Defence Industry and Shipbuilding

Lord Beamish Excerpts

Wednesday 11th July 2018 Commons Chamber

[Nia Griffith]

I thank the hon. Gentleman for his intervention and I congratulate him on his excellent report, which he presented on Monday. I note that in it he recommends that UK prosperity should be taken into account in all major procurement decisions. I welcome that statement.

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

The hon. Member for Ludlow (Mr Dunne) raises an interesting point, but the issue is not so much about the policy as about the implementation of it. That is what the Treasury and others have got to start doing.

[Nia Griffith]

Indeed. When we speak to defence contractors, we find it is a sad fact that they are not being required to put those details into the bids they make. We very much hope to see that change. I hope that this is an urgent step on that way. The approach has been endorsed by the Defence Committee and has received the support of the trade body, ADS, as well as the defence trade unions such as Unite, GMB and Prospect.

The contract for the fleet solid support ships would bring immense value to this country if it were awarded to a UK bidder. Our carriers, frigates and destroyers will, of course, always be built in the UK, but with ships such as the fleet solid support vessels, the Government have a choice to make, and Labour Members believe that they are making the wrong one by choosing to put this order out to international competition. I know that some in the Conservative party like to blame everything on the European Union, but the fact is that the Government would be able to procure these ships in the UK under existing EU law, and there are compelling reasons for doing so. The GMB trade union has estimated that the ships would support 6,700 jobs if they were built in UK yards and up to £285 million of the £800 million potential UK spend would be returned to the Treasury through taxation.

The case for buying British is clear, and it would be a betrayal of our UK workers if this contract were allowed to go overseas, so we need to question what is really driving Ministers to put this out to overseas bidders. Perhaps it is the view that there will be a lower price tag for the MOD. We all want to get the best value for money, and we are aware of the difficulties that the MOD is having in balancing its budget, but this short-sighted, narrow, silo mentality about what might look good on the MOD’s balance sheet ignores both the benefits to the UK economy of building the ships in Britain and the costs of not doing so. We as taxpayers all want to see value for our money, and taxpayers up and down the country would far rather see that money spent on supporting skilled jobs for workers here in the UK than see it spent abroad, knowing that some 30% of the money spent on wages will come back directly to the Treasury as taxation, and that the spending power of those workers and their families will sustain local businesses in their communities.

[Nia Griffith]

As I just outlined, it is extremely important that we take into account the way that the money can be brought back into the Treasury, and I very much hope that the right hon. Gentleman’s message will be well understood by Government Front Benchers.

I will make a bit of progress. As taxpayers, we all want to see value for our money, but we recognise the consequences if we do not spend the money in the UK—the immediate impact on workers and their families, with workers unemployed or able only to find much lower-paid work, leaving them and their families much more reliant on social security payments and tax credits. All that is a cost to the taxpayer and, sadly, there are all too often the hidden costs of the increased risk of mental health problems and family break-up. While workers and their families will take the hardest hit, the wider consequences will be far-reaching and long term. Shipyards will close. We will lose a skilled workforce and a generation of apprentices.

If UK companies do not win these contracts, they will have less money to spend on research and development, and that bodes ill for the future. We have to stay ahead in this game to stay in the game. We know that UK-based companies are interested in putting in a bid, but they will be less inclined to if they think that this order will simply be handed overseas, as happened with the MARS—Military Afloat Reach and Sustainability—tankers. Bidding is a lengthy and expensive process, and companies understandably do not want to take that risk if there is no chance that they will succeed. Awarding this contract to an overseas manufacturer would be particularly galling when we note the subsidies, both direct and indirect, that benefit many foreign yards.

To those who argue that UK companies should simply compete on a level playing field with international bidders, I say that the point is that currently the field is simply not level. For example, the South Korean shipbuilding industry has been the subject of a great deal of criticism for the level of state aid it receives. Shipbuilding is a significant element of the country’s economy, and state-run lenders have injected billions of dollars into the industry. The Confederation of Shipbuilding and Engineering Unions has found that German yards benefit from targeted research and development, from funds for redeveloping and upgrading yards and from regional development funding, while significant potential bidders in Italy, France and Spain are owned in whole or part by their respective Governments. Rather than allowing this valuable contract to disappear overseas, the Government should do the right thing and put UK yards and workers first.

Of course, in this global marketplace, I recognise that not every contract can or should be delivered in the UK, and where we buy from abroad or work in collaboration with allies to develop assets, we should prioritise work-share agreements to create jobs and boost growth in the UK.

[Mr Kevan Jones]

Does my hon. Friend agree that the Government have a poor track record in doing what she suggests? Under the P-8 and Apache contracts with Boeing, for example, there is very little work share and very few jobs coming back into the UK.

[Nia Griffith]

Yes, indeed; as my hon. Friend says, the Government have a poor track record. It is a great shame that so many opportunities have been wasted.

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[Mr Ellwood]

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

[Mr Kevan Jones]

The Minister is talking complete and utter nonsense. On the military afloat reach and sustainability contract, there was no UK bid, and the reason for that was that the industry was told that the contract was going abroad. As my right hon. Friend the Member for Warley has just said, the Korean bid was underbid and basically bankrolled by the South Korean Government.

[Mr Ellwood]

The right hon. Gentleman sits down and folds his arms, but there was a UK bid.

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[Kevin Foster]

I will not, because I am conscious that there is quite a queue of Members wishing to speak. While this is an Opposition day debate, there are many Members with significant constituency interests who would like to speak.

In terms of the investment, it is welcome to see the new carriers coming into the fleet and the new Dreadnought-class submarines already under construction, which will hopefully be refitted in Devonport in the years to come, when they have entered the main service of the fleet. It is good to hear about other investment projects. We are seeing our Royal Navy become more competent and capable, with even more of a global reach. It is welcome to see that we are back in the South China seas, looking seriously at the British national interest out in the Pacific region.

While I have some sympathy with one or two parts of the motion, which I will come to, we have to think coherently about what we are saying. If we keep saying that these contracts—contracts that are not internationally recognised as something that should be national only—should be UK-only, we start to go down the path of the nonsense arguments that have been used in the steel industry in the United States. Donald Trump has used a nonsense argument about national security to put tariffs on Canadian and European steel. Let us be quite candid: Canada and the UK are some of the strongest allies of the United States. We share the most sensitive intelligence with one another, so it is an absolute nonsense to suggest that there is a national security angle to who sells steel from this country to the United States. That is where I part company with some of the Labour party’s arguments.

The part of the motion on procurement criteria is perfectly reasonable, and I will come to that, but if we keep saying that certain contracts must be UK-only, we begin a trend of protectionism. We cannot on the one hand rightly say that Donald Trump is talking absolute nonsense about steel, but on the other adopt a policy like that ourselves, potentially against foreign—

[Mr Kevan Jones]

Will the hon. Gentleman give way?

[Kevin Foster]

I will, but very briefly.

[Mr Jones]

Could the hon. Gentleman give me an example of a single country in the world, including the United States, that would have procured these naval ships from overseas yards?

[Kevin Foster]

I thank the right hon. Gentleman for his intervention. Sadly for him, if he had waited until I got to a later part of my speech, he would have heard me talk about the Republic of Ireland, which is building naval ships at the Appledore shipyard in North Devon. He asked me to name one country in the world, and he has got one: the Republic of Ireland. I do not think I will take another intervention if knowledge is so limited that even our closest neighbour is not known about.

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

I welcome this debate and declare two interests: first, as a member of the GMB union; and, secondly, as the chair of the all-party group on shipbuilding and ship repair. This is a great opportunity to highlight a great industry encompassing not only shipbuilding, but maritime engineering, ship repair, design and combat systems. It is also an opportunity to celebrate the skills of the workforce in this sector.

However, the industry is heavily reliant on the direction of Government policy. The Government issued their shipbuilding strategy earlier this year and, unlike the Under-Secretary of State for Defence, the right hon. Member for Bournemouth East (Mr Ellwood), I have actually read it in detail. The all-party group is conducting an inquiry into it at the moment. I believe that it is a missed opportunity, because it is turning the clock back to what we had in the 1980s—more competition between the yards in the UK. The Government withdrew from shipbuilding in the 1980s, but the Rand corporation found in 2005 that, rather than driving better value for taxpayers’ money, that policy drove costs up. Francis Tusa, who gave evidence to our inquiry, made it clear that, looking as far back as 1945, we can see that striving for competition in the shipbuilding industry has led to increased costs and delays.

Unlike other industries, the shipbuilding industry needs a flow-through of work. A number of Members have already highlighted the importance of the regular drumbeat of work, and my hon. Friend the Member for Barrow and Furness (John Woodcock) gave a classic example of what happens when we get it wrong. When the last Tory Government stopped building submarines, they took away the ability for the industry to do that any more. If we do that again in other sectors, we will lose the flow-through of work there as well. The hon. Member for Torbay (Kevin Foster) mentioned Appledore, but Appledore has no work coming through, so he should be arguing vociferously for the fleet solid support ships to be built here, because there is a chance that Appledore would get some of that work.

To invest in the sector, companies need stability, and the only way to get stability is to have work coming through. We cannot turn the supply of complex skills needed to build complex warships on and off like a tap, and we have seen that in Barrow. People also forget that skilled people and apprentices go and work in other sectors of the economy, so investment in this sector means investment in other sectors as well. This is also about the supply chain, because small and medium-sized companies need confidence to invest. Overall, this is about sovereign capability and whether we want this country to be able build these ships, and I think that we should.

Furthermore, we should not just concentrate on hulls. The through-life support of these ships and many others is of vital importance not just for jobs, but for technology. If we look at the weapons systems that might go on the FSS ships and other combat ships, they will be exportable around the world. The design is exportable. BAE Systems has had great success recently with the Type 26 in Australia, and the design is a world beater. We can only achieve that, however, if we keep the designers in this country, and we can do that by ensuring a flow of work. However, where are those ships being built? They are being built, quite rightly, in Australia due to the Australian Government’s commitment to having a sovereign capability to build such ships. If we want to retain skills in this country, we need to be able to do that as well.

It is a no-brainer that FSS ships should be put into UK shipyards, because that would help to keep work flowing through and provide stability. The hon. Member for Dunfermline and West Fife (Douglas Chapman) made a good point about Rosyth, because it is a world-class facility thanks both to the skilled workforce and the investment that went in. However, having put all that together, what other country in the world would then rip it apart and sell off the cranes? No one would, and that is the sort of vandalism that we are likely to face.

The arguments for why the new ships should not be built here do not hold a great deal of water. The Minister who opened the debate was completely wrong about the MARS contract, and I will read from an article in Defense News from August 2016:

“The bidding proceedings saw no British contractors enter the final stage of the tanker competition, leaving the door open for the huge South Korean shipyard to outbid rivals for the work.”

So—[Interruption.] The Minister says “final” from a sedentary position. Yes, I know that, because I have spoken to some of them, and they were told by MOD officials not to bid. There is an opportunity here not only to ensure that the new ships, which we need for our defence, are procured from this country, but to support and see a renaissance in UK shipbuilding, ship repair and technology. I do not know why the Government do not want to do that. Future Government policy needs to involve more co-operation with and support for the sector, which will not only have benefits for our sovereign capability, but provide a major boost to our economy, which will certainly be needed in the next few years post-Brexit.

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[Rebecca Long Bailey (Salford and Eccles) (Lab)]

The World cup semi-final starts in less than half an hour, so I shall make sure that my comments are uncharacteristically brief.

I thank all Members who spoke today; I apologise for not referring to them individually. I give a special mention to my hon. Friend the Member for Llanelli (Nia Griffith), who made the case for why greater Government intervention is necessary not only for defence manufacturing in the UK, but, in a broader sense, for manufacturing as a whole.

Manufacturing accounts for 10% of output, 44% of exports and 70% of business investment in research and development. Output per hour is £4 higher in manufacturing than the average for all sectors, and the average annual earnings of somebody who works in manufacturing are nearly £4,000 higher than average earnings from across the whole economy. Over the past 35 years, though, the UK has lost 3 million manufacturing jobs, which is 53% of all manufacturing jobs. Compared with 66% in 1991, some 81% of all jobs in the UK are now in service sectors, and only 8% of employment is in manufacturing.

The industries that, as we have heard, provided our parents and grandparents with employment are no longer an option for our children and grandchildren. There are many reasons for this shift, including Thatcher’s big bang deregulation of 1986 and the movement of production overseas in search of cheap labour. However, as time goes on the longer-term costs of this shift have become increasingly apparent, especially in three key areas. First, there is the loss of jobs and the rise of lower-skilled, lower-paid jobs. Young people growing up now are more likely to find work in services such as retail, hospitality and other low-skill, low-wage industries that often have poor terms and conditions.

The second key area is regional imbalance between areas devastated by the loss of industries and key service industry hubs such as London and the south-east. The shift to a largely service economy has not only impacted people on an individual level, but has profoundly affected entire communities. Industries that were once the sole employer and engines of local economic growth have disappeared, tearing the heart out of communities.

Let us look at Rossendale in Lancashire for example. In 1984, 58% of employees worked in textile manufacturing, but now that industry has almost completely disappeared in that area. A more recent example is Redcar, where steel runs through the veins of local people. The closure of the steelworks there has meant that thousands have lost their jobs. It is not enough to let industries fall by the wayside and simply rely on the financial sector to provide growth and then redistribute it to other areas of the country.

The third area that our industrial strategy must address is our deteriorating balance of payments. Our current account deficit currently stands at almost £18 billion, or 3.4% of GDP, and we import 41% of our manufacturing inputs. Research suggests that a rise of 10% in goods exported, and a 10% decrease in goods imported, would contribute £45 billion to the UK economy. It has been estimated that a £20 billion increase in domestic production would directly create between 100,000 and 200,000 high-quality jobs. What could the Government be doing to support British manufacturing and to encourage the building of products here in Britain? A key policy lever for supporting British industry is obviously infrastructure investment. Upgrading the nation’s infrastructure—

[Mr Kevan Jones]

This is all very interesting, but when is my hon. Friend going to reply to this debate? Some very serious points have been raised about defence issues, which are very relevant to defence workers across this country. I am sorry, but this is simply not answering them.

[Rebecca Long Bailey]

I thank my right hon. Friend for his contribution, but it has somewhat delayed my speech and stands in the way of the World cup semi-final. I am coming to those points.

What should the Government be doing to support British manufacturing? As I have said, infrastructure is a key tool in driving investment upwards. Upgrading the nation’s infrastructure in projects such as the Swansea Bay tidal lagoon, which the Government shelved recently, would have created more than more than 2,300 jobs in Swansea and paved the way for the creation of a new domestic industry with substantial export potential. Of course, the Government must ensure that they negotiate the best deal possible, but they must also, on projects such as this, start seeing beyond the short-term basic cost calculations and realise the wider benefits of infrastructure projects such as Swansea.

The most obvious start, so obvious in fact that it is shining like a Belisha beacon, would be using the enormous power of Government procurement to support British industry. The public sector currently spends more than £200 billion every year in the private sector, but sadly this Government have failed effectively to use procurement as an economic lever for supporting manufacturing. There are many examples of this, not least the failure to support British steel. It was revealed last year that the renovation of Big Ben clock tower is using steel from Germany, Brazil and the United Arab Emirates.

[Mr Kevan Jones]

On a point of order, Mr Deputy Speaker. I thought that it was customary in a wind-up to reply to the debate. I am sorry, but Big Ben has not been mentioned this afternoon. The many defence workers who lobbied Parliament yesterday on this contract expect us to respond to this debate.

[Mr Deputy Speaker (Sir Lindsay Hoyle)]

It is part of it, and I am sure that the hon. Lady is leading on to the debate that we have had.

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[Guto Bebb]

I just want to place on the record a clarification of the comments made by the Under-Secretary of State for Defence, my right hon. Friend the Member for Bournemouth East (Mr Ellwood). He was correct in saying that UK companies were involved in the MARS tanker competition and procurement process, but Opposition Members are also correct in saying that there was no British company involved in a final bid. I hope that that clarifies the point of order made by the hon. Member for Caerphilly (Wayne David).

I welcome the fact that the shadow Secretary of State has brought this debate forward. The comments made by the hon. Member for Glasgow South (Stewart Malcolm McDonald) were also very interesting, and there is no doubt that the team from Glasgow have very much argued the case for their city on this issue. I also welcome the speeches made by the right hon. Member for North Durham, the hon. Members for Dunfermline and West Fife (Douglas Chapman), for Barrow and Furness (John Woodcock) and for Glasgow South West (Chris Stephens), and of course my hon. Friend the Member for Torbay (Kevin Foster), who made an important speech highlighting the fact that we have to understand the context in which these decisions are being made.

The truth of the matter is that we did recommend a shipbuilding strategy and we commissioned a report from Sir John Parker. We have accepted all the recommendations of that report, and it is important to highlight that we have done that in full. The crux of this issue and of this debate may come down to the comments made by the right hon. Member for Warley (John Spellar). I thank him for his kind words. He said quite clearly that he had no problem whatever in companies based in the United Kingdom that are not owned or held in the United Kingdom competing for these contracts. That goes to the crux of some concerns that Government Members have about this motion, because it says very clearly that that contract should be offered only to “UK-only competition”. There is no definition of what that means, so the right hon. Member for Warley was probably discontented with the Opposition motion.

It is very clear that the Government are fully committed to supporting our defence sector. The shipbuilding strategy was not developed in order to avoid our support for the shipbuilding sector. The whole point was to ensure that we did support, in a coherent manner, a shipbuilding sector that would be competitive on an international basis, that would be able to retain the skills about which hon. Members have spoken so passionately, and that would allow the qualities of our shipbuilding sector to be understood and appreciated on a worldwide basis.

The Australian Government’s order of the Type 26 frigates in the SEA 5000 competition is an acknowledgment of the design skills that we have on the Clyde. It is also an acknowledgment of the confidence that the United Kingdom has in saying very clearly that we want to compete on an international basis and to offer our products on an international basis, and that we want to do so with a degree of confidence. We do not believe that the way forward for our shipbuilding sector is simply to say that every single vessel has to be built in the United Kingdom, because we are more ambitious for our shipyards. We want to see our shipyards winning contracts on an international basis.

I want to correct something. When I first stood at this Dispatch Box as a Defence Minister, I was told by the right hon. Member for North Durham that we had not sold a warship design in 40 years, so what made me think that we would start now? Well, we have. That is an indication of the fact that our strategy is working. It is working because we have confidence in our shipbuilding sector.

[Mr Kevan Jones]

The Minister is being economical with his quote, because it was not about design—it was about the export of a vessel, which we have not done since 1960. Does he envisage a day when we will be building French, German and Italian warships in UK yards?

[Guto Bebb]

I remind the hon. Gentleman of the comment by my hon. Friend the Member for Torbay: we won the contest to build OPVs for the Irish navy. Again, that seems to be ignored. I find it very odd that Members who claim to speak up for shipyard workers throughout the United Kingdom seem to dismiss our success in ensuring that we had that contract delivered for the Irish navy.