Defence Industry and Shipbuilding

Paul Sweeney Excerpts

Wednesday 11th July 2018 Commons Chamber

[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.

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[Mr Ellwood]

We have wandered away from ships a little, but my hon. Friend is right. I pay tribute to the RAF for its event yesterday, and for what it has done and continues to do. The Royal International Air Tattoo starts at RAF Fairford on Friday, and we have the Farnborough airshow next week, where we will be launching our air strategy, based on the same principles as for shipping, which will be exciting.

Returning to ships and the role of the maritime sector, we should remind ourselves of the significant changes to the Royal Navy fleet. We have two incredible aircraft carriers coming into service, a new generation of Dreadnought-class submarines, the Type 45 destroyers—the most advanced in the world—and the new Type 26 global combat ships. We also have the Type 31e frigates—e for export—which have deliberately been designed with a modular concept. Depending on the export need, which could be interdiction, surface support or humanitarian purposes, its parts can be interchanged simply to adapt to the local requirement. This is an exciting time, and all the ships will be built in the United Kingdom.[Official Report, 24 July 2018, Vol. 645, c. 7MC.]

To achieve our ambitions, we need a strong shipbuilding industry as part of the wider maritime sector. As the Opposition spokeswoman said, more than 100,000 people work in this country’s maritime and marine sectors, including in the shipyards that supply parts and support equipment to keep the great industry alive.

[Mr Sweeney]

Will the Minister give way?

[Mr Ellwood]

I will, but I need to make progress, as other people want to speak and there may be something else that we all want to go to later.

[Mr Sweeney]

The Minister refers to shipyards. He might be aware that a deal was done in 2013 so that, in return for closing down operations in Portsmouth, capital investment would be made on the Clyde to make it a world-class centre of shipbuilding expertise, but that deal was never followed through with. He talks about creating a world-class industry, so why has he failed to follow through on the investment proposals that would make the Clyde world class and restore that capability?

[Mr Ellwood]

We are investing both in the Clyde and in Portsmouth. Looking back over the past few decades, let us be honest that although we have world-class shipbuilding capability, efficiency has not been what it could be. Successive Governments could have done better—we put up our hands up to that—which was why it was all the more important to create a shipbuilding strategy. We commissioned John Parker’s report so that we would be able to understand—

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[Mr Ellwood]

I can only say that I hope that 100% of people would like ships to be built in the UK, but I also think that 100% of fiscally responsible people would like value for taxpayers’ money. That is the difference that this debate will illustrate.

Since the strategy was launched in 2017, the Government have worked closely with our partners in industry and made significant progress on our commitments under the shipbuilding strategy, not least through our continued investment in five River class offshore patrol vessels that are being built on the Clyde. Those ships have safeguarded industrial capability through a contract worth around £635 million, which is exactly what the shadow Secretary of State wants to see. We must make sure that there is this drumbeat of work, not only so that none of the shipyards face closure, but because it is essential so that we can continue to act when we require ships to be built for the Royal Navy. The first batch of the cutting-edge Type 26 frigates that are being built under the £3.7 billion contract with BAE Systems are also being built on the Clyde.

[Mr Sweeney]

The Minister mentions the River class batch 2, which was primarily designed to maintain production at Govan shipyard until the Type 26 was of sufficient maturity to begin construction. Does he accept that the only reason why Govan shipyard is open today is because a Royal Fleet Auxiliary order for the Wave Ruler was placed there in 1999 to keep the yard open until the Type 45 build could start? The only reason why that yard exists today is because the Government placed that Royal Fleet Auxiliary order with Govan, and that is exactly what we are arguing for today: to maintain these builds in the UK to maintain industrial capability.

[Mr Ellwood]

The hon. Gentleman sort of makes my point. We need to make sure that we bear in mind not only prosperity and British capability, but value for money for the taxpayer.

The Type 26 will offer a leading anti-submarine warfare capability for its planned 25-year service life, providing critical protection to the continuous at-sea deterrent and maritime task groups. We are currently in dialogue with industry on the strategy’s flagship Type 31 frigate programme, which is worth £1.25 billion for five modern warships. They will be flexible and adaptable in design, as I said earlier, and part of a balanced Royal Navy fleet that will be deployed across operations in support of the UK’s maritime task group.

The shadow Secretary of State mentioned the launch of our fleet solid support ships programme, which is procuring vessels for the Royal Fleet Auxiliary through international competition. They will provide munitions, stores and provisions to support maritime and amphibious-based task groups at sea.

On exports, we are delighted that Australia is considering the Type 26 global combat ship and BAE as the preferred tenderer for its future frigate programme. The consequence of our creating something that other countries want is that further countries have been prompted to look carefully at the Type 26. That is exactly what is happening in our discussions with Canada. This is exactly where we want to go: we want to make sure that we have the capability to build something that we can export, not just something to keep shipyards open. That is critical. The UK’s long-term commitment to the Type 26, which is currently being constructed for the Royal Navy in Glasgow, was an important consideration for Australia in its decision-making process. The fact that we continue to invest in it showed our continued confidence in the Type 26, which we believe is the world’s most advanced, capable and globally deployable anti-submarine warfare frigate.

In conclusion—[Interruption.] I could go on, if Members would like. I hope that the House will join me in recognising the important role that the defence industry plays in helping us to meet our ambitions and commitments, ensuring that we continue to deliver cutting-edge, battle-winning capability for our armed forces for years to come.

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[Kevin Foster]

I thank the Minister for his intervention.

The part of the motion I have sympathy with is about ensuring that when we engage in procurement exercises the criteria take into account the wider benefits of using particular contractors. One of the things I am slightly concerned about is the idea that buying from the UK is something we are only going to do if we have a protectionist policy in place. As is shown by the example I have just been able to give of Babcock building ships for the Irish navy, our industry is perfectly capable of winning contracts in the international market. That is because of the quality of the teams, the quality of the product and the cutting-edge nature of some our technology. The recent Australian navy contract won by BAE, which has already been mentioned, will see the export of our knowledge and expertise—many small and medium-sized enterprises in the UK will get jobs and contracts out of that decision—and it is a sign of the quality we can offer.

It is almost doing down our industry if we stand up in the House and say to its potential international customers that the only reason we would want to buy from it is if we were required to do so, because that is simply not the case. Our industry has moved on hugely, and it is a cutting-edge and competitive one. It is disappointing that more Members have not got up and said that in this debate. I must say that Members on both sides of the House have implied there would be a massive cost to buying here in the UK, whereas we can actually win contracts overseas.

For me, it is clear that our industry can go out and compete properly for work, based on criteria that take into account the wider benefit of delivering a particular contract in a UK yard. I want to see these ships built in the UK and I want a yard to win that contract. I want us to be able to go out and say to our international competitors that that was done because our shipbuilding industry put in a good bid, at a good price, and could deliver exactly the right product and one that they would want as well. Let us be candid: if global Britain is about saying, “We want to sell everything to you, but there is no way we’re going to buy anything in return,” it will not be particularly successful.

In every trade deal we sign, we should rightly look to include protections against subsidy or state aid. In the same way that we would look to stop the dumping of steel via tariffs, we should make sure that a procurement contract deals with any nation wanting to subsidise it with a view to having an unfair competitive advantage. Again, fair criteria would deal with that.

[Mr Sweeney]

The hon. Gentleman has perhaps heard of learning curves, which drive efficiency and productivity improvements, but that relies on a consistent drumbeat of work in order to hone efficiencies. His prescription militates exactly against such efficiencies being achieved.

[Kevin Foster]

I completely and utterly disagree. We can have such criteria, but I am saying that telling everyone else in the world “You can buy from us, but we aren’t going to buy from you” is absolute nonsense.

The idea that our industry is unable to drive efficiencies, deliver savings and, on contracts, deliver good-quality products at the right price for customers who want to buy them is actually doing down the industry. We did not win the contract at Appledore because the Irish navy said it could buy only from shipyards located on the Irish sea; we won it because it was right, Babcock having put in an excellent bid for the contract. Sadly, the right hon. Member for North Durham (Mr Jones) could not himself name one country that would bid for such a contract—for a naval ship—abroad.

For me, it is absolutely right that we encourage people to put bids together. It is right that we have criteria—this is where I have sympathy with a lot of the Labour motion—that look to deliver products from companies based in the UK. However, I would say to Members that we cannot come to the Chamber one day and whine about the nonsense arguments about the steel industry in the United States, and then pop back here the next day and use almost the same arguments, in another context, about one of our own industries.

I believe that our shipbuilding industry will benefit from the fact that we have a big supply line order for the Navy, and that it will strongly benefit from long-term maintenance as well. I am the son of dockyard worker. My father did not build ships, but he spent 37 and a half years maintaining and repairing them. It is quite sad to hear people dismiss the after-work as something rather minor, because it is actually a massive part of a contract. The vast majority of the money spent on the Dreadnought class will be in the maintenance and refitting of the submarines over their whole lifetimes.

For me, this debate is welcome, and we agree with elements of the motion. There will now be some pretence that I have argued such ships should be built abroad. No, I have argued that we need to have a consistent policy as a nation, because if we are not consistent, we cannot expect others to be consistent when they are dealing with our industries.

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

I shall do my best to keep my remarks brief, Mr Speaker, although this is a subject close to my heart. I have grown up around the shipbuilding industry my entire life, and I had the privilege of working in it as a new graduate in 2010-11 and through to 2016. Through that time, I have learned the bitter lessons of failed and deeply flawed MOD procurement practices. Through the 1990s, my dad had to travel around the country following shipbuilding orders, as Type 23 frigate orders were drip-fed and we were usually in a race to the bottom with the Irish shipbuilders and Swan Hunter to build them. That was a recipe for disinvestment and unemployment, and that was the harsh lesson learned. That is why the Labour Government turned away from the policy after 1997 and promoted a defence industrial strategy, which was well regarded in all parts of the House. That was followed up by a terms of business agreement that would have guaranteed a stable pipeline of work, with one ship built every 12 months in a six-year design cycle for complex warships. That was extinguished in 2014 by the MOD, in pursuit of an utterly wrongheaded policy on shipbuilding procurement.

Let me make it clear: the capacity to award this contract to a British shipyard is entirely at the MOD’s discretion, under the terms of article 346 of the treaty on the functioning of the European Union. Indeed, it is common practice to have done this; France, Germany, Italy, Spain and US do it. Most recently, Canada has pursued a similar policy with its national shipbuilding strategy. Its big ship construction will be focused on Vancouver and complex warship construction will be focused on Halifax, with a new purpose-built frigate factory there. Sounds familiar, does it not? Only the Canadians have actually achieved it and we have not.

The Govan shipyard is now the mainstay of British shipbuilding capacity, with the largest steelwork capacity in the UK and by a considerable margin. It is represented by the hon. Member for Glasgow South West (Chris Stephens), and I had the privilege of working in it for several years. The yard is also the only one capable of building complex warships in the UK—to date. That shipyard exists today only because it was saved in 1999 by a UK Labour Government who made it clear that they would save it by providing a Royal Fleet Auxiliary ship, the Wave class, and then another, the Bay class, to that yard. That enabled it to be match fit to build the Type 45 destroyers, the aircraft carriers and, subsequently, as we see now, the River class ships and the new Type 26 frigates. That yard exists today only because that Government took a conscious decision to ensure capacity was maintained at those shipyards.

Today, we see a new crunch point emerging. The current Royal Navy shipbuilding capacity plan for 2020 to 2040 shows a large UK ship-construction gap, primarily focused on Rosyth, which will have a 15-year gap in work between the completion of the HMS Prince of Wales and the first refit of the Queen Elizabeth or, indeed, the build for the new future amphibious capability. It is the only facility in the UK that is currently capable of building large-beam vessels wider than 20 metres. The new FSS vessels are 29.5 metres and the new future amphibious vessels will be wider than 20 metres, so to ensure that the pipeline of capability is maintained in the UK, we must build the FSS in the UK. To ensure that we have our future amphibious capability—as the Minister conceded, the amphibious capabilities are regarded as sovereign shipbuilding capabilities—we must secure that pipeline of work to enable future amphibious-vessel construction.

Let us be clear about the economic benefits, which the Minister dusted over somewhat in his rather flimsy analysis. According to the Royal United Services Institute, naval shipbuilding work offers a return of 36p in the pound. Some £285 million would be returned to the Exchequer, but that is just a quarter of the overall industrial and economic benefit to the UK. A recent Institute for Public Policy Research report, which took into account welfare savings and greater GDP growth, found that naval shipbuilding activity in the UK offered a return of 40% to the Treasury. That must be taken into account when we consider the awarding of public procurement contracts. Some 70% of shipbuilding contracts are derived from the supply chain, which was worth £2.8 billion in 2015. That is a huge industrial benefit to the UK.

Overseas shipyards like Daewoo in South Korea are not bidding out of altruism; they are aggressively pursuing state-backed support efforts to pump-prime their own industrial base. Daewoo Shipbuilding & Marine Engineering in South Korea invested $6 billion in 2017. Sir John Parker’s report, which the Minister lauded, said:

“Overseas build brings its own challenges including potential denial of opportunities for the UK supply chain, higher costs of overseas supervision and potential foreign exchange risks”—

as we saw in the recent RFA build in Korea. The report went on:

“Nor does the foreign build of ships make the direct prosperity contribution to the UK economy that an onshore build would achieve.”

If the Ministry of Defence is to stand by its convictions and its ideological position on this issue, I urge it to demonstrate the economic and social impact of domestic production versus offshore production, instead of the flimsy assertions that Government Members have made today, which have been utterly at odds with the truth.

If the Government define a Royal Fleet Auxiliary ship as not a complex warship in respect of being fitted with armaments, do they class the River class batch 2 as complex warships? The proposed FSS ships will contain far more armaments than the River class patrol ships—[Interruption.] Yes, so are the patrol ships, so why do the Government define them as sovereign build but not the FSS? Their logic does not stack up; it is based on flawed analysis. We must have a virtuous cycle of investment, not a vicious cycle of disinvestment. The harsh lessons of the 1990s were learned: stop throwing away 20 years of coherent and proper defence procurement planning in this ridiculous pursuit of an ideological vanity that is going to utterly fail our shipbuilding industry.

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[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.

[Mr Sweeney]

rose—

[Guto Bebb]

I need to make some progress because I must cover some of the points that were touched on.

From a defence perspective, we are trying to put a coherent plan in place to ensure that we have a competitive UK defence industry that can compete with the best. The way to do that is not to be scared of competition but to embrace competition. We have a shipbuilding strategy that says very clearly that we will understand the need for a national sovereign capability when it comes to building our warships. We need to make sure that we can measure our shipbuilding industry against the best in the world. The way to do that is not to go down the route of a protectionist “Britain first” policy but to invest in the capability that we have in our shipyards. That is why we invested £6.3 billion in Rosyth when we saw the fantastic build quality in the completion of the Queen Elizabeth class. That is why we are investing £3.7 billion in the first three Type 26’s in Glasgow. That is why we are showing a degree of confidence in our shipbuilding sector that Opposition Members need to share.

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[Chris Stephens]

rose—

[Mr Sweeney]

rose—

[Guto Bebb]

No, I will not give way any further at this point.

The key thing that Opposition Members need to be aware of is that in addition to developing a shipbuilding strategy, we are ensuring that we are looking at the future of our combat air. That shows that this Government are taking a coherent approach across the board. We recognise fully in the Ministry of Defence the importance of defence in terms of the contribution that it can make to the prosperity of the United Kingdom. I welcome the contribution made by my hon. Friend the Member for Ludlow (Mr Dunne) in his report on the prosperity agenda, which has been welcomed by Members in all parts of the House. This Government and this Ministry of Defence intend to make sure that the lessons and the ideas put forward in that report get full consideration.

Many Opposition Members have rightly argued that in our procurement processes we should be thinking very carefully as to the means by which we can ensure a contribution to the economic wellbeing not only of the United Kingdom but of localities within the United Kingdom.

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[Guto Bebb]

The hon. Gentleman makes a very important point, which has been a significant part of the discussion and is certainly being looked at closely in terms of the modernising defence programme. I welcome that sensible contribution.

[Mr Sweeney]

Will the Minister give way?

[Guto Bebb]

I am sorry, but I have to make some progress.

What we are highlighting is that across the Chamber we want to see a successful British shipbuilding sector, and we categorically want to see the conclusion of Sir John Parker’s report implemented. He said clearly in recommendation 21 that he wanted to see the opportunity for British shipyards to compete for the fleet solid support ships contract. That is categorically the position of the Ministry of Defence. We want to see a competitive bid from British shipyards. It can be a competitive single bid or a block build option, but we want to see that bid forthcoming. We want that bid to win because that bid is the best, the most cost-effective, the one that offers value to the taxpayer and the one that shows that the confidence we have in our shipbuilding sector is justified and will be maintained.