Select Committee on Work and Pensions Minutes of Evidence

Memorandum submitted by Glasgow City Council (SHP 1)


1Brief history
2Reasons for decline of commercial shipbuilding
4UK market
5Export market
6Type 45 Destroyers / Aircraft Carriers
7Related issues
  1. Strategic Defence Review
  2. Political sensitivity
  3. Shipbuilding Forum
8Government support
10The Clyde yards
11Future investment
  1. Current investment
  2. Future investment
12Critical risks to the Clyde
13Beyond 2015


Clyde Shipyards Task Force Report
January 2002
Shipbuilding in the UK—2000 and Beyond, Ian Goudie
October 2000
Shipbuilding, Ship-repairing and Marine EngineeringIndustry, SRC Department of Physical Planning
November 1976
Strathclyde Built in the 1990s, Shipbuilding WorkingGroup, Strathclyde Regional Council
May 1987
Report on Kvaerner Govan, Glasgow City Council
April 1997

1.  Brief history

  At its peak in the 1920s the UK shipbuilding industry produced 1.9 million gross register tons and employed 326,000 people in 135 major yards. Since then, the trend has—with the exception of the 2nd world war/post war reconstruction period—been steadily downward. Key periods of change in employment have coincided with:

Early 1930s
Late 1930s
(arms build up)
Late 1940s
(war production)
Late 1950s
(start of de-industrialisation)
Mid 1960s
(recession/rise of Germany and Japan)
Mid 1970s
(at formation of British Shipbuilders)

  By 2000, there were only around 25,000 people in the UK directly involved with new build, ship repair and conversion. The new build portion of this figure had itself fallen to around 9,000 by that time.

In common with many other traditional forms of heavy industry, shipbuilding in Britain has been in decline since the 1950s and, within certain sub-sectors of the industry even before that.

Reports on the decline of shipbuilding on the Clyde are not themselves new. On the formation of Strathclyde Regional Council, for example, research was carried out into the all of the main industrials sectors in the new Strathclyde Regional Council area. The 1976 report on shipbuilding, ship repairing and marine engineering produced by the Regional Council concluded that "the overall conclusion of this report is that the local and UK shipbuilding industry is in a very depressed state".

That report charted a year on year decline in new orders in the UK from the early 1960s through to 1976 (with the exception of 1973 when there was a one-off boost through a number of large oil tanker orders). It also stated that the UK's share of world shipbuilding orders had declined more or less continuously since the 1950s and noted that "the inability of the UK industry to maintain its competitive position is the main long term factor affecting the future of the industry". Unreliable delivery performance and high prices in comparison to Far Eastern competitors (notably Japan and South Korea) were cited as the main reasons for this lack of competitiveness.

Statistics available to the Council show the extent of the decline in shipbuilding on the Clyde and the decline in shipbuilding employment in the Glasgow yards. For example:

—  between 1971-75 126 new vessels were ordered from the shipyards within the former Strathclyde area in all classes of vessels from shipyards employing 30,000 direct workers;

—  the order book for the Glasgow shipyards has moved from a mixed defence/commercial portfolio to a wholly defence related portfolio;

—  employment in the two Glasgow yards fell from 9,400 in 1982 to nearer 6,000 in 1991, to 3,000 in 2001, and is moving towards a core workload of 2,000 by the end of 2002 under the current BAE SYSTEMS strategy.

While both of the Glasgow yards (Govan and Scotstoun) have remained open they have suffered regular crises as the order book has worked through and new work has become harder to secure. Moreover they have continued to operate within a "feast and famine" regime within which the order book has either been filled by multi-vessel ordering or moving towards empty—which has created uncertainty for both the yard managers/owners in bringing forward investment and for the workforces in dealing with the human issues posed by constant threat of redundancy.

However although employment in the Glasgow yards has declined more or less consistently since the mid 1950's it is still a very important component of the Glasgow economy. For example:

—  it accounts for 8 per cent of all manufacturing employment in the city;

—  it sustains substantial employment in sub contractors/suppliers;

—  it sustains substantial employment through the employment multiplier effect of employee wage expenditure;

—  in total each job in the yard sustains a job elsewhere in the economy;

—  it provides high quality/high skilled/high wage manual employment—which is increasingly absent in the city;

—  it sustains a core of highly skilled workers within the city;

—  it represents a good demonstration of how a traditional industry has adapted by making increasing use of new technology in both the design and manufacturing processes to improve productivity;

—  it contributes to the engineering and skills training infrastructure within the city.

Shipbuilding is therefore still a strategic industry for the city.

2. Reasons for decline of commercial shipbuilding

The decline of British shipbuilding mirrors a more general decline in much of the UK's traditional heavy engineering. In comparison to Far Eastern rivals British firms have paid higher wages, have invested less in capital equipment and facilities, and have "missed out" on entering some of the more lucrative commercial market sectors. Moreover they exist in a European market which has seen a general phasing out of subsidy—but in a global market in which the main competitors appear to have remained highly subsidised. They have become increasingly less competitive in global markets.

Britain had a technological edge in shipbuilding until perhaps the mid 1950s. However the post war reconstruction efforts in competitor countries, combined with very high direct and hidden subsidy policies, left the UK commercial marine sector highly exposed to international competition. Once Britain had lost the technological—and productivity edge—on its rivals the final decision on build location rested on price, delivery, and (increasingly) the availability of offsets. Moreover the long anticipated boom in "fleet replacement" shipbuilding has never materialised, as owners have been content to maintain elderly fleets rather than invest capital on new ships. Thus, commercial shipbuilding declined throughout the 70s, 80s and 90s to a point where there is little commercial shipbuilding in Britain.

This has had important implications for Glasgow with frequent crises at the merchant yard in Govan formerly operated by Govan Shipbuilders, then Kvaerner, prior to its purchase by BAE SYSTEMS and its conversion to a defence yard. Over the last 20 years the Govan yard has attempted to reposition itself several times by moving into Niche markets (for example specialised double hulled LPG tankers and specialised vessel ferries carriers) or trying to advance technology (eg the investment made in potential modular construction). By comparison, however, limited attempts appear to have been made to enter the growing leisure shipping market (eg cruise ships) which other European yards have successfully entered (eg Finland). As a result Kvaerner in particular, of the two Glasgow yards, has found it increasingly difficult to find a "core business niche" within which it could develop as a market leader or key player. The Govan Yard was therefore on the point of full closure prior to the "rescue" by BAE SYSTEMS.

The Scotstoun yard by comparison has focused solely on building for the defence market, and while it has been successful in securing lead yard status for a range of vessels and in securing some export defence orders, its prospects have become increasingly reliant on MoD spending decisions and procurement methods.

3.   Defence

The depletion of commercial shipbuilding has led to a very heavy reliance on military work as the main source of orders for British yards. However, there are two main factors affecting demand:

—  Firstly, worldwide military expenditure has been falling over the past 10-20 years.

—  Secondly, an emphasis on technology means that fewer but more sophisticated ships are being built.

In Britain, defence spending has been falling since after the Falklands war, as shown below:

Defence expenditure as a per cent of GDP

1988 4.1 per cent

1992 3.8 per cent

1996 3.0 per cent

2000 2.5 per cent

There is however one important issue which currently guarantees work in the UK—the Government's policy of building its own high capability vessels. This is in line with practice in most other advanced countries and while the "preferred supplier" model remains there will be Ministry of Defence work for UK yards.

4.  UK market

The Royal Navy requires the capability to sustain warship deployment on a worldwide basis, either alone or with other navies. In order to perform military, constabulary or benign tasks, the Navy needs a range of vessels:

—  For amphibious operations.

—  As aircraft carriers.

—  As sophisticated defence ships.

—  As submarines.

—  As support, supply and replenishment vessels.

With regard to BAE SYSTEMS Marine, Navy vessels currently under construction or on order on the Clyde include:

—  One Auxiliary Oiler being fitted out at Govan for service in 2002.

—  Eight Landing Craft Utility being built at Govan for delivery in 2002-03.

—  Two Alternative Landing Ships Logistics (ALSL) on order at Govan.

—  Six Type 45 Destroyers on order with BAE SYSTEMS and subcontractors to enter service from 2007. Scotstoun, Govan and Barrow yards will be involved.

The Ministry of Defence has also given statements on future requirements and further intentions:

—  Up to nine Type 45 Destroyers. (The total for Type 45 is therefore 12, equating to six on order and up to six more to follow in the future).

—  Two or three Astute Submarines, with an order planned for 2002.

—  Two Aircraft Carriers. First steel to be cut 2005-06 with ships entering service in 2012 and 2015. Contracts will probably be awarded by 2004.

—  One Primary Casualty Receiving Ship.

—  Future Surface Combatant (Type 23 replacement). Up to 20 vessels required with an in-service date of around 2015-16.

—  Maritime Underwater Capability—in concept phase.

—  Several new designs for Royal Fleet Auxiliary expected to enter service 2008-15.

  The aircraft carrier order is vital to BAE SYSTEMS Marine as these are the largest and most sophisticated ships which will be built in the UK for the foreseeable future.

5. Export market

  Most advanced countries do not purchase high capability warships from overseas suppliers. Further limitations are that the UK Government may not permit the sale of warships to certain countries. Moreover many countries cannot afford the high specification vessels. This means that the potential export market is small and likely to remain so.

The export market is limited in scale and extremely competitive in nature. European-based primary contracting organisations (PCOs) such as DCNI and Blohm & Voss compete with BAE SYSTEMS for the limited export orders available. Further issues in the warship export markets include:

—  Long timescales from indication of requirement to actually placing an order.

—  Importance of long-term relationships between shipbuilder and client.

—  Potentially high level of Government influence involved in securing export contracts.

—  Increased requirement for technology transfer from builder to client country.

—  High cost of pursuing contracts which may ultimately be lost.

6. Type 45 Destroyers / Aircraft Carriers

In July 2000 the MoD announced the construction of three Type 45 Anti Air Warfare Destroyers, with a planned class of up to 12. BAE SYSTEMS emerged as the prime contractor and following discussion on various construction proposals, it was agreed that BAE SYSTEMS Marine would subcontract a portion of the work to Vosper Thornycroft. The order was extended to six vessels in February 2002. The principle of work share between BAE SYSTEMS Marine and VT will apply to the whole class.

The Strategic Defence Review (see below) stated the requirement for a new class of aircraft carrier to replace the existing Invincible class. The two new carriers will be around twice as large as the previous carriers and will be the largest warships built in the UK for around 50 years.

The carriers constitute a large and technically sophisticated project that will utilise a substantial part of UK shipbuilding capacity over the period 2005-14. As such, this contract is very important to BAE SYSTEMS Marine and it requires to undertake a considerable portion of the work in order to maintain employment levels.

7. Related issues

7.1 Strategic Defence Review

When the present Government came to power in May 1997, one of its manifesto commitments was to undertake a comprehensive review of Britain's security interests and defence needs. The Strategic Defence Review (SDR), published as a White Paper in July 1998, also set out Britain's military naval requirements over the short to medium term.

There are several initiatives emanating from the SDR:

—  A medium term plan to alter the make-up of the Fleet (two new carriers, strengthening the amphibious force by adding four Ro-Ro ships, two more Astute class submarines, modernising the destroyer and frigate force, reducing the number of surface escorts and minesweepers).

—  Five new Defence Agencies, including the Defence Procurement Agency.

—  Smart Procurement Initiative, which aims to avoid previous problems such as spiralling costs and unmet deadlines.

7.2 Political sensitivity

Britain's maritime history and the social/economic traditions attached to shipbuilding in the traditional shipbuilding cities (Glasgow, Liverpool, Newcastle, Portsmouth, Belfast etc) means that any decisions affecting the shipyards are particularly sensitive. In 2000, the possibility of the four Ro-Ro ships being built in Eastern Europe, for example, was raised as a major political issue resulting in the MoD asking the four relevant consortia to re-tender. While shipbuilding is now a minor component of overall employment within the city the reality is that the tradition of shipbuilding on the Clyde is an intrinsic part of Glasgow's heritage and social fabric. Anything which adversely affects procurement and employment within the yards will therefore be debated as both an economic development and a political issue.

7.3 Shipbuilding Forum

In 1998-99, the Department of Trade and Industry responded to calls for a coherent national shipbuilding policy by establishing a Shipbuilding Forum. Within the initiative there is broad co-operation between unions, employers, Chamber of Shipping, Shipbuilders and Ship repairers Association (SSA) and British Marine Equipment Council (BMEC). By October 1999, over 40 recommendations had been produced and the resultant Shipbuilding Implementation Plan supports and encourages practical recommendations that will benefit the industry.

8. Government support

The British Government has to work within EU rules with regard to shipbuilding subsidy, making it more difficult for British yards to compete with subsidised Far Eastern builders). However, there are several current initiatives to help, mainly, the commercial market:

—  DTI benchmarking project to compare performance indicators with "world class" competitors.

—  Master class involving academic research and site visits by consultants. Funded and organised by the DTI and SSA.

—  Shipbuilders' Relief Fund which subsidised commercial shipbuilding contracts up to 9 per cent of value and warship contracts up to 2 per cent of value. These figures are currently being reviewed by the EU.


Large scale mergers and takeovers have produced a small number of global companies. These companies, such as Boeing, Lockheed, Martin, Raytheon, Thales and BAE SYSTEMS, are all capable of acting as the prime contracting organisation (PCO) for multi-billion pound defence contracts. However, BAE SYSTEMS Marine can work under subcontract to PCOs other than BAE SYSTEMS and does not necessarily have to rely on BAE SYSTEMS to secure work.

BAE SYSTEMS Marine operates out of three main yards—Scotstoun, Govan and Barrow.

The main elements of the BAE SYSTEMS Marine strategy are:

—  The three yards main yards are managed as one business, with harmonised processes and culture. This includes HR and IT systems.

—  Govan will be a steelwork centre of excellence for the company.

—  Export warships and the first Type 45 Destroyer will be built at Scotstoun.

—  Scotstoun will be the centre of excellence for outfitting of future Clyde vessels and Type 45 block build and engineering.

—  Barrow will be a centre of excellence for nuclear submarine and Type 45 assembly, utilising the Devonshire Dockyard Hall.

—  However, there will be a rationalisation of people and buildings. Employee numbers will be cut and specified premises will be leased or demolished.

With regard to work on the Type 45, Marine plan to build on the Clyde and finish at Barrow. The degree of finish at Govan has been increased from 35 per cent to 80 per cent, meaning more labour hours and a more advanced level of work before the material is moved to Barrow.

10. The BAE Strategy For The Clyde Yards

The Clyde Shipyards Task Force (CSTF) commented favourably on the future strategy of BAE SYSTEMS Marine. In particular it noted that:

—  The strategy requires success in export markets and specifies that export warships will be built on the Clyde. Barrow cannot be used as national security restrictions govern the use of the Devonshire Dockyard Hall. In addition, the Astute submarine build programme ties up DDH until 2010.

—  The Clyde yards provide a significant portion of BAE SYSTEMS Marine's build capacity for blocks and fitting out. Type 45s could not be built at Barrow alone.

—  Marine requires the Clyde yards' resources, expertise and capacity to compete for the carrier contract.

—  The local infrastructure of suppliers and sub-contractors to the Clyde yards may not be transportable to Barrow.

—  Marine estimates that it employs 80 per cent of the UK's skilled warship workforce and that 40 per cent of them are located on the Clyde. Relocation for such a large number of people would not be feasible.

11. Future investment

  BAE SYSTEMS Marine's investment plans offer the most compelling evidence that the Clyde yards are a vital part of the company's future. The projected ten-year investment programme totals over £150 million, of which around £75 million will be invested in Scotstoun and Govan. Notable current and future investment items include:

11.1 Current investment


—  £1m—

pipe shop.

—  £450k—

joiners shop.

    —  £1m—

new module hall doors.

    —  £300k—

new crane.

    —  £300k—

new dry dock doors.


    —  £600k—

    plasma burning machine.

    —  600k—

modify doors.

    —  £400k—

new overhead cranes.

    —  £400k—

miscellaneous tooling.

11.2 Future investment


    —  £4m—

    ro-ro transport / route creation.

    —  £3.5m—

site services.

    —  £1.8m—

amenities and canteen.

    —  £1.5m—

office upgrades.

    —  £1.2m—

outfit facilities.

    —  £400k—

manufacturing centre of excellence.


    —  £4m—

    ro-ro transport.

    —  £5m—

super berth creation.

    —  £2.5m—

berth cranes.

    —  £2m—

steelwork centre of excellence.

    —  £2m—

launch arrangements.

    —  £800k—

new office facility.

12. Critical risks to the Clyde

  The CSTF report gave three possible future events as being critical risks for the Clyde yards:

    —  Failure to win export orders.

    —  Failure to win a significant carrier design and build role.

    —  Any significant delays in the MoD build programme for Type 45 and carriers.

Any of these events would trigger a review of strategy and could therefore threaten future employment.

13. Beyond 2015

The carrier build programme (of which BAE SYSTEMS Marine could reasonably expect to attract a substantial amount of work) is due to be completed in 2015. Beyond that date the future of UK defence expenditure is uncertain. What is predicted though, is that the level of warship build for the MoD will reduce. Consequently, BAE SYSTEMS Marine will be looking to actively manage both its strategy and workforce requirements to meet whatever the demand is.

The long term future for shipbuilding on the Clyde remains therefore as uncertain as ever, and suggests that while the short-medium term prospects for shipbuilding on the Clyde are more secure than at any time in the recent past the traditional "feast-famine" workload pattern will return at some point in the future.

April 2002

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