Examination of Witnesses (Questions 1
MONDAY 20 MAY 2002
1. Good afternoon, gentlemen. We are the Scottish
Affairs Select Committee at Westminster, at present conducting
an inquiry into shipbuilding on the Clyde at the behest, I might
say, of the local member, John Robertson, who was very insistent
we did something on this issue, given there has been a Clyde Shipyards
Task Force. We would like to see if we think there is anything
else that the Government should be doing. Before I get on to that
can I start today's proceedings by thanking some people on behalf
of the Committee. I would like to thank the staff and students
of Anniesland College in particular for allowing us to come here
today for our meeting. I would like to particularly thank the
principal, Linda McTavish and her colleague, Eric Simpson, who
have been very helpful to us. We would like to give a special
mention to two students, Louise and William, who prepared the
cakes for us this morning. We thoroughly enjoyed them and thank
you very much indeed for doing that. Without further ado, could
I ask the witnesses to introduce themselves. We will keep our
questions brief and we hope you will keep your answers as brief
and concise as you possibly can without being restricted in what
you have to say. Would you like to make a short introduction for
the purposes of the record?
(Dr Crawford) Madam Chairman, ladies
and gentlemen, thank you for the opportunity to give evidence
to you. I will introduce my colleagues who, I suspect, are better
known to you than I am. I am Chief Executive of Scottish Enterprise.
To my right, Ron Culley, who is the Chief Executive of Scottish
Enterprise Glasgow who managed the Task Force. To my left, Steve
Inch, the Deputy Director of Economic Regeneration and Environmental
Services for the City of Glasgow, who was actively engaged also
with the work of the Task Force. It is a pleasure to be here.
2. Thank you very much. Could I start off by
asking you if you would like to explain what the Clyde Shipyards
Task Force did and why?
(Mr Culley) Perhaps I can say a few words on that,
Madam Chairman. In July of last year, BAE SYSTEMS Marine announced
just over 1,000 redundancies, and the then minister, Wendy Alexander,
called a Task Force in response to this as a consequence of our
concern over the implications of this for employment and a number
of other matters which I will raise. She was joined in that task
by George Foulkes, Minister of State for the Scotland Office,
and Brian Wilson, Minister of State for Industry and Energy, and
they convened a meeting which involved Scottish Enterprise Glasgow,
Glasgow City Council, all of the key trades unions and the other
organisations, including BAE SYSTEMS themselves. The Task Force
focused on four work streams, the first of which looked at the
overall strategy of BAE SYSTEMS Marine and we were invited to
consider whether or not we felt the strategy was robust. The second
work stream looked at redundancy management, and that was led
by Steve Inch of Glasgow City Council, to care for and support
those who may be made redundant from the shipyards. The third
looked at whether the skills plied within the shipyard required
to be up-dated. The fourth looked at the land use and community
regeneration of those areas in the shadow of a shipyard crane.
The report was published in January 2002 and there has been some
significant progress since the Task Force was established, the
first of which is that the contract for two ALSL ships, Alternative
Landing Ships Logistics ships has been signed, as has the six
Type 45 Destroyers, and the Inchgreen site has been leased by
BAE SYSTEMS against the prospect of a contract for a carrier being
won. We also note from the Task Force that Thales have also announced
a bid for the carrier and we feel if they win the contract they
too have proposals which would see at least some of the work,
we would hope, located in Scotland. We have seen some of the redundancies
announced, and we have been able to offer support to those who
have been offered redundancy thus far, but there has been a delay
in that, and we can speak on that matter as the meeting continues.
Finally, in respect of land use and community regeneration, funding
bids are being considered for the land use and community regeneration
aspects. The Task Force are shortly to reconvene under my chairmanship
this time on 5 June and 2 December to give us six- and twelve-monthly
updates. A very positive meeting is expected given the new contracts.
We also have, I suspect, some measure of optimism over the prospect
of some carrier work coming to the Clyde. There also have been
delays in redundancies which we can see as a positive move, although
it is a double-edged sword because it does bring with it some
uncertainty for those who may be affected but we recognise there
is much to do if this strategy is to be implemented in full.
3. I was interested to hear about the further
meetings in June and December. Could you enlighten us a bit more
and broaden it out? What kind of conclusions do you think the
June meeting is likely to draw?
(Mr Culley) The June meeting is an interim meeting.
This strategy is going to be judged on whether it is giving effect
over a ten year period. What we have to do is ensure we look carefully
at the progress which has been made and test the strategy against
BAE SYSTEMS investment. At the end of the day, this strategy will
depend almost entirely on whether or not the investment which
has been promised by BAE and the orders which are in prospect
are implemented, and in June we will be looking to see to what
extent there has been commitment. There has been commitment thus
far and we know in Scotstoun, for example, overall £7 million
has been committed, although you will want to test BAE SYSTEMS
themselves on this. We have seen in Scotstoun £2.2 million
investment in a medical centre, Type 45 accommodation, a joiners
manufacturing facility, a new door in the No1 dock, and in Govan
we have seen other investment of £4.8 million in a new fabrication
area, a medical centre, new carparking and fencing, CCTV and main
gatehouse improvements. That is £7 million of a £75
million investment and we would want to be very sure that all
of the other elements of that are in place.
4. I am interested in the investment side. I
think you will agree that if we do not get investment and if the
MoD orders suddenly dry up, the yard is in a particularly difficult
position. Have you had any inclination or any idea what kind of
investment BAE SYSTEMS are going to do?
(Mr Culley) Yes, it is set out on page 44 of our report,
Mr Robertson. Some of the investmentand I am trying to
look for a better word than vagueis currently indeterminate
and BAE SYSTEMS will as matters progress and orders are won will
want to be more specific on that investment, but that is again
something you will want to ask my friends and colleagues in BAE
5. Mr Culley, can I go back to July 2001 when
BAE announced 1,000 redundancies. Today in the documentation we
are looking at it is probably half that number. Why do you think
they announced 1,000 job cuts at that time?
(Mr Culley) Perhaps I can make some opening comments
and then my colleague, Steve Inch, can help me because he was
more responsible for that area of work. They announced 1,000 redundancies
in July 2001 which took the base figure in both yards down to
around the 2,000 mark. That was their assessment of what was necessary
to make the yard fit for purpose. It was predicated upon winning
the two ALSL orders and the three/six Type 45 Destroyers. That
has been done, so we would expect to see certainly no men or women
being laid off below that number. I can answer further but it
does occur to me Steve may want to say something.
(Mr Inch) I think the redundancy forecast made by
the company was based on what it knew at that time. At that time
there was a degree of uncertainty about the ALSLs, that uncertainty
has now gone and that has explained a large part of the reasoning
why the redundancy programme has been scaled back. At the present
time there is also the prospect of additional work coming up from
Barrow and I understand there may be an announcement sometime
towards the middle of June, and that may mitigate the planned
redundancies even further. I think they started off with a worst
case scenario and they have come back from that. On the redundancy
management side, we have set up quite a sophisticated operation
which would have dealt with that level of redundancies, including
employee support centres, a call centre for individuals to phone
up and pass on their details by phone, it included a jobs fair,
and lots of measures applied elsewhere in Glasgow. I suppose I
could say I was a bit disappointed by the numbers coming through
but, to pick up on Ron's point, I am delighted there has been
less up-take at the centres than might have been predicted at
the start because of the mitigation of the redundancy numbers.
6. Do you think it was realistic then to announce
1,000 job cuts at that time?
(Mr Inch) I think that is an issue you would have
to take up with the company, but I think it was based on their
business forecast at that particular point in time. I think things
have changed quite a lot over the last several months.
(Mr Culley) Madam Chairman, we have to remember that
the 1,000 posts were cut in half but there have been no jobs saved
here, these are merely voluntary redundancies. Actually, that
is not fair, some jobs have been saved but many of those posts
have been addressed by means of voluntary redundancies. The frustration,
I guess, for the workforce has been caused as a consequence of
delays in completing the two auxiliary oilers, and that has delayed
the redundancies, so some people in some measure will not know
if they are coming or going quite literally. Although we have
had both of the support offices ready for those made redundant,
they have not been able to operate at full strength because there
has only been a trickle of people rather then the flood which
was estimated when the announcement was made at first.
7. Mr Inch, you mentioned the uncertainty. If
I can remember rightly, BAE SYSTEMS announced 1,000 redundancies
the same day the Secretary of State for Defence mentioned in Parliament
the award of the logistics ships order, and there were all of
us who had worked very, very hard to secure this contract for
BAE SYSTEMS, and the same day they announced there were going
to be 1,000 redundancies. So even at that time there was a view
that the actual number of redundancies was going to be half what
BAE SYSTEMS had announced. I can understand that this answer should
come from BAE SYSTEMS but what is your view on this?
(Mr Inch) I think that is an issue you will have to
take up with the company, why the timing of the announcement coincided
so closely with the timing of the Government's announcement. As
I said, we could only, through the redundancy task force, proceed
with the information the company has given us about the likely
business projections at the time. It is inevitable when redundancies
announcements are made, and I think it has been shown time and
again in the past, companies tend to take a pessimistic view at
the time they make the redundancies, and then they come back.
It is perhaps a safety mechanism, make the problem seem worse
at the start and then come back and say your forecasts were going
the wrong way.
8. We got from the Shipyards Task Force Report
that you were not entirely convinced about BAE's three yard strategy.
I wonder if you could give us an assessment of your view of the
ten year three yard strategy. Is there any alternative to it?
Most importantly perhaps, do you consider it would be a possibility
then of work going from the Clyde to Barrow?
(Mr Culley) Madam Chairman, the Task Force initially
found, in a phrase I remember using at the time, the prospect
of the strategy being robust as counter-intuitive, and that was
because we were sceptical, because the strategy was based upon
having three centres of excellence, one in Barrow which would
assemble the Type 45 and would undertake nuclear work, one at
Govan focused on steelworks and one at Scotstoun which would look
at building the first Type 45, exports and design. BAE SYSTEMS'
strategy was to manage all three yards as one business. We also
looked at the international competition to BAE in this regard
and we noticed many of the competitors used a similar approach
to build in units and transfer, and so we understood there was
no technical reason why this strategy could not be robust. We
were aware that BAE wanted a strategy which maximised the utility
of the three yards and which minimised the necessary investment
but which used the focus of skill and expertise which was available.
Whether or not this was a mechanism whereby Scotstoun or Govan
could be closed or moved to Barrow, we looked at closely and looked
at the work at Barrow, and BAE would have two problems if they
were to attempt to fulfil that prospect. The first is that the
cost of developing the infrastructure down there would be prohibitive
given the fact it already exists on the Clyde. Secondly, and I
do not mean this in a pejorative sense because the people at Barrow
are first-class and I met only recently with the shipyard workers
from that area, but Barrow has been described as being at the
end of the longest cul-de-sac in Britain, and some would take
the view that it is not an attractive location to accommodate
young, highly skilled graduates, it is a one-company town and
many, many miles before there is any other conurbation, so it
would be much more difficult for BAE to gather together the kinds
of skills mix which would be necessary to do this there when they
have that available up here.
9. When you did your investigations and looked
beyond, did you have a look at the distance? Some of the countries
which were mentioned to me were countries like Denmark and Holland,
which are a lot smaller than even Britain, and we have Vospers
involved in this in the south of England. Is it really conceivable
that it is financially worthwhile to bring parts from the south
of England to Barrow and also from Scotland to Barrow?
(Mr Culley) As I said, the initial view was we were
sceptical about this. Looking at the German yards, and I will
say more about them later if you wish, distance is an issue but
it is not that it is impractical, just a bit more expensive to
do that, so it comes down to the margins or the profitability
of doing it. I am sure anyone designing a shipyard from scratch
would not go about it in this way.
10. If you are looking to cut costs, is it not
a possibility that you should concentrate in one area rather than
(Mr Culley) Absolutely, and that was a real concern
of the shipyards, and I guess remains a concern of the shipyards
until we see evidence of investment. We have begun to see evidenceand
£7 million out of £75 million is a start but it is by
no means compelling evidenceof that kind of money in the
shipyards in the Clyde, to be fair. I would not say it was compelling
evidence but it would certainly tend to suggest that BAE SYSTEMS
were absolutely sincere in what they wanted to do, which is running
that three yard strategy.
11. The MoD submission to us
said that a Government policy in shipbuilding strategy is imminent,
have you any idea of the timing of that? What would you expect
it to contain in terms of clarification?
(Mr Inch) I know the matter has been
discussed at the Shipbuilding Forum and I gather a decision may
be due in the next month, but I have no more information than
12. Since we are looking at MoD policy, I looked
at your submissions and, like everyone's submissions to this inquiry,
it was based on UK MoD policy. What would be the impact of an
independent Scottish defence force policy on the shipbuilding
industry in your mind, both within the ten year frame of reference
we have from you up to now and beyond that?
(Mr Culley) An independent Scottish?
13. An independent Scotland would not have a
UK MoD behind it. With the size of the orders, roughly 30 ships
over the next 20 years, two carriers and so forth, would those
jobs still exist in your estimation?
(Mr Culley) That would be speculative, Mr Joyce.
(Dr Crawford) I think the honest answer is, we do
not know. It is not something which has been reviewed by the Task
Force and it is not something Scottish Enterprise has reviewed
and, frankly, we would be incompetent to answer that.
14. Why has it not been reviewed? Is it something
you imagine likely to happen?
(Mr Culley) The three yard strategy as it stands covers
both sides of the border, so by definition trying to accommodate
all of that within Scotland at the present is not possible.
Chairman: I do not think we expect you to know
the answer to that.
15. Two of the Task Force Report recommendations
address the issue of purchasing, suggesting the DTI should continue
to engage with the MoD to consider the industrial implications
of procurement strategies, and the Government should continue
to take account of the detailed industrial implications of procurement
decisions for shipbuilding, design and capabilities. How could
the various government agencies improve their procurement strategies
in your view?
(Mr Culley) There are a number of possibilities, I
guess. Currently, the DTI and the trade associations are developing
master classes and benchmarking approaches as well as marketing
support. Encouragement is also being given to the Shipbuilding
Forum regarding closer collaboration within the industry. The
Task Force recommended the appointment of a shipbuilding championand
I am instructed not to refer to this person as a tzarto
encourage team work in securing orders or reducing costs. Failed
bids are very expensive and the more you can do to win orders
without increasing capacity inappropriately in the yards in the
UK, because there is over-capacity just now, and to save money
by not chasing contracts you do not win, the better. The value
we have just now is that as a consequence of the MoD orders we
face a future with some measure of stability, and as a consequence
of that I think the Government will have an opportunity to reflect
on innovation, collaboration, new designs or perhaps niche markets
or other opportunities such as remotely-operated vehicles or wave
power, things which are currently not being considered as a consequence
of the stability that the future offers us particularly in regard
16. What could the Government's role be in encouraging
(Mr Culley) Currently consideration has been given
to a shipbuilding co-ordinator or a shipbuilding champion, and
I think that would emulate the approach taken in Germany. Germany
has a very successful shipbuilding industry, partly because of
that and partly because they have been able to invest more in
shipyards, in Blohm & Voss in Hamburg and particularly in
Wismar in East Germany. We are beginning to witness something
approaching that kind of investment, £75 million, whereas
in Wismar it was £200 million, but we are beginning to see
a move in the right direction.
17. Mr Culley, you stated that BAE SYSTEMS have
only invested about 10 per cent of their proposed £75 million
investment, do you consider once they have completed the proposed
investment that would be sufficient investment within the Clyde
shipyards to ensure they are innovative, efficient and productive,
or could more be done?
(Mr Culley) £75 million in Govan and Scotstoun
makes both yards fit for purpose, and when I say that I mean fit
for the purpose that we see, and that is the build-out of the
Type 45s and the other contracts. The Committee will probably
want to discuss this further with BAE SYSTEMS, I suspect, but
as I mentioned a moment ago the scale of the investment in Aker-MTW
in East Germany was very impressive. A model is shown in the port
itself, and when you look at the integrated flow of production,
all under cover, highly automated with good infrastructure, that
leaves them in a position where they can begin to compete with
Asian shipyards. When I was in Blohm & Voss in Hamburg frankly
I was very impressed by the automated approach to cutting steel.
It was two men and a computer and, frankly, a rather unlikely-looking
mallet, which did everything and it was hugely impressive. The
£200 million was made available by the German Government
as a consequence of re-unification was permitted legally to be
spent in Wismar and demonstrates the difference in investment
in the yards there and here. So would the yards in Govan be as
modern and as cutting-edge as would be the case in Germany? Frankly,
no, but they are making strides towards that.
18. And that would be after the £75 million
(Mr Culley) Absolutely.
19. We still need more to be invested?
(Mr Culley) It is very early days at the moment.
2 Clyde Shipyards Task Force Report, January 2002. Back
See Ev 50. Back