Defence: Aircraft Carriers and UK Shipbuilding

Lord Rosser Excerpts

Wednesday 6th November 2013 Lords Chamber

[Lord Rosser (Lab)]

My Lords, I thank the Minister for repeating the Statement made in the other place by the Secretary of State for Defence.

It is a Statement not entirely devoid of party political points. The first part of it—presumably, therefore, the more important part of it, in the Secretary of State’s eyes—continues the argument over the alleged £38 billion black hole and the cost of the aircraft carriers. It is only towards the end of the Statement that the Secretary of State refers to decisions that will result in hard-working people losing their jobs, with the consequent impact on families and local economies, which in the eyes of most will be the significant part of the Statement, along with its associated implications for the United Kingdom shipbuilding industry.

I would like to take this opportunity to express our appreciation of the work and contribution made by all those in our shipbuilding industry. My understanding is that there have already been extensive discussions between BAE Systems and the trade unions representing the workforce, seeking to work together to address the difficult situation that has arisen. All too often that is not the approach adopted when reductions in the size of a workforce have to be considered.

The news of the job losses will obviously be a major blow. Clearly, the loss of the capacity at Portsmouth to build ships will be keenly felt, although a repair and maintenance capability is being retained in the city. It is vital that we keep the skills needed to sustain our United Kingdom shipbuilding capacity, and the announcement of the decision to build three offshore patrol vessels in the gap between the completion of the major work on the two aircraft carriers and the build-up of work on the Type 26 destroyers is welcome. The retention of our shipbuilding capability is vital to our country, the defence of the United Kingdom and the long-term future of the UK shipbuilding industry.

The Statement indicated that the two aircraft carriers will be based at Portsmouth, leading to the largest level of tonnage of naval vessels at that location for a great many years. Does that mean that a decision has been made that both aircraft carriers will also be fully operational? The Statement refers to the revised agreement for the carriers and states that,

“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”.

By how much more does the current cost of £6.2 billion have to increase before all the contractor’s profit is lost and the Government presumably pay for 100% of any further cost increase? Can the Minister give an assurance that there have been no adjustments to the defence equipment programme in order to continue with the construction of the two carriers and retain the more than £4 billion centrally held contingency sum in the equipment plan?

Since the Secretary of State appeared to consider the alleged financial black hole and the cost of the aircraft carriers to be the issue of most importance, I will respond. As far as the alleged £38 billion is concerned, which is the Secretary of State's unverified figure, it assumes that everything which was then on the shopping list for the many years ahead was actually proceeded with, and it is dependent on the budget growth assumptions made. The 2009 National Audit Office report concluded that the size of the gap was highly sensitive to the budget growth assumptions used and that if the defence budget remained constant in real terms, the gap would be £6 billion over the 10-year period.

On the issue of whether the contract could have been cancelled by the present Government had they wanted to, the National Audit Office report said:

“The Department … considered cancellation, which was feasible and offered significant medium-term savings. It concluded that this would have been unaffordable in the short term”.

That statement does not fully square with the Secretary of State's bald assertion that he had been advised that under the terms of the contract, it would cost more to cancel the carriers than to build them. The Government proceeded with the carriers because they felt that it was in the national interest.

The NAO report also said that the contract was negotiated by the then defence commercial director, with the terms of the contract typical of those in other large defence contracts. Whether any contractor would have been prepared to take on such a major contract of the kind involving the construction of the state-of-the-art carriers on any other basis than the cost overruns being divided 90% to the Government and 10% to the contractor, is a debatable point. It is a different situation now that we are well into construction and final costs for these state-of-the-art carriers are rather more certain.

There has been a lot of conjecture about the role that the politics of the Scottish referendum may have played in the decision to keep shipbuilding on the Clyde. It would be helpful if the Minister could confirm that the decisions today were taken on the basis of what is in Britain's best interests, maintaining the future of our shipbuilding industry and our country's defence. Could the noble Lord also outline what safeguards are in place if Scotland does vote 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.

Whatever difficulties we experience, this country is a proud maritime nation. We have a proud and dedicated Navy, serviced by a proud and dedicated workforce. We must maintain that across the United Kingdom and retain the ability to build the warships we will need to defend our nation, protect our interests across the world and keep us secure.