UK Sovereign Capability

Paul Sweeney Excerpts

Tuesday 20th November 2018 Westminster Hall

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

I beg to move,

That this House has considered UK sovereign capability.

This is a subject that I have spoken about frequently since my election and is close to my heart. I grew up in a shipbuilding family, so from a very early age I became acquainted with the concept of feast and famine orders in shipbuilding in this country. I also developed an awareness of what we need to do to maintain a sovereign capability, not just in shipbuilding but across the full spectrum of defence.

I will be 30 years old in January. Britain’s defence industry landscape has diminished considerably since I was born. Look at shipbuilding. I attended my first ship launch—of HMS Lancaster—when I was one year old. There were a number of shipyards around the UK that built surface vessels, including Swan Hunter in Tyneside and Cammell Laird—

[Frank Field (Birkenhead) (Ind)]

In Birkenhead.

[Mr Sweeney]

In Birkenhead, as my right hon. Friend says. We also had Vosper Thornycroft in Southampton, and Harland and Wolff in Belfast, to name just a few, but today the landscape is much diminished. The Clyde is the only UK location capable of building complex warships, and even its capabilities have been significantly downsized. In 2013, when I was working in that very shipyard, more than 1,500 jobs in the shipbuilding industry were lost, and the BAE Systems shipyard in Portsmouth—formerly Vosper Thornycroft—closed.

Some 75% of shipbuilding jobs in the UK have been lost since the 1980s. That downsizing was predicated on a realisation that Britain did not have a naval fleet big enough to sustain the industrial base that existed at the time. Rather than drip-feeding orders to yards that would never be at full enough capacity to invest in world-class infrastructure, the idea was to cut our cloth accordingly, so in 2009 the then Labour Government signed a terms of business agreement with BAE Systems. The concept was to introduce a proper and rigorous strategy for shipbuilding in the UK. In return for rationalisation and transformation, the industry would be guaranteed a certain drumbeat of industrial capacity that would give it the confidence to invest in reaching the upper quartile of the world.

When I started working in the shipyards as a young graduate, one of my jobs was to study every other shipyard in the world that was building complex warships, benchmark us against them, determine what they were doing right and develop a prescription that would allow us to design a world-class shipyard in the UK. That seemed a laudable aspiration, because if we could build an infrastructure in the certainty of a pipeline of orders, we could build ships that achieved world-class performance, saving the taxpayer money. It was such a great idea that other countries followed the same model—most notably Canada, which developed its own national shipbuilding strategy and, indeed, employed the very same person from the Royal Navy who developed our strategy under the terms of business agreement.

Sadly, when I corresponded with the Minister for defence people and veterans last November, he informed me that the terms of business agreement had been extinguished in return for the signature of the Type 26 manufacture phase 1 contract. It was then superseded by the national shipbuilding strategy, which in the meantime was used as cover to significantly reduce the scope of ships that the UK had been qualified to build, and that had given certainty to UK industry. The very first page of the strategy document states:

“It is only by building ships that we will once again become good at building ships”.

Well, quite. That seems like a laudable aspiration and exactly what we all want to achieve, but unfortunately the strategy itself undermines that effort, restricting the scope of orders that can go through UK shipyards by limiting the exclusivity of UK build to frigates, destroyers and aircraft carriers.

The 2009 terms of business agreement made very clear the range of ships that were to be built exclusively in the UK without competition, including aircraft carriers; amphibious vessels; all forms of frigates and destroyers; mine countermeasure vessels, including all design and major subcontracted work; all minor naval vessels, including patrol ships; and complex auxiliary ships, which at the time meant the vessels for joint sea-based logistics and joint casualty treatment. That certainty would have enabled British industry to invest in world-class facilities that delivered world-class performance for UK shipyards, achieving the competitive advantage that we had so long striven for. Given that other countries are successfully employing the very same model—Canada now plans to build 15 Type 26 frigates, as opposed to Britain’s much diminished effort of just eight, if we even get them—it is self-evident that we are doing something very wrong by undermining that effort.

It seems to me that the national shipbuilding strategy, particularly the Type 31e frigate project, is a classic example of the Government misidentifying the root cause of the problem that they are trying to solve. The UK prosperity agenda and the effort to make our industry better would be much better served by providing certainty for industry to invest in being world class. That would achieve the opening gambit set out in the strategy document.

[Anne-Marie Trevelyan (Berwick-upon-Tweed) (Con)]

Does the hon. Gentleman agree that one of the challenges for the prosperity agenda, and for the Royal Navy’s aspiration to be part of making us a global maritime nation again post Brexit, is that the Treasury does not have a model that helps the Ministry of Defence to plan for that or values the impact that building in the UK rather than abroad would have on the coffers of UK plc?

[Mr Sweeney]

I thank the hon. Lady for that pertinent intervention, which drives home the point that I am trying to make. I am highlighting the landscape as I see it now, which is not what we want to achieve and is not optimal. That is not necessarily the fault of the Ministry of Defence, but of what Sir John Parker’s report refers to as the “total enterprise” of shipbuilding, which very much includes the Treasury as financial controller.

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

Further to the point raised by the hon. Member for Berwick-upon-Tweed (Anne-Marie Trevelyan), the MOD is at fault. It takes no account whatever, either in shipbuilding or in other procurement contracts, of the value added to the UK economy, not just in skills but in the money that the Treasury gets back through tax and national insurance.

[Mr Sweeney]

The Minister might have been hopeful that I was absolving him of all blame in the matter, but I did not quite mean that; I meant that it was not entirely the fault of the Ministry of Defence, because there is a combined silo mentality across Government. My right hon. Friend makes the important point that in shipbuilding and in major defence procurement programmes, there has been a failure to understand the total prosperity effort across the UK. Royal Caribbean would never approach financing the building of a cruise ship in the way that the Ministry of Defence finances its frigates. The MOD does not achieve anywhere near the sort of efficiencies that commercial operators such as Cunard or Royal Caribbean achieve.

The MOD and the UK Government’s considerations ought to be about what maximises industrial and economic benefit to the UK as a whole, but they have failed to incorporate that into their processes for making these critical decisions. To give a classic example, modelling done by the Confederation of Shipbuilding and Engineering Unions makes it clear that if major shipbuilding programmes were procured in the UK, the return of wage and supplier payments to the Exchequer would effectively achieve a 20% net material discount. The prosperity of those programmes would flow back into the UK economy instead of being bled out into another country.

[Frank Field]

The hon. Gentleman described the order for eight frigates earlier. Before the first world war, there was the great cry for dreadnoughts—“we want eight and we can’t wait.” Whatever the size of the Government’s programme, is not one of the problems the reliability of the dates for when they start commissioning the programme, which is very important for the longer-term future of shipbuilding? Is it not also about, with this phase, the confirmation that they will give a role in bidding—and therefore a chance of winning—to yards such as Cammell Laird’s, which has done so well recently in helping to build defence orders, but also in winning a major merchant contract, which I think is the first for a British yard in 20 or 30 years?

[Mr Sweeney]

The right hon. Gentleman makes a very important point. Britain became a pre-eminent naval power because its industry was pre-eminent and because it was an innovator. That is what we need to get back to. The national shipbuilding strategy is trying to achieve that, but it falls short on how it will deliver it, because it militates against the very objectives it is trying to achieve. Industry needs certainty of capacity, so that it can invest with a degree of vigour in shipbuilding.

I talked about HMS Lancaster and the launch of the Type 23 frigate, which was my first ship launch, as a babe in arms, at Yarrow’s in Scotstoun. Sir Bob Easton was chairman of Yarrow’s at that time and made it quite clear that the Type 23 frigate was being bid in batches of three. It was Swan Hunter versus Yarrow. In 1990, Bob Easton said, “I am currently employing 2,500 people in my shipyard. I can employ them until the end of 1991. If I don’t get an order next year, I am making 1,000 of those people redundant, and that is the stark reality of what I am facing. It is not just about the jobs. I would like to invest in a new covered shipbuilding facility. I would like to invest in modernised plant machinery, but the business case does not stack up, unless I know for sure that I am going to be building all of those Type 23 frigates.”

The same issue is playing out today. The national shipbuilding strategy harks back to the same mentality, driving the same behaviours. Whether it is Cammell Laird or BAE Systems, they will not be able to say that they have a prescription for a world-class frigate factory, as it was dubbed, or a modern dock hall covered facility. They will not be able to make that business case stack up. They will not be able to put their shareholders’ money into that and to finance it, unless there is the certainty on the horizon that they will be building the entire programme, and unless there is legal certainty that that will happen. Without that certainty, companies cannnot make the investment and we therefore cannot get the operational efficiencies that deliver the savings and the cost reductions that would enable the Royal Navy, ultimately, to build a larger fleet. That is the virtuous cycle that we ought to be striving towards. Unfortunately, the strategy document undermines it.

When it comes to Type 31, the same point is still an excellent one. By bidding it in blocks and spreading it around the country, we lose the critical mass and do not get the certainty that would allow a shipyard such as Cammell Laird’s to invest in building a production line of Type 31 frigates, in parallel with a production line of Type 26 frigates. Ultimately, we want to get to exactly what the Americans do. They have been building Arleigh Burke cruisers since the 1980s; they have built the exact same ship in a consistent way for the last 30 years or more.

[Carol Monaghan (Glasgow North West) (SNP)]

The hon. Gentleman is making a very good point. Does he agree that we were promised 13 frigates in 2014, not eight plus five general purpose ships? The shipyard workers in both Scotstoun and Govan have been hugely let down by those broken promises.

[Mr Sweeney]

I thank the hon. Lady for Glasgow—

[Carol Monaghan]

North West.

[Mr Sweeney]

Glasgow North West. It was much better when we had the proper place names for constituencies.

[Carol Monaghan]

Anniesland.

[Mr Sweeney]

Yes, Anniesland. I was one of those shipyard workers at the time. I agree that certain understandings were given about investment. Indeed, the bulk of Scotstoun shipyard was demolished on the premise that it was going to be rebuilt as a new modern dock hall. I was personally involved in the project to design it; my personal investment in that project is second to none. However, it has to be recognised that the Clyde has certainty to the 2030s, although we need to go further in making the most of the opportunity we have.

I understand from the MOD that its ultimate aspiration would be to build Type 26 frigates in perpetuity if it could—if it had that certainty of financing and planning. Then we could be certain that the Clyde would always be the centre of production for those larger frigates. That would mean that other yards around the UK, such as Birkenhead, could focus on smaller projects, such as the Type 31, which could form a critical mass of a learning curve and a productivity enhancement, and secure the investment that would make it excellent at building those ships and more likely to win overseas orders as a result.

[Frank Field]

A strategy like that, with unit costs coming down, would allow us to compete seriously in the export market.

[Mr Sweeney]

Unit costs ought to come down but the problem is that the way that the shipbuilding strategy is defined makes it more likely that the cost reductions will not be maximised. That is a great shame, because it undermines the aspirations of the strategy.

I am a vice-chair of the all-party parliamentary group on shipbuilding and ship repair, and we hope to bring forward a report on the strategy very soon. It will highlight some of the opportunities to improve it, because we all share the same aspiration. We want to see a world-class industry in the UK that has the certainty to invest. We want a world-class product that is cost-effective enough to grow the size of the Royal Navy.

[John Spellar (Warley) (Lab)]

My hon. Friend rightly focuses on warships, but it is also about the civilian ships for the Ministry of Defence. Unlike every one of our European competitors, the Ministry of Defence stubbornly insists on advertising abroad. There is a point about maintaining a competent workforce and the drumbeat of production, as well as the supply chain and the supply ecosystem, which is so important for sustaining all the yards. Can my hon. Friend find a logical, rational explanation for why the Ministry of Defence refuses to behave like every other European naval country?

[Mr Sweeney]

My right hon. Friend’s point goes back to that made earlier about the Treasury’s behaviour. I feel that this is almost about an economic orthodoxy that drives behaviour and says that we must maximise competitive tendering for the sake of it, because there is some sort of axiom that it works because it does. That approach does not bear scrutiny. Shipbuilding has the highest barriers to entry of any major industry in the world. It is a hugely capital-intensive industry and the only way to make it work, and the only way to get to a world-class, market-dominant position—much like with aerospace, where, as we know, the Americans and Europeans built their own champions in the form of Airbus and Boeing—is by having that synergy between Government, industry and the research and development base that makes it work. That is what we ought to have with shipbuilding in the UK. Fragmenting it in the way proposed in the national shipbuilding strategy serves only to undermine the UK’s long-term sovereign capability in shipbuilding. It is the primary sovereign interest of the UK to have that capability. We are an island nation, a nation of islanders and shipbuilders, and we ought to maintain that capability.

There are critical issues at stake here. We have already heard that Appledore, owned by Babcock, is due to close in March, which will be a devastating blow to the local community and to the UK’s wider defence manufacturing base. It is yet another shipyard to fall. Once it falls, it will not recover and be reopened—that is a simple fact. Once it is gone, it is gone. Despite the recent contract announcement at Cammell Laird, it is also completing an HR1 notification form and making significant redundancies. That is very unfortunate, and speaks to the point about feast and famine. We cannot have these cycles in capacity any more; we need to smooth the cycle as much as possible.

In the context of major shipyard closures and significant downsizing, whether that is at Rosyth or Appledore, it is bizarre that the Government are quite happy to tender contracts overseas in international open competition. Under article 346 of the treaty on the functioning of the European Union, the Government could quite easily designate the industry as UK-protected. It is entirely at their discretion. Any notion that their hands are tied is bogus. They could do that, smooth the production cycles and build a firm and stable footprint for UK shipyards, which would enable them to get match fit and then go out into the world and compete effectively for other orders. That is exactly what they do in Italy with Fincantieri, and what they do in France with DCNS. It is exactly what happens in Germany.

I do not understand why other European Union member states can achieve the same objectives much more effectively than us, but we are so holier than thou that it hurts when it comes to the zealous application of these EU rules and we seem to undermine our own industrial base and our prosperity as a result, meaning that communities are broken and skills lost. Ultimately, we undermine our objective of building a more resilient and effective industrial base to serve our defence industry and, potentially, commercial spin-offs.

Barrow-in-Furness is another example. The gap between the end of the Vanguard programme in the 1990s and the beginning of the Astute programme meant that the shipyard was essentially unable to build a submarine and they had to go to General Dynamics in the United States to be retaught how to build them. That is what we risk losing again if we are not careful.

[John Spellar]

It was surely not just the design capability and the managerial capability, but the actual day-to-day work experience and the work teams that have been created and then broken up. It took 12 to 24 months to rebuild that capability and was hugely expensive. The Ministry of Defence and the Treasury have still not learnt that lesson.

[Mr Sweeney]

My right hon. Friend makes a very prescient point. There is no calculation of the opportunity cost when those skills are lost or of how much it costs to build them back up. The feast and famine cycle is hugely costly and inefficient, and the national shipbuilding strategy risks going back to that pattern. I think that is a critical point that the Minister really ought to address in his remarks about the national shipbuilding strategy.

Let me make it clear that we are all here to try to deliver the best outcome for defence infrastructure in the UK—we are trying to get to the same end goal. We are trying to offer the best of our understanding and experience of these issues to inform this document and improve it as much as we can, and it is fair to say that we want to achieve the same objectives.

We have also seen the development of a combat air strategy—the Tempest programme—which is laudable and looks promising, but there is a lack of an overarching objective on defence. We have already lost the capacity to build large fixed-wing aircraft through the cancellation of the Nimrod programme, which was done hastily by the disastrous 2010 strategic defence and security review and means that we have permanently lost that capability in the UK. Similarly, we have lost the capacity to build main battle tanks.

What else is at risk, and where is the risk profile of the sovereign capabilities that will be lost? What is expendable and what is indispensable? That is not defined in the national shipbuilding strategy, where there is talk of potentially putting the Type 31e combat management system out to international tender. Why do we not define what the key sovereign capability is—not just in the shipbuilding programme, but in aspects of its critical supply chain, including gearboxes, gas turbines, combat management systems, weapons systems and so on? We need to have that granularity of detail in the national shipbuilding strategy, but it is not there. That leaves it open to interpretation and extreme gerrymandering by the Ministry of Defence.

Those are the key issues that we have to highlight, whether they are across land, maritime—I am biased towards maritime, which I have focused on heavily—or aerospace. I am sure that other Members are willing to contribute and add their own thoughts to this debate, but essentially that is an overview of my main concerns about our UK sovereign capability and the risks to sustaining it.

[Several hon. Members rose—]

--- Later in debate ---

[Luke Pollard (Plymouth, Sutton and Devonport) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Glasgow North East (Mr Sweeney) on his superb oratory.

We are back here again: the same people are largely in the same chairs making the same arguments, although we have a different person in the Chair—you are very welcome, Mr Hollobone—and a different Defence Procurement Minister. I think he is the third since I was elected. We made effectively the same speeches to the previous Ministers, but he should not worry: these are good speeches with good arguments, and I am sure he will enjoy hearing them.

I think that we have a good Minister now. His freshness to defence means that he will bring a new approach to procurement decisions, and I hope that that will yield different results. We need different results, because our sovereign defence capability is at risk. I do not say that lightly, because I know that people who wish our country ill listen to these debates. We must present a strong and forthright position, and we must ensure that our military has the best equipment, the best training and, importantly, a supply chain and support structure that enables it to continue to operate at a high level. Russia is on the rise—it is increasing its threat to our country and making incursions into our airspace and waters—and China is growing its ambitions in the far east. The risk of state and non-state actors threatening the UK’s interests and those of our allies is high.

I will focus my remarks on the Royal Navy, about which much has been said. As the MP for Devonport, I would perhaps be expected to do that. The Royal Navy has suffered the greatest ill done to our sovereign defence capability. It could be said that that is also true of fixed and rotary-wing aircraft, and to Army equipment, but the Royal Navy has suffered the biggest impact. The shipyards that support our Royal Navy are not just about concrete, steel, bricks and mortar; they are about the people and skills, which must be invested in and grown over time. We have had holes in our procurement exercises in the past because there has not been a constant stream of investment in our shipyards. Although we do not build ships in Devonport, we refit them, and we need a constant stream of ships to be refitted to ensure we keep up our skills. That is why it is so important to get the Type 26 and Type 31 right.

I congratulate the Government on what they have done in supporting the industry to sell the Type 26 overseas. I hope the Americans adopt the Type 26 as a platform for their future frigate procurement, which they are struggling with at the moment. The Type 31 is an example of what we need to get better at. There was great potential for it in the national shipbuilding strategy. We need more hulls that can do defence engagement work, station keeping, and the forward deployment roles that are so important in our Royal Navy, while maintaining the high-end capability of the Type 26.

As hon. Members know, I have a problem with calling a Type 31 a frigate. I would much prefer it to be a world-class corvette, rather than a rather poor frigate. I normally use more colourful language, but I will mind my p’s and q’s in this Chamber. We need to sell the Type 31 as the best in class. That would make our international allies want to buy it, rather than one of the plentiful array of small frigates and corvettes that are on the market. The Type 26 shows that people want to buy high-end British technology. The procurement delays and the disruption in the procurement process over the summer do not give us much confidence in the procurement of the Type 31s.

We also need to look ahead. Over the past year, since I and many others in this House were elected, we have been fighting to save HMS Albion and HMS Bulwark. Other Members who would have been here if they had turned up might have claimed the success of the campaign to save those vital capabilities from being cut. Now that we have done that, we must ensure that we plan for suitable replacements for them. If Albion and Bulwark will go out of service in 2033 and 2034 respectively, we need a plan to build their replacements in UK shipyards. That is important, because it builds on the battle to ensure our Royal Fleet Auxiliary ships are built in UK shipyards, too.

We must maintain our sovereign defence capability to build such complex warships. I regard an RFA fleet solid support ship as a complex warship—the Government may stick it in a different column of their spreadsheet, but given that it has the roles and the capability of the RFA, I think it is a complex warship, and it should be built exclusively in UK shipyards.

[Mr Sweeney]

Will my hon. Friend give way?

[Mr Philip Hollobone (in the Chair)]

Order. I cannot stop the hon. Gentleman intervening, but, including his summary at the end, he will have had 26 minutes of a 60-minute debate. I have to call the Front Benchers at 5.7 pm.

--- Later in debate ---

[Mr Sweeney]

I thank the Minister for his reply and thank right hon. and hon. Members who have contributed so effectively to the debate. In reply to the Minister’s last remark about the need to maintain the UK’s sovereign capability to build complex warships being arbitrarily restricted to frigates, destroyers and aircraft carriers, the only reason we can build those ships in the UK today is that the last Labour Government placed an order for an auxiliary ship, the RFA Wave Ruler, at Govan shipyard in 1999, which enabled that yard to continue in operation. Also, there are five River class batch 2 patrol vessels being built at Govan to sustain production there until the Type 26 kicks in. By utilising those less complex, but none the less complex, warships to smooth the build cycle, we can retain the skills, infrastructure and critical mass we need to build complex warships including frigates, destroyers and aircraft carriers. We must look beyond that arbitrary restriction and maximise the purchasing power of the Ministry of Defence to deliver UK sovereign capability in the long term. We should broaden our horizons.

Question put and agreed to.

Resolved,

That this House has considered UK sovereign capability.