Memorandum from Scottish Enterprise Glasgow
INTRODUCTION
1. Scottish Enterprise is the main economic
development agency for Scotland covering 93% of the population
from Grampian to the Borders. The Scottish Enterprise Network
consists of Scottish Enterprise and 12 Local Enterprise Companies.
Working in partnership with the private and public sectors the
Network aims to build more and better businesses, to develop the
skills and knowledge of Scottish people, and to encourage innovation
to make Scottish business internationally competitive.
2. Scottish Enterprise Glasgow (SE Glasgow)
is the local enterprise company for the city. Although having
significant presences at other locations in Scotland, the shipbuilding
has long been, and continues to be identified with Glasgow and
the River Clyde and the industry has a continuing role as a major
employer in the city. Against this backdrop, SE Glasgow is taking
the lead for the Scottish Enterprise Network in supporting the
development of the industry and in attempting to maximise the
economic development opportunities potentially provided from the
development of a vibrant Shipbuilding and Marine Sector. SE Glasgow
is actively engaged with all parts of the SE Network and the evidence
submitted here will cover the whole of the Scottish Enterprise
area.
3. SE Glasgow hosts and supports the Scottish
Marine Industry Steering Group, a joint company, trade union and
government agency group bringing together key industry players
to help develop a coordinated strategy for the development of
the shipbuilding and marine sector in Scotland.
4. The Scottish Executive's Clyde Shipyards
Task Force recommendations and the UK Government's Defence Industrial
Policy provide the backdrop to a strategy for the creation of
employment opportunities from the development and manufacture
of defence-related products. Stemming from this work, Scottish
Enterprise (SE) now has a board-approved Shipbuilding and Marine
Sector Action Plan for Scotland and is in the course of actively
attempting to secure the maximum potential opportunities for and
from the sector.
5. The SE Action Plan provides a strategy
for the development of our organisation's support for the industry.
Whilst addressing the potential for civil shipbuilding and marine
sector activity, at its core the Action Plan is designed to maximise
the economic impact in terms of employment and contribution to
gross value add (GVA) of UK naval shipbuilding. Clearly this is
based on the various naval shipbuilding projects currently underway
or in the Ministry of Defence's future programmes. The main such
project identified in the Action Plan is the Future aircraft Carrier
(CVF).
FUTURE AIRCRAFT
CARRIER (CVF) PROGRAMME
Impact of programme delays on employment
6. Despite firmly-identified defence requirements
and the fact that naval shipbuilding programmes have the potential
to retain and expand the UK industrial workforce, procurement
delays on the largest naval programme, CVF, mean that the industry
is instead currently facing significant potential job losses.
As a consequence, the potential for naval shipbuilding projects
to act as a catalyst for long term skills development is looking
increasingly problematical.
7. The CVF project entered the assessment
phase (Initial Gate) in December 1998—nearly 7 years ago.
It is of course recognised that the MoD must ensure that the procurement
of future military shipbuilding projects must achieve best value
for money, being funded as they are from the tax base. However,
as is acknowledged in the Government's Defence Industrial Policy,
the wider picture of ensuring the economic advantage is obtained
from essential UK defence spend is also an important aspect of
that equation.
8. Major naval shipbuilding projects have
a direct and immediate ability to sustain and generate employment
opportunities for UK citizens, support the development of the
UK's manufacturing skills base and to create a trained workforce
which can serve other sectors such as marine engineering, construction
and renewable energy after the completion of naval shipbuilding
projects. The latter is a major plank of the SE Action Plan which
looks at the potential for the creation of a long term career
paths in manufacturing and construction. In essence military shipbuilding
projects offer the opportunity to derive direct benefit to the
civil sector. In addition to core trade skills, the increasing
complexity of naval ships, ship systems and ship construction
projects offer the potential to create quality jobs and considerably
enhance the long term capabilities of the UK workforce.
9. As has been widely acknowledged, the
two CVF vessels will be too large to be built in any one location
in the UK and will thus involve many shipbuilders. As is currently
understood to be the case, construction will be undertaken on
a "block" concept, with 5 main superblocks being manufactured
in various UK yards and a further number of smaller blocks being
likewise procured from a variety of suppliers on a competitive
basis. Integration of the blocks is currently planned to take
place at one location. Scottish based companies, including BAE
Systems Naval Ships in Glasgow and Babcock Engineering Services
at Rosyth, Fife, are expected to have major involvement in the
CVF project.
10. Despite what is understood to be in
excess of £200 million having been spent to date, the CVF
project has yet to finalise the ship design, the budget, the construction
programme and the contracting methodology. The MoD has yet to
obtain any firm proposals from contractors which will help define
costs, de-risk the project and reduce the exposure of the taxpayer
to price hikes stemming from ill-defined plans.
11. BAE Systems has 80% of the UK's naval
ship design capacity, with a large element of the design team
(some 260 designers) being located in Glasgow. A large part of
this team, that which is not otherwise engaged on other projects,
is now under imminent threat owing to lack of design work on CVF
being committed. Naval design is a highly specialised field and
continuity of work is essential if skills are to be maintained
in the UK industry. Designers work on ship programmes, not individual
ships. They take a long time to train and are an expensive resource.
Lack of continuity in scheduling military ship programmes is a
huge threat to the ability of companies to maintain a design function.
CVF, the next major programme in the pipeline, has the potential
to safeguard many jobs. The reverse is equally true.
12. Babcock Engineering Services in Rosyth
operates what is understood to be one of the most cost-effective
naval ship refit and repair operations in the UK and has won several
contracts from the MoD on a competitive tender basis. Unlike other
naval dockyards it has no guaranteed work-stream of future refit
programmes. It has recently commenced or is about to commence
refit work on the Royal Navy aircraft carrier Ark Royal and a
major Royal Fleet Auxiliary vessel, Fort Rosalie. However, these
are limited term contacts.
13. The Rosyth location has the capacity
to undertake both CVF construction and integration, one of very
few sites in the UK that could undertake such work. However, with
the decline in military ship repair and refit workloads and with
no immediate prospect of the CVF programme coming through, the
already-reduced workforce is likely to see even more redundancies.
Other civil contract work is being actively pursued. However,
there is concern that if there is no early prospect of CVF and
other work to justify retention of the workforce, staff and skills
level will be further depleted, potentially to the point that
the yard will fail to achieve the critical mass required to support
a ramp-up to meet the needs of the CVF programme.
14. Certainly it is the case that in the
absence of an established demand and timeframe for CVF (and other
programmes), workforce training and skills development programmes
cannot be properly developed. In the case of BAE Systems in Glasgow,
the current Type 45 Air Defence Destroyer and Landing ship Dock
(Auxiliary) projects are creating the opportunity for apprenticeship
schemes which SE Glasgow is actively supporting.
French involvement
15. The CVF project team is understood to
have been instructed to investigate collaboration with France
on its second aircraft carrier (PA2). In the context of the above
comments, it is important to note that in our view any serious
collaboration will inevitably result in even more delay as the
projects are aligned.
16. A further concern is that the potential
could be for elements of what should be a UK naval ship programme
that provides a boost to the industry, to be procured from France.
The French government sees DCN (its principle naval shipbuilder)
as a national "champion". DCN does acquire lower cost
items from around Europe, but high value design and construction
is retained in France, thus protecting high value jobs. It is
considered that a similar approach by the UK government will reap
the maximum benefits for the UK workforce and high quality skills
development.
SUMMARY
17. Scottish Enterprise's key concerns are
set out as follows:
17.1 Even if the CVF project goes ahead
and `main gate' is achieved in Spring 2006 (the earliest date
currently anticipated) it is considered unlikely that steel will
be cut before 2008 and the first block delivered to Rosyth before
2009-10. This needs to be addressed as a matter of urgency by
the MoD.
17.2 In the meantime, as there has been
no firm decision on the contractors, Scottish Enterprise is not
able to work with them to ensure Scottish workforce skills are
developed. Training takes time and appropriate external training
courses cannot be established without firm demand.
17.3 In the absence of firm commitments
it is difficult if not impossible to determine workforce requirements
and to set in train the appropriate recruitment programmes. Clearly
the project has the potential to create many hundreds of jobs.
The potential exists not only to develop jobs for the youth apprentices,
but also for adult long term unemployed, for which Scotland has
developed appropriate support schemes.
17.4 In Scotland, the two main locations
are in areas demonstrating comparatively high levels of unemployment—Glasgow
City: 5% and Fife: 4.3%. Both of these are above the Scottish
average. Within the overall employment profiles it should be noted
that the employment rate in Glasgow, at 70%, is well below the
Scottish average. It is also the case that in Fife, some 23% of
wards have unemployment rates which are more than twice the national
average. Major job-generating projects have the potential to make
a significant impact on these figures.
17.5 SE is committed in the Action Plan
to the development of an integrated Scottish Marine Technology
Training Project. This work cannot be commenced until the parameters
of what it must be designed to address are known.
17.6 Current Scottish company order books
are drying up and layoffs of existing staff are likely. It will
be difficult to get people back into the industry when needed.
In short, CVF, the largest defence naval ship project that has
the potential to employ and up-skill the Scottish workforce has
so far failed to deliver.
17.7 There is a danger that further delays
will exacerbate the problem of company shipbuilding operations
failing to provide adequate shareholder returns, with a consequent
potential failure to invest, the loss of yard capacity and the
loss of employment opportunity.
17.8 CVF is the only project on the horizon
that can justify retention of the numbers of ship designers currently
in the industry.
17.9 It is essential for detailed design
to be undertaken to help de-risk and improve cost certainty in
the CVF programme. Instead Scottish-based designers are about
to be laid off through lack of work.
17.10 Naval design is a high value-add job
function. If the UK loses these skills the MoD will be forced
to obtain them from overseas, thus creating quality jobs overseas.
17.11 If design is procured from overseas
providers, the UK is effectively ruling out a future export opportunity.
Design excellence and experience is pre-requisite for winning
export orders.
17.12 French collaboration will further
delay the CVF project. (Practical experience of problems with
collaboration can be seen in the ill-fated Horizon project—a
collaboration project between the UK, France and Italy on the
development of an air defence frigate started in 1992. The UK
pulled out of the project to pursue Type 45 after many years of
disagreements on specifications.)
17.13 The potential also exists for France
to capture a larger share of any joint project, meaning potentially
less work for the UK yards.
17.14 Clear decisions on CVF are required
if SE is to help the companies source and train staff and for
Scotland to extract economic advantage from defence spend.
Ron Culley
Chief Executive
October 2005
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