Aircraft Carriers and UK Shipbuilding

Lord Hammond of Runnymede Excerpts

Wednesday 6th November 2013 Commons Chamber

[The Secretary of State for Defence (Mr Philip Hammond)]

With permission, Mr Speaker, I would like to make a statement on the future shipbuilding programme for the Royal Navy and, in particular, the aircraft carrier project.

As the House will know, the previous Government entered into a contract with the Aircraft Carrier Alliance, an industrial consortium led by BAE Systems, to build two 65,000-tonne aircraft carriers—the largest ships in the Royal Navy’s history. In the strategic defence and security review 2010, the incoming Government, faced with the challenge of dealing with a £38 billion black hole in the Ministry of Defence budget, was advised that under the terms of the contract it would cost more to cancel the carriers than to build them. The Public Accounts Committee has subsequently described that contract as “not fit for purpose” and identified, in particular, the misalignment of interests between the MOD and the contractors, manifested in a sharing arrangement for cost overruns which sees, at best, 90p of every pound of additional cost paid by the taxpayer, and only 10p paid by the contractor, as the root cause of the problem.

I agree with the PAC’s analysis. In 2012, I instructed my Department to begin negotiations to restructure the contract better to protect the interests of the taxpayer and to ensure the delivery of the carriers to a clear time schedule and at a realistic and deliverable cost. Following 18 months of complex negotiations with industry, I am pleased to inform the House that we have now reached heads of terms with the alliance that will address directly the concerns articulated by the PAC and others. Under the revised agreement, the total capital cost to Defence of procuring the carriers will be £6.2 billion, a figure arrived at after detailed analysis of costs already incurred and future costs and risks over the remaining seven years to the end of the project. Crucially, under the new agreement, any variation above or below that price will be shared on a 50:50 basis between Government and industry, until all the contractor’s profit is lost, meaning that interests are now properly aligned, driving the behaviour change needed to see this contract effectively delivered.

The increase in the cost of this project does not come as a surprise. When I announced in May last year that I had balanced the defence budget, I did so having already made prudent provision in the equipment plan for a cost increase in the carrier programme above the £5.46 billion cost reported in the major projects review 2012 and I did that in recognition of the inevitability of cost-drift in a contract that was so lop-sided and poorly constructed.

I also made provision for the cost of nugatory design work on the “cats and traps” system for the carrier variant operation and for reinstating the ski-jump needed for short take-off and vertical landing operations. At the time of the reversion announcement, I said that these costs could be as much as £100 million; I am pleased to tell the House today that they currently stand at £62 million, with the expectation that the final figure will be lower still.

Given the commercially sensitive nature of the negotiations with the Aircraft Carrier Alliance, I was not able publicly to reveal these additional provisions in our budget, since to do so would have undermined our negotiating position with industry. However, the MOD did inform the National Audit Office of these provisions, and it is on that basis that it reviewed and reported on our 10-year equipment plan in January this year.

I am therefore able to confirm to the House that the revised cost of the carriers remains within the additional provision made in May 2012 in the equipment plan; that as a result of this prudent approach, the defence budget remains in balance, with the full cost of the carriers provided for; and that the centrally held contingency of more than £4 billion in the equipment plan that I announced remains unused and intact, 18 months after it was announced.

In addition to renegotiating the target price and the terms of the contract, we have agreed with the Aircraft Carrier Alliance to make changes to the governance of the project better to reflect the collaborative approach to project management that the new cost-sharing arrangements will induce and to improve the delivery of the programme. The project remains on schedule for sea trials of HMS Queen Elizabeth in 2017 and flying trials with the F-35B commencing in 2018.

Overall, this new arrangement with industry will result in savings of hundreds of millions of pounds to taxpayers, and I pay tribute to the team of MOD officials, led by the Chief of Defence Matériel, who have worked hard over a long period of time to deliver this result.

In reviewing the carrier project, we also reviewed the wider warship-building programme within the context of the so-called terms of business agreement, or TOBA, between the MOD and BAE Systems signed in 2009 by the last Government. As the House will know, we remain committed to the construction of the Type 26 global combat ship to replace our current Type 23 frigates, but the main investment approval for the Type 26 programme will not be made until the design is more mature, towards the end of next year.

There is, therefore, a challenge in sustaining a skilled shipbuilding work force in the United Kingdom between the completion of construction of the blocks for the second carrier and the beginning of construction of the Type 26 in 2016. Under the terms of the TOBA, without a shipbuilding order to fill that gap, the MOD would be required to pay BAE Systems for shipyards and workers to stand idle, producing nothing while their skill levels faded. Such a course would add significant risk to the effective delivery of the T26 programme, which assumes a skilled work force and a working shipyard to deliver it.

To make best use of the labour force, therefore, and the dockyard assets, for which we would anyway be paying, I can announce today that we have signed an agreement in principle with BAE Systems to order three new offshore patrol vessels for the Royal Navy, based on a more capable variant of the River class and including a landing deck able to take a Merlin helicopter. Subject to main-gate approval in the coming months, these vessels will be constructed on the Clyde from late 2014, with the first vessel expected to come into service in 2017.

The marginal cost of these ships, over and above the payments the MOD would anyway have had to make to keep the yards idle, is less than £100 million, which will be funded from budget held within the equipment plan to support industrial restructuring. This order is good news for the Clyde. It will sustain around 1,000 jobs as the carrier construction work reaches completion, secure the skills base there and ensure the ability to build the Type 26 frigates in due course, while turning the MOD’s liabilities under the TOBA into valuable capability for the Royal Navy.

I turn now to the final part of this statement. The House will be aware that, this morning, BAE Systems has announced plans to rationalise its shipbuilding business as the surge of work associated with the carriers comes to an end. Regrettably, that will mean 835 job losses across Filton, the Clyde and Rosyth, and the closure of the company’s shipbuilding yard in Portsmouth. The loss of such a significant number of jobs is, of course, regrettable, but was always going to be inevitable as the work load associated with the carrier build came to an end.

I want to pay tribute to the men and women on the Clyde and in Portsmouth who have contributed so much to the construction of the Royal Navy’s warships—including, of course, the Queen Elizabeth class carriers. BAE Systems has assured me that every effort will be made to redeploy employees, and that compulsory redundancies will be kept to a minimum. The company is now engaged in detailed discussions with the unions representing the work force in Portsmouth and on the Clyde.

I know that the loss of shipbuilding capability will be a harsh blow to Portsmouth. The Government and the city council, together with Southampton, are in discussions about a city deal package for the area, to boost growth and jobs in the local economy. We expect to be able to make an announcement on that shortly. I can also announce that Admiral Rob Stevens, the former chief executive of the British Marine Federation, will chair a new maritime forum to advise the Solent local enterprise partnership on its maritime vision.

Despite the end of shipbuilding activity, Portsmouth will remain one of two home ports for the Navy’s surface fleet, and will continue to undertake the vital support and maintenance work that sustains our most complex warships, including the Type 45 destroyers and, of course, the aircraft carriers themselves. Indeed, with both carriers based in Portsmouth, the tonnage of naval vessels based in the port will be at its highest level since the early 1960s, sustaining a total of around 11,000 jobs in the dockyards and related activities. To support this level of activity, I can announce today an investment of more than £100 million over the next three years in new infrastructure in Portsmouth to ensure that the carriers can be properly maintained and supported.

The Chair of the Public Accounts Committee has previously described the carrier programme as

“one of the most potent examples of what can go wrong with big projects in the public sector”.

That is the legacy that this Government inherited: a carrier contract that was not fit for purpose and a TOBA that would have required the MOD to pay BAE Systems to do nothing while our shipbuilding skills base faded away. These announcements today put that legacy behind us. They will secure the future of British warship building, set the aircraft carrier project on a new path with clear alignment between industry and the MOD, and deliver important new capability in the form of offshore patrol vessels for the Royal Navy. I commend this statement to the House.

[Vernon Coaker (Gedling) (Lab)]

I thank the Secretary of State for his courtesy in providing me with early sight of his statement. It is with a heavy heart that I, and I think all Members, listened to what he had to say. However, it was important that he came to the House today, and I am glad that he did so. Let me say at the outset that when the Government do the right thing on defence, especially when difficult decisions need to be taken, they will have our support. We will always say and do what we believe to be in the interests of Britain and its people. These are complicated and detailed matters, and it will take some time to examine the consequences of today’s announcements by BAE Systems and the Government.

The Secretary of State focused today on the aircraft carrier programme. May I remind him that his party supported that programme? From what he was saying, that might have been difficult to believe. He also talked about the start of the Type 26 programme and the interim work. I will return to those subjects in a moment.

My first thoughts, and those of all hon. Members, are with the employees who are facing job losses today, and with their families and the communities in which they live. Britain’s shipbuilders are the best in the world. They have proved that over decades and even centuries, and this is a difficult day for all those people who take pride in our maritime prowess and the history of our nation. Will the Secretary of State join me in praising those who give such great and dedicated service to our country?

What discussions has the Defence Secretary’s Department had with the Department for Business, Innovation and Skills about providing support to ensure that the unique abilities of our skilled work force, particularly in Portsmouth, are not lost? I do not mean over the last week or a number of days; I mean over the last three and a half years of this Government. It seems to me that it is only since news of the potential job losses were leaked out that the Government have given any thought to this matter. In fact, in February 2012, the White Paper, “National Security Through Technology”, said that the MOD

“does not consider wider employment, industrial, or economic factors in its value-for-money assessments.”

Does the right hon. Gentleman still agree with that statement?

Will the Defence Secretary join me in praising the role of the trade unions which have worked closely with the company and have approached these very serious issues with maturity and shown leadership in representing their members across the whole of this United Kingdom? Will he confirm that the Government need to use this opportunity to set out a clearer path to help the UK-based defence industry play its part in modernising both our industrial base and our equipment programme? Does he agree that a strong UK defence industry can be both responsive to the changing threats we face, as well as part of a vibrant, advanced and high-skilled private sector, stimulating jobs and growth?

The Secretary of State made much of his repeated claim that the Government inherited a £38 billion black hole. That figure does not stand up to scrutiny. He has never explained how he got to that figure and it has never been accepted by any credible organisation, including the National Audit Office, which said it was impossible to arrive at such a figure. Can he tell us how he arrived at that figure and what assumptions he used to produce it?

On the aircraft carriers, the Secretary of State has trumpeted the new agreement to split 50:50 with the industry any overrun on the target cost. Will he confirm that any new changes by the MOD, such as the debacle over the “cats and traps” for fighter jets, which were changed and changed back again—the right hon. Gentleman now says it wasted only £62 million—will be fully met by the MOD? The fact that future costs will be split 50:50 is welcome. Most of the risk has already passed, as evidenced by the fact that the anticipated cost of the programme has almost doubled. And, of course, the 50% that the Government will meet still runs to hundreds of millions of pounds. It does not take an accountant to work out that 50% of £800 million—the reported rise in costs this week—is a lot of money for the taxpayer. Will he confirm that he expects no further rises in the cost of the aircraft carriers?

The cost of the restructuring that has been outlined will be borne by the Ministry of Defence. Will the Secretary of State tell us how much that will be and how it will be paid for?

We welcome the fact that skills will be maintained by the development and construction of the three offshore patrol vessels announced by the Defence Secretary today. Will he give a little more detail about how much these will cost, and will he outline what plans he now has for the second aircraft carrier and whether it is his intention to mothball it?

There has been a lot of conjecture about the role that the politics of the Scottish referendum played in the decision to keep shipbuilding in Govan. Will the Secretary of State confirm, as I and everyone else believe, that today’s decisions were taken on the basis of what is in Britain’s best interests and what will sustain the skills of the work force, thus maintaining the future of our shipbuilding industry and our country’s defence? Will he outline what safeguards are in place if Scotland votes to leave the United Kingdom? None of us wants to see that, but we need to know what plans he has for all eventualities. We must retain a sovereign shipbuilding capability for this country.

Finally, will the Defence Secretary join me in saying that whatever the difficulties we experience, this country is a proud maritime nation? We have a proud, dedicated Navy, serviced by a proud, dedicated shipbuilding work force. We must maintain that across the United Kingdom, and retain the ability to build the warships we will need to defend our island, protect our interests across the world and keep us secure. That is both a task and a duty for us all.

[Mr Hammond]

I appreciate the hon. Gentleman’s measured tone and I join him in congratulating once again the work forces on the Clyde and in Portsmouth on the excellent naval vessels that have been built for the Royal Navy over the last few years, including the carrier that remains in build.

I know the hon. Gentleman is new to his post, but he is really going to have to check some of the history before he starts making sweeping statements. He tells me that when the carrier programme was announced, the cost was £3.6 billion. Almost as soon as it had been announced, the then Secretary of State announced a two-year delay, which the National Audit Office says drove a further £1.6 billion into the cost of the carrier. The largest single element of cost increase in this programme was a deliberate act by the then Labour Government to delay the project by two years.

The hon. Gentleman asks me when we first engaged with the Department for Business, Innovation and Skills about the challenges of maintaining a skilled work force. He suggests that that has happened only in the last few days. I can tell him that the Minister of State, Department for Business, Innovation and Skills, my right hon. Friend the Member for Sevenoaks (Michael Fallon), who is in his place on the Front Bench, sat down a year ago to discuss this subject and has been in discussions with the local authorities in the area for at least a year over how to deal with the challenges that these inevitable changes present.

The hon. Gentleman asked me about the union response. I look forward to seeing the union response in full. I understand that, so far, the unions at national level have been constructively engaged with what they understand is an effort to save the shipbuilding industry in the UK. They recognise that the level of employment in naval shipbuilding represented a surge around the carrier project that was never going to be sustainable in the long term. The challenge now is to protect the skills base as we downsize the industry.

The hon. Gentleman asks me about the £38 billion black hole. We could have a very long conversation about that, but put simply, it is the difference between the projected budget available and the commitments that the previous Government had announced. I have set that out in detail. Because the hon. Gentleman is new to his post, I would be happy to write to him and set it out again for his benefit. I would be happy to discuss it with him at any time in the future.

The hon. Gentleman asks about the consequences of the STOVL—short take-off and vertical landing—reversion. If we were to change the specification in the future, the MOD as the customer would, of course, have to accept the consequences, but we are confident that the design of the aircraft carriers is now mature. The mistake made in 2008—it was a small one—was that the contract was placed before the ship had been designed. Unfortunately—I kid my hon. Friends not—anybody who has ever tried to place a contract to build a house before the house has been designed will know that that is a licence to print money for the contractor.

The hon. Gentleman asks whether I can guarantee that there will be no further rises on the £6.2 billion price. Of course I cannot give him an absolute guarantee, but I can tell him that with every pound of additional cost being shared as 50p for the Government and 50p for the contractors, we will at least have the contractor’s serious attention to try to maintain control over the project—something that we did not have under the contract construct that the last Labour Government left us.

The hon. Gentleman asks how we have paid for the additional costs. If he had been paying attention to the statement, he would know that I told him that the full costs announced today were provided in the balanced budget equipment programme that I announced in May 2012.

Yes, the hon. Gentleman is absolutely right that we are acting as the Government of the United Kingdom in the best interests of the whole of the United Kingdom, looking at where best to deliver Britain’s warship building capability in the United Kingdom in order to make it sustainable and cost-effective in the future.

[Mr James Arbuthnot (North East Hampshire) (Con)]

My right hon. Friend has said that “with both carriers based in Portsmouth, the tonnage of naval vessels based in the port will be at its highest level since the early 1960s”, which is excellent news. Does that mean that the Government have reached the entirely sensible decision to bring both carriers into service?

[Mr Hammond]

As my right hon. Friend knows, that decision will be made in the strategic defence and security review 2015. Whether the decision is to bring the ship into service or to mothball it, it will be kept at Portsmouth.

[Anas Sarwar (Glasgow Central) (Lab)]

At the time of the Grangemouth crisis, the First Minister of Scotland said that we should not try to play constitutional politics with such a serious issue, and I hope that he applies the same principle now to what is a very concerning time for workers in Govan.

I welcome the Secretary of State’s announcement of the new contract, but that will give little comfort to workers in Portsmouth, Govan, Scotstoun, and Rosyth who will be losing their jobs during this difficult period. Will the Government give us a pledge that they will work with employees throughout the United Kingdom who are affected by what he has announced, with the trade unions and with the company to ensure that those who have lost their jobs are supported, while also trying to find a sustainable long-term future for shipbuilding that will protect jobs and investment in the UK?

[Mr Hammond]

What I have announced today will provide that sustainable long-term future for shipbuilding. We have answered the $64,000 question of how we would bridge the gap between completion of the aircraft carrier blocks and the commencement of the Type 26 build programme by commissioning three additional ocean-going patrol vessels which will be built on the Clyde. We have a sustainable naval shipbuilding industry in the United Kingdom, as of today’s announcement.

Of course it is regrettable that jobs will be lost. That is a function of the surge in the size of the industry that is needed to deliver these very large carriers. We will work across Government with the unions, communities and other stakeholders who will be affected to ensure that the transition is as smooth as possible.

[Caroline Dinenage (Gosport) (Con)]

The end of shipbuilding in Portsmouth is devastating for a community with a record of more than 800 years of proud service to the Royal Navy. Does the Secretary of State know when we shall hear of plans to help to ease the pain of this decision—particularly in relation to the city deal—and does he know what conversations have taken place with Portsmouth city council about the timing of today’s announcement?

[Mr Hammond]

My hon. Friend is, of course, right. As I acknowledged in my statement, the decision will be very hard for people in Portsmouth to accept. However, we should put this in context: 940 jobs will be lost, but 11,000 will remain in dockyards-related activity in Portsmouth, which will be the largest centre of surface maritime support in the United Kingdom—and that will continue into the future.

We are engaged in discussions with both Portsmouth and Southampton city councils about the city deal proposal, and I am advised that a statement is likely to be made very soon, as soon as those negotiations have concluded.

[Jim Sheridan (Paisley and Renfrewshire North) (Lab)]

As a former shipyard worker, let me say on behalf of the men and women in our British shipyards that, although they take pride in what they build, they do not necessarily care what they are building. Those at BAE Systems must learn to explore the commercial market, because they will not be able to sustain the company if it is wholly dependent on MOD contracts.

As for the question of industrial relations, we should contrast what is happening with the trade unions at BAE Systems with what has happened at Grangemouth. One employer respects its employees, and the other does not.

[Mr Hammond]

I am happy to report that relations in the shipbuilding industry between management and unions are good and constructive. The unions understand the challenge that the industry faces, and they have worked with the management to address it. That sometimes means that union officials must make tough decisions as well, because they know that the industry cannot be sustained at its current size.

The hon. Gentleman alluded to the diversity of the shipbuilding industry. We hear a great deal about how shipbuilding will be sustained through the commercial market and the third-nation market, including the market for warships, but I am afraid I have seen no evidence to suggest that we are able to compete in what is a very aggressive global market for commercial shipping. I think that the shipbuilding industry in this country will be primarily dependent on Royal Navy orders placed in the United Kingdom, because of the sovereign requirement for us to have warship building capability.

[Mr Mike Hancock (Portsmouth South) (Ind)]

Can the Secretary of State explain why it was decided to transfer the existing work that was commissioned in Portsmouth away from the yard, so that the employees there will have no opportunity to complete the construction of the aircraft carriers? Can he also assure us that the MOD will not seek to claw back any of the money that is made available to Portsmouth through the city deal?

[Mr Hammond]

Let me respond first to the question about the aircraft carriers. Today BAE Systems announced its plan for rationalising the industry, as it must do under the TOBA in order to sustain warship building capability in the future. The challenge for us is to bridge the gap between the completion of the carrier and the start of the Type 26 programme. By moving three carrier blocks to the Clyde, along with the manufacture of the OPVs, we shall be able to sustain warship building on the Clyde and to maintain its viability into the future.

I should be happy to discuss the city deal negotiations with the hon. Gentleman, who, I know, is well acquainted with the affairs of Portsmouth city council. I understand that the MOD is prepared to make land available as part of an overall scheme which would create investment and employment opportunities in the city.

[Mr Ian Davidson (Glasgow South West) (Lab/Co-op)]

As the Member of Parliament who represents Govan Shipbuilders, I welcome the order that has been placed there for the OPVs. It is a great tribute to the skills, commitment and hard work of the work force, both management and staff. As one of my colleagues observed earlier, Govan shipbuilder is no INEOS.

May I also point out that, given that this is an order from the Royal Navy, it would not have been available to a separate Scotland? Regrettably, the Minister seems not to have placed a firm order for the Type 26 frigates to be built on the Clyde. Will he confirm that that will not happen until we know the result of the referendum? Will he also confirm that work is being transferred from Portsmouth and England to Scotland in order to bridge the gap between the end of the aircraft carrier building programme and the beginning of the Type 26 programme?

[Mr Hammond]

As I have just said to the hon. Member for Portsmouth South (Mr Hancock), the company intends to transfer three blocks to the Clyde so that the flow of work will be continuous until we are ready to cut steel on the OPVs at the end of 2014.

We will not repeat the mistake that the last Government made with the aircraft carriers of placing an order for a ship that has not yet been designed. That would be like signing a blank cheque to BAE Systems. Much as I admire and appreciate that company’s contribution to both our economy and our defence, I have no interest in signing blank cheques to it.

[Mr Gary Streeter (South West Devon) (Con)]

I congratulate my right hon. Friend on the skilful way in which he has reshaped the aircraft carrier contract and protected the skills base in the United Kingdom. Will he confirm that, in shaping the special package of measures for Portsmouth—which I support—he has not taken work away from Plymouth dockyard, including the maintenance of ships or future base-porting of the Type 26?

[Mr Hammond]

Funnily enough, I anticipated the possibility of that question from my hon. Friend. I can assure him that nothing that I have announced today will have any direct impact on Plymouth.

[Angus Robertson (Moray) (SNP)]

I thank the Secretary of State for giving me advance sight of his statement, and commend him for making it today. It was originally to be made tomorrow, but I think it right for the shipyard workers and their families to have certainty, and I know that he has done the right thing.

I am sure that the Secretary of State’s thoughts are with all shipworking families, many of whom are learning just a few short weeks before Christmas that their jobs are on the line. Earlier today, BAE Systems stated that the appropriate place for frigates to be built was Glasgow. Does he agree with that?

[Mr Hammond]

I am grateful to the hon. Gentleman, because his question has prompted me to acknowledge that my statement was made today in response to media stories which had created speculation that needed to be dealt with. I apologise to the Opposition for having to make the statement on an Opposition supply day.

I am obviously not responsible for the statement made by BAE Systems, but the company’s judgment, on the basis of value for money, is that the Clyde is the best place in which to build the Type 26 global combat ship, and the MOD concurs with that judgment.

[Sir Nick Harvey (North Devon) (LD)]

This is a sad day for Portsmouth, given its proud heritage of supporting the Navy, and the decision has been a bitter pill for the workers there and elsewhere to swallow. We owe them all our thanks. However, was there not a certain inevitability about the coming of a day on which these painful judgments would have to be made? Oversupply of naval shipbuilding capacity is a problem with which successive Governments have had to deal, and the TOBA gave BAE Systems the opportunity to make a commercial judgment. Will the Secretary of State confirm that the judgment was commercial rather than political? While I can see the elegance of placing the OPV contract on the Clyde, will other British shipyards get the opportunity to bid for this? It is a small enough job that plenty of them would be able to handle.

[Mr Hammond]

No, the contract will be placed under the overall umbrella of the terms of business agreement we have with BAE Systems, and, as I made clear in my announcement, we are effectively ordering the OPVs to soak up money we would have been paying in any case to have these yards standing idle, and in doing so significantly de-risking the start-up of the Type 26 programme by making sure the skills base remains in place in Glasgow.

I share my hon. Friend’s view, however, that there is a certain inevitability about the announcement we have made today. Governments have put off the moment, and the carrier order represented a pretty massive 130,000-tonne postponement of the moment, but we cannot alter the inevitable fact that we do not have a large enough Navy to sustain a multi-yard shipbuilding industry in the UK.

[Mr John Denham (Southampton, Itchen) (Lab)]

The record will show that the last Labour Government secured south-coast shipbuilding with a share of the destroyer order and then of the carrier programme. Today’s crisis has been coming for some time. Does the Secretary of State’s statement not confirm both that no effort has been made by the Government in the past three years to win extra orders for the Portsmouth shipyard and that work will be transferred from Portsmouth to other shipyards, hastening its closure? Does the Secretary of State understand why many in southern England feel they have been sold down the river today by a Government whose attention has been elsewhere?

--- Later in debate ---

[Mr Hammond]

No, and, frankly, travelling around the world in support of UK defence exports as I do, I should not be lectured by someone who was a Minister in the last Government, which completely neglected the UK defence industry—failed to travel and failed to engage with potential customers around the globe. That is a completely ludicrous suggestion from the right hon. Gentleman. It is not the Government’s job to win orders, whether for warships or aircraft. It is the Government’s job to support the industry in doing what it has to do, and we have been doing just that, and I can tell the right hon. Gentleman that I myself and my colleagues have visited countries as diverse as Brazil and Australia in pursuit of naval shipbuilding orders to support those yards.

[Oliver Colvile (Plymouth, Sutton and Devonport) (Con)]

A strong Navy is good for both Portsmouth and Plymouth. May I urge my right hon. Friend to ensure that any changes to the TOBA will not hamper or do damage to Devonport in my Plymouth, Sutton and Devonport constituency? Will he also look at whether the other vessels that are being commissioned could potentially be base-ported in Plymouth?

[Mr Hammond]

No decision has yet been made about the location of the base port for the vessels I have announced today. Just to be clear, what this announcement will do is effectively suspend the TOBA for the duration of the period when the OPVs are being built and then see its final demise upon the placing of the order for Type 26 global combat ships. I hope we have seen the very last TOBA payment being made to the industry by the MOD.

[Katy Clark (North Ayrshire and Arran) (Lab)]

Politics is about choices, of course. What impact has the funding of the Trident replacement had on the decisions that have led to the announcements of job losses today?

[Mr Hammond]

None. The Trident programme is a capital programme. The constraining factor in terms of the Royal Navy is far more around operating costs and crewing than the capital costs of platforms. We have to make sure we have a Navy that is sustainable and that we can afford to operate and crew in an increasingly tight market for engineering skills, where we often have to pay premium rates to get people with the appropriate skills. There is no point in building platforms we cannot afford to put to sea.

[Mr Andrew Tyrie (Chichester) (Con)]

The Secretary of State appears to have resolved a massive problem that he inherited, and he deserves our congratulations for that, although the closure of the Portsmouth yards will be a big blow for many of my constituents. Can he give an initial estimate of the likely scale of the compulsory redundancies and will he reiterate the assurance that he has already given once, that none of those jobs were lost to keep jobs in Scotland at a politically sensitive time?

[Mr Hammond]

I thank my hon. Friend for his comments. On the last point, the analysis of where best to build the Type 26 ships, which will have to be built to a very tight budget and a very tight timetable, was made by the company—endorsed by the MOD, but made by the company. I can tell him, as I think I said in the statement— or, certainly, as the Prime Minister said earlier on—that 940 job losses are anticipated at Portsmouth between now and the end of 2014 as a result of the decision to end shipbuilding. About 11,000 jobs in the dockyards and the supporting infrastructure will remain.

[Sammy Wilson (East Antrim) (DUP)]

There is a great affinity, of course, between Northern Ireland and Scotland, and many people will feel for those in the shipbuilding industry who are losing their jobs. Will the Secretary of State give us an assurance that, through procurement policies and the promotion of UK industry, everything will be done to keep the shipyards in Scotland viable, and does he agree that this decision shows that Scotland is far better-off within the United Kingdom than in having some kind of pseudo-independence?

[Mr Hammond]

The hon. Gentleman is exactly right about that last point. If Scotland were not a part of the United Kingdom, I would certainly not have been able to make the statement and announcement I have made today.

[Mr Mark Hoban (Fareham) (Con)]

This is a sad day for Portsmouth, and many of my constituents work in the dockyard. My right hon. Friend will know that the shipbuilding facility is in the heart of the naval dockyard. Is it possible to look at the footprint of the naval dockyard to see how more land might be released from it to expand the commercial port and create opportunities for jobs and growth in the commercial sector?

[Mr Hammond]

I am grateful to my hon. Friend, and he is right that the shipbuilding hall that will now become unused as a result of the announcements today is inside the secure dockyard perimeter. There have been discussions about how that could be carved out, and how security arrangements could be changed to accommodate its use. This is, of course, primarily a matter for the company that owns the shipbuilding hall, but I can confirm to my hon. Friend that we are looking at all options to support employment-generating activity both in the dockyard and on MOD land adjoining it.

[Mr Frank Roy (Motherwell and Wishaw) (Lab)]

This is a catastrophic day for the families of 835 shipbuilders, and the reality is that there will be more job losses. How many jobs does the Secretary of State estimate will be lost in the service sector for the shipyards?

[Mr Hammond]

I have not got an estimate of the number of jobs in the wider economy, but I can say this to the hon. Gentleman: when the carrier project was announced and the Type 45 destroyers were being built, everybody—including, I believe, the hon. Gentleman—understood that we were benefiting from a surge of work that was very welcome but that was never going to be sustainable in the long term. Of course the day when that work comes to an end is regrettable, and the consequent redundancies are difficult, but this is not something that has come unexpectedly; it is something that has long been understood and anticipated, and the announcement we have made today is good news for the Clyde, and I would have thought the hon. Gentleman would have wanted to welcome it.

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

Despite the Defence Secretary’s criticism of the contracts, does he accept that the restoration of carrier strike capability to the fleet is an absolute strategic necessity, and does he also accept that one reason for the loss of Portsmouth as a shipbuilder is that the last Government reduced the total number of frigates and destroyers from 35 to 19—and, regrettably, this Government have done nothing to reverse that?

[Mr Hammond]

My hon. Friend is factually correct: the last Government did, indeed, reduce the total number of destroyers to be built in the Type 45 programme, largely because of the hole that was opening up in the aircraft carrier budget due to the delay in the project that I mentioned earlier. He is right, too, that we can talk all day about the history of the placing of the order for these two very large ships—the largest ships the Royal Navy will ever have had—but the fact is that we are getting them: they are being built, and we are proud of them and we are going to make excellent use of them in projecting UK naval maritime power around the world.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

The Secretary of State has repeatedly said that this day was expected, so what work has been done to look at diversification into other industries, particularly in the marine renewables sector, for these skilled workers? To follow up the point made by my hon. Friend the Member for Motherwell and Wishaw (Mr Roy), if that estimate of the knock-on effect has not been obtained, when will it be obtained?

[Mr Hammond]

As the hon. Lady probably knows, estimates of effects on the wider economy are never precise, although estimates can be made. I am happy to write to tell her our best estimate, but it will be just that—the best estimate. She will know that in Scotland the responsibility for wider industrial support and the promotion of employment opportunities rests with the Scottish Government, and I would expect them to be actively engaged in this programme.

[George Hollingbery (Meon Valley) (Con)]

I thank the Secretary of State for his statement, although of course it is not welcome news for a number of my constituents who work at the Portsmouth dockyard. Mr Speaker, I hope that you will allow me a moment to pay tribute to the efforts of my hon. Friend the Member for Portsmouth North (Penny Mordaunt), who has worked tirelessly on this subject. She has spent an enormous amount of time trying to secure the future of shipbuilding in the UK and at meetings I have attended with her it seems that she has secured at least some change, in that the importance of the commitment to the new offshore patrol vessels should not be underestimated. She and I argued not only that we should build more warships, but that there should be regeneration support for the Solent area should the worst happen. We have got the former and it sounds as though we will get the latter. If so, will the Secretary of State ensure that the many small and medium-sized enterprises based in places such as my constituency and the others around Portsmouth are also able to access such support?

[Mr Hammond]

First, I am happy to join my hon. Friend in paying tribute to the tireless work that has been done by my hon. Friend the Member for Portsmouth North (Penny Mordaunt), who, since I have known her, has talked about almost nothing but the shipbuilding industry in Portsmouth. Let me confirm for him that we will do everything we can to ensure that the support package for Portsmouth will be put together in a way that genuinely diversifies the local economy. That is what is needed now, and that includes support for SMEs. I will make sure that my right hon. and hon. Friends in the Department for Business, Innovation and Skills are aware of his comments.

[Thomas Docherty (Dunfermline and West Fife) (Lab)]

Given that BAE Systems has announced that there will be job losses at Rosyth and given the Secretary of State’s wider comments about ship maintenance, I am sure that he will be happy to have an urgent meeting with one of his Ministers and me to discuss the future of Rosyth. May I press him to say what will happen if Scotland chooses to become a separate nation in September next year? Will the Type 26 order stay on the Clyde?

[Mr Hammond]

The Type 26 order will not be placed until the design is mature, which will not be until towards the end of next year, and so the hon. Gentleman’s question is premature. A significant number of workers who are nominally based on the Clyde are being bussed on a daily basis to Rosyth to boost the work force during the carrier assembly phase, so the announcement made by BAE Systems should be read in that context. My understanding from Babcock is that the yard at Rosyth has a bright future with private sector work—offshore work—as well as with the programme to assemble both the Queen Elizabeth and the Prince of Wales, which itself will keep the yard busy until 2020.

[Sir Edward Leigh (Gainsborough) (Con)]

Has Whitehall finally learned the lessons from what, from a public accounts point of view, must be one of the worst politically driven, stop-start contracts in our history? Will the Secretary of State assure us that never again will the Treasury insist on delaying a contract for one or two years to save money and end up with a cost of hundreds of millions of pounds more? Just so that the taxpayer knows exactly how much this has cost him, will the Secretary of State repeat what the carriers were supposed to cost originally and what they are now costing us, and when the planes were supposed to be flying operationally from them and when they will actually fly?

[Mr Hammond]

It is always a brave person who says that Whitehall has learned the lessons. I can certainly give my hon. Friend this commitment: as long as I am Secretary of State for Defence, we will not be placing any contracts for things that we have not designed and we will not be driving cost into projects by making announcements of delay that are simply driven by the exigencies of poor budgeting and poor financial control. He asked me to repeat the numbers. When the project was announced in 2008 it had a budget line attached to it of £3.6 billion, but of course when the previous Government first proposed the aircraft carrier project the budget was much less than that, at £2.25 billion. Nobody I have met, in the industry or in the Navy, ever believed the project could be built for £3.6 billion. There was a degree of fantasy accounting going on, the reasons for which I will leave my hon. Friend to speculate upon.

[Pete Wishart (Perth and North Perthshire) (SNP)]

More than 800 jobs have been lost across Scotland today as a result of the Secretary of State’s announcement. He is absolutely right to say that we cannot play politics with this and we have to put aside the constitutional issues. One way in which he could do that, if he is sincere and honest about it, is to say today that he will respect the decision of the people of Scotland next year, and that regardless of which way they decide, he will honour all existing work and contracts.

[Mr Hammond]

What the hon. Gentleman has not heard is that the contract for the Type 26 cannot be placed until the design is mature, and that will not be until the end of 2014. The Scottish National party is nothing if not glass half empty; what I have actually announced today is that thousands of jobs have been saved, but he chooses to present it as hundreds of jobs have been lost.

[Tracey Crouch (Chatham and Aylesford) (Con)]

Shipbuilding in Chatham ended 30 years ago and although the dockyard is a diverse business hub today, its closure left scars of devastation and deprivation on the town. When the Secretary of State is putting together his support package for the areas sadly affected by today’s announcement, will he look at the history of the closure of Chatham dockyard, learn the lessons and make sure that proper investment is made to ensure that these areas are not blighted as, unfortunately, Chatham was blighted?

[Mr Hammond]

I would be very happy to look at the history of Chatham. As my hon. Friend says, Chatham’s historic dockyard is now a thriving and vibrant location, attracting investment and employment, and that is what we want to make sure also happens in Portsmouth. Of course the point about Portsmouth is that it will continue to be a major naval port, with large-scale maritime support and maintenance activity going on; it will not become a historic port in the sense that Chatham has become one.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

Does the Secretary of State accept that shipbuilding on the south coast has already been consolidated by the removal of defence-related shipbuilding from Southampton to Portsmouth, by agreement? Does he also agree that the contract for parts of the carrier to be built in the naval dockyards in Portsmouth was very much part of that consolidation? Does he therefore accept that the removal of the aircraft parts manufacturing will be regarded as a substantial betrayal of all that consolidation effort? Does he consider it wise strategically to extinguish shipbuilding permanently on the south coast, leaving just one site for UK defence-related shipbuilding?

[Mr Hammond]

The hon. Gentleman is right to say that consolidation of the shipbuilding industry is not a single event; it is a process that has been going on for decades, and the absorption of VT by BAE Systems was part of it. I am afraid that the inexorable logic, given the size of the Royal Navy and the budget we have for building new ships, is that we can support only one naval shipbuilding location in the United Kingdom—anything else is fantasy economics.

[Mr Andrew Turner (Isle of Wight) (Con)]

One strength of the Isle of Wight’s economy is its historic involvement with shipbuilding; a number of my constituents work in the Portsmouth dockyard and many companies on the island are part of the supply chain. What assessment has been made of the impact of this announcement on the Isle of Wight’s economy?

[Mr Hammond]

I must confess to my hon. Friend that I have not assessed the impact on the Isle of Wight economy specifically. I know, however, that the local enterprise partnerships and local authorities have been aware of these challenges for some time. If it will help my hon. Friend, I will dig out what assessments have been made by others and draw his attention to them.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

Successive UK Governments have failed Scotland and have failed shipbuilding, against a background of more than 100 ships being built in Norway last year. The little that remains in Scotland, as we know from Lance Price’s diaries, is due only to a strong SNP and our independent state of mind. Does the Secretary of State agree with that reality?

[Mr Hammond]

No. The SNP’s policies would drive shipbuilding out of Scotland finally and would be the last nail in the coffin of the industry. Today, we have announced that the Clyde will effectively become the focus of the whole of the UK’s warship building industry, that we will move the remaining carrier blocks around to support that industry, and that we will place new contracts to support the yard and ensure that it maintains the skills to build the Type 26 class, and all the hon. Gentleman can do is stand up and carp. I think that people will draw their own conclusions.

[Mr Tobias Ellwood (Bournemouth East) (Con)]

Labour claims to support the British shipbuilding industry but, if memory serves, it was Labour that cut the Type 23 fleet by three, cut the Type 45 fleet by six orders and slowed down the new carrier order. Does the Secretary of State agree that if we are to assist our shipyards, one way to do it is to commit to operating both aircraft carriers rather than mothballing one of them in Portsmouth harbour?

[Mr Hammond]

Clearly, that decision will be made in the 2015 SDSR. My personal view is well known: I believe that having spent the best part of £3 billion on building the carrier, the £70 million-odd a year that will be required to operate it looks like good value for money.

[Jim Shannon (Strangford) (DUP)]

I welcome the Secretary of State’s statement and his obvious commitment to shipbuilding. What assistance will there be to encourage the retention of shipbuilding skills through apprenticeships and will the opportunity for such apprenticeships be available to all the regions of the United Kingdom of Great Britain and Northern Ireland?

[Mr Hammond]

I cannot answer for any wider initiatives that my right hon. and hon. Friends in the Department for Business, Innovation and Skills might be introducing. The deal to which I have alluded today is a city deal that specifically relates to Portsmouth and Southampton, and therefore by definition it will make funding available for job creation and regeneration only in those areas.

[Steve Brine (Winchester) (Con)]

I thank the Secretary of State for his statement. He knows that there will be grave concern in my Winchester constituency about the shipbuilding element. Those further down the supply chain will be listening to his statement keenly, no doubt wanting to ask many questions and, I must say, given what is happening in Hampshire, choking on their lunch hearing the SNP representatives complaining about the announcement. May I echo the other comments that have been made and urge him to leave no stone unturned not just in Portsmouth but across the wider region in the pursuit of regeneration of the yard and the jobs it supports, even as far up as Winchester?

[Mr Hammond]

As a south-east MP, I understand well that not all of the south-east is affluent with high employment. There are areas that depend on specific industries which are as vulnerable as other areas anywhere in the country. I will endeavour to ensure that the points that my hon. Friend has raised are taken fully into account.

[Peter Luff (Mid Worcestershire) (Con)]

I commend the Secretary of State, the Minister for defence equipment—the Under-Secretary of State for Defence, my hon. Friend the Member for Ludlow (Mr Dunne)—the Chief of Defence Matériel and all those involved for making the best of a very difficult situation. Will my right hon. Friend clarify the purpose and capabilities of the three new very welcome offshore patrol vessels?

[Mr Hammond]

They will be more capable than the existing River class, as they will be able to take a larger helicopter and will be 10 metres longer. They will be able to undertake a full range of duties, including not only fishery protection but the interdiction of smuggling, counter-piracy operations and the protection of our overseas territories.

[Mr Julian Brazier (Canterbury) (Con)]

I, too, pay tribute to my hon. Friend the Member for Portsmouth North (Penny Mordaunt) for her doughty struggle to get a good city deal for her constituents and for the vision for the OPVs that to my knowledge she has been outlining for at least two years. Will the Secretary of State confirm that the OPVs will to some extent provide a force multiplier for our frigate fleet? Some of the roles carried out by frigates do not require full frigate capability, so the OPVs could be a way of partially expanding that capability.

[Mr Hammond]

At the risk of causing her to blush, I am happy once again to praise my hon. Friend the Member for Portsmouth North. I should say to my hon. Friend the Member for Canterbury (Mr Brazier) that no decision has yet been taken about whether the old River class vessels will be retired after the new OPVs are brought into service. That decision will have to be made in SDSR 2015 based on the ongoing budget challenges of maintaining additional vessels at sea. That will be a decision for the Royal Navy.

[Bob Stewart (Beckenham) (Con)]

Most people suggest that our biggest defence capability is not in maritime patrol aircraft. I am no expert—although I can see that there are many naval experts in the Chamber—but could this new River class OPV, with its enhanced length and helicopter deck, also be used to cover the gap between 240 nautical miles, the distance a land-based helicopter can go out from our shores into the Atlantic, and the 1,200 nautical miles for which we are treaty responsible? Could it perhaps play some sort of MPA role in that area?

[Mr Hammond]

I have not looked at the specification in detail, but I do not envisage that the thing will be able to take off and fly. I understand the point that my hon. Friend is making, however, and we are conscious of the gap in maritime patrol aircraft capability. It is one issue that will be addressed in SDSR 2015 and we will manage the gap in the meantime through close collaboration with our allies. We are considering all the options, including, potentially, the use of unmanned aerial vehicles in a maritime patrol role in the future.

[Neil Carmichael (Stroud) (Con)]

I congratulate the Secretary of State on salvaging a sustainable shipbuilding future for this country from the wreckage left by the previous Government. Looking to the future, and bearing in mind his comments about engineering, does he agree with me that we should be encouraging young people to think about entering the defence services as engineers to develop new technologies, including in electronics and composite materials?

[Mr Hammond]

Absolutely. I must say to my hon. Friend and for the record that there are huge opportunities available across the defence industry and in the defence establishment for young people with engineering skills. I am glad to say that all the evidence suggests that my right hon. Friend the Secretary of State for Education’s reforms are having the effect of reawakening the interest of young people in the STEM—science, technology, engineering and maths—subjects. Increasing numbers are taking them up and that is good news for the future of British industry.

[Jason McCartney (Colne Valley) (Con)]

David Brown Gear Systems from Lockwood in my constituency has secured a design contract for the new Type 26 global combat ship. As well as confirming the new time scale for the Type 26s, will my right hon. Friend say when we will know how many vessels will be ordered?

[Mr Hammond]

I have not confirmed the new timetable for the Type 26. It was always our intention that we would mature the design fully before we placed a contract, in order to avoid the mistakes of the past. The current planning assumption is that we will order 13 vessels.

[Mr Philip Hollobone (Kettering) (Con)]

When we talk about aircraft carriers, we tend to focus on their construction, but, of course, when they become operational they will require trained crews. With which navies are we co-operating to train the requisite personnel and might there be expanded opportunities in places such as Portsmouth for onshore training in the run-up to deployment?

[Mr Hammond]

A certain amount of training can be done synthetically onshore, but I am grateful to my hon. Friend because he gives me the opportunity to reiterate publicly and on the record our gratitude to the United States navy and the United States marine corps, who are assisting us in keeping alive our carrier skills during a period when we are not operating fixed-wing aircraft off UK carriers. We have pilots and deck officers embedded in the US navy and the US marine corps and we will develop our fleet of F-35B aircraft, with the first operational squadron based in the United States at Eglin air base. It will return to the UK in 2017 as a trained squadron ready to stand up immediately on its arrival. Without that support from the US, we would be struggling to get back into the carrier business. We should be immensely grateful.