Evidence submitted by The Scotland Office
1. The Government welcomes the Scottish Affairs Committee inquiry. This presents a timely opportunity to highlight Scotland's strength in manufacturing innovation, whilst demonstrating that Government spending on defence has a far reaching impact on Scotland's industrial base and also, the wider economy of Scotland.
2. The Ministry of Defence's policy for the acquisition of defence equipment and capability flows from the Defence Industrial Strategy (DIS). The DIS is driven by the need to provide the Armed Forces with the equipment which they require, on time and at best value for money for the taxpayer.
3. Within the DIS are four key industrial policies which aim to promote a sustainable industrial base, ensuring that the capability requirements of the Armed Forces can be met now and in the future. These are:
— Promoting the efficient operation of the defence market through the free exchange of information within the defence marketplace.
— Encouraging international defence co-operation through an open international defence marketplace which permits freedom of trade.
— Stimulating an innovative defence industrial base which encourages new entrants to the market, harnessing entrepreneurial potential within and beyond the existing supply base.
— Safeguarding the UK's operational edge by securing appropriate operational sovereignty over key capabilities in the industrial base.
4. The Ministry of Defence estimates that for 2005-06, 5,000 full time equivalent (FTE) jobs were generated in Scotland as result of MoD direct expenditure on equipment and a further 4,000 FTE jobs were generated as a result of MoD direct expenditure on non equipment items such as property maintenance, building construction, telecommunications and fuel. The MoD also estimates that in 2005-06, some £550 million was expended on equipment with companies based in Scotland and with whom the MoD directly contracts. It is estimated that a further £400 million was directly expended on non equipment items. Both the employment and expenditure estimates are subject to a number of qualifications, for example, not all of this money will be finally spent in Scotland as these direct contractors may place subcontracts with organisations outside of Scotland and vice versa.
5. In addition to the supply of specialist equipment for the MoD, the significant presence of the armed forces in Scotland has sizeable direct employment and economic impacts. A range of crucial defence capabilities are based in Scotland. For the Naval Service, this includes Her Majesty's Naval Base Clyde, as well as 45 Commando in Arbroath. For the Army, it includes a Divisional Headquarters and four infantry battalions, and for the RAF it includes three Expeditionary Air Wings and the main operating bases of RAF Kinloss, RAF Leuchars and RAF Lossiemouth. In total, there are 12,640 armed services personnel located in Scotland with a further 5,860 civilian personnel—a total of 18,500. Although subject to a degree of approximation and rounding, the MoD estimates that a further 12,500 jobs are generated by the presence of MoD bases, personnel and infrastructure in Scotland.
6. A number of companies based in Scotland are well placed to benefit from forthcoming major MoD procurement projects which will create and sustain a demand for high levels of skills and innovation into the future.
7. This is exemplified by the Royal Navy's future carrier (CVF) project, highlighted in the notice announcing the Committee's inquiry. The contract for the manufacture of the two carriers, HM Ships Queen Elizabeth and Prince Of Wales, is expected to be signed in early 2008 at an initial target cost of £3.9 billion.
8. The ships will each be built in four super-blocks of which two (per ship) will be allocated to Scottish yards, namely, Lower Block 4 at BAE Systems Surface Fleet Solutions (Clyde) and Lower Block 1 to Babcock Support Services (Rosyth). Moreover, Babcock Rosyth will be responsible for the integration of all the blocks and both ships will therefore be floated-up at Rosyth. Currently, these two companies have 2,685 and 1,187 employees respectively.
9. The Aircraft Carrier Alliance anticipates around 1,200 workers will be employed on CVF work at BAE Systems Govan and the current workforce for Babcock Rosyth will rise to around 1,600 (with the majority engaged on CVF).
10. In addition to the CVF programme, Scottish shipyards already have a major role in Naval Shipbuilding. For example, the Clyde is at the heart of the Type 45 destroyer programme. There are currently three ships in the water, all of which have been launched at BAE Systems Clyde shipyard.
11. The first of the class of Type 45 destroyers, Daring, successfully completed initial sea trials off the Scottish coast in August 2007. The second vessel, Dauntless, was launched in January 2007. The third, Diamond, was launched on 27 November 2007. Manufacture of the fourth and fifth ships (Dragon and Defender) is also underway at the Clyde.
12. Babcock Marine at Rosyth are also key to the Royal Navy's Surface Ship Support Project, currently undertaking the upkeeps for the following HM Ships: Grimsby (Sandown Class minehunter) which is due to be completed in Spring 2008 (contract valued at £3.7 million, including damage repair work); St Albans (Type 23 Frigate) which is undergoing a £10 million overhaul and is due to be completed in summer 2008; and Sutherland (Type 23 Frigate) due to be completed in winter 2008 (contract valued at £17 million). Babcock Marine at Rosyth also recently completed the upkeep for HMS Gloucester, a Type 42 Destroyer (contract valued in the region of £6 million).
13. A further 15 upkeep projects are due to commence between summer 2008 and winter 2009-10 with provisional agreement for work on HM Ships Campbeltown, Montrose, Bangor, Ramsey, Walney and Argyll to be at Babcock Rosyth.
14. BAE Systems Submarine Solutions and Babcock Naval Services supply specialist services to the MoD at HM Naval Base Clyde—Faslane and Coulport—fulfilling a wide range of key specialist engineering and management services to the Royal Navy at these sites, which are the home to 7 submarines and 8 Mine Countermeasures vessels. In particular, Babcock Naval Services employ over 1,500 at HM Naval Base Clyde, engaged in the delivery of a £400 million five-year contract. This commenced in September 2002. It was extended for a further five years to March 2013, bringing the total value to around £825 million.
15. Sustaining skills in the UK Maritime Sector is a major concern for the MoD and its suppliers, including those in Scotland. The Defence Industrial Strategy, published in December 2005, identified those national industrial capabilities needed for the UK to retain appropriate operational sovereignty. In the maritime sector, this covered:
— Maritime Engineering Resource: it is a high priority for the UK to retain the suite of capabilities required to design complex RN warships and submarines, from concept to point of build; and the complementary skills to manage the build, integration, assurance, test, acceptance and support of maritime platforms through-life.
— Ship Building And Integration: whilst there is no absolute requirement to build RN surface platforms onshore, a minimum ability to build and integrate complex warships in the UK must be retained.
— Submarines: for the foreseeable future the UK will retain all of those capabilities unique to submarines and their Nuclear Steam Raising Plant, to enable their design, development, build, support, operation and decommissioning.
— Maritime Combat Systems: the ability to develop complex maritime combat systems is a high priority for the UK, and their integration into warships and submarines an essential onshore capability.
— Maritime Support: the UK shall retain the ability to maintain and support the effectiveness of the Fleet warships, including spiral development, incremental acquisition, generating force elements at readiness, and meeting urgent operational requirements.
— Maritime Systems & Technologies: it is a high priority to retain onshore research, development and integration of key maritime systems and technologies.
16. The MoD and the industry have defined a range of key technical skill categories required to underpin these strategic capabilities, including detailed designers, professional engineers and technical management. By building on these skill categories, being competitive, and providing value for money, Scottish companies are well positioned to benefit from the defence industry.
17. The forthcoming major naval shipbuilding projects will contribute to the maintenance of these skills. For example, CVF is driving continued apprentice and graduate recruitment and training in Scottish yards. BAE Systems Govan's demand for intake in 2007 was 120 apprentices and 26 graduates, and Babcock Rosyth's was 250 apprentices.
18. Defence procurement activity within Scotland extends beyond support to the Naval Service. Many companies based in Scotland engaged primarily in the supply of equipment to the MoD have also developed products and expertise that enables them to access global markets for products with defence and also civilian applications.
19. It is not always possible to identify the numbers of jobs at a particular plant that relate directly to MoD work, but it is clear that MoD activity can help to sustain a particular company's critical mass, even though it is engaged in the supply of goods and services to a range of other clients. A number of such companies are described below, although this is not a comprehensive list:
— Raytheon Systems Limited in Glenrothes employs over 600 and has a genuine engineering capability, designing and manufacturing electronics for a number of airborne systems for the MoD as well as meeting US Defence supplier requirements and manufacturing civilian air traffic control radar.
— Selex Galileo is one of Europe's leading defence electronics companies and is 100% owned by Finmeccanica. The company, re-branded on 1 January 2008, and was formerly known as Selex Sensors & Airborne Systems. It consisted of an Italian holding company and UK and Italian operating companies (Selex S&AS Ltd and Galileo Avionica). It employs 2,000 at its Edinburgh facility, which is a Centre of Excellence for laser and microelectronics, manufacturing high performance radar, early warning and mission systems. Selex Galileo is the UK's foremost supplier of electronic systems for military platforms in the air, at sea and on land. Edinburgh is the largest of its four UK sites and the company's UK order book is currently valued at £2.5 billion although it sees its key challenge as further penetrating the US market.
— Thales UK is a major defence, aerospace and electronics company. The company is UK based, UK managed and intent on meeting the needs of its military and industrial customers in the UK and in UK export markets. It employs 129 engaged in the manufacture of microwave and electric components in Edinburgh and 750 in the manufacture of electrical optic equipment in Govan.
— Rolls Royce has annual sales of over £7 billion worldwide. It is engaged in civilian and defence aerospace as well as integrated power systems for marine applications. It is also engaged in power generation and distribution systems with oil and gas and defence applications. It is estimated that 15% of the Group's total annual sales in 2005 were to the MoD. Rolls Royce is Europe's largest defence aero engine provider with the US Department of Defence its largest government customer worldwide. They are engaged in a wide number of MoD programmes ranging from the production and assembly of the Typhoon engine to in-service support for marine gas turbines. They have a significant presence in Scotland, employing 970 at East Kilbride engaged in Aero Engine Repair, 175 in Rosyth in Dunfermline, 270 in Thurso engaged in the design and manufacture of marine products, and 980 at Inchinnan in the manufacture of components used in the majority of the company's gas turbines for the civil aerospace, defence, marine and energy markets.
20. The location of MoD facilities in Scotland often means that supporting contractors are required in areas where there a few other local economic drivers. For example, QinetiQ operates in locations that include Kirkcubright, Loch Goil, Rosneath and the Western Isles.
21. The examples cited above are not intended to provide a comprehensive list of the companies engaged in supplying the UK defence market—rather they are chosen to demonstrate the breadth and significance of the industry to Scotland. As stated above, MoD estimates on the numbers employed directly as a consequence of MoD contracts are necessarily broad in nature, but it is clear that the direct impact of defence spending to Scottish industry is far reaching, creating and sustaining large numbers of highly skilled jobs, whilst also enabling many of the companies concerned to develop additional applications for export and civilian markets.
Scotland Office
January 2008
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