Defence Industry and Shipbuilding

Nia Griffith Excerpts

Wednesday 11th July 2018 Commons Chamber

[Nia Griffith (Llanelli) (Lab)]

I beg to move,

That this House recognises the important contribution of the defence industry to the UK; calls on the Government to support the UK defence industry by taking into account the economic and employment benefits to the UK when awarding contracts and to publish a full, overarching defence industrial strategy; and further calls on the Government to make the competition for the Fleet Solid Support ships contract a UK-only competition to maximise the return on that contract.

Today could be a significant step forward for things coming home. Of course, I am talking about the contract for the fleet solid support ships. As a proud island nation, the UK shipbuilding industry is vital for our prosperity and defence—a message that workers’ representatives from the shipyards spelled out loudly and clearly to Members yesterday. The industry makes a substantial economic contribution, directly employing some 23,000 people and contributing £1.7 billion a year to the UK economy.

Throughout our history and to the present day, the industry has supplied our Royal Navy with the ships that it requires, thereby playing a crucial role in the defence of these islands. Our ships contribute to many NATO and EU missions, including Operation Atalanta, which combats piracy in the gulf of Aden and off the horn of Africa, and they were vital in the humanitarian relief efforts following last year’s hurricanes in the Caribbean.

In the light of events this week, I will not suggest which ship the Government most closely resemble, but the phrase “rearranging the deckchairs” comes to mind. I know that Members on both sides of the House want the industry to thrive, and the Government have an important role to play in that regard. I was disappointed to hear in Defence questions on Monday that the Government will not publish the conclusions of the modernising defence programme this week, as had long been promised. Instead, we have the Secretary of State’s less than inspiring commitment of “aiming to” introduce the headline findings before the summer recess. We wait with bated breath.

[John Redwood (Wokingham) (Con)]

I welcome the Opposition’s approach. We want a strong Navy and more ships built in Britain. Anything we can do together to achieve that will be greatly welcome, and I trust that the Government will agree.

[Nia Griffith]

I thank the right hon. Gentleman for his excellent intervention.

I hope that the delay will allow Ministers to reflect on the overwhelming case for an active defence industrial strategy that recognises the immense value of building in Britain and takes a longer term view of the orders that the Government will place, giving industry the confidence to invest in the UK and to plan for a steady stream of work.

Long-term planning is vital, not just for the prime contractors but for the supply chain companies and foundation industries such as the steel industry. It gives them the time to gear up to fulfil orders, and the certainty that they need to justify additional investment. A clear strategy needs to balance getting the very best value for the taxpayer—a crucial consideration, especially when the defence budget is under such strain—with the needs of our armed forces and defences. This would allow us to defend sovereign capabilities, support UK manufacturing and continue to develop the highly skilled jobs and apprenticeships that allow us to compete on the global stage. Research and development must be at the heart of any industrial strategy, promoting links with our universities and technical colleges. We should recognise the need to plan for the skill sets we will need in the future, and to inspire our young people, both girls and boys, with the challenge and excitement of pursuing a career in our world industry.

We have had the national shipbuilding strategy and the combat air strategy is being developed, so rather than just the defence industrial refresh it would make perfect sense for the Government to come forward with an overarching and far-reaching defence industrial strategy that would give industry the certainty it requires.

[Mr Jim Cunningham (Coventry South) (Lab)]

I do not know whether my hon. Friend has noticed, but Rolls-Royce is in the market to sell off its industrial marine division—the power generation division. Nobody knows yet who is likely to buy it, but it is likely that once again our defence is going to be manufactured abroad instead of being protected in this country.

[Nia Griffith]

My hon. Friend makes a very good point about the need for certainty and long-term planning, so we can give business the confidence to invest here.

As well as ensuring that our armed forces have the very best equipment, a core objective of our defence industrial strategy should be to promote our national prosperity. We can only do that properly if we factor in the true value of defence contracts to the UK economy. Buying British is not just about the basic fact that a UK-based company will pay UK tax; it is also about the broader economic and social benefits, and the value of the skills and apprenticeships that the industry creates.

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

Is it not the case that if the fleet solid support ships were built in the UK, 20% of that cost could be recovered by the workers working on those ships paying tax and national insurance?

[Nia Griffith]

Indeed—at least that amount.

Reports by Oxford Economics highlight that the UK defence industry has an output multiplier of 2.3, meaning that £100 million in UK industry generates some £230 million to the UK economy. Its reports also highlight that each additional job created in the manufacturing element of the defence industry results in a further 1.8 jobs being created in the wider economy.

At present, the Government do not routinely factor in these wider socioeconomic values when making a procurement decision. We on the Labour Benches believe that to be a serious mistake. It is particularly anomalous when companies that bid with the Ministry of Defence are quite used to having to set out the socioeconomic value of contracts when bidding with Governments of other countries. Labour is committed to expanding the definition of good value to include wider employment, industrial or economic factors when making procurement decisions.

[Mr Philip Dunne (Ludlow) (Con)]

I am listening very attentively to what the hon. Lady is saying. I am sure she will be aware that in March this year HM Treasury published, after a seven year review, a new definition of managing public money, which specifically allows, under UK procurement rules, for the concept of social value to be taken into account. She is therefore asking the Government to do something they have already decided to.

[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.

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

I am very sympathetic to the case that the hon. Lady is making, but the consequence of going down the route that she recommends, and which I am inclined to support, is that the black hole in the defence equipment budget will become even greater. If we accept that there needs to be an uplift in the defence budget to be able to make this sort of investment and get the long-term gains that she describes, will she confirm that her party’s policy is to support an increase in the defence budget?

[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.

[Mr Dunne]

I cannot allow that to stand. I was in post when the P-8 Poseidon contract was placed, and an integral part of the relationship with Boeing was an understanding, now being fulfilled through contracts, that it would make a significant investment in RAF Lossiemouth. As a result, £400 million is now going into that base, in part to support and maintain those aircraft and other aircraft operated by our allies. Those aircraft will be coming here to the UK to be maintained and serviced. That means UK jobs and UK investment.

[Nia Griffith]

It is incumbent on the Government, though, to look again and strain every muscle to get the very best work-share agreements wherever they exist.

[John Spellar (Warley) (Lab)]

The argument from the hon. Member for Ludlow (Mr Dunne), whom I congratulate on his report, does not hold water. Of course, if we are buying these planes, we will need maintenance facilities, and if that is being done by industry, industry will provide those facilities, but they are service facilities for the RAF, and there might even be work from abroad. Where, though, are these planes being manufactured? They are being manufactured in the United States, with very little return of work coming to the UK. They have been allowed to get away with a very cheap deal.

[Nia Griffith]

On that note, I shall make progress.

[Douglas Ross (Moray) (Con)]

Will the hon. Lady give way?

[Nia Griffith]

One more time.

[Douglas Ross]

As the Member of Parliament for Moray, which is home to RAF Lossiemouth, I have to take exception to the points made from the Labour Benches. This is a major investment—£400 million and hundreds of new jobs—in Moray and Scotland and is welcomed locally by every man, woman and child. They will look very poorly at the Labour party today trying to say it is not good enough for the area.

[Nia Griffith]

As my right hon. Friend the Member for Warley (John Spellar) clearly explained, a much better deal could have been done.

[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

The hon. Member for Moray (Douglas Ross) talks about the benefits to his constituency, but what about the people who live near Woodford, the BAE Systems site in Manchester, who in 2010 watched as the Nimrod MRA4 programme, 94% complete, was smashed up by JCBs and Britain’s capacity to build large fixed-wing aircraft permanently destroyed? Was that not the total destruction of British industrial capability—something we are trying to avoid in this debate today?

[Nia Griffith]

My hon. Friend makes an excellent point, and now I shall conclude, as I am sure that hon. Members are thinking about what they will be watching later this evening.

When I was very young, I remember not only the excitement of England winning the World cup in 1966, but the I’m Backing Britain campaign. Before they go off to support the English football team this evening, I urge Members from across the House to recognise that the order for the fleet solid support ships represents a prime example of one that can and should be awarded here. I urge Members to back British industry and to vote to build them in Britain.

[Madam Deputy Speaker (Dame Eleanor Laing)]

The question is as on the Order Paper. Tobias Ellwood!

--- Later in debate ---

[Mr Ellwood]

I have hinted that I will come to that in a second, but there is a distinction between fleet support ships that employ civilians and Royal Navy ships that employ Royal Navy personnel. There is a distinction between the two from a security perspective.

Going back to the point about value for money for the taxpayer, the Defence Secretary, the Procurement Minister and I all want to ensure that we are able to utilise the advanced skill sets in our defence industry across the UK, but the bottom line has to be value for money. Let us take as an example the ships that were recently purchased in Korea. The price was half the British value. Is the hon. Member for Llanelli saying that she would pay double the price for the same auxiliary support ships?

[Nia Griffith]

The Minister needs to take into consideration the fact that something like 36% of that spend would immediately come back to the Treasury in taxation. There would also be a knock-on effect for all the small businesses that would benefit from that money being spent out into the local economy. We would also have to take into account the cost of social security if those people were unemployed, as well as the disastrous cost of losing our shipbuilding industry altogether. Does he recognise that if we do not invest now to create a drum beat of orders, we could see the shipbuilding industry going the same way that the Tories let the coalmining industry go?

[Mr Ellwood]

Now we really are seeing the difference between us, if the hon. Lady is comparing this situation with the coalmining industry. Is that where this debate is going? I certainly hope not.

--- Later in debate ---

[Mr Ellwood]

I will make some progress, if the hon. Gentleman does not mind, because other Members wish to speak. Let me make some progress and I will give way shortly.

[Nia Griffith]

Does the Minister recognise that the Parker report very clearly mentions having a “drumbeat” of orders? That is vital to the industry so that we do not lose skills, so that we do not fall behind on R&D and so that we can remain in the game. Does he agree that that is important and that these ships could contribute to that drumbeat of orders?

[Mr Ellwood]

I do not disagree. I try to be less partisan than others who jump up at the Dispatch Box, and I absolutely agree with the hon. Lady about the importance of that drumbeat of orders, but it should not come at any price. We need to make sure it blends with what is built for the Royal Navy and for the Royal Fleet Auxiliary. We have accepted every single recommendation made by John Parker, and we thank him for his very wise report.