Examination of Witnesses (Quesitons 140-159)
MR HARRY DONALDSON, MR KENNY JORDAN, MR KEVIN MCALONAN, AND MR SATNAM NER
4 MARCH 2008
Q140 Mr Walker: I have a GMB submission here that says the order book currently consists of two aircraft carriers, six Type 45 destroyers, eight Astute submarines and six Military Afloat Reach Sustainability auxiliary ships. There is a lot of concern in some quarters that orders are placed but are not seen through to fruition. What is your experience of that, of orders being awarded but not happening or being delayed or being put on the back-burner almost indefinitely?
Mr Jordan: We obviously are disappointed for the sake of continuity of employment for our members. However, it requires a will amongst the stakeholders to ensure that there is a smooth running of the orders. If that be an examination of whether orders need to be extended or brought forward, then I think that is something that all the stakeholders in the industry need to look at.
Q141 Mr Walker: But it is your experience that sometimes orders are announced which in the shake do not happen quite as quickly as was originally planned or do not happen at all.
Mr Jordan: For various reasons it can happen that there is a delay. However, jam tomorrow is better than no jam at all.
Mr Donaldson: I think there is a genuine concern that any delays in that would impact or potentially impact on jobs and skills; in that, if any planned process was not in continuing sustainability, the problem would be that skills could then walk from the industry. Given that they have left the industry, the problem is then, because of the age profile, that it may well be significantly difficult. We will always pressurise government in any event to ensure that there is a planned, sustainable development programme and obviously that the orders are placed to ensure that continuity takes place across the shipbuilding.
Mr McAlonan: There is some concern at the moment, particularly relating to the Aircraft Carrier Alliance which was announced back in July, that the joint venture on which it depends has still not, to our knowledge, been signed. We were hoping some time this week for some news following from the Defence Management Board but we have not heard anything yet. Certainly that is a concern. There was a lot of publicity around the time of the so-called awarding of the contract but nothing has yet been signed, so it must be very difficult indeed for the private sector to think forward about what its skills and job requirements will be. There are similar things happening in other areas. My understanding of the Type 45 programme, for instance, is that it was originally based on 12 build rather than the six now going ahead. There are certainly concerns at the moment on the landside over the Future Rapid Effects Systems contracts, all of which we were hoping would be resolved in the next few days but we are still waiting to hear definitely. At this point in time, there is considerable uncertainty.
Q142 Mr Davidson: We have already seen the companies and they were obviously quite happy with the scale of the MoD's orders, but companies are easier to relocate, as it were, than the workforce. Perhaps I could follow up on the point Kenny made: 90%, we think, of defence production is for the MoD and presumably the remaining 10% which is for export depends on that 90% baseload. To what extent does the defence industry in Scotland depend upon access to the MoD as part of, as it were, the whole market? To what extent do you think that if Scotland and the defence firms in Scotland were trying to sell into what would then be the British forces in an independent Scotland they would not be able to survive without that access?
Mr Jordan: That is an interesting scenario. I think there would be a major impact on the orders, should there be a different setup in the political overview. I believe there would be a major impact. Where we have a given right to the work through the MoD, then we would obviously lose a number of skills and a number of jobs with a change to that.
Q143 Mr Davidson: How do you think that would occur? Would firms relocate to England? How would the markets that you lost be filled?
Mr Jordan: I think there would be a greater attraction for companies to move out because they do not have that indigenous loyalty. When we are talking about companies, their major goal is to produce profit and there may be the attraction to move elsewhere.
Q144 Mr Davidson: The view of Unite would be that in the event of an independent Scotland there would be a real danger of all the defence companies or at least substantial numbers of them upping and leaving and relocating to England?
Mr Jordan: I think that has to be a considered threat, yes.
Q145 Mr Davidson: Is that also the position of GMB?
Mr Donaldson: There is a real concern with regards to that and that is clearly about competition between England and Scotland currently. That is why we favour this whole process of the joint venture between BAE Systems and the Clyde and the VT Group in Portsmouth. We see a synergy between both sets. We have a real genuine concern, as you suggest, of the issue in terms of that—once you restructure the whole concept of that and the MoD then becomes a fragmented aspect—inasmuch as you do not have access to that larger market-place. I think the issue is that we would say firms then, forced with that competition, being further away from the market-place, may well take decisions which could potentially mean relocation or could potentially mean major redundancies or major closures. That is a genuine fear that we could potentially have in terms of the Scottish economy. Then, again, you would need to compete in the open market-place to try to attract new types of industry, say renewables, and what would you do with the skills base once you had lost it? There is a real genuine concern and threat that GMB, along with Unite, have in that front.
Q146 Chairman: At this moment 90% of orders are from the Ministry of Defence. You are only attracting because of the big company and big muscles and big orders from the MoD and you are only capable of attracting 10% of orders from the private sector. If that 90% is gone, how can you attract even 10% orders in that industry? Mr Donaldson: That is why you say, at that stage, if that then disappears: How would you compete in the market-place? And, then again, would major companies choose to relocate to a more favourable system where they could access the markets more readily? That is a genuine fear. As you say, with that 90% and the 10% in that private sector, there is a huge gap that genuinely, in my opinion, could not be filled.
Q147 Chairman: Is it fair to say that if you do not have Ministry of Defence orders then we will lose workforce and industry in Scotland?
Mr Donaldson: I think it is a fair assessment to make that on the basis of that there would be a real difficulty in terms of the industry within the Scottish economy.
Q148 Mr Davidson: Which plants do you think would go first?
Mr McAlonan: I am not into a guessing game but all the shipbuilding plants would be significantly at risk I would have thought.
Q149 Mr Davidson: How many jobs are we talking about through the whole of Scotland, not just within the shipyards but within the supply chains?
Mr Donaldson: There are about 17,000 in total that we see dependent on the industry and the sector.
Q150 Chairman: What are the biggest challenges for the defence industry in Scotland and how can we address those challenges?
Mr Ner: Rosyth is maybe not 90% reliant on Ministry of Defence contracts but there is still a huge proportion of our contracts that are for the Ministry. We have in recent years had a degree of diversification, in terms of doing some modular build work for Terminal 5 and extending that to Birmingham Hospital, and even as far as engineering and design work for the oil industry. But, were it not for defence contracts, there would be a major impact at Rosyth. The decline that we have had over the last few decades would continue and it would be doubtful whether the dockyard could survive on the proportion of work it has from outside the Ministry.
Q151 Mr Davidson: That was my impression. The baseload that is provided by the MoD allows all these other things to take place; if that base was away, the whole rest of it, the fabrication for BAA and so on, would just collapse.
Mr Ner: Yes, that is how I would see it.
Q152 Chairman: When we took evidence from BAE Systems and Talis and other representatives of the industry, we were repeatedly told that if you can secure the MoD orders then it makes our job easier to market within the international community and gain more orders. Do you not think that 10% is too little, that these companies and industry should do more to attract orders from abroad?
Mr Ner: That has always been the argument from the trade union perspective. I feel that whilst there were Ministry contracts it was the opportunity to diversify, but it seems as though the companies were more intent on obtaining profit margins rather than investing in the skills that were needed to diversify and look out to wider markets.
Q153 Mr Walker: Is it not the case that most domestic governments support their own domestic defence industries? Just as our government supports our shipbuilding and the production of military hardware in this country, is it not the case that in France, or Spain or Portugal or wherever, they would have the same approach; that is, trying to direct their defence spending towards domestic industry?
Mr McAlonan: Much of that depends on how you define defence spending. We were looking at something over the last few days around, for instance, the Royal Fleet Artillery and also the Royal Maritime Auxiliary Service, because the shipbuilding contracts there were basically let to a firm based in Romania. We understand that the RFA contracts are not considered to be essential for defence and therefore are subject to European competition laws. As soon as you can define something that is subject to a national defence requirement, then, yes, you can give it some sort of security, but it is not always clear cut about how you make that definition. Could I reflect back on a couple of the earlier questions. Again, one of my concerns has been primarily within the public sector. In Defence Equipment and Support—which is the largest grouping within the MoD responsible for the acquisition programmes, followed through by maintenance programmes—we have seen a fall in staffing terms from over 30,000 down to about 20,000 at the moment. They are going to fall down to about 20,000 by 2012. That in itself has an impact, and it is having an impact, it would appear, in Scotland and elsewhere. A lot of the work that was being done by the MoD in Scotland is starting to move down to the acquisition hub in Bristol/Bath. Fifty per cent of the people in that division will work in the Bristol/Bath hub area by 2012. Industry is starting to move down because they want to be close to their primary customer, so they are expanding their operations in that area and that must have impact in other locations. It is something, I have to say, the MoD have been reluctant to admit to, but I think they are now coming around to it—which I suppose is the first step towards trying to do something about it.
Q154 Mr Davidson: Presumably there is an extent to which, if the MoD are centralising functions, Scotland, with one-eleventh or one-tenth of the population, cannot necessarily expect to get everything. Relatively close to my constituency is Kentigern House, which I think is the UK centre for pay and similar issues which is entirely centralised in Scotland. I am not clear from what you are saying: of the functions that are already in Scotland, am I correct in thinking that the vast majority of those are providing services for elements of the UK defence establishment out of Scotland?
Mr McAlonan: Yes.
Q155 Mr Davidson: They are not simply catering for defence staff in Scotland.
Mr McAlonan: No.
Q156 Mr Davidson: In fact under a different constitutional settlement it may be that all of those or virtually all of those would be lost. My impression is—and maybe you could clarify this for me—that Scotland has more defence jobs than its share, as it were, of the Armed Forces, so to speak, the one-tenth or one-eleventh, would justify. Is that a fair assessment?
Mr McAlonan: I do not know. I could not speculate on that.
Q157 Mr Devine: Harry, you have said in your report that the investment in two carriers and such like will have the ability to raise the skill levels in the shipyard and take it to new higher levels. We are obviously keen to develop that argument, inasmuch as we do not want the MacDonald's jobs and such like. We were very impressed when the management were here talking about their investment, particularly in apprenticeships and growth in apprenticeships, which obviously we welcome. I just wonder what the thoughts of the unions are with regard to how this investment is going to be raising skill levels in Scotland.
Mr Donaldson: I think the investment is quite clear. Our view is that everybody should be raised to level 3 SVQ/NVQ. The whole concept is that Scotland and the UK is not going to compete on level 1 and level 2 and needs to be ratcheted up. We would see level 3 as being a minimum standard in terms of skills sets available. Equally, it would go to levels in management—which I do not represent across the piece, although we have a lot of managers within our membership base. I think there needs to be investment in skills and development in some of these areas, particularly in the growth of apprenticeships, because I think the indigenous workforce are ageing quite significantly. If we do not have that replenishment and development and continuity of skills development, and younger people coming into the industry, we can stand to lose out, bearing in mind that a lot of these skills are going to be portable and transferable into other sectors of the economy. If we only have 10% in the private sector, there is scope and opportunity in that skills development for young people coming in—and mature apprenticeships, I should also say. I sit as Chair on the Modern Apprenticeship Awards Panel in Scotland and I can see what is coming through in some of the initiatives. But, again, we need to grow more and we need to grow faster. This gives the huge opportunity of that investment in the future talent of Scotland.
Q158 Mr Devine: Is that the same for Unite?
Mr Jordan: I would echo what Harry has just said. I think the level of intake of apprenticeships has to be heralded, especially at BAE Systems, through the shipbuilding. They have started some 350 apprentices since 2003 and they aim to recruit another 120 apprentices in the company in 2007. The skill benefits, as Harry has outlined, would not only be usable outwith that industry but transferable towards other types of industry as well. We are talking about quality jobs, rather than flipping burgers in McDonald's or packing shelves in Tesco. I mean no disrespect to those who do those jobs—they are important—however, they are not the type of jobs that give taxations on our members' skills.
Q159 Mr Devine: In the report from the management of Rosyth they were saying that they were employing in Fife the highest level of apprenticeships since the last 25 years. I am also interested in the age profile issue. For 15 or 20 years we did not invest in apprenticeships and I wonder if that is an issue in Rosyth as well?
Mr Ner: I certainly do welcome the current investment in terms of the intake of apprentices. Indeed, there is a significant proportion adult apprentices, which is to be welcomed as well. I agree with Harry there is a need to ratchet up the level of the SVQ. My view is that the carrier is a very large project. It needs investment in good time and good numbers. I would certainly like to see more apprentices, and I would like to see them taken on sooner, but there is a concern amongst the company that they will not commit to anything until they have the financial commitment from the Ministry to go ahead with the carrier. There are a lot of issues here that hang on the commitment that is lacking from the Ministry.
Mr McAlonan: We represent primarily professionals around the engineering and logistics project management areas. Certainly in the Ministry of Defence there has been and continues to be a considerable investment in skills development and training, which is very welcome. We are very supportive of those initiatives and we are working with them on a number at the moment. We have a few concerns in terms of the public sector, in that the career path is more likely to lead people away from Scotland down to the acquisition hub in the south-west of England. The other thing that is happening, which is becoming more apparent, is that the more the MoD gets into alliances with the private sector, they are then starting to lose people from the public into the private sector because of the reward structures there. That is not a great problem in a way for this committee, because it tends to keep those skills in Scotland and allows Scotland to develop those skills. The other thing the MoD have to be careful about, particularly for our members, is that a lot of those skills are in areas where there is very severe competition, particularly in the energy industries. Again, you could see the defence sector losing people as a consequence of that. We may disagree about what the answer is but we have a shared view of the problem, which is that the reward structure is not necessarily sufficient to encourage people to fully develop their skills and then to retain them within the defence sector. That is something they are going to have to look at.
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