Select Committee on Work and Pensions Minutes of Evidence

Examination of Witnesses (Questions 1 - 19)

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.

Mr Robertson

  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[2], Mr Robertson. Some of the investment—and I am trying to look for a better word than vague—is 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 SYSTEMS Marine.

Mr Lyons

  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.

Mr Sarwar

  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.

Mr Weir

  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.

Mr Robertson

  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.

Mr Weir

  10. If you are looking to cut costs, is it not a possibility that you should concentrate in one area rather than three yards?
  (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 evidence—and £7 million out of £75 million is a start but it is by no means compelling evidence—of 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.

Mr Joyce

  11. The MoD submission to us[3] 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 that.

  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.

Mr Duncan

  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 champion—and I am instructed not to refer to this person as a tzar—to 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 to carriers.

  16. What could the Government's role be in encouraging that diversification?
  (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.

Ann McKechin

  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 investment?
  (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

3   See Ev 50. Back

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