Select Committee on Scottish Affairs Fifth Report


The Scottish Affairs Committee has agreed to the following Report:



1. In January 2002 the Clyde Shipyards Task Force, which was established in July 2001 by the then Minister for Enterprise, Transport and Lifelong Learning of the Scottish Executive in response to proposed redundancies at the Govan and Scotstoun shipyards, issued its report and recommendations.

2. Without in any way replicating the work of the Task Force or attempting to undermine its monitoring role, we felt it incumbent on us to look at developments which the report had triggered, to review current Government policy on military shipbuilding and to examine what the future for employment in shipbuilding on the Clyde might be. We concentrated our attention upon matters about which the Task Force had commented, namely, the situation on the upper Clyde. We commend the work of the Task Force and endorse its conclusions.

3. In passing we would wish to compliment the achievements on the lower Clyde at Fergusons of Port Glasgow and Semple-Cochrane in Greenock, where the focus is on commercial contracts, including ship repair. The dry-dock facility at Inch Green which BAE SYSTEMS hope might play a part in the construction of the proposed two new aircraft carriers, is also on the lower Clyde.

4. Two oral evidence sessions were arranged. During the first of these, which was held at Anniesland College, Glasgow, the following witnesses appeared before us: Scottish Enterprise, Glasgow City Council, the Amalgamated Engineering and Electrical Union (AEEU), the GMB Union and the Manufacturing Science and Finance Union (MSF). The second meeting, held at the House of Commons, involved BAE SYSTEMS, Lord Bach, Minister for Defence Procurement, Ministry of Defence, Mr Brian Wilson MP, Minister of State for Energy and Construction, Department of Trade and Industry and Mrs Anne McGuire, Parliamentary Under-Secretary of State, Scotland Office. Full details of individual witnesses and the written evidence submitted to us are given on pages 4-5 of this report.[1] We thank all those who helped us with our inquiry.



6. The shipbuilding industry is competitive, specialised, sophisticated and, worldwide, suffers from excess capacity. The memorandum from the DTI said:

7. Along with the yard at Barrow, the Clydeside yards at Govan and Scotstoun form BAE SYSTEMS shipbuilding enterprise. The yards are reliant on Ministry of Defence orders. The current Clyde workforce is around 2000, down from a figure of 100,000 achieved during the high point of shipbuilding in the UK. Shipbuilding is still an important component of the Glasgow economy, where it remains responsible for 8 per cent of manufacturing employment. The industry offers high quality, skilled manual employment.[3] The memorandum from Glasgow City Council spoke of the 'feast and famine' conditions which have tended to prevail in Clyde shipyards. Currently there is sufficient work designated for Govan and Scotstoun to last for ten years or more. After that the crystal ball becomes hazy. Lord Bach told us:

    " shipyard can depend on MoD work alone and we expect the company which runs these [Clyde] yards to be rigorous in its search for other customers".[4]

Government policy

8. Competition is at the core of UK defence vessel procurement strategy.[5] Defence orders are subject to strict value for money criteria, but Government policy is that "All fighting vessels are built in the UK..."[6] This approach is designed to protect strategic shipbuilding capability and to benefit the domestic industry. But the MSF Convenor at Govan Shipyard told us that:

    "Swan Hunters opened two logistics ships, and if you cannot build the bow sections on time they put them out to tender, Govan tendered to build them, we can build them in time, but we lost that bid and the two bow units are going to Holland."[7]

The MSF full-time official believed that "in excess of 40 per cent" of the Alternative Landing Ships Logistic (ALSL) contract had gone abroad.[8]

9. In a letter to the Chairman responding to these points, Lord Bach, the Defence Procurement Minister, stated:

    " remains the policy of this Government that all warship construction will continue to be carried out in this country. In the case of the bow sections for the ALSL vessel, after conducting a competition which included three UK companies, Swan Hunter chose the Dutch Company Centralstaal as the most cost effective bid. The work to be undertaken by Centralstaal covers the basic steel fabrication of small units with the final assembly, systems outfitting and fabrication into a complete bow section being undertaken at Swan Hunter's shipyard. This is not an uncommon practice where shipbuilders themselves do not have the necessary in-house skills or equipment to carry out such complex work."[9]

10. Lord Bach admitted that whilst there was no intention to contravene the Government's military shipbuilding policy, in this case the overseas fabrication of the hulls did raise questions about compliance.[10] Following an agreement with Swan Hunter (Tyneside), a clause had now been placed in the ALSL contract which requires MoD sanction before fabrication or assembly can be sub-contracted overseas. Permission to transfer work outside of the UK would only be given in exceptional circumstances.[11] The Minister told us that the quest for value for money coupled with the faith in competition, which drives down costs, led to some flexibility being necessary in terms of the provision and fitting of individual parts for inclusion in UK defence vessels.[12]

11. The letter from Lord Bach also said that it was incorrect to suggest that more than 40 per cent by value of the ALSL contract had been diverted overseas. "Information supplied by Swan Hunter indicates that only 17 per cent of the value of equipment procurement and materials for our ALSLs has been placed abroad."[13] Swan Hunter has emphasised that the majority of sub-contract work will be placed in the UK.[14]

12. We welcome the clarification of defence shipbuilding policy which the letter from Lord Bach to the Chairman of the Committee introduces. This was reaffirmed by the Minister during oral evidence.[15] It is clear that until we started our inquiry some fabrication of warships, although limited in scope, had been diverted overseas. The Government has acted with alacrity to close, or at least diminish, the relevant loophole, which should not have been open in the first place. For reasons of security and protection of the capability, the fabrication and assembly of military vessels commissioned by the Ministry of Defence must remain within the UK. The letter from Lord Bach explained that instances such as the one drawn to our attention, were caused by the receipt of more cost effective bids, or a shortage of relevant skills or equipment. There must be no exceptions to the stated Government policy on warship construction. All appropriate efforts should be made to ensure that the skill and equipment base sufficient to allow this policy to be fulfilled is available.

13. The Defence Committee takes a close interest in and keeps a watchful and vigilant eye on procurement policy. When asked about ways in which Government defence procurement policy might be further clarified, BAE SYSTEMS called for a greater sense of what the Ministry of Defence intends.[16] In order to plan an appropriate investment programme, there was a need for greater reassurance and more specific timescales. There had been a history of short-term decision making, which should now be replaced by improved stability.[17] So called 'Smart' acquisition had eased the situation. We consider that, given the Government's policy on home grown warships and accepting the somewhat limited scope for competition that this policy allows, it is the duty of the Ministry of Defence to provide the earliest notice possible of its commissioning decisions.

BAE SYSTEMS redundancies

14. During the summer of 2001, 1000 redundancies in the Clyde shipyards were announced. BAE SYSTEMS said that this was "part of an overall restructuring and due to a shortfall of work in the near term".[18] The memorandum from the Scotland Office stated that the redundancies were necessary to address the gap in BAE SYSTEMS order book and their internal overcapacity.[19] DTI noted that the redundancies announced in July 2001 were a result of "short-term gaps" in work before work on MoD orders for Alternative Landing Ships Logistic commenced.[20]

15. We detected a sense that BAE SYSTEMS management had become remote from its workforce. It seemed to us that in the recent past communication with employees on Clydeside had not been a company strength and industrial relations had reached a low ebb. We believe this flaw is now being addressed. There continues to be much strength of feeling amongst workers in the Govan and Scotstoun yards directed at ensuring that BAE SYSTEMS explores every means of, and puts as much effort as possible into, ensuring the long-term success and prosperity of the business.

16. In the light of subsequent developments concerning MoD commissioning plans, most of which might have been anticipated, at least to some extent, we deprecate the way BAE SYSTEMS went about reducing the number of workers at its yards on Clydeside. The company's heavy-handed exaggeration of the numbers who would be required to go must have created a climate of uncertainty and low morale, which has only improved following the more optimistic forecasts of recent months. We recognise that BAE SYSTEMS operates in a hard business world and in a politically sensitive industry, but we recommend that in future the company adopts a more sensitive and straightforward approach to its workforce.

Clyde Shipyards Task Force

17. As a result of the redundancies, the Clyde Shipyards Task Force was established to consider, amongst other objectives, the viability of the Clyde operation, its place within the UK shipbuilding industry, and the appropriateness of the skill-base there.[21] The Task Force was Chaired by Wendy Alexander MSP, then Minister for Enterprise, Transport and Lifelong Learning at the Scottish Parliament. Since the advent of the Task Force the number of proposed redundancies have been reduced to 475 (plus a possible further 55 voluntary redundancies), following an MoD order for two Alternative Landing Ships Logistic. The memorandum from BAE SYSTEMS said:

    "Against the original total of 1,000 by April 2002 the number of compulsory redundancies has been limited to 156 with a further 319 employees leaving through voluntary redundancy or through other means. A further 55 applications for voluntary redundancy are currently being considered. All efforts are being made to mitigate the outstanding balance of around 400 positions which are being constantly reviewed."[22]

BAE SYSTEMS told us that it was now nearing the end of its programme of redundancies and the period of uncertainty for its employees on the Clyde.[23] It was stressed that the long-term outlook depended on achieving export orders. In the meantime, the Government's order for two aircraft carriers was a vital component of stability within the BAE Strategy.

18. The Task Force reported in January 2002. It contained 29 recommendations. The Ministerial Foreword recognised that much needed to be done to ensure the future of the industry, but thought the Clyde shipyards were well placed to win orders.[24] On 4 June 2002, the Task Force issued an update on progress on its recommendations. This table is printed as an Annex to our Report.

19. Scottish Enterprise, Glasgow City Council and trades unions, all of whom (except the MSF union) were directly represented on the Task Force, had, as might be expected, very similar views. Areas of concern related to the Government's approach to defence vessel procurement (see for example, recommendations one, seven and eight from the Task Force on the Government's shipbuilding strategy and procurement arrangements), the long-winded and expensive nature of contract chasing,[25] hidden subsidies which may or may not be paid by the governments of foreign competitors, the need to introduce diversification and make a concerted effort to win orders for commercial vessels as well as military contracts, and ensuring that a properly trained flexible workforce is in place. The BAE SYSTEMS memorandum and the written evidence from Government departments were buoyant and upbeat.

20. During a debate in Westminster Hall on 19 December 2001 the Minister for Employment and the Regions at the Department of Trade and Industry, referring to Govan in particular, said "it is clear that it [Govan] has the best prospects for many years, and we believe that it is secure for at least the next 10 years".[26] This general thrust was reflected in the written evidence from DTI, which, referring to the potential for work that could be realised by the construction of the proposed two new aircraft carriers, said:

    "Although a decision on precisely how and where these vessels will be built is some months away—and will be taken by whichever of BAES and Thales wins the Prime Contract Office competition—the programme is so large as to offer tremendous opportunities for UK shipyards."[27]

Glasgow City Council believed that the Government's policy of building high capability vessels, which was in line with the approach adopted in other countries, would ensure work for UK yards if it was sustained.[28]

BAE SYSTEMS Ten Year Strategy

21. The BAE SYSTEMS Ten Year Strategy is designed to increase competitiveness in a changing and declining market. The company aims to concentrate on warship contracts, but will tender for compatible and viable commercial contracts. It has undertaken a programme of redundancies in the workforce as well as some reconfiguration in the shipyards, which involves some investment. Under the Strategy, the yards at Govan, Scotstoun and Barrow have been designated as separate centres of excellence in the manufacture of military vessels. The focus for Govan is steelwork; that for Scotstoun is exporting, outfitting, designing and launching the first Type 45 destroyer; Barrow concentrates on assembly.

22. Whilst the Clyde Shipyards Taskforce did not see that it was immediately obvious that the three yards Strategy would be profitable and competitive for BAE SYSTEMS,[29] it acknowledged that the Strategy might work and that the arrangement was used in foreign yards. We heard some scepticism expressed about the arrangement.[30] Scottish Enterprise believed that this would remain until evidence of investment was seen.[31] BAE SYSTEMS acknowledged this feeling.[32] But it indicated that reassurance might have been provided by the company having made some members of the Task Force party to matters of commercial confidentiality and detail. The Minister of State for Energy and Construction reminded us of the globilisation of maritime industries, whereby it was common for the different parts of the shipbuilding jigsaw to be pieced together in a succession of yards.[33] The Task Force concluded that, within the context of its dependence on defence work, the BAE Strategy was coherent and robust,[34] but said that the company must strive to win further export orders as well as look to winning a significant design and build role for the proposed new aircraft carriers. The success of the Strategy was very much predicated on export orders being achieved.[35] The company itself agreed with this analysis, frankly admitting that, even though the Strategy was now on track, its ultimate success depended on future developments.[36]

23. The Minister of State for Energy and Construction said:

    "I am absolutely certain that the Strategy gives the best possible prospect of the long-term security of the two yards on the Clyde and, with reasonable success in the export field to complement domestic demand, the three yards will be secure for the forseeable future."[37]

24. Whilst we accept the Task Force analysis, we feel that the overall concept of the Ten Year Strategy lacks an appropriate level of flexibility common in other business plans. We hope that BAE SYSTEMS will review its approach on a regular basis. At the very least the Strategy should constantly focus on prospects over a 10-year period and not be subject to a diminishing timescale.

25. The AEEU was worried about the possibility of a transfer of functions from the Clyde to Barrow.[38] But Glasgow City Council pointed out that the Clyde Shipyards Task Force had noted that "Type 45s could not be built at Barrow alone...[BAE] 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".[39] Scottish Enterprise also regarded the transfer of work to Barrow as unlikely.[40]

26. BAE SYSTEMS shipyards at Govan and Scotstoun have the following MoD work currently in progress or planned:

  • Completion of Auxiliary Oiler.
  • Completion of eight Landing Craft Utility.
  • Build of two Alternative Landing Ships Logistic (ALSLs).
  • Type 45 destroyer—modular construction work and steel production.
  • Assembly of Type 45 First of Class.

The Type 45 Prime Contract Office design team is also based at Scotstoun.[41] The MoD memorandum said that the BAE estimate was that work on the Type 45 destroyers would secure 1250 jobs on the Clyde "well into this decade".[42] "The two ALSLs should sustain up to 600 jobs at the Govan shipyard."[43]

27. During oral evidence BAE SYSTEMS remarked that it was unclear if the Government policy of building defence vessels within the UK included design and build as well as assembly.[44] The company believed that more needed to be invested in design skills. This would allow better access to high value-added business and increase the prospects for exporting.[45] The same point had been made by the MSF full-time official.[46] We believe it is essential that, in order to maintain the quality, sophistication and expertise of warship design, which is a feature of the UK shipbuilding industry, the current Government policy on the commissioning of defence vessels should be extended to include the design role.


28. Glasgow City Council thought that the future investment plans of BAE SYSTEMS signified that the Clyde shipyards were seen to be a vital part of the company's future. £75 million was scheduled for investment in Govan and Scotstoun over the next 10 years.[47] During oral evidence, Scottish Enterprise made the point that the ultimate success of the BAE SYSTEMS Strategy would depend on the company making the promised investment in the yards.[48] Scottish Enterprise considered some of the proposed investment to be "indeterminate".[49]

29. In response BAE SYSTEMS said that the yards on the upper Clyde had been starved of investment for many years. Subject to the success of its Strategy, which is based on winning further orders, BAE SYSTEMS was committed to making the level of investment that had been discussed with the Task Force.[50] But additional sums would need to be justified to shareholders. The company argued that there was nothing indeterminate about its approach, although some issues were subject to commercial sensitivity.[51] The Minister of State for Energy and Construction told us that he was:

    "...convinced and the Task Force was convinced, that the money was going in from BAE SYSTEMS as promised...I have no reason to doubt the integrity of that commitment...because I think it is an essential part of their Strategy."[52]

Trade union witnesses noted the direct correlation between high levels of investment and the success of German shipyards.[53] The Task Force would continue to monitor investment in the Clyde shipyards.[54]

30. BAE SYSTEMS bemoaned the lack of investment in research and development from which the industry suffered.[55] Sufficient funds were apparently unavailable to support an appropriate level of research. This must change if the industry is to thrive beyond the next ten years. Ministers made it very clear that although some grants were available, there was no extra money in the Government's pot further to subsidise research and development in shipbuilding.[56] We therefore urge the industry to consider very carefully the implications for future success, profits and jobs of allowing the research and development expertise which is available within the UK shipbuilding industry to stagnate or go to waste through lack of adequate investment.

Competitiveness and exports

31. The Minister of State for Energy and Construction was explicit about the lack of success of the UK shipbuilding industry in terms of its competitive prowess.[57] But he noted the advances that had been made.[58] In its written evidence the MoD acknowledged that:

    "Although the current naval warship programme is the largest for many years...the MoD order book alone cannot be expected to sustain the UK shipbuilding industry."[59]

MoD advised shipyards to become as "innovative, efficient and productive as possible"[60] in order to compete for MoD, commercial and export orders.[61]

32. The ultimate success of the current Strategy is entirely dependent on achieving an increase in exports. BAE SYSTEMS indicated that it was very busy on that front. "Active prospects currently being pursued include three near term opportunities encompassing a range of products from sophisticated frigates to complex Offshore Patrol Vessels, and variants of successful existing BAE SYSTEMS designs."[62]

33. In March 2001, DTI launched the Marine Export Partnership aimed at promoting British marine industries. The Task Force recommended that:

    "In addition to current Government activity, every appropriate opportunity should be taken to include Scotland Office Ministers in promoting Clydeside's case in securing new export orders."[63]

34. When we asked BAE SYSTEMS what contact there had been with the Scotland Office since the publication of the Task Force report, the answer was none.[64] This recollection was later adjusted when the Managing Director Type 45 at BAE SYSTEMS wrote to the Chairman. He said:

    " has come to my attention that there has indeed been ongoing dialogue between both organisations on the subject of shipbuilding on the Clyde".[65]

The confusion was partly explained by "role changes within the company in recent months".[66]

35. The Parliamentary Under-Secretary of State at the Scotland Office told us that she was advised that:

    "BAE SYSTEMS fully briefs the Department on commercial opportunities".[67]

In a subsequent letter to the Chairman, she spoke of a meeting between her ministerial predecessor and BAE SYSTEMS which took place in September 2001.[68] The Parliamentary Under-Secretary explained that contacts between the company and departmental officials had led to the Secretary of State for Scotland agreeing:

    "to launch the KDB Jerambak[69] on 22 June in order to assist in promoting the export capabilities of the Clyde yards".[70]

This hardly amounts to being overzealous, indeed, the September meeting occurred four months before the Task Force issued its report and recommendations.

36. Shipbuilding was, in living memory, the heavy manufacturing heart of Western Scotland. Despite having undergone radical surgery, the organ continues to function, but it cannot be left without proper care. The Task Force designated a clear role for the Scotland Office in promoting export orders. The job requires regular liaison with the owners of the Govan and Scotstoun yards. Failure over a period of months to observe this obligation would amount to a serious neglect of duty.

37. In its written evidence the Scotland Office said that it had established a continuing liaison with the MoD. Links had been forged with the Defence Exports Services Organisation (DESO) and BAE SYSTEMS Export Shipbuilding in order to identify key export targets and opportunities and to track progress so that the ability of Scotland Office Ministers to promote Clydeside might be maximised. The Minister of State for Energy and Construction admitted that there was room to improve the performance of a co-ordinated approach from Government departments.[71] But he praised the role played by British Embassy staff in helping to promote UK shipbuilding expertise.[72] In oral evidence Scottish Enterprise argued that sustainability on the Clyde was dependant on at least one new export order a year. BAE SYSTEMS accepted this as a broad assessment.[73] Another obstacle in the way of UK export success was the search by some purchasing countries for the cheapest solution, rather than the best.[74]

38. The Minister for Defence Procurement suggested that there might be a case for modifying design specifications in the pursuit of export orders. It was possible that the UK approach could be regarded by some potential client countries as too sophisticated.[75] The Minister also recommended that a concerted effort to win orders for smaller ships might pay dividends.[76] Access to both of these options was restricted by the fact that, wherever possible, most countries preferred to design and build their own product.[77] The answer might lie in assisting emerging national aspirations in defence shipbuilding by developing markets for technology transfer, a route which BAE SYSTEMS was prepared to follow.[78]

Commercial shipbuilding

39. At the end of a debate in the House on Defence Policy (Scotland), the Minister of State for Defence said:

Union officials argued that BAE SYSTEMS was not interested in commercial contracts and merely went through the motions by tendering unrealistic prices.[80] To some extent BAE SYSTEMS endorsed this view when it described commercial shipbuilding, from its perspective as essentially a producer of warships, as an opportunity to fill gaps in the core defence work.[81] In terms of the tendering process the company argued that it offered "very sharp" bids.[82] BAE SYSTEMS quoted the example of an anchor handler launched in 2002.

    "It was a classic piece of commercial infill and it was a good programme."[83]

The company summed up its position succinctly:

    "We are basically a defence contractor building complex warships; there is a market for our export product; we need to win some of that export market; and that is what we have built our strategy around."[84]

Skills and training

40. Recommendation 17 of the Task Force Report said:

The Task Force also expressed some concern about skill shortages and pointed out that 20 per cent of the Clydeside workforce was over 56 years of age. It advocated 'cross-skilling' and the avoidance of undue temporary labour and low productivity.[85] The AEEU argued for the expansion of apprenticeships.[86] BAE SYSTEMS told us that it had undertaken a significant re-training programme, which would equip workers with additional skills.[87] It did not intend to repeat the mistake of the early 1990s by failing to recruit young people, including graduates. The company anticipated offering places to 35 new apprentices in 2002.[88] The Task Force is undertaking a skills audit,[89] and the Department of Trade and Industry was creating a database of available skills.[90]

Collaborative working

41. The Task Force suggested that the potential for collaborative ways of working across the UK [shipbuilding] industry should be explored.[91]

42. In January 2002, BAE SYSTEMS re-organised its Marine operation placing it within the company's Sea Sector. The Company explained:

    "This structure offers a stronger foothold in the key sea systems markets than the previous organisation, and offers more synergies with the associated group companies than the previous Operations Group."[92]

43. The Minister for Employment and the Regions described the 'secret' of success in some foreign shipyards, the Netherlands in particular, as being due to the noticeable co-operation between all the interested parties which was achieved there.[93] This point was underlined by Scottish Enterprise[94] and the Minister of State for Energy and Construction.[95] A benchmarking exercise conducted in 2001 to measure the effectiveness of UK yards against world competition found weaknesses in productivity and marketing.[96] This led to the LINK project which sought improvements in both design and productivity and to efforts to improve marketing. These two industry led initiatives are conjoined in the 'Master Class' concept, whereby industry experts might visit shipyards and make recommendations for improvement.[97] Scottish Enterprise noted that "productivity figures showed that the UK yards are at a disadvantage to European and Korean yards". There was also a price differential of 7 per cent between UK and European yards which had to be bridged.[98]

Shipbuilding and Marine Industries Forum

44. In December 2001, the Minister for Employment and the Regions said that "The Government are confident that the industry has a sound future".[99] He noted the advent of the Shipbuilding and Marine Industries Forum established in 1998, which has set targets for increased competitiveness. This broad-based group, comprised of representatives from across the industry, "was the very first time that all the parties crucial to the future of the industry had sat down together at the same table".[100] Initially the Shipbuilding Forum, as it then was, probably did not live up to expectations. But in its memorandum the DTI noted improvements in the Forum whose membership had been expanded and which had established "a high-level Steering Group" to lead the drive for improved competitiveness.[101]

45. The assessment by witnesses at our second oral evidence session was rather more low key. BAE SYSTEMS seemed to regard the Forum as a talking shop and would not commit itself with regard to its effectiveness.[102] The Minister of State for Energy and Construction argued that the Forum could be more useful than hitherto, hence the reason for its recent re-vamp.[103] The Minister drew an analogy with the success of PILOT, the forum for the oil and gas industry, itself the product of innovative and constructive thinking.[104]

46. In its report, the Task Force suggested that the creation of a Maritime Industry Co­ordinator should be considered.[105] Scottish Enterprise noted that such a role was a feature of the successful German shipbuilding industry.[106] The introduction of a Maritime Industry Co-ordinator was also supported by trade union witnesses.[107] The Minister of State for Energy and Construction edged away from the proposition, although he thought the idea to be attractive in principle.[108] He explained that the Shipbuilding and Marine Industries Forum, where his place as chairman had now been taken by an industry representative, had considered the matter and wondered if it was necessary to create a specific role for a job that it was in a position to do itself.[109] BAE SYSTEMS thought that success of any co-ordinating role depended on the range of responsibilities it encompassed. It was perhaps not easy to make direct comparisons with the situation in Germany where the shipbuilding industry was subject to a different history and structure.[110] In the summary of progress on Task Force recommendations (see the Annex below), it is stated against recommendation 2 that:

    "The reconfigured Shipbuilding and Marine Industries Forum and its steering group has the scope to undertake many of the functions of the proposed coordinator described in the task force's report. The Forum will keep this position under constant review."

47. We think this is the best way forward. It is very much in the interests of the UK shipbuilding industry to strive to develop a system of mutual support and co-operation which would enable the dissemination of best practice and stimulate growth. The introduction of an individual overseer or "Czar" would be no panacea to the problems faced by the industry today. We do not consider that in the context of the shipbuilding environment one person could be expected to be able constructively to manage the dynamics surrounding competition, commercial sensitivity and Government procurement activity to the satisfaction of all those involved. The Shipbuilding and Marine Industries Forum allows the separate parts of the industry their own voice. It could well be that to display itself with maximum efficiency and force, the Forum needs to undergo further re-organisation. But it is the appropriate body to deal with the issues which otherwise might be directed towards a co-ordinator.


48. Glasgow City Council has said that UK shipbuilding exists in a European market which has seen the phasing out of subsidies. But it believed that globally the UK's main competitors appear to be subsidised.[111] The Minister of State for Energy and Construction described the subsidy argument as a "holy myth" of the shipbuilding industry, which (with the exception of examples involving South Korea) was used to excuse the loss of business for other reasons.[112] EU subsidies for shipbuilding have been discontinued. Some member states were campaigning for their reintroduction, more as a weapon in the fight against unfair practices discernible in the shipbuilding industry of South Korea, than any significant attempt to change policy within the EU.[113] The UK Government opposed the use of subsidies.[114]


49. Over the next 10 years or so, much will hinge on a substantial amount of work on the proposed two new aircraft carriers being carried out on the Clyde[115] (in anticipation of a crucial role, BAE SYSTEMS has leased a dry dock at Inch Green[116]), the further development of the Type 45 destroyer contract[117] (currently six have been ordered, for which BAE SYSTEMS is the Prime Contracting Organisation, six more are pending), winning export orders and perhaps some diversification into commercial work. The period beyond 2015 is more uncertain,[118] although in a debate on Defence Policy (Scotland) in Westminster Hall on 1 May, the Minister of State for Defence said:

    "The shipbuilding industry is a key part of defence spend. The Government plan to build up to 30 warships in the UK over the next 15 to 20 years. That is the biggest shipbuilding programme since the second world war".[119]

1   A Scottish Executive Cabinet meeting which coincided with our second oral evidence session prevented a willing Minister from the Scottish Executive from joining the UK ministerial team. Back

2   Ev 52. Back

3   Ev 5. Back

4   Q175. Back

5   Ev 50, para 7. Back

6   Ev 55. Back

7   Q53. Back

8   Q58. Back

9   Ev 67. The sub-contracted work referred to in fact went to the Dutch company Niestein and Sander. See footnote 1 to Q128. Back

10   Ibid. Back

11   Ibid. Back

12   Q134. Back

13   Ev 67. Back

14   Ibid. Back

15   Q128. Back

16   Q88. Back

17   Q90. Back

18   Ev 33, para 1.1. See also Q83. Back

19   Ev 55. Back

20   Ev 52. Back

21   Clyde Shipyards Task Force Report, p17. Back

22   Ev 36, para 6.1. Back

23   Q126. Back

24   Clyde Shipyards Task Force Report, p3. Back

25   The shortcomings of which were recognised by MoD. See Ev 50, para 8. See also Q58. Back

26   Official Report, Wednesday 19 December 2001, col 91WH. Back

27   Ev 52. Back

28   Ev 6. Back

29   Clyde Shipyards Task Force Report, p8. Back

30   Q10 and Q51. Back

31   Q10. Back

32   Q85. Back

33   Q142. Back

34   IbidBack

35   Q26. See also Q29. Back

36   Q86. Back

37   Q143. Back

38   Ev 19. See also Q52. Back

39   Ev 8. Back

40   Q8. Back

41   Ev 49, para 2. Back

42   Ibid, para 3. Back

43   IbidBack

44   Q87. Back

45   Q91. Back

46   Q58. Back

47   Ev 9, para 11. Back

48   Q3. Back

49   Q4. Back

50   Qq92 and 93. Back

51   Q93. Back

52   Q145. Back

53   Q16. Back

54   Q32. Back

55   Q105. Back

56   Q154. Back

57   Q148. Back

58   IbidBack

59   Ev 50, para 4. See also Q153. Back

60   Ibid. Back

61   Ibid. Back

62   Ev 35, para 4.5. Back

63   Recommendation 5. Back

64   Q120. Back

65   Ev 48. Back

66   IbidBack

67   Q155. Back

68   Ev 68. Back

69   An offshore patrol vessel (OPV), built for Brunei. Back

70   Ev 68. Back

71   Q150. Back

72   Q161. Back

73   Q109. Back

74   Q161. Back

75   Q153. Back

76   Q158. Back

77   Q109. Back

78   Q110. Back

79   Official Report, Wednesday 1 May 2002, col 203WH. Back

80   Q60 and Q63. Back

81   Q94. Back

82   IbidBack

83   Q113. Back

84   IbidBack

85   Clyde Shipyards Task Force Report, p9. Back

86   Ev 19. Back

87   Q121. Back

88   Q125. Back

89   Q174. Back

90   IbidBack

91   Clyde Shipyards Task Force Report, Recommendation 3. Back

92   Ev 35, para 4.7. Back

93   Official Report, Wednesday 19 December 2001, col 90WH. See also Ev 53. Back

94   Q20. Back

95   Q173. Back

96   Ev 53. Back

97   Ev 54. Back

98   Q20. Back

99   Official Report, Wednesday 19 December 2001, col 89WH. Back

100   Ev 53. Back

101   Ev 52. Back

102   Qq105 and 106. Back

103   Q149. Back

104   IbidBack

105   Clyde Shipyards Task Force Report, Recommendation 2. Back

106   Q16. Back

107   Q65. Back

108   Q144. Back

109   IbidBack

110   Q103. Back

111   Ev 5. Back

112   Q163. Back

113   Q170. Back

114   Q169. Back

115   Under the Prime Contracting Organisation (PCO) arrangements of the current system for procurement, BAE SYSTEMS Marine can work under sub-contract to PCOs other than BAE SYSTEMS and does not therefore need to rely on BAE SYSTEMS to secure work. See Ev 8 and Ev 3, para 23. Back

116   Ev 35, para 4.4. Back

117   MoD expects Clyde shipyards to have the opportunities to participate in these future programmes. See Ev 49, para 3.  Back

118   Ev 10. Back

119   Official Report, Wednesday 1 May 2002, col 202WH. Back

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