Select Committee on Defence Written Evidence

Memorandum from Scottish Enterprise Glasgow


  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).


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.


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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