone away. It is a profound mistake to say that, just because we need to spend more money to meet novel threats, we can afford to spend less money to keep up the strength of our conventional armed forces.

I referred briefly to the Defence Committee’s original report from April 2016, entitled “Shifting the Goalposts?” that set out charts showing the decline in defence expenditure to barely 2%—and that figure was achieved only by including certain categories in the total, such as war pensions, that NATO guidelines allow us to include but we never previously chose to. We just scraped over the 2% line by doing that. I will not spoil the effect by revealing in advance what the new figures show, but believe me, they are not cause for great comfort.

We are now at a stage when we are expecting a change of Prime Minister. Every Prime Minister has a honeymoon period. Even the present one did—sadly, it did not last all that long. In this case, the person most likely to become the next Prime Minister projects an optimism, a sunny personality and a robust world view.

I suggest that all of us, from whichever party we are, should remain united on one thought—there will be a brief window of opportunity. There will be a moment when we will have a new occupant of No. 10 Downing Street who will be full of the joys of spring. This will be our chance to say that the great naval traditions, all those matters of history and all the events in which his great hero, Sir Winston Churchill, participated as First Lord of the Admiralty and later as Prime Minister will be laying, as another Prime Minister once said, the hand of history on his shoulder. What better way to shake the hand of history than to restore defence spending to its rightful place in the scale of our national priorities?

[Mr Nigel Evans (in the Chair)]

Hon. Members will be able to tell that the right hon. Gentleman and I are old school chums because I gave him a bit of latitude to ski off-piste. I call Douglas Chapman.

--- Later in debate ---

[Chris Stephens]

That is an excellent analogy, perhaps better than the one I used. The right hon. Gentleman is absolutely correct: these are warships. If it looks like a warship and acts like a warship, it is reasonable to assume that it is, in fact, a warship and not a civilian ship.

The criterion should be changed to designate fleet solid support ships as warships. If I understood correctly the answers the Minister gave the right hon. Member for North Durham and others in Monday’s Defence questions, that will be the direction of travel. It is all very well saying that will be the future direction of travel, but it should be the immediate one for those contracts. The GMB trade union has said—a point emphasised by my hon. Friend the Member for Dunfermline and West Fife (Douglas Chapman)—that 6,500 jobs could be created by securing that; £285 million of the estimated cost of the order could be returned to taxpayers—money that would be lost should the order go overseas. That is an important criterion that the Ministry of Defence, and the Treasury, appear to overlook.

After four years in this place I am starting to believe that it is the Treasury that makes the defence decisions, not the Ministry of Defence.

[Dr Julian Lewis]

Definitely.

[Chris Stephens]

Apparently the Chair of the Defence Committee agrees. If the Treasury is making those calls, surely it has to take account of the fact that the workers who would build those ships would pay income tax and national insurance that would go back into the Treasury coffers, but that will not happen if the contracts are sent to other places. Unite has estimated that the Treasury would receive 36p in every pound from those defence projects. This is an excellent opportunity for the Minister—in the next two weeks, before his elevation—to demonstrate the Government’s commitment to taxpayer value by making sure that the ships are built in the UK. I have other constituency demands, which I have lobbied the Minister about, and I hope he will take my advice on those in the next couple of weeks, too.

There are plenty of examples of other countries—normal-sized nations or larger ones such as the UK—that better plan their sovereign naval defence capability, build their warships and keep their drumbeat going. As my hon. Friend the Member for Dunfermline and West Fife highlighted, and as shown in my exchange with the Chair of the Defence Committee, this issue is important in the context of current Russian activity. The excursions into Scottish waters are increasingly blatant but there are still no Navy surface vessels based in Scotland—they are all based on the southern coast of England. That seems a very curious way of organising defence when there is increased Russian submarine activity.

As others highlighted, promises have been made about the shipbuilding industry. We heard the classic one that there would be 13 Type 26 frigates; the Treasury then interfered and they became eight Type 26 frigates, and then five Type 31 frigates. Despite that announcement more than three years ago, I still do not know exactly where the Type 31 frigate sits within the Royal Navy and what its purpose will be. It may have a general purpose, but where does it fit in? It is just a smaller and cheaper ship, and that seems to be the only reason it exists. That ship was supposed to be exportable—one that would be easier for BAE Systems and others to sell abroad, so perhaps we might think about going back to 13 Type 26 frigates. In relation to the Type 31 frigate, the Minister should look at the benefits of the prosperity agenda across the UK; I hope he will give a commitment to that.

Now, there is the frigate factory. A former Defence Secretary still insists that the frigate factory exists in the Clyde, and has found himself arguing that twice in the House of Commons Chamber. On one occasion, the GMB trade union and a BBC journalist with a television camera went around the site of the proposed frigate factory and found ash. There is an important point here, which is contained in the all-party parliamentary group’s report, and I hope the Chair of the Defence Committee will pick it up: the Ministry of Defence needs to look at giving some support to shipyard investment. It is no use the Treasury and the Ministry of Defence insisting that they want the industry to build more efficiently and save costs if they do not help the industry to invest in its own shipyards. That shipyard investment can ensure that ships are built more efficiently and cheaper.

--- Later in debate ---

[Stuart Andrew]

I said that I would come on to those issues a little later, and I promise I will—I will not hide from them.

The strategy is important for the Ministry of Defence, but I am keen that we look at this across Government too. For that reason, I have asked to meet the Minister for Business and Industry and the relevant Parliamentary Under-Secretary of State at the Department for Transport so that we can discuss how best to support UK shipyards, from the perspective of not only defence, but the opportunities that may exist for the commercial maritime sector and whether it is ready and prepared for them. I want this to be a cross-Government approach to securing the future of the industry.

The strategy sets out an ambitious plan to put the UK at the forefront of the technologies of the future. That is why investment in science, technology, and innovation is key, as they have the potential to drive improvements in productivity, to grow prosperity in the UK and to build an internationally competitive industry that is resilient to the peaks and troughs of both military and civil shipbuilding.

We have heard today about the success of the BAE Systems approach when it comes to the Australian and Canadian work; the company has also been successful in terms of the Royal Thai Navy’s offshore patrol vessel requirements. My right hon. Friend the Secretary of State has had conversations with both the previous and the current Secretary of Defence in the United States about whether the Type 26 and Type 31 might be appropriate and suitable for their requirements. That is something that she will continue to pursue, as will we all.

Of course, there are all sorts of other investments happening, such as the Royal Navy’s new autonomy and lethality accelerator. This £45 million programme will deliver rapid and ongoing transformational change across the maritime environment. The Royal Navy is also forging ahead with things such as the 3D printers that the right hon. Member for North Durham sent me a question about recently. There is a lot of work going on in that innovation area that will continue to support the wider supply chain to our industry.

A few hon. Members have mentioned the Type 31e programme, so I will give an update. It is, of course, a pathfinder for the delivery of the new shipbuilding and capability vision set out in the strategy. We announced the award of contracts for the competitive design phase in December. I am pleased to say that the competition is still on track, and it is our intention to announce the outcome of the competition for the design and build of the ships by the end of the year. It has been a vibrant and healthy competition.

I take the point that the hon. Member for Merthyr Tydfil and Rhymney (Gerald Jones) made regarding the value. I have been checking throughout the price we have, which is £250 million per ship. We made some initial adjustments to make it tie in with the way we have procured other warships in the past, so we have taken costs such as Government-furnished equipment out of that £250 million. The Royal Navy assures me—both I and the Secretary of State have been quite robust with it—that the capability we will receive will meet its requirements; it has given us that absolute reassurance, and it is looking forward to receiving the ships.

I will go over some of the other points that have been made. In opening the debate, the right hon. Member for North Durham rightly talked about the skills agenda—I will come on in a minute to the points about the supply chain. He is absolutely right that we must ensure that we learn the lessons from the submarine programme. It has been blindingly obvious to me, as I have been learning this job, that ensuring that Barrow is right up there again and capable of delivering our submarine programme has been a major challenge.

Coming on to the drumbeat, it is our intention to ensure that the industry has that 30-year plan of what the Royal Navy’s requirements will be, so that it can see where the opportunities will arise and where there may be potential gaps that it may need to fill. That said, we have of course provided 20 years’ worth of work on the Clyde. I will comment in a minute on what my right hon. Friend the Secretary of State is doing in this area, because it will be incredibly important.

[Steve McCabe in the Chair]

I have heard a number of people say that the FSS are warships, and that no other country in Europe buys its support ships or other ships from international orders. That is not quite true: for example, Germany had an international competition for its multi-purpose frigate, Norway has procured a support ship from South Korea and five frigates from Spain, Australia has had two support ships from Spain, and New Zealand has an auxiliary ship from South Korea. It is not true to say that all those countries always have their ships built in their home countries.

[Dr Julian Lewis]

What the Minister says is completely correct. The question is not so much whether countries choose to do this but whether they have to. In the case of Germany, its expenditure on defence is notoriously a much smaller proportion of its GDP than ours is of ours, so it is probably doing it for the same sort of reasons. That does not make it the right policy.

[Stuart Andrew]

I will come on to my right hon. Friend’s comments. He talks about funding, which is absolutely the heart of the issue. With a very challenging budget, we must ensure that we get the maximum capability possible for our armed forces at the best value. I must say that in the past, international competition has proved very successful; on the MARS tankers, it saved a considerable amount of money. We want to go for two of the ships on the FSS with the option of a third.

[Dr Lewis]

rose—

[Mr Kevan Jones]

rose—

[Stuart Andrew]

I will give way to my right hon. Friend, but there will be a fixed budget, and we must get the best we can out of that money.

[Dr Lewis]

I fully understand the logic of the Minister’s position, but it just goes to what I was trying to convey in my speech: it is a question of short-term savings that will show up in an annual budget, compared with medium to long-term costs when the time comes that we want to build other ships and we find that we have lost our industrial footprint to some extent and have to reconstruct it. I acknowledge that that is the dilemma that he faces.

[Stuart Andrew]

I am grateful for the point that my right hon. Friend makes. That is the balance we are struggling with at the moment; I will be completely up front about that. It will probably be helpful if I go on to talk about what my right hon. Friend the Secretary of State has said. In the speech that she gave to the Royal United Services Institute, she was quite right to say that we needed to look at where we could explore changing policy so that the UK could at least have the choice, if it so wished, to just build in the United Kingdom.

A tremendous amount of work is going in to reviewing the national shipbuilding strategy. We have Sir John Parker’s comments and of course we are taking stock of those. My right hon. Friend asked for a review to learn the lessons from the MARS tankers, so that we can feed them into potentially changing the policy, but I assure hon. Members that all that, and all the debates, meetings and questions I have had, is followed through.

[Dr Lewis]

Will the Minister give way?

[Stuart Andrew]

I had better give way to the right hon. Member for North Durham first, and then I will come back to my right hon. Friend.

[Stuart Andrew]

I assure the right hon. Gentleman that the report we commissioned will look at every single aspect of that, including the benefit to the supply chain in the United Kingdom. There is some evidence that a number of UK supply chain companies have seen their international work increase as a result of being part of that. We are formulating our response to the review of the strategy.

[Dr Lewis]

The Minister is being amazingly kind. I really appreciate it. Let me put this sunny scenario before him. Let us imagine that the wishes of the Defence Committee come true and the defence budget is restored to 3% of GDP, as it was right up until the middle of the 1990s, quite a few years after the end of the cold war. Will he at least acknowledge that if there were an uplift in the defence budget, spending some of that extra money on securing the shipyards and the defence-industrial footprint, even if that sometimes meant that we spent more than we might spend in the short term if we contracted with an overseas builder, would be a sensible strategic decision?

[Stuart Andrew]

Again, that is part of the work that the Secretary of State is looking at, so that the United Kingdom can make a choice on those options. Of course, that will require more money. We have to accept that. I look forward to right hon. and hon. Members securing similar debates, so that Treasury Ministers can answer those questions.

[Dr Lewis]

They never do. They always try to put it back to you.