National Shipbuilding Strategy

Steven Paterson Excerpts

Wednesday 8th February 2017 Westminster Hall

[Steven Paterson (Stirling) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Evans. I congratulate my hon. Friend the Member for Dunfermline and West Fife (Douglas Chapman) on securing this important debate. The timing could not be better, given the revelations about the cost of UK defence projects in all forces, not only the Navy. I want to raise two points. The first is about our priorities. They are set in the national security strategies and should flow into the strategic defence and security review and the Government’s priorities in this area. The second is the effect of the recent National Audit Office report on procurement for large defence projects and the affordability of the national shipbuilding strategy that we anticipate.

The national security strategy and the SDSR should inform the procurement process and, because of that, the national shipbuilding strategy. However, there seems to be a logical inconsistency in how that is applied. In paragraph 75 of the SDSR, the Ministry of Defence is quoted as saying that the document will

“determine priorities for investment to ensure that the UK has a full suite of capabilities with which to respond to defence and security threats”.

Page 67 identifies the three tiers of domestic and overseas risks, grading them as tier 1, 2 or 3 threats,

“based on a judgement of the combination of both likelihood and impact.”

Taking that at face value, the National Security Council has identified terrorism, international military conflict, cyber, public health, major natural hazards and instability overseas as the tier 1 threats facing the UK. That exercise having been undertaken, one would have thought the resources would follow the perceived threats and their perceived likelihood, but that does not seem to be the approach followed by the Ministry of Defence, particularly in the present case.

[Douglas Chapman]

Does my hon. Friend feel that the amount of resource going into the Dreadnought programme is skewing all other budgets and making the Minister’s job of preserving our surface ship fleet much more difficult?

[Steven Paterson]

Yes, I think that is a concern that many of us have—that the priorities identified in the risk assessment done for the document I have quoted are not being followed in Government spending. Perhaps that is why there has been delay after delay in the project.

[Mr Kevan Jones]

Does the hon. Gentleman also recognise that the Dreadnought programme is putting money into the Scottish economy? A success story in that regard is that Babcock is doing the missile tubes at Rosyth.

[Steven Paterson]

If we are going to take the SDSR process seriously and look at the assessment of what we need for the defence of the country, we must deal with tier 1 threats first—that is why they are tier 1 threats. Clearly, if we are to meet the threats identified, the shipbuilding programme is essential.

As my hon. Friend the Member for Glasgow South West (Chris Stephens) noted, the Government promised that 13 Type 26 frigates would be built on the Clyde, then revised that substantially, to eight, with five multi-purpose frigates. At paragraph 90 of its report on the 2% level of spending by the Government, the Defence Committee correctly identifies the risk to the Type 31 programme:

“Should...the ‘concept study’ to investigate the potential for a new class of lighter, flexible general purpose frigate be unsuccessful, we wish to be informed at the earliest opportunity of the MoD’s contingency plans to deliver the extra ships to satisfy the total originally promised.”

The Government’s response to those concerns merely indicates a willingness to keep the Committee informed. We are looking for some more concrete answers from the Minister today. Furthermore, we still await confirmation that the frigates will be built on the Clyde. Should that not occur, it will be a betrayal of the Clyde workers, as my hon. Friend said. They would be entitled to feel betrayed; it would threaten the yards’ capacity to deliver complex warships in the future and would undermine the UK’s ability to meet the challenges identified in its own national security strategy and the SDSR.

My second concern is that the shipbuilding strategy will not be affordable. I am concerned that there will be further backtracking on the commitments. It is fine to have a strategy, with many large new procurement projects, but if there is no money to actualise the strategy, what is the point in the exercise? According to the National Audit Office’s report “The Equipment Plan 2016 to 2026”—which the hon. Member for North Durham (Mr Jones), among others, has already alluded to—the price of the plan has ballooned by 20%, to £82 billion, in a single year. That means that the Department has allocated all headroom previously set aside in the plan, removing all the flexibility to accommodate additional capability requirements. That is why we need reassurance today.

Given that the Type 26 project started at a projected cost of £343 million per hull, according to the 2015 major projects report, and is now £1 billion per hull, according to oral evidence to the Defence Committee, the MOD does not have, and never has had, a proven track record of acquiring big-ticket items on time and on budget. Rather than dealing with those pressures in the past, it has pushed the programmes further down the list and allowed service dates to slip, exactly as has been described today.

[Mr Jones]

Does the hon. Gentleman agree that there is added pressure on the defence budget because of Brexit, in terms of the value of the dollar, which is made worse when we procure large-ticket items from the United States?

[Steven Paterson]

The hon. Gentleman must have read my mind, because I am coming on to say that point 18 of the NAO report summary states:

“Changes in foreign exchange rates, such as those that happened after the EU referendum, can pose a significant risk to the Plan’s affordability in the future. As at 10 January 2017, the pound was 21.4% below the exchange rate with the US dollar and 4.2% below the exchange rate for the euro used in the Department’s planning assumptions. Approximately £18.6 billion of the Plan is denominated in US dollars and £2.6 billion in euros over 10 years.”

That will have a major impact.

I understand that the Department has a certain amount of protection against foreign exchange rates in arranging its finances, but does it not worry the Minister that such a large amount of the plan is predicated on foreign exchange rates, with the Government appearing to be gambling that the rate will not go up further? Given the Government position that economists cannot be trusted, which is what many current Ministers said during the recent referendum—and going by even a cursory look at the financial predictions before Brexit—can we really have any confidence that the envisaged programme can be afforded? That is why we need reassurance today.

The shipbuilding strategy is long overdue and, given the current state of the Department’s books, it is badly needed to provide clarity for those working in shipbuilding and those monitoring our national defence readiness going forward.

[Martin Docherty-Hughes]

My hon. Friend will correct me if I am wrong but, to take F-35s as an example, they are 85% built in the United States, and therefore bought in dollars. That is critical when we reflect on the impact of the fall in the pound compared with the dollar.

[Steven Paterson]

Absolutely. That illustrates the point very well. I hope that the Minister will reassure us today about the Type 26 programme and the Type 31 programme, about the ships being built on the Clyde as promised, and on the affordability of the shipbuilding strategy that the Government will hopefully soon present. Finally, I hope that by the end of the debate we shall know with certainty when the overdue shipbuilding strategy will be published.