Select Committee on Work and Pensions Minutes of Evidence

Examination of Witnesses (Questions 160 - 176)



  160. On a slight change of direction, you are thinking in terms of smaller shipbuilding rather than commercial and MoD work?
  (Lord Bach) Well, what I was referring to in terms of export, I have not mentioned commercial yet, that is really a matter for Mr Wilson not me, as far as the MoD ships, Navy ships are concerned, Mrs Adams, we are not going to be selling many aircraft carriers but it is quite possible some smaller ships—offshore patrol vessels, that sort of ship, landing craft, small landing craft—might well be wanted by other countries and it may be that is where we should be looking.


  161. Mr Wilson?
  (Mr Wilson) I think it would be appropriate to mention the role of our embassies around the world.
  (Lord Bach) Absolutely.
  (Mr Wilson) We have an unrivalled network of embassies in virtually every country of the world. In many of these we have military attachés and in virtually all of them we have commercial departments who are looking for export opportunities. There are a lot of ears to the ground around the world. I do not think it is inconceivable that there would be any export opportunity in this field that the UK Government in the widest sense was not aware of and was not actively assessing. The same would go to some extent for commercial shipping. There is the network of Trade Partners UK. The section of it which deals with oil and gas also deals with shipbuilding. It would constantly be on the look-out for opportunities. There is a big crossover there. I was in Azerbaijan the week before last and while I was there on oil and gas business I picked up on an opportunity for shipbuilding which might well come to a British yard and that will be taken forward both by the DTI but also by Trade Partners UK. In addition to that we are about to give a grant, I think we have given it, to the Shipbuilding and Ship Repair Association to strengthen their marketing effort because we have also got to have salesmen and saleswomen from the industry go out there and identify these opportunities. The other thing, the caveat, as Lord Bach says, is there are many of these orders where they would not think of coming to Britain because they are looking for the cheapest solution rather than the best solution.

  Chairman: Super response indeed, Minister.

Mr Weir

  162. We have heard a lot about the possibility of commercial shipbuilding on the Clyde. Do you think it is possible for Clyde shipyards to compete for commercial shipbuilding orders? Do you think BAE are interested in doing so?
  (Mr Wilson) I must add—I have been waiting to do this—a name to this discussion. When we talk about Clyde shipbuilding, we are not only talking about Yarrow's and about Govan, let us not forget Fergusons, which does not have to diversify into commercial shipbuilding because it has never been in anything else. It is a remarkable success story and I think it should be recognised in the Committee's discussions. I think as far as Govan and Yarrow is concerned, it is very much for the judgment of BAE SYSTEMS. Clearly they have made their commitment, their business is in the defence sector, but within my recent experience they have pursued, also, a non defence order. Sometimes it will suit them to take that kind of work, sometimes it might even suit them to take it at a loss in order to maintain the skills base in between MoD orders. That would certainly have been the outcome if they had been successful with the BP order a few months ago. Who knows: if you went back five years in this business, a lot of things have changed, and if you look forward five years, who knows what kind of work we will be looking for to supplement the MoD diet on the Clyde. Certainly the techniques exist and the facilities exist to do commercial shipbuilding. I think we should remember there are a number of small shipbuilders in the UK who in spite of everything are very successful. Just to supplement what has been said about export orders, certainly as a Scot and at various times as Scottish Minister, when we are out there in the world we are marketing the UK. I would never be forgiven by the guy who runs Appledore in Devon who comes from Port Glasgow and certainly I would not be forgiven by him if I was too sectarian about this.

Mr Carmichael

  163. The payment of subsidies, be they hidden or otherwise, we have touched on this already with Lord Bach, is this in the Government's view a fact or fiction in overseas shipbuilding industries? Are you in a position to give us concrete examples of malpractice that you have come across?
  (Mr Wilson) I think hidden foreign subsidies are one of the holy myths of this saga, that there always has to be someone else to blame. If I can just relate that to the oil and gas industry, again. It has always been darkly rumoured that Norway does things for its industry that we do not do for ours and nobody has ever been quite able to specify what they allegedly do. In recent weeks when it became apparent that the order for the Clair Jacket was going to go to Norway rather than to a UK yard, I commissioned some work to try to finally get to the bottom of this, for the reason that I am genuinely curious, I have been hearing it for so long that I would like to know whether it is true or false. The preliminary result of that, and I will publish the findings of this, is that it is false. The advantages to Norwegian yards do not come from backhanders from Government, they come from continuity of work and, very importantly, continuity of investment. The reason oil and gas have been more successful is that 30 years ago they very sensibly went down a policy of having a small number of yards which could then have a continuous order book. You get all the advantages from that of a planned and strategic approach. I would be very wary of an assumption—an unproven assumption—that anyone who beats us is doing it for reasons which are other than transparent. I do not say it never happens but I do not think it is the norm. On the other hand, there is the issue of Korea which is a different kettle of fish altogether. Certainly it is my view and the UK Government's view that action against Korea should have been started in the World Trade Organisation some time ago because we think there are unfair practices there.

Mr Weir

  164. Do you think then that the United Kingdom yards are able to compete in world markets anywhere? You do not feel there are any hidden subsidies in Korea?
  (Mr Wilson) We think there are hidden subsidies in Korea and therefore we think that the EU should have initiated action against Korea some time ago and it has got mixed up with other issues. There is always this problem of whether you delay resolving the problem by starting a formal action or whether you proceed, and in this case if the EU had proceeded earlier they would be much further down the road now in tackling unfair competition from Korea.

  165. Is the United Kingdom Government pushing the EU to start the process?
  (Mr Wilson) The UK Government has been pushing the EU within the Council of Ministers for some time to do this.

  166. Is there any prospect of it happening soon?
  (Mr Wilson) Something happened last Friday.

  167. Korea won!
  (Mr Wilson) My advisers say not very much so—

Mr Joyce

  168. In the previous evidence session we heard in the United States that if you want to operate in US waters, including places like the Caribbean to which they refer, you had to build your civvy ship in America. That seems to be quite a restrictive practice. Is that legitimate on the one hand and is there anything we can possibly do about that?
  (Mr Wilson) It is called the Jones Act and it is a fairly classic piece of American protectionism. Whether there is anything we can do about it or not — It is grandfathered under the OECD and there is nothing we can do effectively.

Mr Robertson

  169. Is there any case for introducing subsidies for shipbuilding within the European Union?
  (Mr Wilson) No, we are very much against their reintroduction.

  170. I did not ask if you were against it. I said is there a case to do it and can you do it?
  (Mr Wilson) It is theoretically possible but politically impossible because there would be a number of Member States in the same position as ourselves who have gone through the agonies of getting rid of subsidies who certainly are not going to want to reintroduce them. There is a proposal which is linked to the Korean issue. This is the interplay of issues. The opposition within the Council of Ministers to taking action against Korea for subsidising their industry is that some Member States want to counter Korean subsidies by introducing subsidies of our own. It is another way of tackling the same problem but we think it is the wrong way of tackling the same problem because it gets back into an auction of subsidies and a) we do not want that and b) there is absolutely no reason to think we will win under that option. We could end up re-introducing subsidies only in order for ourselves to be more effectively competed against.

  171. Part of the evidence mentioned in the previous session was the fact that Germany had used EU subsidies to upgrade their yards and that we should have done the same thing.
  (Mr Wilson) That was in the very special circumstances of the reunification of Germany and I think at that time there was such massive political advantage from that happening that there was a mood that there also had to be liberality in determining what the Germans could do with the economy of the former GDR.

  172. Do these rules not still exist within the EU? The one I am thinking of is if a yard diversifies into other industries then they were allowed EU subsidies to do that.
  (Mr Wilson) There may be circumstances in which they would apply but certainly the general movement is away from subsidies. I would be very surprised—although I will check and come back to you—if that were still an option. I think it was in relation to the particular issue of German unification.


  173. We will have a look at collaborative working. Has the Task Force Report led to revised practices within the UK shipbuilding industry being discussed and, if so, which might have beneficial consequences for Clydeside?
  (Mr Wilson) I think the existence of the Forum points in the direction of collaborative working and certainly it is very much in the spirit of the Forum to encourage companies to work together. There is no doubt that where companies work together and each ends up with a part of the contract, then everybody benefits, compared to a situation in which they compete bitterly and someone else comes through the middle and wins the whole of the contract. We are very much in favour of collaborative working. Indeed, it was one of the major conclusions of a DTI study of the Netherlands because a lot of the success of the Netherlands' industry has been due to that same approach. Yes, there are individual companies but there is also a collective entity which is the Netherlands' industry which is prepared to work together. It is rather like the Pilot metaphor I was using where companies can find ways of working together while maintaining their commercial rivalry.

  Chairman: Thank you very much.

Mr Joyce

  174. I think this is probably a Scotland Office question although it strikes me that some of this stuff would be devolved. About 20 per cent, as I understand it, of the employees in the shipyards are over 56 so they are going to fade out in due course and the company will need, as BAE SYSTEMS gave evidence earlier, to attract new people in by up-skilling them. From my modest knowledge of the private sector, they tend to want, understandably, to cut the training to the bone so that people are fit for purpose for doing a very specific thing within their company. Are we confident that at the moment the workforce is being given additional training one way or another, through the company, perhaps through assistance from government agencies, to ensure that they are both flexible within the company and within the market and, indeed, within the wider economy?
  (Mrs McGuire) You are maybe aware that the Task Force has undertaken a skills audit and that work is on-going at the moment. I understand that the DTI is creating a database of the skills that are available. Obviously the unions are very, very keen on us investing to upgrade the skills. You have identified a clear issue there that as the workforce gets older we have to reinvigorate and refresh and perhaps establish new skills for those who are younger. We have certainly been working with the Task Force to encourage that skills audit. You are right, some of that work has been undertaken by the Scottish Executive and links into ourselves or the Task Force.
  (Mr Wilson) If I can confirm that. One of the major areas of concern for the Task Force was that this is an ageing workforce and that if new people are going to be attracted into it there has to be both an upgrading of skills and also a long-term future in the industry. It is correct that the DTI, working with the Department of Education and Skills, has just signed a contract to compile a database of workers in the shipbuilding and related industries, which again includes oil and gas, and that will give details of the age, address, CV of workers and that will be generally available within the industry. Also they are working with the MoD and it will be possible to link skill shortages which the MoD is encountering with the database, and hopefully that approach will lead to men being matched with jobs.
  (Lord Bach) Could I just say a word, with your permission Chairman, the Rand Corporation, a non-profit, American corporation that looks into defence matters—they are the ones that had a big say in our Type-45 procurement strategy—are involved in work to assess the shipbuilding strategies of the two competing aircraft carrier prime contractors. They have visited the prime contractors, been to the shipyards which could be involved (and that obviously involves the Clyde) in aircraft carrier construction. They are analysing their data. They are going to report their findings both to the MoD and to DTI later this summer. That will help us decide who wins that particular contract. Much more important than that in the sense of this question, it will assist in establishing the skills that will be required to support the large aircraft carrier programme and other programmes that Mr Wilson and Mrs McGuire have been talking about .
  (Mrs McGuire) The timing of all this is vital because the skills assessment is currently on-going and we have to make sure we do not lose the opportunity when the next tranche of work comes on-stream.


  175. You will be glad to know that we have come to the last question and I would ask you all to get your crystal balls out. Lord Bach touched on it earlier about the future of the Clyde. Can you give us what your assessment of the future of employment in shipbuilding on the Clyde might be?
  (Mr Wilson) I think everything we have said and I am sure everything you have heard from BAE SYSTEMS points to the fact that there is now a more stable platform for security and growth than there has been in many years, and therefore I would take an optimistic view. I think maybe the most significant thing about the Task Force was the way the stewards who were on the Task Force came round to that view as well, albeit with some doubts from Yarrows because they are so dependent on export orders. They realise that although they had shed jobs (and at the end of the day it was fewer jobs than had been feared) that once that hump was got over, there was then ten years of work there. There are not many industries and certainly it is a novelty for shipbuilding in my experience to be able to say there is ten years of work there. Therefore I have every reason to be optimistic. I want that optimism to include Fergusons because I think it is tremendously important that we maintain a merchant shipbuilding capacity on the Clyde hopefully and also for growth in the future.
  (Lord Bach) I agree with everything Mr Wilson has said. From an MoD perspective we have placed a considerable amount of work with Marine Clyde Shipyards recently. I repeat what I am sure you have heard many times before, no shipyard can depend on MoD work alone and we expect the company which runs these yards to be rigorous in its search for other customers. From an MoD perspective, of course, I must say this: there are several good warship builders around the UK and obviously the MoD must treat all parts of the industry on a fair and equitable basis. I know that is what the Committee would expect me to say. It does look good in the future, as Mr Wilson says. I think the Committee should look ahead of the next ten years, with respect. That is the time when a feast is sometimes followed by famine. It would be very sad if that happened in this case.

  176. Unusual as it is, we will let the woman have the last word!
  (Mrs McGuire) I obviously do not disagree with any of the sentiments that have been expressed before, but I think the Clyde is in a good position. Historically, 12 out of the 16 Type-23s are Clyde-built and two out the five serving Type-22s are Clyde-built but, in saying that, we cannot afford to rest on our laurels. There is a good solid baseload of work there from the MoD but the export market is still vital and certainly that is a role that the Scotland Office will look forward to playing in encouraging the exports and also in highlighting the opportunities abroad for very good, skilled Scottish shipyards.

  Chairman: Thank you very much indeed, Mrs McGuire. Ladies and gentlemen, can I thank you very much for coming along this morning and for giving us very full and frank answers and for co-operating with us in this inquiry. We are very grateful to you and we are sure that your evidence will be very useful to us when we come to compiling our report. Thank you very much.

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