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Shipbuilding (South Coast)

11 am

Mr. David Chidgey (Eastleigh): I am pleased to have an opportunity to lead this important debate on shipbuilding on the south coast. Hon. Members of all parties with constituencies in that area and further afield share my concern about the potential destruction of an industry that has been a major factor in our regional economy for many years. The hon. Member for Portsmouth, North (Mr. Rapson) has already sent his apologies for not being able to attend. I am sure that many of those present are hoping to contribute to the debate to reinforce our widespread concern, and I hope that they will not take offence should I refer to their constituencies in passing.

Shipbuilding on the south coast has a long and illustrious history. Not for nothing is Portsmouth known as the home of the Royal Navy. From the very beginning, the south coast of Hampshire has been a major centre for warship building. Centuries ago, the New Forest provided the hearts of oak for the old wooden hulls. Nelson's Victory and many other ships of the line were built in the shipyards along our coast. The tradition has lived on throughout the centuries with the naval port at Portsmouth and the commercial port of Southampton becoming the prime drivers of economic success in our region. A wealth of engineering and manufacturing industry has developed around those two great ports, ranging from building railway locomotives in my constituency of Eastleigh to manufacturing submarine and power cables in Southampton and Eastleigh and an advanced electronics industry.

As a student apprentice in the Portsmouth dockyard back in the 1960s, I was part of a work force of more than 22,000. The Vosper Thornycroft yards at Portchester and Woolston employed at least another 5,000 people. All those yards were, at that time, building ships for the Royal Navy. Together with the port of Southampton, the victualling yards, the armaments depots and the range of support services for the naval and merchant fleets, the industry in our region employed approximately 100,000 people. It is no wonder that Hampshire had, and still has, the most defence-dependent economy of any shire county.

Underpinning the shipbuilding industry was a large, well-trained and highly skilled work force. At any one time, some 1,000 apprentices were under articles in Portsmouth dockyard, and there were at least a further 300 at Vosper Thornycroft, providing a constant stream of new talent for the industry. It is a matter of record that shipbuilding in the United Kingdom has seen massive decline. Over the past 60 years, the tonnage of merchant ships being completed in British yards has fallen from more than a quarter of world tonnage to approximately 1 per cent. According to a paper produced by the Shipbuilding Forum, our merchant shipbuilding industry has been reduced to:


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Dr. Julian Lewis (New Forest, East): Does the hon. Gentleman agree that the Government could have helped Vosper Thornycroft in Southampton by giving an assurance about the type 45 programme, which the company has desperately been seeking?

Mr. Chidgey : The hon. Gentleman anticipates some remarks that I hope to make strongly and lucidly later. If he will bear with me, I am sure that he will support my comments.

An industry that once boasted dozens of firms building warships throughout the United Kingdom is now reduced to two prime contractors: BAE Systems in the north and Scotland and Vosper Thornycroft in the south.

I can well understand the concerns of hon. Members with constituencies in the north of England and Scotland, where shipyard jobs have become dependent on MOD orders, but I am equally concerned about the need to retain and strengthen competition in this specialist industry, to foster innovation and to ensure that the Government and the taxpayer get the best value for money. I am sure that hon. Members will realise that that concern is shared not just by employees and employers but by trade unions, who as a matter of policy agree that competition is best for our industry.

Mr. John Burnett (Torridge and West Devon): My hon. Friend cites a number of shipyards, but I ask him to bear in mind Appledore shipyard, which is in my constituency. It is globally competitive and an excellent shipyard that provides excellent value for money at the smaller end of shipbuilding.

Mr. Chidgey : I well understand my hon. Friend's robust and reliable support for the excellent shipyard in his constituency. Appledore has a sound reputation throughout the world, but if he can recall, I spoke of prime contractors for shipbuilding, which is why I said that there are just two. Of course, much fine work is done at Appledore, which works closely with shipbuilders in my area, and long may it continue to do so. While I share the concerns of hon. Members whose constituencies are in the north of England and Scotland, my role today is unashamedly to put the case for shipbuilding in the south--the home of one of the two remaining warship prime contractors.

A recent book entitled "Warships for the World" states:


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Mr. Iain Duncan Smith (Chingford and Woodford Green): The hon. Gentleman mentioned the trimaran. Members of the public may not realise that one of the other participants involved in that programme is the United States, through the Darpa Organisation. Interestingly, the Americans placed the order for that advanced design and test vehicle in the shipyard to which he refers. That should not go unnoticed.

Mr. Chidgey : The hon. Gentleman must have visited the Woolston shipyard not so long ago to have such detailed information. He is absolutely right. The Americans are watching this exciting new development with great interest, and are, I understand, providing much of the instrumentation that will assess and evaluate the vessel's success.

As I have said, shipbuilding is important for our region. Our economic development agency says that defence and marine technology are major business sectors in the south-east, with high growth and high value potential. That is why SEEDA is working so hard with the industry and with key groups such as research institutions and training providers to develop a favourable economic and competitive environment, but it needs Government support to do that. In particular, competition needs to be encouraged and sustained in the defence market. That is crucial, because it keeps the pressure on improved productivity and cost control, which benefits not only taxpayers but the competitiveness of UK firms as a whole in an increasingly robust export market.

The benefits are clear. We have in Vospers the United Kingdom's leading warship exporter, with some 273 ships supplied to 34 countries in the past 30 years, and £1.5 billion worth of export orders won in the past 10 years. That statement may sound like it comes from a

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company brochure, but it comes from our economic development agency, which appreciates the value of the industry in the heart of our region.

Vospers is at the heart of a cluster of marine industries with world-class potential. The marine sector includes many small firms, which are often technology based with high growth potential. The presence of the company, with its direct link to the naval procurement programme, stimulates innovation among many suppliers. Severing that link would jeopardise the technological investment on which competitiveness increasingly depends. The impact will be felt not only in my constituency but among a vast catchment of firms that operate in the south coast maritime industry cluster. That is why SEEDA launched and supported the campaign for south coast shipbuilding. It brings together private companies, local authorities, Members of Parliament and members of trade unions in a partnership approach. It is an excellent example of how an economic development agency should work, and I applaud its efforts.

Vospers and the other marine engineering companies have a bright future in the south-east. They can maintain and create many business opportunities and jobs, given the right support. We want the Government to support that vision through fair competition, not preferential treatment. To use a hackneyed but vital phrase, we merely want a level playing field. We want to be able to compete equally with the others.

In the region, shipbuilding and repair involves eight companies that account for £225 million a year in turnover. Shipbuilding and repair secures £100 million a year in exports, and employs more than 3,000 people in the south-east. It is a growth industry worldwide. Some 2,400 new ships are built every year worldwide. I understand that the Department of Trade and Industry is keen to double shipbuilding and increase ship repair by as much as 30 per cent. in the United Kingdom. The south-east plays a major part in the sector.

Further shipbuilding losses will have a knock-on effect throughout the entire marine industry sector, including ports such as Southampton, where port-related activities contribute £1.3 billion a year to the local economy, and more than 10,000 direct and 6,000 indirect jobs would suffer severely.

The process of shipbuilding and repair and yacht building in the region has led to the development of several world-beating educational institutions. Southampton has its Oceanography institute and its university and other support organisations such as Marine Tech South, all of which have come from the support of the marine engineering industry cluster.

In spite of the decline in British shipbuilding, it is a growth industry worldwide, and our shipbuilders should be out there competing for a stake in a rough, tough marketplace. That is why the Government, the home market customer, should use their purchasing power to ensure that, through fair competition and the award of warship contracts, the industry develops, innovates and becomes more productive. That can be achieved only through competition.

I endorse the Government's claim that they intend to do precisely that--foster and enhance competition in the industry. They say frequently that they support competition generally and within the UK defence

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market--specifically for the type 45 destroyer programme. In a Ministry of Defence memorandum dated 25 February 1998 to the Select Committees on Defence and on Trade and Industry, the Government stated:


The Government's introduction of smart procurement does nothing to change that, because it encourages the development of partnerships with industry. Ministers and officials therefore continue to emphasise the importance of competition. It is against that background that companies in the defence industry have to make major investment and employment decisions. The declared Government strategy for the type 45 destroyer programme is in line with their general policy.

It was with delight that we heard the announcement of the order on 11 July last year when the Secretary of State for Defence said:


The Secretary of State and many of his colleagues have repeated those views. The Minister may recall that on 12 February 2001 he stated:


The Government previously expressed considerable support for competition in the type 45 procurement programme, but in another memorandum provided to the Defence Committee, the Ministry of Defence stated:


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On page 56 of the Defence Committee's eighth report--Session 1998-99--the MOD went on:


In answer to a question that I tabled, the Minister will recall that he said:


The fig leaf that the Government are using to hide their embarrassment seems to be the proviso that fair work share on the first of class for the type 45s depends on the prime contractor, BAE Systems and the two subcontractors reaching agreement. BAE Marine and Vosper Thornycroft must reach agreement on cost and risk sharing. However, by awarding the DFM contract to BAE Systems without first insisting on a back-to-back contract with BAE Marine and Vosper Thornycroft for the subcontract work, the MOD has put all the aces in the hands of BAE Systems. In that game of poker, all that BAE has to do is raise the stakes and sit tight. Vosper Thornycroft is running out of construction work and shedding 100 or so workers as every month goes by, so it is obvious that, in six months' time, it may no longer have the capacity to bid effectively for type 45 work.

Incidentally, one reason why Vosper Thornycroft is short of work is that it subcontracted the construction of two new multi-role survey warships for the Royal Navy, worth £130 million and sustaining 800 jobs for about three years, to the Appledore shipyard in the constituency of my good and hon. Friend the Member for Torridge and West Devon (Mr. Burnett). Vosper Thornycroft did that because it expected to need the capacity in its yards for the promised work on the type 45 destroyers. To use a common phrase, that is being shafted--if I may use such an expression in this context.

Dr. Julian Lewis : Propeller shafted.

Mr. Chidgey : That might do. I will move swiftly on, Mr. Cook, rather than incur your disapprobation.

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We often talk in this place about low politics, which seems to come with the territory, but there is also such a thing as low commerce. There is no doubt in my mind that BAE Marine submitted its unsolicited bid for the type 45 destroyer with the benefit of knowledge of Vosper Thornycroft's expertise and intellectual development. I have been in industry long enough to know how important those aspects are in retaining one's competitive edge and that we do not give away our skills, techniques and intellectual property lightly. Surely that knowledge was revealed only when the two companies were working together under the Government's instructions to collaborate for the first of class ships for the type 45 destroyer. It is naive to believe that Vosper Thornycroft would have revealed its expertise in, for example, modular construction, without the assumed protection of the Government pledge that it was to be contracted to design and build the second type 45 destroyer and would be substantially involved in the first and third.

More times than I can remember, Ministers have replied to questions of a similar ilk by saying that that remains the Government's preferred strategy for fair work sharing on the type 45 or that it is their intention that Vosper Thornycroft should undertake a significant amount of the work. If the Government sit back and wait until September, when decisions must be taken on the construction programme for the type 45, the only game left in town will be to negotiate a contract directly with BAE Systems Marine. Shipbuilding in the south of England will have been destroyed and with it any effective competition for warship building in the United Kingdom.

I do not blame BAE, which is pursuing a sound commercial strategy in the interests of its workers and shareholders. The Government must take the blame for allowing the strategy to succeed against the interests of competition, the warship building industry and the taxpayer, who will foot the inflated final bill.

The Under-Secretary is a gentleman who shows great patience and carefully considers the questions put to him. Rather than giving us the usual Front Bench platitudes, I hope that he will give a firm commitment that the Government will discard forthwith the unsolicited bid for all 12 type 45s from BAE Systems Marine as anti-competitive, and instruct the chief executive of the Defence Procurement Agency to intervene on the DFM contract and insist that negotiations with Vosper, stalled by BAE, will restart immediately. I hope, too, that the Government will instruct the chief executive to redefine reasonable cost parameters for work-sharing strategies under the DFM contract in the light of his letter dated 31 January, which stated:


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In case hon. Members are in any doubt about BAE Systems' ambitions in this regard, I shall quote from the company's briefing setting out its warship building strategy. It states:


If Ministers continue to ignore our pleas and avoid the issue, they will be responsible for closing the most profitable and innovative shipyard in Britain. Safeguarding the future of shipbuilding on the south coast is vital; it will benefit the Royal Navy, the taxpayer and the entire British shipbuilding industry.

Several hon. Members rose--

Mr. Frank Cook (in the Chair) : Order. It has become common practice--indeed, almost an agreed protocol--in 90-minute debates that Front-Bench Members commence their winding-up speeches 30 minutes before the end of the debate. As so many hon. Members are rising, I appeal for brevity.

11.30 am

Dr. Alan Whitehead (Southampton, Test): I will not repeat the detailed comments of the hon. Member for Eastleigh (Mr. Chidgey) on the issues surrounding the debate. Instead, I wish to emphasise that shipbuilding on the south coast concerns not only Southampton or Portsmouth, but the whole economy of our part of the world. The issue should not be viewed as a contest between the south coast and the north of England because it concerns the future strategy on defence procurement and the building of warships in the United Kingdom. As the hon. Member for Eastleigh set out, that strategy is particularly well served by ensuring that the contract for type 45 destroyers is delivered on the basis of the existing strategy of smart procurement, which involves Vospers and BAE sharing the work.

Anyone attending a football match in Southampton--which is, these days, a particularly successful premiership club--is struck by the fact that Southampton fans usually sing songs directed not at the opposing football team but at Portsmouth football club, whichever side Southampton is playing. I am sure that the same happens at Portsmouth football club--albeit with smaller crowds. People outside the area might think that Southampton should fight for its shipyard and therefore oppose Portsmouth on that issue. However, Members representing Southampton and Portsmouth constituencies are united in their concern. My hon. Friend the Member for Portsmouth, North (Mr. Rapson) is unable to be present, but he has done an

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enormous amount of work on the issue. A range of people of all parties in our part of the world is united in the wish to ensure a future for shipbuilding on the south coast, wherever it happens to takes place. I am sure that we all agree on that important point.

The hon. Member for Eastleigh set out a number of the substantial spin-offs that arise from shipbuilding on the south coast. It is important to the local and regional economy, jobs and skills. Many of the people who worked at Vospers and have obtained jobs elsewhere have enhanced the south coast's ability to build a first-class range of ships, not just Vospers warships. Shipbuilding is also important, as I said, to our national defence procurement strategy because we need to ensure that competition is maintained in the procurement of defence vessels. That creates a problem in regard to smart procurement, however, because only two contractors in the UK can effectively undertake the work for UK warships--assuming that one wishes to keep it in UK yards. The Ministry of Defence obviously feels that that is important and I thoroughly subscribe to that. It is difficult to conceive of perfect competition when only two yards or companies are competing, because they will know about each other's strategies and activities. Indeed, one may believe that those two yards should continue to provide competition, but the idea that one puts the other out of business, thereby extinguishing competition, undermines that principle. A smart procurement strategy therefore needs to be developed.

I found it particularly encouraging that the Government's strategy for the delivery of type 45 destroyers took the issue into account. They decided that the first three ships should be built jointly by the two yards so that the learning curve would be jointly steepened. Competition would then proceed from the end of the building of the third of class, and the overall objective of building the best ships at the lowest price over a period of time would be achieved. That sound and sensible strategy was set out to the Defence Committee last year. It was confirmed in an Adjournment debate before Christmas and was recently underlined to my right hon. Friend the Member for Southampton, Itchen (Mr. Denham) and me when, together with a number of workers from Vospers shipyard, we spoke to a Defence Minister.

The strategy depends on the simple observation that there will be two yards for the entire period of the procurement of 12 vessels. If at any stage one yard ceases to exist, the whole strategy will be undermined. The appointment of a prime contractor is important to ensure that knowledge is shared at the end of the development of the third vessel and competition can proceed. If, as the hon. Member for Eastleigh emphasised, that prime contractor owns two of the yards that are competing for the contract, a problem arises. Obviously, Chinese walls are needed, but how strong and soundproof are they in practice? An unsolicited bid has been mentioned, which suggests that they are not that strong.

I have some sympathy with the Government over receiving that unsolicited bid. Of course they must entertain it. They cannot simply throw it out of the window, as they would be accused of not taking all factors into account in the competitive procurement process. Under the overall logic that has been set out,

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once that unsolicited bid has been entertained, it must be rejected because, by its success, it undermines the whole idea of competition in procurement in shipbuilding. It is important to ensure that the prime contractor does what was agreed and announced by the Government and that we have a genuine period of collaboration on those first three vessels, sharing out the work equally.

There is an important asymmetry in the process. Vospers wants the status quo to be preserved on competition and the procurement process. BAE consistently comes up with suggestions that may change that process. Indeed, The Observer of 25 February reports that BAE has yet again suggested that the Government should simply give it the contracts for two naval support ships. Vospers suggests that a competitive tendering process should be carried out and properly evaluated, with the contracts going to the successful tender.

A strategy that ensures that jobs and skills are retained on the south coast also secures the national interest. It ensures, too, that people do what they said that they would do. That is what we are asking for in this debate, and what Vospers is asking for. At the earliest stage possible, the security of that contract must be ensured so that the prime contractor does not wear down Vospers simply by procrastination. It is in the national interest that first-class ships, which Vospers--along with BAE--has a proud record of building, are secured for the British Navy. The Navy should have those vessels on the basis of a smart procurement contract, which ensures that first-class vessels are built at the lowest price achievable, with the rolling out of a contract over the full life of 12 vessels.

11.40 am

Mr. Christopher Chope (Christchurch): I wish to express my solidarity with the points that have been made by the hon. Members for Eastleigh (Mr. Chidgey) and for Southampton, Test (Dr. Whitehead). My involvement with Vosper Thornycroft goes back some 18 years, during which time we have had a lot to celebrate: the success of the privatisation, the company's role as the lead yard for Hunt class mine sweepers, its continuing success in export markets and the diversification programme, which involved moving into aerospace. Vosper Thornycroft Aerospace is headquartered in Christchurch, in my constituency, so my interest in the firm continues, though in a different location.

Vosper Thornycroft is a strong and successful company. Throughout the years I have lobbied on behalf of the company and, as the Member for Southampton, Itchen, I worked hard at that. The yard was in those days just outside the Itchen constituency, situated in Eastleigh. However, the Government and their officials have tended to take the success of the company for granted and to allocate Ministry of Defence work to less successful and less competitive yards. We encountered that problem on the south coast under the Conservative Government, and I argued strongly with Ministers that we should have a level playing field. I told them that it was counter-productive to give work to less successful and less competitive yards, simply because they happen to be located in the north and in areas of higher unemployment.

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The success of that policy, pursued vigorously by the Conservative Government, has been vindicated. One may consider what happened with the Hunt class programme. The company began by being the lead yard; it would have loved to have the contract for the whole programme, from start to finish, without any competition, but it had to compete each time against another yard. It was successful each time and each time quoted a price much lower than it had been on the previous procurement. The hon. Member for Eastleigh mentioned that over the period of the type 23 programme overall savings were made of about 30 per cent. My recollection is that during the Hunt class programme, it amounted to about 60 per cent. less for the last one produced than for the first one. That was a result of the continual competition throughout the procurement process. It is depressing to think that the Government are even toying with the idea of giving one contract for the entire programme to a monopoly supplier. I urge them to abandon the notion immediately and have faith in competition and south coast shipbuilding.

11.44 am

Mr. Mike Hancock (Portsmouth, South): I congratulate my hon. Friend the Member for Eastleigh (Mr. Chidgey) on having the good fortune to win the ballot and secure this debate. We have already proved that it was needed; there is widespread cross-party support for the view that shipbuilding is essential to our area's history and future. We could become emotional when talking about the past, but for those in jobs there is no future in the past. They must have something to look forward to, and I hope that today's debate will secure that for them.

At present, there is confusion. BAE Systems wants a stranglehold on military shipbuilding in the United Kingdom. It is unhelpful when its company brief states:


Those who have so far spoken in the debate were right to have retraced the history of Vosper Thornycroft and to congratulate the company on its achievements. Its record of success in selling ships overseas was built on the fact that it also constructed ships for the Royal Navy. If a company cannot sell to its own navy, why is it trying to sell overseas? If it is not competitive and good

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enough for the Royal Navy, what makes it believe that it is good enough to sell ships to another country's navy? It is difficult to convince overseas purchasers to buy ships in such cases. One cornerstone of Vosper Thornycroft's success is its ability to sell abroad, which is based on its successful record with the Royal Navy.

When I was a child growing up a stone's throw from the dockyard gates in Portsmouth, 48,000 civilians were employed in the dockyard. The industry was huge. That whole area of south Hampshire relied heavily on what happened in the dockyard. We are down now to fewer than 1,000 directly employed craftsmen in ship repair and maintenance on the naval base. Many of us in Portsmouth saw the relocation of Vospers operation from the Woolston yard in Southampton to the naval base in Portsmouth as a great opportunity--not only, as the hon. Member for Southampton, Test (Dr. Whitehead) said, for Portsmouth, but for the population of our part of south Hampshire, which stretches from the Sussex border to the edge of Southampton Water, along the New Forest coastline.

People will travel to work in such jobs. They do now, and they will in future. The yard's move to Portsmouth gave Vospers something that it did not have in Southampton: the ability to build bigger vessels. The type 45 is a great opportunity for the south coast to come alive again. We must think about the sort of ships that have been built in the dockyard, from the first dreadnoughts to Andromeda in the 1960s, the last ship built there. Vospers has a proud history of shipbuilding and the move was an opportunity to return to it.

I do not want the Minister who makes the decision about the type 45 and offshore patrol vessel contracts to take a Nelson-style approach, and put the telescope to the blind eye. He must not see only one option. Clearly, there are two options that could and should provide an opportunity for on-going competition. If the BAE Systems option is taken, Vosper and Appledore might not be around the next time that the Royal Navy is looking at shipbuilding. We need to grasp opportunities, not squander them. We have a great opportunity to fulfil the Government's ambition, and there are three good reasons why we should.

First, it is good for the UK and good for the Royal Navy for Vosper to be given an opportunity to do what the Secretary of State described on three occasions in the House and before his original statement in the middle of last year when he spoke to the Defence Committee. He gave a commitment that ships would be built in a partnership with more than one company. It is never good to put all the eggs in one basket. If competition is to mean anything, it should be fair and the rules should not be changed because someone decides to put in another bid after the competition was supposed to have closed. I cannot understand why the Government are even considering that option. Having 12 ships built by one company for one price, which would be fixed now, cannot be in the best national interest. It would cost the nation dearly over a 10-year period. There certainly would not be any savings.

Secondly, fulfilling the Government's ambition would be good for the cities of Portsmouth and Southampton and for all the businesses in and around the area that have flourished because of Vosper's success. Thirdly, it would be great for jobs--not only existing jobs but those that will be created if part of the

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contract for type 45 and offshore patrol vessels is secured by Vosper. It would provide opportunities for youngsters who want to develop skills and interest in shipbuilding, which the area would otherwise lose.

This has been an important debate, and I hope that the Under-Secretary will answer some questions. What justification is there for placing orders with BAE Systems Marine without competition? Does he believe that all orders should be subject to proper strenuous competition, which is open to all? Is he aware of other unsolicited bids for shipbuilding construction, about which we have not yet been told? We have been told only about the type 45.

When does the Minister expect the decision to be made? That is the critical issue. We know that the Royal Navy desperately needs such vessels and that at least two companies are desperate for the work. I thought that the Government were desperate for a decision to be made. It is important that the Under-Secretary gives a clear indication that the decision will be made in the near future. Whatever evaluation is being made of the unsolicited bid, I hope that it can be put through the wringer quickly. I hope that jobs will not be lost. The longer the process goes on, the more people will see the opportunities for them to stay in work evaporating. Vosper must be conscious that some of its employees will start to drift away without the opportunity of continuous work. They might take up opportunities to work elsewhere. I hope that the Minister will restore confidence and show that the Ministry of Defence has not written off warship building on the south coast. The people of our area have had a commitment to this country for generations. They were there when the country needed them, and now the country must repay that loyalty. We have played our role in the defence of the realm and we now want to see the Government play fair by the people of Portsmouth and Southampton. The best way to do that is by making a quick decision that brings the second type 45 and at least a share of the offshore patrol vessel contract to Vosper Thornycroft, sooner rather than later.

11.55 am

Mr. John Burnett (Torridge and West Devon): I congratulate my hon. Friend the Member for Eastleigh (Mr. Chidgey). He made some powerful points in an excellent speech. I also congratulate my hon. Friend the Member for Portsmouth, South (Mr. Hancock) and the hon. Members for Southampton, Test (Dr. Whitehead) and for Christchurch (Mr. Chope) on their speeches.

Much of the discussion concerned competition and the fostering of competition. My hon. Friend the Member for Eastleigh made a point that I, gently, correct. He mentioned that only two prime contractors remain for shipping contracts in the United Kingdom, but we at Appledore were prime contractors in 1995-96, when we constructed HMS Scott, the Arctic survey vessel. Had we been successful in our bid for the alternative landing ships logistics contracts--either for one or both--we would have been the prime contractor. We would have extended our covered yard by 50 yd, and we would then have been in a position to tender for larger classes of ships, which the Government knew. They would have then had exactly what they wanted--more yards in the United Kingdom to compete for work.

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My hon. Friend the Member for Eastleigh was right to say that we need fair competition--an ability to compete equally with other yards. After agreeing them, will the Government put the details of successful tenders in the public domain, so that competing shipyards can evaluate them to ensure that what happened was fair and that equity prevailed? The Minister will also be aware that the cost of tendering for vessels is huge. In order to encourage competition, will the Government consider underwriting part of the cost incurred by selected but unsuccessful tenderers?

Appledore has tendered for the contract to build three offshore protection vessels, which will be similar to the two that it has just completed for the Irish navy. I am told that the Irish are delighted with the vessels that we have constructed. Furthermore, I am told that Ministry of Defence officials have been on board at least one of the Irish offshore patrol vessels and were impressed by it. The officials have nothing but praise for the vessels that we have constructed.

Sadly, Appledore runs out of steel-cutting work in August this year, and lay-offs will begin. Appledore has had only one prime contract with the Ministry of Defence in the past 15 years, which was for HMS Scott. Recently, when I met the Secretary of State for Defence with Mr. Jim Wilson, the managing director of Appledore Shipyards, the Secretary of State referred to the HMS Scott contract. He said that Appledore had built a fine ship, on time to a fixed price. He said that he wished that he could say that about most other MOD contracts. All that I and the magnificent work force and management ask is for our tender to be considered on the basis of fair competition and value for money.

11.59 am

Dr. Vincent Cable (Twickenham): My colleagues, especially my hon. Friend the Member for Eastleigh (Mr. Chidgey), have made an elegant and detailed defence of south coast shipyards, and I do not want to duplicate what has already been adequately covered. There are two issues with which the Minister must deal in the broader realm of policy. The first issue concerns competition policy. A dominant firm is dangerous in any industry. That applies as much to computer software as to naval vessels. Dominant firms are dangerous because, ultimately, the consumer suffers a detriment. In this case the consumer is the Royal Navy and, ultimately, the taxpayer. In this industry there is a diversity of suppliers and it has already been explained in some detail why that is an important way of protecting the industry and the consumer from abuse by a dominant company.

My hon. Friend the Member for Torridge and West Devon (Mr. Burnett) has just touched on the other important issue. There is a need for transparent, consistent, above-board processes of bidding and tendering. I was struck by a letter written by five of my colleagues to the Prime Minister a fortnight ago. My hon. Friends the hon. Members for Eastleigh, for Isle of Wight (Dr. Brand), for Portsmouth, South (Mr. Hancock), for Romsey (Sandra Gidley) and for Winchester (Mr. Oaten) wrote to him about the contract. One passage says:


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The matter does not simply exist in isolation; I have encountered the problem recently on other naval contracts, as has my hon. Friend the Member for Torridge and West Devon. A few months ago a series of bids were made for the alternative landing ships logistics contracts. A company in my constituency, along with Appledore, put in a bid for the contract, having had been encouraged to do so by the Ministry of Defence. It went through a detailed and complex process and invested heavily in design and preparation work. The company was then told, at the very last moment, that the bids were not being taken further, for reasons that seemed to have nothing to do with cost or quality. That is why my hon. Friend was so right in insisting that tenders should be published. The participants in the bidding process should be able to see clearly what the criteria are.

Mr. Burnett : I do not know whether my hon. Friend saw the leader in the Financial Times on Monday 30 October 2000, entitled "Sentiment and shipbuilding". He may have noticed the point made at the start of the article to the effect that


Dr. Cable : my hon. Friend has put the point more brutally, but I am sure, much more accurately than I did. We all want reassurance that the bidding procedures employed by the Ministry of Defence will be transparent so as to preserve the values of competitiveness crucial to the long-term viability of the industry. It is unfortunate that the shipbuilding industry has become so highly reliant on the Ministry of Defence. However, it is precisely for that reason that the Ministry must establish procedure that ensures competition and makes certain that any bidding procedures are transparent and commercial.

12.03 pm

Mr. Iain Duncan Smith (Chingford and Woodford Green): Like other hon. Members, I do not want to take too much time as the Minister will want to have reasonable time to respond to the many detailed points that have been made.

I start by extending the usual courtesy and congratulating the hon. Member for Eastleigh (Mr. Chidgey) on securing the debate, although it should be held on the Floor of the House as this is an important matter. I congratulate, too, all those who spoke, many of whom referred to the proud history of shipbuilding on the south coast, although I do not want to talk much about that. In the past, in times of war and conflict, the United Kingdom has relied on vessels built in the shipyards on the south coast. We owe those yards a debt of gratitude, but gratitude is not enough. It is surely about what can be done and how good those who produce such equipment are in the usual competition process.

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We are talking about a serious problem, which highlights the general debate about shipbuilding in the United Kingdom. To take up an earlier point, the debate is not about being against a particular yard in the United Kingdom. I have visited yards in Barrow-in-Furness. I have visited Cammell Laird in Liverpool and Vospers. At Appledore, I met a tremendously gung-ho, go-ahead team who really impressed me and made me believe that shipbuilding had a future in the United Kingdom. It is like that everywhere one goes. Those organisations understand the difficulties; they just want to ensure that there is fairness.

I want to tease out how the Government should approach such contracts. The type 45 contract was announced last July, when it was clear that it was going ahead. As the Minister knows, I welcomed that announcement at the time. I wish to put it on the record again that I welcome the decision and congratulate the Government's decision to end the Horizon programme. It was a difficult decision to make, but it was justified and reasonable. The issue is not one of party politics. To go it alone to produce what is necessary for the Royal Navy was the right decision.

I take issue, however, with a previous speaker who said that the matter is about competition, similar to that in the computer industry. There is a difference. The scale of the market is not the same. Also, the fact that, by and large, the Government are making the purchase, tends to skew the process. We must accept that this is not about the clear competition that one would expect on the high street, but about competition to keep procurement across a range of shipyards and to make sure that the prices are right.

I turn now to the problems faced by Vospers. After the contract was placed, there was a period of silence. In December, the Prime Minister said that the Ministry of Defence had received an unsolicited bid from BAE Systems. Martin Jay, who even now is not that far distanced from the debate, said:


There are two major problems. The decision will not be taken until at least September and construction may not start until 2003. As the hon. Member for Eastleigh said, the longer that drags on, the less likely it is that Vospers will be in a position to offer such competitive tendering and be able to provide the sort of ship that is required as part of that early batch of three. By the time a decision is reached, there may be only one way for the Government to go. Dragging heels over the matter will create a major problem.

I am also aware that Vospers has announced redundancies, which will involve up to 650 employees in the Woolston shipyard. That will have a huge knock-on effect. In the great scheme of things in the United Kingdom, the loss of 650 jobs will not cause a massive raising of eyebrows, but it will have a huge knock-on effect on the south coast in specialisations and skills and in being able to produce the quality of work of which Vospers is capable. It will also have an effect on Appledore, which wishes to continue in shipbuilding.

Securing a portion of the type 45 programme was an important feature for that shipyard and, more generally, for skills in the south coast region. I refer the

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Government once again to their own comments on competition. I know that they have already been mentioned once or twice, but they bear repeating. The Ministry of Defence told the Select Committee:


What is the real reason behind these developments? First, without any doubt, I see the hand of the Treasury at work. Part of the problem precedes the type 45 contract. The Minister will recall what happened to the contract for the roll on/roll off ferry. We warned that allowing four such ships to be constructed in shipyards outside the UK would have a serious knock-on effect on future orders. We can now see that happening.

Yards in Govan and Liverpool rightly believed that they were highly competitive and expected to achieve, within a UK bidding process, at least part of the award of those contracts for ship construction--but they did not. Having wrongly awarded the contracts overseas, the Government then scratched around to look for other vessels that could be constructed in those yards. That put pressure on the south coast: the business went to yards that might not, under usual circumstances, have been awarded the contracts. We now see the same process happening with the type 45. The pressure is on to provide work for yards in Scotland that could have been expected to have a clear programme of work--but did not. Short-term decisions taken a month ago clearly have a knock-on effect for later contracts and for skills on the south coast.

The most bizarre and worst of all reasons is the whiff of pork barrel politics surrounding the decision. Many Scottish Labour Members of Parliament are under pressure, particularly from the Scottish nationalists. They are, quite justifiably, complaining--and I supported them on the roll on/roll off ferry award--that work should have been allotted to those yards and that the effects would be devastating if it were not.

It is no coincidence that the Chancellor of the Exchequer, whose Department is responsible for demanding that the Ministry of Defence carefully examines the unsolicited bid, also happens to originate from the same area and is so close to those whose primary concern is about the next general election. We are all politicians in this Room and we all understand that. It is not as though it has not been done before. The worst aspect is that it was done on the back of bad decisions by the Treasury and has resulted in the impending and serious crisis for shipbuilding on the south coast.

Will the Under-Secretary explain why he refuses to take an early decision on the unsolicited bid? Why will he not return immediately to the Ministry's own guidelines on competition? If he does not, serious problems will arise. He cannot simply gamble that Vospers will be successful enough to survive and that the impact on the south coast will be less serious than the impact in Scotland. That would be a terrible decision, which most people would view as highly political and retrograde.

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I hope that the Minister will rise to declare that he will no longer accept the unsolicited bid, that we should get on with the original order, that BAE should get on with its work with Vospers, that the type 45s will be brought into service as early as possible, and that highly important and competitive shipbuilding should continue on the south coast.

12.14 pm

The Parliamentary Under-Secretary of State for Defence (Dr. Lewis Moonie ): Until the contribution of the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), I disagreed with little that had been said. It is unfortunate that in a debate attempting to shed light on the subject, an Opposition spokesmen for a party that in government single-handedly virtually destroyed our armed forces over a period of 18 years starts whining, complaining, and crying crocodile tears on behalf of an industry for which it did little--certainly during the latter half of its term in office.

I congratulate the hon. Member for Eastleigh (Mr. Chidgey) on securing the debate. I particularly noted his remarks about the long history of shipbuilding on the south coast and its association with the Royal Navy. The shipbuilding industry near my constituency is in a similar position, so like him I am well aware of the long traditions involved. I welcome the opportunity to speak on a subject that is important to all involved in the shipbuilding industry. The hon. Gentleman and hon. Members of all parties have, rightly, articulated their constituents' concerns and, as I said, I disagreed with little. I will endeavour to answer as many of their questions as I can in the short time allowed, although I have to add the caveat that, because many of the matters that we are debating are at a delicate stage of evaluation, I will occasionally be limited in what I can say and so will not necessarily be able offer the complete assurances that they want.

Our commitment to the UK shipbuilding industry was clearly demonstrated in the strategic defence review. We have embarked on the largest warship building programme for decades. In the past nine months, the Government have placed orders for two survey vessels with Vospers, which the company subsequently decided to subcontract to Appledore; a prime contract for the design and build of the first three type 45 destroyers, with BAE Systems as prime contractor; and the design and build of two alternative landing ships logistics--ALSLs--with Swan Hunter (Tyneside). My right hon. Friend the Secretary of State for Defence has also announced that, subject to the negotiation of satisfactory terms and conditions, the BAE Systems marine yard at Govan will receive an order for an additional two ALSLs. As is well known, we intend to contract with Andrew Weir Shipping Ltd., a British-based company, for the 25-year private finance initiative strategic sealift service.

Mr. Hancock : Will the Minister give way?

Dr. Moonie : If I take interventions, I will not get through the necessary points.

I think that all hon. Members would agree that, taken together, those orders and announcements represent good news for the Royal Navy and for our shipyards,

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creating or securing several thousand jobs in yards and ancillary industries. There is more to come: during the next few years, orders will be placed for the follow-on batches of Astute class submarines and type 45 destroyers, and for the detailed design and build of future aircraft carriers. Those will be the largest surface warship projects of recent years. The UK manufacturing industry has an excellent opportunity to participate in advanced technology programmes, which we hope to place for competition across the UK, north and south, reflecting the strengths of individual companies in shipbuilding and other areas.

Our plans also include a programme known as the future surface combatant to replace the current type 22 and type 23 frigates, submarines, and a variety of other vessels. They include the potential supply and support of offshore patrol vessels for the Royal Navy, using money-saving procurement methods. Proposals have been received, including some from Vospers. Those are currently under evaluation and, subject to a satisfactory outcome, we expect to place a contract shortly. The backdrop is therefore healthy--indeed, it is unprecedented in recent times.

Yards with the technical capacity to build naval ships are scattered widely throughout the country, including the south coast. Many of those yards would like to be considered for the simpler type of ship, but advanced warships such as submarines, destroyers and mine countermeasure ships are always likely to require specialist skills and facilities. In the north, for instance, our nuclear-powered submarines have for many years been exclusively constructed at Barrow-in-Furness, whereas in the south, Vosper Thornycroft has established a pre-eminent position in the construction of mine countermeasure ships.

I pay tribute to Appledore shipbuilders of north Devon. With a standing work force of only 540, Appledore has proved that it can make a substantial contribution to shipbuilding in this country. Under subcontract to Vospers, it is building our new survey vessels--highly capable new ships that, thanks to improved sea-keeping, will be able to carry out survey work in the rough waters of our western approaches for about 90 per cent of the year. That work is expected to sustain around 800 jobs with Appledore and its suppliers for the next three years. I encourage the company to maintain its efforts to participate in MOD work, while continuing to seek out commercial and naval work from other customers. That broader customer base should remain a key element of all our shipyards' strategies.

The honourable Member for Eastleigh commented extensively on Vosper Thornycroft, and I shall concentrate mainly on that company. I hope that my summary will allay some of his concerns and those of his constituents about the overall picture. Hon. Members may be aware that the Ministry of Defence recently signed a memorandum of understanding with Vosper Thornycroft to explore further the possibility of the company relocating its steel warship building business from its current location in Woolston, Southampton, to land leased at Portsmouth naval base. That proposal would allow Vosper Thornycroft to expand its facilities

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using surplus assets within the naval base, and increase the extent to which it can participate in the construction of larger warships.

If Vosper Thornycroft decides to proceed with the move, which remains a commercial decision for the company, it will make a major contribution to our drive to modernise and rationalise warship repair and maintenance throughout the United Kingdom. That will contribute substantial savings against the defence budget to fund the front-line improvements outlined in the strategic defence review through the warship support modernisation initiative. It should bring benefits at Portsmouth to the Ministry of Defence and to the company by reducing costs and improving efficiencies, while at the same time improving the support provided to the front line.

As hon. Members know, Vosper Thornycroft is involved in type 45 procurement because of its record as a designer and builder of innovative warships for the Royal Navy and various foreign navies. The company has been building ships at Southampton for more than 100 years, supplying 270 ships to 34 countries in the past 30 years. Its performance in exporting warships is particularly noteworthy: in the past 20 years, it has successfully built ships for the navies of Egypt, Kenya, Oman, Qatar, and Saudi Arabia, to name but a few. Its building of the Hunt and Sandown classes of mine countermeasures ships in glass reinforced plastic for the Royal Navy has put it at the top of the world league for building these extremely sophisticated warships.

The Vosper Thornycroft group is a fine example of diversification, having used the experience it gained in shipbuilding to expand into new markets and reduce its dependence on warship contracts. That effort has been highly successful, with 67 per cent. of the group's turnover in the last financial year unrelated to new ship contracts. I am pleased that Vosper Thornycroft still wants to continue shipbuilding and its commitment so far to the design of the type 45 destroyer is evidence of that, as is its commitment to reforming its facilities to undertake the efficient building of those vessels.

We appreciate the shipbuilding community's anxieties about the lack of short-term work, despite the orders that have been placed by the Government. Bearing in mind the inevitable fluctuations in the ordering pattern for Royal Navy warships brought about by their long service life, we review the capacity of United Kingdom shipyards to undertake our forward programme, but it is not an exact science. The change to more modern methods of modular construction, the differing mixes of skills required for particular ship types and the way in which any particular shipbuilder will undertake the work make precise projections difficult. There is sufficient capacity in current UK shipyards to undertake our requirements, but that capacity cannot be sustained solely on the order book from Her Majesty's Government. That is why we give the strongest support to naval export orders.

We shall continue to seek to adopt commercial best practice whenever possible in design, manufacture, maintenance and marketing. We hope that that will allow predominantly warship yards to take on commercial work and vice versa, to assist in smoothing out peaks and troughs. I stress that adoption of commercial practices does not mean that we will relax

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any element that would compromise our ships' ability to perform their operational role. Operational effectiveness remains paramount.

The Government have a clear interest in maintaining a competitive and efficient shipbuilding industry. However, the first concern of the Ministry of Defence must be to provide our armed forces with the best possible equipment at the best value for money for the taxpayer. It is up to the yards themselves to be as efficient and productive as possible to compete for Ministry of Defence contracts and for other orders. Our order book, even on the scale now in prospect, cannot sustain the UK shipbuilding industry on its own. Ministry of Defence work provides an opportunity; companies with shipbuilding interests must reach beyond that for commercial and export work, which will in turn feed back into greater efficiency in a virtuous circle. That is, and will be, the most effective mechanism to ensure job security.

The shipbuilding situation changes frequently for many reasons, including the pressures placed on yards in a highly competitive market. That is not new. The important thing is to win the orders. Vospers won the order for the survey vessels and decided to subcontract the construction of the vessels to Appledore. Changed circumstances, however, have left it with a shortfall of steel construction work in the short term. The Government can and will provide strong support to shipbuilders in their search for other customers, but we cannot compensate for a lack of success in securing orders from them.

I said that I would talk about the unsolicited bid that we received from BAE Marine Systems for an alternative procurement strategy on the type 45 programme. For some time, the Government's policy has been to maintain a competitive base for warship building within the United Kingdom. The uncertainty that that causes for jobs is well understood and it is clearly a worrying matter for the work force both at Vospers and on the Clyde. As with any proposal that may offer better value for money for the taxpayer, we are bound to consider it, so we are doing so carefully, looking at the full range of issues that such a proposal raises in consultation with other Government Departments. The prime contractor has now passed his assessment of the proposal to the MOD.

I should like to give a clear statement about the outcome of our assessment, as hon. Members have requested, but I cannot. The assessment and evaluation of the bid is continuing and no decision has been made. We will come to a decision on that difficult issue as soon as possible, and I assure hon. Members that they will be informed of the outcome at the earliest opportunity.

Mr. Chidgey : I understand the Minister's problem, but can he tell us whether the Government are in

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discussion with BAE Systems on developing a long-term warship building strategy in partnership with the company? If so, is any other company being invited into those discussions?

Dr. Moonie : As far as I am aware, that is not part of the current discussions, which focus purely on the bid. Obviously, it is part of the company's long-term strategy and no one can blame BAE for trying. It is operating in the same commercial environment as everyone else.

Returning to the other points made by the hon. Member for Eastleigh and by my hon. Friend the Member for Southampton, Test (Dr. Whitehead), I can assure hon. Members that the prime contractor's work is closely overseen by the Defence Procurement Agency. In addition, Vospers has clear visibility of the developing design--indeed, it is leading the technical design team. That is working well. Work that Vospers is to undertake on first of class is clearly understood by the prime contractor, by Vospers and by Marine, and the contract pricing reflects that. That has not changed since it was articulated by the Chief of Defence Procurement on 21 December last year.

Vospers has agreed that it is difficult to contract while the design is immature. It has joined with the prime contractor and Marine to develop a detailed cost model for type 45 to allow a commitment to be made to it by September and enable its investment to go forward. That work is going well. It is to be reviewed in the next couple of weeks by the Defence Procurement Agency, by Vosper, Marine and the prime contractor. I can assure hon. Members that although the process might appear to have stalled, it is still progressing satisfactorily. That is of no great comfort to a yard that has a temporary shortfall of work, but there is nothing that we can do about that. The time scale for the steel construction was always fairly fixed. The hiatus is unfortunate but it is not the fault of the DPA, the Ministry of Defence, nor the company involved in the type 45 process. We are doing our best to move matters forward.

The prime contract for the first three ships was placed last December. It assumes a division of work between Vospers and BAE Systems Marine that will allow them both to gain experience and compete effectively for subsequent ships. That remains our intention. We are evaluating the bid from BAE Systems. In due course, when it has been fully evaluated, I will report on the results.

Mr. John McWilliam (in the Chair ): Time is up. Before I call the hon. Member for Halifax (Mrs. Mahon), I should like to say that although I do not know who the young lady was who handed a piece of paper to the hon. Member for Torridge and West Devon, but as she was not a Member or a Doorkeeper, that was grossly out of order.

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