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Westminster Hall

Wednesday 19 December 2001

[Sir Michael Lord in the Chair]


Motion made, and Question proposed, That the sitting be now adjourned.—[Mrs. McGuire.]

9.30 am

John Robertson (Glasgow, Anniesland): Given that this country is an island, it may not be surprising to learn that shipbuilding has been one of our main industries for many centuries. This country built its standing through its naval strength and its merchant trade throughout the world. Although times have changed, ships are still a necessity in Britain and the world. Someone once said, "If you wish to see the future, then look at the past." If anyone does not understand that saying, it means that history has a way of repeating itself. In this case, I certainly hope that it is true. In today's debate, I want to consider the need for shipbuilding in general, why we in Britain need to build ships, the impact of current Government policy and the direction in which it should go.

Some hon. Members will consider shipbuilding from the perspective of their own part of the country, and with that in mind I shall use the Clyde as my main point of reference. At its peak, shipbuilding on the Clyde employed more than 100,000 men. During the end of the 19th century and the early 20th century, the yard constructed some of the world's largest ships. In 1879, it showed its skill in building transatlantic liners such as the Arizona. Two years later, it built the Alaska, followed by a host of other ocean-going vessels of the same brand. By 1914, it was fully integrated into the war effort, and was to build 50 warships, 24 destroyers and 9 submarines. Even during the inter-war years and the great depression, the yard remained an important part of Britain's economy. In the 1930s, it built 24 destroyers and a string of other vessels, and was to make a huge contribution to the war effort.

In modern times, the picture is rather different. As recently as 1960, nearly 200,000 workers were employed in British shipyards, but by 2000 that figure had declined to some 30,000. Before the first world war, the UK merchant fleet was the biggest in the world, accounting for 42 per cent. of the world's tonnage. By 1938, it accounted for 26 per cent., and rapid decline led to the building of only 1 million tonnes of commercial shipping in 1965. By 2000, that figure was down to 104,000 tonnes. The history of shipbuilding in Britain in the past century is therefore one of sad decline.

If one compares those statistics with worldwide figures, a rather disturbing picture begins to emerge. In 1995, Spain built 47 ships, but in 2000 it built 91. In 1995, the United States produced 26,000 gross tonnes of shipping, but in 1999 it produced a staggering 185,000 gross tonnes. Although it is true that countries other than the UK have also experienced decline, overall worldwide figures show a steady rise from more than 22.5 million gross tonnes in 1995, to 31.5 million gross tonnes in 2000.

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Although, as everyone in the industry knows, those figures do not take into account the problem of excess supply, we must recognise the fact that the industry is growing worldwide. A White Paper written by the shipbuilding forum in 1998 describes the UK industry as a

In today's market, there is not much requirement for such work in Britain, but there are reasons for it. Various problems have led to a decline in the industry. In 1983, the then holding company British Shipbuilders was privatised under the British Shipbuilders Act 1983. Subsequent events in the industry saw the piecemeal sale of British Shipbuilders' individual assets. The privatisation of Scott Lithgow in 1984 was followed swiftly by the sale of other yards to the private sector. In July 1984, the then Secretary of State for Trade and Industry announced his decision that British Shipbuilders should dispose of those parts of the corporation engaged wholly or mainly in warship building. They included Vickers, Yarrows, Vosper Thornycroft, Hall Russell, Brooke Marine and the composite yards, Cammell Laird and Swan Hunter.

A big problem facing the warship yards in the early 1990s was a significant reduction in Ministry of Defence orders as part of the peace dividend and the collapse of the Soviet threat that had once been perceived. Companies sought to survive the new era. Cammell Laird, for example, responded by changing its status to a mixed yard to allow it to tender for non-naval work. It could therefore apply for European Union grants for aid to shipping. Two years later, however, its owner, VSEL, announced that it would not be seeking orders once the current ones had expired.

Who can tell, in an uncertain world, especially in the light of recent events, when we might need to use our naval forces? The problem is that we privatised but did not modernise. Our yards are in poor condition, which does not help them to seek new contracts. Let us look at the situation in Germany. Its yards are of good quality and, under EU regulations, it has applied for subsidy. That is to subsidise not the industry, but the yards, which has been crucial. Does the Minister agree that it is time for the UK to follow that example?

Because the yards in Germany are in better shape, it costs less per person to produce each tonne, and the process is quicker. Fewer people are needed, and Germany can undercut the UK in its bid for contracts. Arguably, the strength of the pound has also played a part in that. Joining the euro, and stabilising the comparative costs, would also help.

In October last year, the MOD ordered six vessels, worth £240 million in total. Two went to the Belfast shipyard Harland and Wolff but the other four went to Germany. I understand that the two ferries that went to Harland and Wolff are the only orders that it has on its books—a further example of the industry's sad decline. The Govan and Scotstoun shipyards missed out on the bid, and although they won an order to build two MOD ferries worth £150 million there were doubts about the Clyde's future.

At the time, concerns were expressed that, although Govan and Scotstoun had been handed something of a lifeline, the old problems remained about when the work

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would commence, and whether there was already sufficient work on the books to bridge the period until it did. As a result, last summer, 1,000 redundancies were announced just as the orders were awarded for the type 45 destroyers.

Another competitor, South Korea, is the world's largest shipbuilder with some 40 per cent. of the world market, compared with 29 per cent. in 1997. It has been suggested that South Korea has won orders at prices below production costs, by using funds from the International Monetary Fund. Although those allegations have been strongly denied, the EU has agreed that member states need to collect evidence of any anti-competitive behaviour. Can the Minister tell me what those investigations have achieved so far, or whether, as has been suggested, they have been swept under the table so as not to cause offence?

The UK must be in a position to compete on a level playing field, which, at the moment, is not the case. In March 2001, my hon. Friend the Minister for Employment and the Regions, then the Minister for Competitiveness said:

In his reply, I would appreciate an update on that point so that I can ascertain the progress that has been made.

European shipbuilding regulations are important. In 1997, the Commission proposed refocusing aid for shipyards to improve competitiveness by moving away from operating aid towards other types of support. The measures include restructuring aid for structural adjustment, closure aid including aid to mitigate the social effects of shipyard closure, regional investment for upgrading existing yards—I suggest that the Minister looks at that—and investment aid for innovation and environmental protection.

Our shipbuilding industry, especially on the Clyde, is dependent on military orders. The Clyde was once the name in world shipbuilding, but after the latest job losses there are fewer than 3,000 workers in two yards. The loss of the roll on/roll off ships to the German yards was a body blow to shipbuilding, as they were for military use, but under EU rules they were classed as non-military vessels and were put out to tender both inside and outside Britain. We cannot compete with German yards because they are more efficient and competitive than ours. Would those orders have been lost if 1980s Governments had invested in yards instead of closing them? Although the Government have helped by placing orders for type 45 frigates and alternative landing ships logistics, the size of the industry is shrinking year by year on the Clyde.

My questions are open to all, but the Minister and the Government must answer them. Has the time come to subsidise our industry and break EU rules? Should we consider ring-fencing our shipbuilding? Should we copy the Germans and upgrade our yards? Should we accept the ultimate demise of the industry and buy from the cheapest market? What do other countries do? We must examine other European countries, America and Japan, which have all grasped the obvious advantages of subsidy and investment. Our failure to do so has left UK yards at a competitive disadvantage.

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How can we compete? Do we want to be at the mercy of market forces or shall we dictate what happens? Is it time to consider the industry as a whole and put together a policy for the 21st century? Skilled labour cannot be replaced because training takes years. If we lose shipbuilding's skilled workers the industry will not be resurrected. A decision must be made now, not later, on whether we want a shipbuilding industry. If we do, we must take control and support it by working in partnership with companies and the work force. We shall be able to compete only when we have modern equipment and the best-trained work force in situ as that would allow us to see how or whether shipbuilding works.

The alternative is to have no shipbuilding in Britain, which would mean the loss of an industry that once had tradition and pride. What price can be placed on the loss of our greatest heritage? We must look at the overall picture to ensure sustainability in the long term.

Mr. John Lyons (Strathkelvin and Bearsden): I am grateful to my hon. Friend for giving way. In terms of sustainability of the industry, does he agree that diversification is important? For example, sustainable energy and the wind farms will be important issues in the next 10 years. We currently import all wind farming equipment from Scandinavia. That could be an important consideration in terms of diversification.

John Robertson : I thank my hon. Friend for making a good point. He is right that we must examine diversification, but how can we provide financial support for that under European rules? I agree with my hon. Friend, but at the end of the day we still have to concentrate on shipbuilding.

We need to look at an overall picture to ensure sustainability in the long term. We also need to ensure that there is sufficient work available so that lifelines do not need to be thrown. We need to examine all the issues that lead to decline, as well as subsidy and financial support, training and productivity, the quality of our yards and future sustainability.

Shipbuilding has a proud history, but that does not mean that we do not need to apply modern practices to ensure its survival. In fact, not doing so could mean that there is no future for the industry at all. The costs to this country of losing the industry are manifold. The first, and perhaps most obvious relates to job losses, which I have already discussed. There is also the issue of national security if our naval vessels are built abroad. We do have a proud shipbuilding heritage and we need to keep it alive.

The Government are taking the issue seriously. The Ministry of Defence has said that the forward shipbuilding programme for the Royal Navy is going to be the largest for many years, reversing the decades of decline. There is a plan to bring 30 new ships into service over the next 15 to 20 years. These will include two large carriers, up to 12 type 45 destroyers and three new Astute class nuclear-powered submarines. The procurement programme also involves major enhancements to our naval support. In 2003 there will be two new multi-role survey vessels in service, and two new landing platform docks. What pleases me most is that the Ministry of Defence has said that these vessels will be built in the UK yards.

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Britain was once the master of the waves; we were the seafarers others aspired to be and the yardsticks by which others measured themselves. We have given up that leadership. Do we want to be just another buyer, or do we still have aspirations to lead by example? If we can resurrect the industry, and make it once again the envy of the world, then let us do it. If we cannot or will not, then it is time for the Government to say so.

9.47 am

Mr. Michael Weir (Angus): I congratulate the hon. Member for Glasgow, Anniesland (John Robertson) on securing this debate. It might surprise him that I agree with much of what he said.

It may seem strange to hon. Members that someone from a predominantly rural constituency is speaking in this debate. The biggest ship that was ever built in my constituency was a fishing boat, and it has been years since many of those were built. I would say in my defence that my grandfather worked in the shipyards in Dundee, when they existed. Nowadays, however, as the hon. Gentleman has pointed out, most of Scotland's shipbuilding is concentrated on the Clyde in the two yards in Govan and Scotstoun.

One of the problems affecting shipbuilding nowadays is an undeserved image problem. Many people seem to think that shipbuilding is what used to be referred to as a smokestack industry, something old-fashioned and out of time, a throwback to a lost industrial age. Indeed, in the not too distant past one Minister referred to it as a metal bashing industry.

I came across a good example of this recently. Members from the west of Scotland will know that there is a plan to develop the former John Brown yard in Clydebank for retail use. A newspaper report stated:

That speaks of shipbuilding almost in the past tense, but as the hon. Gentleman pointed out, nothing could be further from the truth. Shipbuilding is and should be very much a part of a modern high-tech industrial landscape. Indeed, it should have a bright future. The shipbuilding industry on the Clyde has problems with the modernisation of its yards, but it is a modern industry employing very highly skilled and flexible workers. Some 4,000 people are employed directly in Clyde shipbuilding and many more are dependent on it.

When we think of shipbuilding, we seem to see grainy old films of John Brown's and launching the Queens. However, in recent years the yards in Govan have built a prototype command ship for launching communications satellites into space and an oil drill test well vessel for drilling and processing oil on board. That is very much at the forefront of Scotland's high-tech economy, and shows that shipbuilding can move into the 21st century and be viable. However, it needs help from the Government, which is where Government policy comes in.

The shipbuilding industry, like many of Scotland's high-tech industries, is under threat. The recent announcement of the orders for type 45 destroyers and ALSLs was welcome, and it would be churlish not to say so. However, there are still to be redundancies at the

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yards at Govan and Scotstoun, the exact scale of which is not yet clear. It is also not entirely clear how much work is guaranteed to those yards. At the time of the announcement of the type 45 contract, it was stated that it would guarantee work for the next decade, but more recent estimates have given a shorter time scale. How do the Government envisage that current work on the Clyde will provide employment in the future?

We must ask ourselves why an efficient, high-tech industry with a skilled, flexible and dedicated work force is facing such difficulties. There are many reasons, as the hon. Member for Glasgow, Anniesland said. Some are under the control of the Government but, to be scrupulously fair, some are not. It is noteworthy that when Kvaerner announced its withdrawal from shipbuilding back in April, a spokesman stated that the strength of the pound had had

That problem may become more widespread with the introduction of the euro into much of mainland Europe next month, and it will go far beyond shipbuilding. The Government must give serious consideration to the impact of the euro on our manufacturing industry.

When the Secretary of State for Defence announced the contract for type 45 destroyers earlier this year, he said:

In other words, our shipbuilding industry cannot rely on Government orders alone. As I understand it—the Minister will correct me if I am wrong—the Government can favour UK yards only if the order is predominantly military. As the hon. Member for Glasgow, Anniesland said, that creates problems where there is a mixed use for the ships that are being ordered—for example, ro-ro ferries.

Many shipbuilders in Scotland and other parts of the UK complain about the fact that they do not compete on a level playing field. I am sure that the Minister is aware that the global competition faced by other shipbuilders is often seen as unfair. For example, it has long been alleged that South Korea is illegally subsidising its shipbuilding industry using IMF loans and allowing yards to run at a loss. However, it seems to be difficult to substantiate that, so can the Minister tell us what progress has been made by the European Union in investigating the matter? It is of great concern for Govan, because it is part of a consortium bidding for an extremely valuable contract for ro-ro ferries and one of the other bidders proposes to build the ships in Korea.

Shipyards in Scotland do not have the ability to get such help. The shipbuilding intervention fund expired at the end of last year, and there is now, officially at least, no Government funding for shipyards available anywhere in the EU. Scottish shipyards are still at a disadvantage, as Germany was able to invest in shipyards in the former East Germany following reunification. That gave their shipyards a much more modern infrastructure by which to compete with Scottish and other UK yards. We are often told that the industry is held back, so it is essential that the European Union takes up the matter of Korea if Scottish and other European shipyards are not to be put in jeopardy.

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Like many other hon. Members, I have met representatives from Govan and Scotstoun during the past months and have been impressed that the shipbuilding workers have bent over backwards to ensure that yards remain viable and efficient. Clyde ships are renowned throughout the world, and have been for nearly two centuries, for being superbly built. There is still a future for that industry provided there is a level playing field, which is not asking too much for shipyard workers. If Government policy is anything it should be to work with the European Union to get rid of the perceived unfair practices operating in other nations so that everyone is on a level playing field. If that happens, the Clyde and other UK yards will get the orders and be able to survive as a high-tech industry into this century and beyond.

9.55 am

Mr. Frank Field (Birkenhead): I congratulate my hon. Friend the Member for Glasgow, Anniesland (John Robertson) on winning time to talk about shipbuilding. He presented the subject so comprehensively that many of our speeches will be shorter than they would have been. However, that allows me to concentrate on the absence of shipbuilding in my constituency. If my hon. Friend the Member for Redcar (Vera Baird) contributes to the debate, I know that she, too, will want to comment on its absence in her constituency.

The background to the closure of shipbuilding on the Mersey is as follows. Cammell Laird went into receivership and there is no dispute over whether the Royal Bank of Scotland should have sent it into receivership. However, I want to discuss the bank's role in the closing down of shipbuilding in Merseyside and in the destruction of highly skilled jobs in my constituency from that point onwards.

Before I acquaint hon. Members with this sorry and horrid tale, I have two comments. First, the Cammell Laird yard and its businesses were sold to A&P shipbuilders, which is responsible for a number of jobs around the country. I do not want to harm the well-being or future of that company, because it is totally separate from the charge that I want to make against the Royal Bank of Scotland. Secondly, I want to highlight the role that the trade unions played in our yards when they were told that closure was inevitable. They were led by the chairman of stewards, Dave Hulse, and a small team of fellow stewards. I think that I can say, without contradiction, that had our trade union movement been led by people of that quality in the 1970s and 1980s, we would not have needed the Thatcher reforms and this country would have been even richer than it is today. Those people are the silver lining to the black cloud that I am about to describe.

Once the receivers, PricewaterhouseCoopers, were appointed by the Royal Bank of Scotland, they were called in and began their work. Hon. Members should also know that the Royal Bank of Scotland not only sent in the receivers, which it had the right to do, but that, through its equity arm, it owns 85 per cent. of A&P. The receivers then asked for a series of bids. Towards the end of that process, one of the groups bidding for Cammell

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Laird's Birkenhead yard was told by the receivers that they were mindful to go for a bid that embraced not only the Birkenhead yard but the yards in the constituency of my hon. Friend the Member for Redcar. That bidder, who was backed by the Mersey docks and harbour board, then asked whether the receiver would allow it to go into the Redcar yard and it agreed to do that within days of learning that the receiver wanted to sell the yards on both sides of the country to a single bidder. I believe that that was arranged on the Wednesday or the Thursday. The following day, despite the receiver having agreed that the Mersey docks and harbour board would go over the other yard on Sunday evening so as to begin its work, to value it on Monday and then, on Monday evening or first thing Tuesday morning, to submit a new bid, the receiver decided to sell to A&P on the Friday, a day or so after agreeing that timetable. I remind hon. Members that 85 per cent. of A&P is owned by the equity arm of the Royal Bank of Scotland.

I therefore asked two questions: one of the receiver and one of the Royal Bank of Scotland. I asked the receiver whether he was satisfied that he had accepted the most generous bid for the assets he was selling. The receiver declined to give an answer. I also asked the Royal Bank of Scotland a simple question: did it directly or indirectly try to influence the receiver in the decision to which he came on the sale of the yard and, particularly, did it influence him to sell to A&P knowing that the bank had not only appointed the receiver but owned 85 per cent. of A&P through its equity arm? The Royal Bank of Scotland also refused to answer the question. I suggest that it did not answer it because it did not wish the answer to be made public. My charge against the Royal Bank of Scotland is that behind the scenes in a squalid, dirty little move it decided that it was in its best interests to sell the Cammell Laird yards to A&P, although that may not have been in the best interests of my constituents or the shareholders of the Royal Bank of Scotland.

I am raising the matter now not because companies do not behave in that way, but because the Royal Bank of Scotland dines out on a particular image. It sells itself as the bank that cares about its customers, the bank that cares about the industries that it supports and the bank that cares about the people who work in the industries for which it holds the purse strings. As the Member for Birkenhead, I find that image high cant and I give notice that this is merely the first occasion on which I shall raise the matter in the House of Commons. Henceforth, I shall seek every opportunity on the Floor of the House and in this Chamber to raise the conduct of the Royal Bank of Scotland and its squalid little moves that destroyed jobs in my constituency.

If anyone believes that this is merely a one-off performance, I beg them to look at my track record. Most of the campaigns with which I have been involved have lasted 10 years or more. If necessary, I will continue this campaign for 10 years or more and to see out the present occupants of the board of the Royal Bank of Scotland. As the campaign gets under way, I shall seek every opportunity to raise questions about their conduct and every opportunity open to a Member of Parliament of Member to highlight the difference between the image on which they dine out—on which they attempt to win extra business—and the reality behind that image and how it has operated in my constituency. The board may

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decide that it would be easier to get off the treadmill and allow those who wish to buy the Cammell Laird yard—and the yard in the constituency of my hon. Friend the Member for Redcar—to do so. There are bidders who want, almost immediately, to allow our constituents to return to work. The board will realise that that would be the more sensible decision and the House of Commons is quite good at providing a face-saving formula to enable it to do that.

I am grateful to be called to speak in the debate. It is not the first time that I have participated—in my 22 years in the House—in a shipbuilding debate when there has been no shipbuilding in Birkenhead. There will be shipbuilding in Birkenhead again, but we have to prise the dirty little fingers of the Royal Bank of Scotland off the assets of Cammell Laird. I will pursue—for as long as it takes—the Royal Bank of Scotland's wretched, squalid deal, that it thought it had got away with, and which destroyed jobs in my constituency. My aim is not to damage the Royal Bank of Scotland or its employees, but for the bank to behave properly, sensibly and nobly in its own interests and those of my constituents.

10.6 am

Vera Baird (Redcar): I am grateful for the opportunity to speak. I, too, congratulate my hon. Friend the Member for Glasgow, Anniesland (John Robertson) on securing the debate. His excellent exposition will shorten my speech considerably. However, I urge him to be more optimistic. Twenty-four thousand people are directly engaged in shipbuilding, ship repair and conversion in the United Kingdom. A further 50,000 are employed in the subcontract, supplier and support industries. The UK shipbuilding and repair industry generates between £1.6 billion and £2 billion per annum for the economy. United Kingdom yards compete strongly for orders, and build between 25 and 30 merchant vessels a year. I have been informed by Mr. Brian Slade of the Association of European Shipbuilders and Shiprepairers that there are, in total, more than 100,000 seagoing merchant ships. The association has assessed that, for the remainder of the decade, there will be a need for some 2,000 vessels to be delivered annually and that 80 per cent. of those will replace vessels that are no longer seaworthy or capable of economic operation. Ship maintenance, repair and conversion on a global basis is thus worth about £6 billion per annum and continues to be big business. It is important that the United Kingdom has an appropriate share of that.

The British shipbuilding industry, along with other traditional heavy industry sectors, has changed enormously over the past 30 years. It has declined, and is no longer the world market leader. However, I agree with what the hon. Member for Angus (Mr. Weir) said earlier. Decline is far too frequently uppermost in people's minds when considering the industry. That is an unhelpful approach. There is a perpetual danger that the fact that we are no longer the world leader will prejudice those who could support and encourage the industry into thinking that it is a sunset industry. It is not.

In the face of overwhelming market forces, primarily that of Korea—which has already been adequately alluded to—the industry in Europe has retrenched into more sustainable market sectors, and has moved away

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from that competition. Leaving aside warship production, in which the UK is a world leader, the industry in Europe covers the highest technological segment of world ship production. There are many examples, such as sophisticated passenger ships, advanced container vessels, ferries, ro-ro ships, multipurpose and shuttle tankers, offshore platforms and floating production, storage and offloading units, chemical and gas carriers, high standard fishing vessels and the manufacture of small and specialised ships.

The United Kingdom has a worldwide reputation for repair and conversion work. Europe is a world leader with about 40 per cent. of the global market and the UK is now one of the top three converters in Europe. Conversion is often a viable alternative to new build, especially in some specialist market sectors. There is no doubt that the United Kingdom can continue to be strong in shipbuilding and that shipbuilding can continue to make a positive contribution to our economy. That is particularly so in regions such as my constituency, where such work has been traditional and skills and expertise continue to subsist. While building 25 to 30 ships a year, British yards have the overall capacity to build as much as that again. If the Association of European Shipbuilders estimates that about 2,000 new ships per annum will be required over the decade, it is reasonable to aim to increase the UK's share of that to more than 50 ships a year.

My primary interest is the South Bank shipyard in my constituency. That working shipyard was closed last April when Cammell Laird fell foul of the Costa Classica fiasco and went into receivership. That had nothing to do with such a viable yard. A short time after Cammell Laird went into closure, a local business man who had managed the shipyard successfully for many years before it became Cammell Laird had offered to purchase it and restart it immediately. It was not a thriving yard at the time of its closure, but he had clear views about the reason for that. The business man had a management team and a pool of skilled labour that he was sure would attract business back to the yard quickly and said that, with some recapitalisation, the South Bank yard could strongly succeed. Smith's dock, as the yard was known formerly, is a byword in the north-east for shipbuilding skills of the highest order. An apprenticeship at Smith's dock was much sought after. The local business man, Mr. Welsh, was a former apprentice from Smith's dock.

Mr. Welsh's bid was not successful. All of a sudden—it seemed to us in Redcar as it clearly did to those in Birkenhead—the yard and other former Cammell Laird assets were sold to A&P. As hon. Members know, A&P is an 85 per cent. subsidiary of the principal Cammell Laird creditor, the Royal Bank of Scotland. The role of the bank in such events has been fully canvassed as an opener by my right hon. Friend the Member for Birkenhead (Mr. Field), who has said clearly that action will not stop. For the Mersey docks and harbour board standing ready and willing to purchase on the Mersey, read Mr. Welsh standing ready and willing to purchase on the Tees when something strange suddenly happened and the opportunity was lost.

There is a clear division between the Mr. Welsh's optimistic view of the yard's immediate potential and that of its current owner, A&P, which has wider company interests and no doubt wider shareholder

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interests. It has a yard on the Tyne and insists that it will be faithful to its employees. It says that it will not put them at risk for the sake of assisting the Tees. It is sometimes accepted and sometimes denied by A&P that it has removed from the South Bank yard all that can be moved, such as welding equipment and the contents of the stores and buildings, including the cutlery from the canteen. I have been told that that was not in order to sterilise the premises, so that no one else can commence a business there and compete with other interests and, still less, that that was asset-stripping.

A&P's management has explained that it makes common sense to use equipment from the South Bank yard in Redcar, instead of buying new equipment for its other premises. Taking that at face value, we hope that the employees of A&P in Falmouth and Southampton, who were clearly unable to eat their food satisfactorily hitherto, are now feeling much better with the assistance of the cutlery that was taken from the South Bank yard in Redcar. They must be glad that Cammell Laird went down just in time so that our cutlery could be trucked down the motorway to them, while they still had the strength to lift their food to their mouths.

Mr. James Wray (Glasgow, Baillieston): Does my hon. Friend understand our anxiety? One of the reasons for securing today's Adjournment debate was that 1,000 people have lost their jobs in Scotland. There has been no scheme for shipbuilding or repairing since 1997. That makes folly of new deals. It costs maybe £1.2 million to keep those 1,000 people on the dole. Surely we should be investing. She says that the shipbuilding industry is growing in the United Kingdom; it is certainly not growing in Scotland.

Vera Baird : That was a helpful intervention for which I am grateful. I must consider the position in Redcar, although there is not a word that my hon. Friend has said with which I do not agree.

A&P says that it will open a shipcare project at the Redcar yard next year. It intends to turn the yard into a depot from which skilled workers will go out to repair and maintain ships while at sea or during their charter, in order to minimise the time that ships spend being expensively maintained and repaired in dry dock. That will employ a few people. I am told that, if the market grows, A&P hopes to work the yard fully again in due course, which does not seem to mean soon.

According to A&P, excessive competition in the European market is holding it back. As hon. Members will appreciate, despite the reservations and caveats that have been expressed about the Royal Bank of Scotland and my scepticism about A&P, the function of a Member of Parliament in such circumstances is to support whoever will generate new business and create jobs. A&P says that the market for ship work in northern Europe is highly competitive and that Governments elsewhere seem far more prepared than the United Kingdom Government to find ways of providing systems in one form or another to help yards win work.

In addition, in Redcar and, I believe, elsewhere, there is a legacy of contamination around dock areas, because earlier generations paid less heed to environmental

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protection than we do today. The clean-up burden can be onerous. A&P makes a case for Government help in both sectors that seems to have a strong and sensible foundation.

We on the south Tees seem to have locally the entrepreneurialism, capital, management, labour and skills to operate a profitable shipyard, yet we do not. The factors that the right hon. Member for Birkenhead explained suggest that we are not allowed to have ownership. Those who do have ownership have an overview of the industry that suggests that if help can be provided soon, the picture for the Redcar shipyard is not pessimistic. I add from my small, local point of view my support for the notion that the Government should reconsider the support that they give the shipbuilding industry.

Mr. David Amess (in the Chair): We have just 42 minutes left. Christmas is approaching, and I should like to call all hon. Members who are trying to catch my eye. I should be grateful if in making contributions they would bear that in mind.

10.18 am

Jim Sheridan (West Renfrewshire): I add my congratulations to my hon. Friend the Member for Glasgow, Anniesland (John Robertson) on having secured the debate. His campaigning work in the field is well recognised by his constituents and mine, and they are deeply appreciative of it.

I may be unique in the Chamber in that I have spent a significant period of my working life in shipyards. I have family and many comrades still working in the industry. Shipbuilding is an industry in which skills have been developed over years. Apprenticeships have been formed, and training has been at the forefront. The people who work in shipbuilding, both men and women—several women work in shipyards now, and make a valuable contribution—have faced up to many challenges. There is little, if any, demarcation in the shipbuilding industry now. That is why it is at the leading edge of competition.

Shipbuilding is a craft of which our country should be proud, and we should support it. For an example of naval work that we depend on, we need look no further than at what our naval personnel are doing in Afghanistan. They are playing a valuable role using ships that were built by British workers.

I should like to focus on defence diversification in the shipbuilding industry. I strongly believe that our industry is too dependent on naval orders. I have argued long and hard for a Government procurement strategy. When the Government are placing defence orders, they should also place a responsibility on the companies to consider defence diversification. Our industry cannot continually depend on defence work. We need to encourage companies to break into and exploit the commercial market, as some of our competitors are doing.

Shipbuilding includes ship repair. Last week, in this Chamber, my colleagues and I met with the trade unions involved in naval bases throughout the United Kingdom. They are extremely concerned about the proposed privatisation of some of the work done on naval bases. Regardless of whether the trade unions are

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luddite in their approach to privatisation—there are arguments for some privatisation—they have a pragmatic view of the issue and they want a level playing field.

The trade unions are happy to meet Ministers and have produced a document that states that they would like to discuss privatisation with the Minister. They strongly believe that their work and that of the naval bases can continue, but privatisation is not a panacea. Will the Minister consider the document produced by the trade unions? Will he meet with trade unions involved in ship repair so that they may put forward their case?

John Robertson : Does my hon. Friend agree that the trouble in the shipyards started in the early 1980s with privatisation?

Jim Sheridan : My hon. Friend is right. Privatisation started the decline in the shipbuilding industry. We need look no further for an example than companies such as Kvaerner, an asset-stripping company that was on the verge of closing shipyards in Glasgow. It was only the Government's help that saved those yards from closing. My hon. Friend is right to say that privatisation is not a panacea in the shipbuilding industry; indeed, it caused the industry's decline.

Those involved with naval bases would appreciate it if the Minister would meet the appropriate trade unions to talk through their concerns and listen to their offers about what they can do to keep the yard open.

10.23 am

Mr. Bill Tynan (Hamilton, South): I, too, congratulate my hon. Friend the Member for Glasgow, Anniesland (John Robertson) on securing the debate, and on the way in which he has presented his case on the shipyards. My hon. Friends the Members for Glasgow, Pollok (Mr. Davidson) and for Glasgow, Govan (Mr. Sarwar) have worked tirelessly on behalf of the shipbuilding industry in Scotland, and I pay them tribute.

The previous excellent contribution contained many serious questions and, I believe, solutions to the problems facing the shipbuilding industry. I declare an interest; I am a member of the Amalgamated Engineering and Electrical Union. I was involved in the shipbuilding industry in Glasgow. It had to reinvent itself to ensure that it is relevant today. The old demarcation lines have been put aside, and the workers have joined together to ensure that they can compete in a world market.

We are talking about history, and the history of the Upper Clyde Shipbuilders. We had a tremendous campaign to save the UCS; it was absolutely vital. I am concerned that we are in the same position today. I listened to my right hon. Friend the Member for Birkenhead (Mr. Field), who said that some of his campaigns had lasted for 10 years. I am here to tell hon. Members that the shipbuilding industry campaign has lasted for 30 years. I wish him well in his campaign in the future. The shop stewards have been here on many occasions to discuss with Members of Parliament the questions and problems that the industry faces. It is right to recognise how important shipbuilding is to the

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people of Scotland and the United Kingdom. Although the Amalgamated Engineering and Electrical Union is campaigning in Scotland, it recognises that a viable shipbuilding industry in the UK is essential to the economy of this country—24,000 people are directly involved in the industry, and 50,000 are involved in subcontract work.

Mr. Ian Davidson (Glasgow, Pollok): Is my hon. Friend, like me, the proud possessor of a Bank of Scotland card, rather than a Royal Bank of Scotland card, and therefore unlikely to be attacked by my right hon. Friend the Member for Birkenhead's fatwa? Would he agree that the problem with shipbuilding is not only a British one but is partly a failure of the European Union to take the case of British shipbuilding and European shipbuilding to the World Trade Organisation? That failure is preventing us from competing with South Korea, which currently sells ships for 40 per cent. less than it costs to make them.

Mr. Tynan : My hon. Friend makes an excellent point. I was going to come on to that in my speech, but I am conscious of time. The South Korean yards have been producing ships on the basis of cost price. We must embrace the argument that the EU should take the matter to the World Trade Organisation. However, I am concerned that we will not do that quickly enough to save the shipbuilding industry. We must consider other methods. The EU does not ensure recognition of a level playing field, and we must convince the EU and the UK Government that there is a need to create such a level playing field when unfair competition has taken place. Unlike my hon. Friend, I do not have a Bank of Scotland card; I have a Royal Bank of Scotland card. Therefore, I may be subject to the campaign, and I shall consider changing it.

Serious concerns exist about the shipbuilding industry, which is a lifeblood for people in Scotland and the UK. We can make progress if the Minister will accept the reality that South Korean yards and other yards in the far east are creating unfair competition for the shipbuilding industry in this country.

10.27 am

Mr. Mohammad Sarwar (Glasgow, Govan): I am grateful for the opportunity to take part in today's debate. I congratulate my hon. Friend the Member for Glasgow, Anniesland (John Robertson) on securing such an important debate and on raising key issues affecting industry on the Clyde and across the UK.

I have a great interest in shipbuilding. Govan is home to Britain's biggest merchant shipbuilder, and has a proud heritage and a reputation for Clyde-built quality. It is the major employer at the heart of my constituency. This year, the rollercoaster ride has continued for the skilled work force in Govan. After a long campaign across Scotland last year, involving Members of Parliament and shop stewards led by yard convener Jamie Webster, we secured its future by winning a major order for landing ships from the Ministry of Defence. Delays in design meant that the gap in the order book was not filled as quickly as planned. Despite being awarded the lion's share of the type 45 orders in July, BAE Systems announced its plan to cut 1,000 jobs on the Clyde at Govan and Scotstoun. Since then, after a

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great deal of effort by Ministers, unions and management, that number has been brought down to 450, and no redundancies will be finalised until next year. None of us wants to see redundancies in shipbuilding. However, two years ago, Govan shipyard did not have an owner. There were no orders in Govan shipyard's order book. There was no future for Govan shipyard. However, because of the Government's help, we managed to secure the future of Govan shipyard, and of jobs on the river Clyde. Steel work began this week on the two ALSLs, providing continuity in employment until July, when work will begin on the six type 45 destroyers on the Clyde. I pay tribute to the skilled and dedicated work force at Govan and Scotstoun, and to their families, for the resolve and strength that they have shown again this year. They worked tirelessly to demonstrate that shipbuilding is not out of date, but that it is a competitive high-tech industry.

I congratulate my hon. Friend the Minister, and the Government, for showing active commitment to shipbuilding in Britain. Shipyards across the United Kingdom have benefited: major orders have been made, and a secure foundation has been laid for the coming decade as a result of the Ministry of Defence's procurement plan, which has led to the type 45 orders, and the refit work at Rosyth on HMS Illustrious and HMS Invincible. However, although that provides a strong foundation for the healthy future of our yards, they cannot thrive on British defence contracts alone. They must compete effectively in overseas markets. Last year, there was an increase of 56 per cent. in global orders for new ships, compared with the previous year. There are real opportunities, if we can win more work from the growing number of contracts. If we are successful in that regard, our shipbuilding capacity could more than double by 2006.

Our shipbuilders are adapting to meet that challenge. Vosper Thornycroft recently announced an increase of almost a third in sales of support services, such as training and fitting. Swan Hunter has brought shipbuilding back to Tyneside. Govan's partner for the ALSL order has 250 apprentices, and does not see any sign of orders slowing down.

On the Clyde, we also take great pride in the fact that apprentices are being taken on for the first time in many years to learn their skilled trade, but there is a real threat to the future of all of our yards. We do not have a level playing field with our competitors. The row over subsidies to Korean shipyards has rumbled on for too long. I recognise that we have been involved in tough negotiations, alongside our European partners, on this issue for the past three years, but unfair trading practices have caused severe difficulties for our shipbuilders. The European Commission has found mounting evidence that state owned and state controlled banks in South Korea have been instrumental in financing unviable shipyard operations, with average losses on orders of 14 per cent.

Last year, Europe won 16 per cent. of orders, compared with Korea's 38 per cent. We do not always bid for construction of the same vessels, but without fair trade our yard will never be able to compete. I urge the Minister to work closely with colleagues across Europe,

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and to continue to exert pressure on Korea to stop unfair subsidies and to encourage real competition in the industry.

Mr. Davidson : Does the hon. Gentleman accept that the case that the industry has presented to the European Commission clearly establishes that the Koreans are cheating in this market, and does he agree with me that it is a failure in European Union policy that the Commission has so far refused to submit the case to the World Trade Organisation?

I also suggest that the hon. Gentleman considers changing his bank to the Bank of Scotland, because I suspect that the transfer of his business will have more impact than the transfer of mine.

Mr. Sarwar : My hon. Friend has made a good point. It is important for the shipbuilding industry that there is a level playing field. The European Commission has done very little.

With regard to the question about banks, my hon. Friend has a card from the Bank of Scotland, but I am glad to tell him that I do not have a card from that bank, or from the Royal Bank of Scotland. Only rich people can afford to have them.

In the past year, concerns have also been expressed by our shipbuilding unions over the differences in support across Europe itself, particularly when Britain is compared with Germany and Italy. I know that the Government will continue to examine measures to address the issue without hindering the competitive edge needed for our yards to flourish in the future. We have a shipbuilding industry with a proud past. We also have a Government that will ensure that our yards have a bright future.

10.34 am

Dr. Vincent Cable (Twickenham): I add my congratulations to those given to the hon. Member for Glasgow, Anniesland (John Robertson). I have a sense of the depth of feeling and knowledge that he and his Clydeside colleagues share. About 30 years ago, I represented a part of Glasgow on the city council that contained workers from Scotstoun and other yards. As the hon. Member for Hamilton, South (Mr. Tynan) reminded us, that was a time of hope because it was a period when Upper Clyde Shipbuilders was occupied and then saved. Alas, that was a false dawn, and the industry has continued to decline. We are all prisoners of our history; I still carry a Bank of Scotland card that was taken out from the Maryhill branch.

An irony of the debate is that I suspect that my constituency in suburban London has more shipbuilding workers than many yards on the rivers Tyne, Mersey and Clyde. That is because we make virtual ships, not real ships. The high value added end of the industry is about computers, simulation and software. Much of that work comes to companies such as British Maritime Technology, which is in my constituency and employs hundreds of workers. My constituency, like the Clydeside yards, hinges on successful British industry.

I turn to the wider context and the underlying competitiveness of the United Kingdom industry. Is the problem that of competition with Europe, or of

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European competitiveness with Korea? The answer is more the former. The brutal truth is that the pound appreciated against all other currencies by roughly 30 per cent. at the end of 1996. It has remained at that level and is, frankly, hopelessly uncompetitive for manufacturing industries that produce price-sensitive products such as bulk ships. There is no way in which British yards can win contracts against other European countries, let alone the far east.

When considering Korea, there is a misunderstanding about the IMF. The IMF does not lend money for shipbuilding but for countries' balance of payments support. During the 1998 crisis, the Koreans got an IMF loan that led to a large devaluation of their currency, which has made Korea competitive. The hon. Member for Glasgow, Pollok (Mr. Davidson) may be correct that cheating and, effectively, dumping is going on. If that is occurring, the case should be brought to the World Trade Organisation.

Mr. Davidson : I assure the hon. Gentleman that the industry has produced a case that European Commission experts accept demonstrates that the Koreans are selling ships at 40 per cent. less than it costs to make them. The money that comes from the IMF allows the Korean banks to write off loans to the Korean shipyards. That allows them to start with a clean sheet of paper. It is a hidden subsidy.

Dr. Cable : If the hon. Gentleman is correct that there is blatant dumping, it is the Commission's job to bring a case to the World Trade Organisation, which exists for that purpose and is a court of law. No doubt the Minister will explain why that action has not been taken.

The constituents of the right hon. Member for Birkenhead (Mr. Field) sent me a bundle of papers about Cammell Laird, and they were extremely complimentary about his role in the matter. There are conflicts of interest that probably require further information. I am sure that what the right hon. Gentleman said about the Royal Bank of Scotland's role is right, but the issue goes further than that. I understand that the matter has been referred to the Office of Fair Trading on the rather narrow issue of whether a threat to competition was created in the shipbuilding industry because A&P has interests in Southampton as well as Birkenhead.

Is there a wider conflict of interest? I was especially worried about the role of the receivers, PricewaterhouseCoopers. It had a serious conflict of interest because it acted on behalf of the Royal Bank of Scotland as receivers and, additionally, it is the auditor for A&P—it was working for the poacher and the gamekeeper.

I asked about the conflicts of interest with the directors of PricewaterhouseCoopers a week ago. I asked about a wider issue, because the matter does not apply only to Cammell Laird. We have probably two or three leading international accounting companies. Ernst and Young has the same problem in relation to Equitable Life and the Financial Services Authority. It is monopolising all the big contracts for audit and receivership, and in many cases it is acting for opposing sides of the same argument. That gives rise to the serious issue of competition policy. I am sure that it is entirely

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honest and professional in the way that it goes about its business, and it has its chinese walls. None the less, the enormous temptation exists to behave improperly, and I hope that the Department of Trade and Industry will look carefully at this issue, not simply in relation to Cammel Laird but in terms of the wider conflicts of interest.

My final point also relates to competition policy, and to a key issue in shipbuilding that has yet to be raised: potential conflicts of interest in the type 45 contract, for which BAE Systems has won the bulk of the business. When we debated the shipbuilding industry in March of last year, the major concern was expressed that, as the prime contractor, BAE Systems could squeeze out Vosper Thornycroft and other smaller companies. The DTI and the Ministry of Defence have subsequently worked on that issue. The Rand Corporation was called in to devise a new strategy, and it has found a role for Vosper Thornycroft. However, those who have read the correspondence on this subject will know that serious concerns remain. Vosper Thornycroft is asking basic questions such as whether it will be given a minimum amount of business, whether it will have a stake in derivative boats, and what will happen to unpredictable cost elements.

The underlying problem, which I hope the Minister will address, is whether the Government have a proper strategy for handling the relationship between BAE Systems—a world-class company that is increasingly taking the bulk of defence contracts—and its many British subcontractors. Exactly the same debate arose in relation to the A300X airbus. The suspicion is beginning to grow that the Government formulate contracts in such a way as to protect the interests of the prime contractor, rather than those of the many other companies down the supply chain. I hope that the Minister will explain how the Government have dealt with the enduring concerns of companies such as Vosper Thornycroft.

10.42 am

Mr. Robert Key (Salisbury): I congratulate the hon. Member for Glasgow, Anniesland (John Robertson) on securing this debate. It is important to have an opportunity to air such issues. For more than a year, my party has requested a debate on shipbuilding on the Floor of the House, but the request was rejected on the ground that there is too much parliamentary business. Such an opportunity would have enabled the many Members of Parliament who represent shipbuilding interests, but who are not here today, to have participated in the debate.

I have a nomadic interest in shipbuilding. I was born in Devonport in 1945, which built quite a lot of ships at that time, and moved to Salisbury in 1947, where ships are not built even though the town is at the confluence of five rivers. However, Dunlop Hiflex and Woven Electronics, which are in my constituency, respectively make the hydraulic piping with which most Royal Navy ships are fitted, and much of the electronic cabling that is used in submarines in particular.

My real knowledge of shipbuilding began in 1967. On leaving university, I was appointed to found an economics department at Loretto school, in Musselburgh. The chairman of governors, Sir Iain

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Stewart, who was also chairman of Upper Clyde Shipbuilders, charged me with the job of ensuring that sixth formers were taught by people who really knew about all aspects of the shipbuilding industry in Scotland. The first guest whom I invited was Jimmy Reid, who became a regular visitor thereafter.

Like other hon. Members, this Christmas I shall be singing "I saw three ships come sailing in on Christmas day in the morning," but when I do I shall be thinking, "Where were they made?" People do not recognise that the British shipbuilding industry is a high-technology industry. I have seen as much for myself on the Clyde, at Barrow and on Tyneside. The Secretary of State for Defence disparagingly described it as a metal bashing industry, but there is no doubt in my mind that it is a high-technology industry that should be given a fair chance. It is important to put on the record that only this week the former John Brown shipyard, which built the Queen Elizabeth, the Queen Mary and the QE2, has been sold in an £8 million deal. The land ended up being owned by the UK-Norwegian engineering firm Kvaerner and UIE shipbuilding, which is French. Now we are to see a massive redevelopment of that site.

There are still many great shipyards, however, around the shores of the United Kingdom and on the Clyde in particular. Britain is still an important maritime nation. People have the idea that most of the freight coming into or going out of the country travels by jumbo jet, but it does not. Some 95 per cent. of the UK's trade still arrives and leaves by sea. We should never forget that the UK shipping industry as a whole is the fourth, or perhaps the fifth, biggest service sector exporter for the UK. It is bigger than communications, films and television and computer services. The shipping industry, in the widest sense, is extremely important to the future of our country's economy.

We have heard one or two stories of unfortunate incidents, including about Korea, to which I will return in a moment, but that is not all. UK shipyards have been very good at specialist high-technology ships. I was, therefore, very sorry to see an item on BBC News Online on 3 December about UK shipyards having lost out to China. The story was about the £22.5 million ship that was to be commissioned by the engineering firm Mayflower. It was to be a high-tech ship that would have been important in the installation of wind turbines, a point referred to earlier in the debate. In my view, that should not have gone to China.

Whether we are discussing the Clyde or the other shipbuilding yards around the country, one or two common threads run through the discussion. We have heard a lot of talk about A&P, which is based in Southampton and has yards all around the UK, including in Falmouth, Southampton, Wallsend, Chatham, Dover and Ramsgate. I do not see any of the Members of Parliament who represent those constituencies here today, another reason why the debate should perhaps have been held on the Floor of the House. A&P is an interesting company. I do not want to disparage it, because I think that it is struggling in the best interests of shipbuilding in this country. However, the Government should get closer to it.

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The Government should also sharpen up on their naval procurement programme. It is one thing to announce a very substantial increase in naval shipbuilding, but the laying of the first steel is another and there is a gap between the two. That problem is faced by many of our shipyards today. I have seen that for myself, around the country. That gap is what particularly concerns the trade unions.

Other aspects that worry me very much include what has happened with Vosper Thornycroft in Southampton. It was originally hoped that Vosper Thornycroft would receive a legally binding commitment from the prime contractor, BAE Systems, by the end of September this year, with a detailed contract for the type 45 ships being placed by the end of March. That has fallen by the wayside. I had hoped that there would be an announcement before the House rose today. Vosper Thornycroft desperately needs a legally binding commitment before it can commence work on its planned investment. The situation is very serious and deteriorating.

We have also seen problems with naval procurement from Spain, where state-owned naval yards, in particular the Bazan yard, merged with a civilian yard to form Izar. The European Commission has decided to investigate whether that purchase, at a token price, was a hidden subsidy. I also flag up the problems of the Gibraltar shipyards, for which the MOD no longer has direct responsibility. They are a remarkable facility, and we should not neglect the people who have worked in them for many years.

The situation in Korea is perhaps not as simple as some hon. Members have suggested. From its point of view, Korea has been engaged in an argument with the European Commission, which has been seeking to increase world shipbuilding prices in line with what it says that the market will take. This is about the trade barrier regulation. Can the Minister update us on the trade barrier regulation inquiry and participation in talks? The European Commission seeks to include ships in segments of the large container ships sector for example, as well as liquefied natural gas carriers—which will be crucial for our economy—and liquefied petroleum gas carriers. The Koreans see it as an attempt by the European Commission to rig prices in favour of European shipyards. The issue is rambling on and no doubt will do so for some time, but I would be grateful if the Minister would update us.

Finally, I would like to talk about what we might do in the future. I commend the Confederation of Shipbuilding and Engineering Unions on taking a remarkably relaxed and flexible approach . It is not calling for subsidies; it simply wants a more imaginative response from our Government. It wants the British Government to operate within the boundaries of European law in an imaginative way. Other European countries appear to be able to find more imaginative ways of favouring their yards. It was a tragedy when the ferries were not all built in Britain, as four of them went to German yards. If the French had been building them, they would have stuck a gun on the front and called them warships, and then circumstances would have been different.

I see the skills base in shipbuilding being lost if we do not do something to ensure that there is continuity. We need imaginative schemes, not only to procure orders

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but to maintain the skilled work force around the country. The focus is not just the Clyde, although that is the biggest and proudest shipbuilding tradition left in the UK now, but small yards such as Appledore at Falmouth, and others at Portsmouth and Southampton. The skills base of the country is at risk here as well as the big ships that sail the ocean. Let us make sure that the Government take this very seriously, and I invite the Minister to tell us some good news for Christmas.

10.51 am

The Minister for Employment and the Regions (Alan Johnson) : I congratulate my hon. Friend the Member for Glasgow, Anniesland (John Robertson) not just on securing this debate but on his genuinely eloquent and interesting speech, which set the tone for an excellent debate. I hope that hon. Members will accept that in just eight minutes, I have to do justice to my hon. Friend's points, and I will not be able to get around to all the individual points raised.

My hon. Friend rightly emphasised the excellence of UK shipyards and the important role that they play in local economies within the UK, not least on the Clyde. The Government are confident that the industry has a sound future. I would like to mention a number of steps that we have taken since 1997 to help the industry achieve its potential.

I am aware that shipyards, especially those building merchant ships, face difficult challenges in a very tough world market. The estimate is that the current capacity globally exceeds demand by at least 33 per cent., so it is a tough competitive environment out there and UK yards are finding it difficult to win the orders against that fierce competition.

My hon. Friend the Minister for Industry and Energy, who has responsibility for this issue, cannot be with us today because of an unavoidable commitment abroad. However, as my hon. Friend recognised, he has been involved in numerous meetings with the unions, the industry and concerned hon. Members. We entirely share their worries about current difficulties and I can assure them that the Government remain absolutely committed to working closely with the industry to help it meet the difficult challenges ahead.

The key challenge that was recognised by my hon. Friend when he said that German yards have higher productivity and are much more competitive, and is recognised by everyone in the industry, is to improve its competitive performance. It is nothing to do with the work force, who have improved their performance extraordinarily over the past 10 to 20 years.

Let me set out briefly what we have been doing to help the industry. First and most importantly, in 1998 we set up the shipbuilding forum comprising trade unions, the industry, training bodies, the national training provider—the Engineering and Marine Training Authority—Government Departments, the Ministry of Defence and the Scottish Executive. It was the first time, in the history of this maritime nation that unions, industry and Government had ever sat around the table together. As a result of setting up the forum, we received the first report in December 1998, which concluded that the industry's long-term future depended on its ability to improve its competitiveness.

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The forum set challenging targets: doubling the number of merchant ships built over a five-year period and increasing the turnover of the repair sector by 30 per cent. during the same period. To achieve that, the forum's 1998 report made 43 recommendations, including improved productivity, better marketing, enhanced finance packages and improvements to training and skills. It is important to stress that these recommendations were aimed at all participants, and not just the Government. This debate concerns not only what the Government can do, but what the industry can do to help itself.

My hon. Friend the Member for Glasgow, Anniesland mentioned that we must look at other countries. When the forum was formed, one of the first things that the Department of Trade and Industry did was sponsor a visit to the Netherlands. It was an extraordinary visit on which the forum found no evidence of employees working harder than those in the UK. The productivity of the work force was no greater in terms of the effort put into the job, and there was little evidence of better yards or higher investment. The secret, if it is a secret, was that the Dutch yards were more successful because they co-operated with each other. They co-operated in order to be able to compete internationally, which is something that the UK yards have traditionally not done, and they had better marketing and extensive subcontracting. Following that visit, which was eye opening, the Shipbuilders and Shiprepairers Association set up a group to examine how the UK industry could co-operate to compete. We have taken several measures and I do not have time to discuss them all, but that one is important. We are improving competitiveness through the forum, which is bringing the industry around the same table as the unions and the Government.

The international situation is crucial. The international marketplace is difficult and we share the industry's concerns about Korean unfair trade practices—make no mistake; they are unfair trade practices. The best means of tackling Korea is to launch action in the World Trade Organisation as recommended by the European Commission's May 2001 trade barriers regulation report on which all member states are agreed. Unfortunately, WTO action has been delayed because the commission has insisted on linking such action to the reintroduction of limited shipbuilding subsidies for container ships and product chemical carriers.

My hon. Friend asked whether we should subsidise the industry. There is no evidence of illegal subsidy occurring elsewhere. I remember Brett Martin, who has sadly departed, of Cammell Laird, saying in the forum that he would produce evidence of illegal subsidies; it did not materialise. Germany had considerable state aid for reunification, but there is no evidence of illegal subsidies anywhere else. The shipbuilding intervention fund existed for 36 years and at one time it paid up to 33 per cent. subsidy, but throughout that period British shipbuilding and ship repair declined. It was the view of the industry and the unions in 1999 that we should abolish the SIF throughout the European Union, and that happened on 1 January this year.

The reason for the delay in pursuing the WTO claim against Korea is that it is linked to the reintroduction of a form of subsidy that will not help British shipbuilding

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because it concerns vessels with which we do not deal. The Commissioner is effectively proposing the partial reintroduction of operating aid, which was abolished at the end of last year. The commission proposal is likely to be difficult to operate in practice and risks undermining the EU position by opening up the possibility of Korean action. We must move ahead with the European Union agreement on taking WTO action against Korea, and we will work to that effect.

I must say a couple of words about the Clyde, and I apologise for not having more time to do so. As the hon. Member for Glasgow, Govan (Mr. Sarwar) said, if one looks back to what the yard faced as recently as a year ago, then looks at the position now, it is clear that it has the best prospects for many years, and we believe that it is secure for at least the next 10 years.

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