Examination of Witnesses (Questions 480-499)
BARONESS TAYLOR OF BOLTON, DR ANDREW TYLER AND MR AMYAS MORSE
29 APRIL 2008
Q480 Mr Davidson: I think I have enough experience to recognise the difference between a do not know and cannot tell. I think we have got as far as we are going to get with that. Given that you have said to us that tankers are a lost cause, that tankers are not going to be done in the UK at all because of the road that has been gone down, even if a gap appears as part of the tanker ordering programme—
Baroness Taylor of Bolton: We did not say anything definitive about tankers; we said that there were capacity problems and that is the case. We have had expressions of interest in the tankers—you know the timescale which we advertised—and we cannot say a great deal about that, obviously, because we have tenders.
Q481 Mr Davidson: I understand that, but I want to be clear about whether or not in the event that, undesired, a gap appears in the work programme of the yards as they go through the carrier, there would still be the ability of the MoD to transfer some work on the tankers to fill in that gap.
Baroness Taylor of Bolton: It would have to be a very long delay on the carriers for the physical work on the tankers to be available.
Dr Tyler: We have done all the detailed analysis of the profile of activity going through all the yards involved in the carrier and from the Scottish point of view that is the Rosyth facility and the Glasgow facility—and obviously the Barrow facility and the Portsmouth facility, both of which have not just got carrier work going through them—and I can reassure you that far from there being any gaps appearing during the time of the building of the carriers we have a capacity challenge to meet.
Q482 Mr Davidson: I understand that; I understand what the plan is. The second point in relation to the MARS programme is coming back to the question of what you described as "solids" and JSBLs. I am not clear what the timescale for those is and whether or not that overlaps with the time of the carriers and therefore there will be the same capacity problems, or whether or not they could come at the end of the carrier period and therefore extend the workload of the yards. Can you clarify that?
Baroness Taylor of Bolton: I think a lot of the carrier workload would have moved on to Rosyth by the time that we get to those particular vessels.
Q483 Mr Davidson: Therefore it is possible for us to consider the solids and JSBLs as being work that would follow the carriers in maintaining the flow of work through the yards?
Baroness Taylor of Bolton: We have not put specific dates on that but there is a potential.
Q484 Mr Davidson: In relation to 296, is it anticipated that 296 would prove an insurmountable problem to put those orders into the Scottish yards?
Dr Tyler: One of the reasons why it was not advisable to seek an exemption for the tankers is that it would potentially compromise our position for applying for future exemptions, so it would add a confusion if we were seen to be applying for it for the tankers and probably not succeeding, which was our legal advice that that would not be too successful under the rules that are applied to Article 296. Our belief is that we stand a good chance because of the more complex and military nature of those subsequent classes of vessels to be able to apply for a 296 exemption and get it, and of course we have plenty of time to build that case and achieve that in advance. That is our anticipation and it is another reason why we separated the MARS programme into three separate projects, so that we could treat them as quite distinct and separate pieces of equipment procurement.
Q485 Mr Davidson: That raises another question about the operation of 296. It follows on from some of the points that my colleagues raised. I am not clear then whether the mechanism is that you have to apply to get a derogation and then once you get that you can then go ahead and order in the UK; or whether or not you go ahead as you wish and the EU then has to pull you up. With whom does the initiative lie?
Baroness Taylor of Bolton: Certainly when we have the time we have on the second and third parts of the MARS programme it seems to be wiser that would apply first and then get that derogation. That is my anticipation of what we will do.
Dr Tyler: My understanding is that the way Article 296 applies an exemption derogation must be applied for.
Q486 Mr Wallace: Chairman, there was a very good briefing by the Ministry of Defence provided to the European Scrutiny Committee when the EU Directive went through and that will explain everything about the 296.
Dr Tyler: Can I just add that one of the difficulties in this area is that—excuse the pun—there is quite a grey area between something that one would define as a full blown warship and something that one would define, as a tanker most certainly would be, as a near commercial vessel, and there are lots of bits in between. That is why, in a sense, there is a continuum here and one has to be quite careful in the way that one expresses and describes these things when looking for an exemption of this nature.
Q487 Mr Wallace: So the Articles of the European Union do not require that battleships be specified; it requires that Article 296, if it comes into force roughly on the area when it is about natural security or defence, does not come into effect about a battleship or a tanker. It is whether the thing that you are deciding to order or publicly procure is within the scope of defence or security, or whatever, or not. So that is the real explanation, not about these separate little lines whether it is a battleship or whatever. I am sure our good friends in France extend very elastically what they define as "defence" and we have been pretty straight.
Dr Tyler: It does not contain that specificity, which is precisely why, given that we had overwhelming other reasons for not wishing to be building MARS tankers due to urgency and due to the fact that we already have the capacity with the carrier, it did not seem wise to have been seeking an exemption to 296 at that particular point in time. You are quite right that Article 296 is couched in quite general terms, which is even more reason not to want to go on picking through it and making difficult applications.
Q488 Mr Wallace: I do not want to get bogged down, given that I take the Minister's word that we are not likely to see such a delay and so the MARS is not going to come into play. My question is concerned about the precedence and the fact that I would hate the Ministry of Defence to be moving too much towards invoking Article 296 when it suits it.
Mr Morse: Let me reassure you that that is not the case, but you can recognise that a tanker is a more marginal call than something which is much more clearly customised, and therefore clearly has a more defined warlike purpose. There is a continuum and it does not take a great stretch of imagination to see the difference between a tanker that you are using and have been using to fuel warships and you are modifying it to some extent—the difference between that and something which is highly sophisticated for warlike purposes.
Q489 Mr MacNeil: Ultimately we are looking at employment skills for the defence industry in Scotland and of course the big pie you are talking about here is defence procurement. Can you tell the Committee so that it is on the record really the value of defence procurement in Scotland on an annual basis?
Baroness Taylor of Bolton: I do not think we have the figure for overall in Scotland. We can make an estimate in terms of the jobs but in terms of the actual value that is difficult because a lot of the companies are national companies—some of them are international companies, I should say really—and they do not always break down their earnings company by company. We have a big footprint which we have tried to estimate in terms of employment.
Q490 Mr MacNeil: Can you give me the UK figure?
Baroness Taylor of Bolton: Shipbuilding about £14 billion.[2]
Dr Tyler: One of the things of course is that sometimes you get a prime contract or a head contract being for a Welsh company or an English company, which is then subcontracting in the second and third tiers which are supplying in Scotland, and you get the opposite happening as well—and the Type 45 is a very good example—where the prime contract is with the BAES facility up in Govan, and they subcontract a lot of labour and equipment purchased from elsewhere: a lot which comes from elsewhere within the UK and indeed the European Union and the United States and so on.
Q491 Mr McGovern: I mentioned earlier that Members of this Committee had visited Glasgow and when asking, for example, Nigel Stewart of BAE Systems how dependent the Clyde yards would be on Royal Navy orders he said that without them there would be no shipbuilding industry in Scotland. Just how reliant do you believe the Scottish defence industry is on MoD contracts?
Baroness Taylor of Bolton: Very. The example that you give is a total one—a total dependency and clearly the jobs that go with it. In terms of what we have been trying to do with shipbuilding in particular, and I think the Defence Industrial Strategy and the Maritime Industrial Strategy was aimed at trying to help industry to modernise, to consolidate, to look to the future, they have done that on the back of very significant orders from MoD. I used the figure at the beginning: we are spending £14 billion over the next ten to 15 years, and that is quite an unprecedented amount of money and an awful lot of that is going to Scotland. Obviously we would like all of British shipbuilding to be looking at its commercial opportunities and the opportunities that exist for building for other countries, but at the moment it is a fact that all of this work is what is keeping those shipyards open.
Q492 Mr McGovern: Thank you. What challenges do you believe that the Scottish defence industry is facing and could the MoD do more to help support them in tackling those challenges?
Baroness Taylor of Bolton: I think that we have a good relationship with industry and they understand in a much more mature way the approach of the Department in all of the areas where we are engaging with procurement. They understand that we are changing the way in which we operate and looking to the through-life capability of any project rather than just by product and then later deciding on the service maintenance or upgrading, therefore that joint working has been very good both for MoD and companies as well. The one area where I think there is pressure, and it is in many areas and one that I would like to focus on a little more, is on skills and the actual upgrading of many skills that we will need to continue to keep at the forefront. I know that a lot of effort has gone into upskilling. When I was in Glasgow I saw how many apprentices were being taken on, how many graduates were being employed, so things have changed quite significantly from ten, 15, 20, 30, 40 years ago, but we will all have to work hard to maintain the skill base and that is what we will have to focus on for some considerable time.
Q493 Ms Clark: You will be aware that there have been some press reports over the last few months saying that in order to keep within the budget the MoD is going to have to consider scrapping some programmes and delaying others. We are being told that this planning round has been particularly difficult. Is that true? Are shipbuilding programmes such as the Future Carriers, MARS and Future Surface Combatants in danger of being delayed or cancelled?
Baroness Taylor of Bolton: Well, we have had a Comprehensive Spending Review which gave the Department 1 and a half % real terms growth. I have mentioned already a couple of times the amount that we are spending on shipbuilding over the next few years. It is true that we have a difficult planning round, but I think all planning rounds are difficult for Ministers because Ministers will always want more money because they will always want to do more things with their departments. Any department would tell you, most Ministers would tell you, that they would like more money. What we are trying to do is be realistic about where we are on all of our projects. One of the ways in which defence is different from other departments is that the programmes that we have take so long to come from concept to actual fruition, and that means you have to re-evaluate where you are on any particular programme every so often because a lot of the issues that could arise can be outside your control. It may be that you have a joint programme with another country, it may be that there are technological leaps during the design stage and, therefore, you have to sit down again and consider exactly what it is you should be doing. You may define a requirement today for something that is going to be built in eight or ten years' time and at that point you should be reassessing the requirement and what those changes would be. That is one of the reasons why a planning round is more complex in the MoD than it is in other departments. We have got to reassess exactly where we are on all of those programmes, whether they are on course and match the priorities that we have today given that many of these programmes were started many years ago.
Mr Morse: Perhaps I can add this. One thing I have observed about this year's planning round is that we have really stuck to the DIS principles and had very direct and honest conversations with industry and invited them to come forward with ideas, and they have done so and really been constructive. I have been most impressed. In other words, instead of saying, "We will let you know" in answer, it is true to say that we have been engaged and talking very frankly with industry, we have been listening to what they have had to say and what suggestions they have made. That is an important part of what we are trying to do and it really is the way of the future. Obviously in every planning round there is a conversation about ways and means, but if you can include industry in the conversation and invite them to the table that does make a big difference. In many ways they have as much to contribute to the decisions as we do and they come up with ways forward.
Dr Tyler: There is no better example than the Carrier programme where, because of the strength of the alliance construct that we talked about earlier, the other alliance partners have been hugely participative in the process that the Secretary of State outlined in the House in looking at these issues of schedule and timing, profiling of the money and so on. They have been very participative in that and extremely helpful.
Q494 Ms Clark: What we are being told by the trade unions is that because of budgetary issues, but probably other issues as well, there is major reorganisation going on within the MoD and particularly there is a concern about Scotland, that some of that reorganisation is going to be away from Scotland. Does the MoD plan at the moment to make more reductions in the headcount in Scotland? Is that something that we should be concerned about?
Baroness Taylor of Bolton: MoD is going through a phase of streamlining but it is not based on any geographic preferences.
Dr Tyler: That is a strange comment given that I would have thought over the next few years, particularly in the matter of the Carrier programme, there will probably be more jobs in defence in Scotland than there have been in living memory.
Q495 Ms Clark: There are other sectors of defence in Scotland and it has been expressed to us that various reorganisations going on will mean that there are going to be less jobs in Scotland. Clearly the fact that we are having this inquiry is an indication of the importance that politicians in Scotland put on jobs because many areas, such as mine in Ayrshire, still have comparatively high levels of unemployment. For example, I have MoD Beith in my constituency, 350 skilled workers, who are extremely valued, and if there is a risk that we are going to lose jobs like that clearly that would be of great concern. Do you think that we should be concerned at this time?
Mr Morse: Let me offer this comment, and, as you know, I have not been in the MoD forever. What we are doing, and are going to be doing really constantly as we go forward, as any great organisation must do, is to look at efficiency. I know that people will probably say that is a codeword for jobs. We have to use technology, we have to use information and we have to become more efficient in the way we are organised, and what we are doing is to seek that efficiency and that is going to be a feature of the future. Quite honestly, that is the right way to see it, keeping the organisation moving forward and becoming more technology-based and more modern in its approach.
Baroness Taylor of Bolton: Those areas that have got skilled people have got that as one of their particular advantages. On the issue that you have specifically raised, I am happy to meet and talk or write to you on that.
Ms Clark: Thank you very much.
Q496 Mr Wallace: One of the breaths of fresh air was the Defence Industrial Strategy which helped everybody, from the workers to the companies, and I suppose in parts the Armed Forces, feel secure and stable with an ongoing plan. The Defence Industrial Strategy 2 was supposed to be due out in December 2007. Maybe because of the planning round difficulties, et cetera, that was why it was delayed, I do not know. Do we have a new time for when that may come out?
Baroness Taylor of Bolton: No, we have not got a new time for when that may come out. The decision not to proceed in December, which I took, was one which was welcomed by industry. They felt that we were not ready, they were not ready and we were not ready, to move ahead at that stage. Since then we have had significant discussions with industry about the way forward and the priorities for the next stage and what we should be doing when. We have had workshops on specific topics and Amyas has been responsible for some of those. We have an NDIC meeting on Thursday and we will discuss further progress then.
Q497 Mr Wallace: It is still the intention to have a Defence Industrial Strategy Mk2 at some stage?
Baroness Taylor of Bolton: Yes, there will be updates on the Defence Industrial Strategy.
Q498 Mr Davidson: Can I ask about other ways in which the MoD could be helping the defence industry. One of the things that we heard from shipyards was that the Navy orders tend to be so complex that they cannot be exported in that form. Is there any way in which the MoD is working to help the shipyards in Scotland develop designs which will be more exportable?
Baroness Taylor of Bolton: I will let Andrew come in because this is his area of expertise, but one of the things that was explained to me in the briefings that I had as a new minister was our future plans for frigates, where it is intended that we have a plan for a basic frigate, a basic one plus and then an all-singing, all-dancing one which would be for the incremental additions to a basic framework. It may well be that will help in terms of that concept. I will let Andrew talk further about it. That is the idea. In lots of spheres within MoD now we want to move towards things that can be used in more than one way, so we have more interchange between one project and another, interoperability and everything else.
Dr Tyler: Our whole approach to the Future Surface Combatant, the future frigate project, is one of affordability because one of the things that the Royal Navy is very clear on is that numbers of platforms are important as well as the individual capability of the single platform in the way that they deliver their military effect on a global basis. In order to be affordable we have a virtuous alignment there between industry's desire to build warships for our requirements which are also intrinsically exportable given that the export market does tend to be buying slightly lower cost equipment than the equipment that we do, largely because of the weapons systems that we put onto the ships. What we will be seeking to do is develop what I call the chassis of the ship, by which I mean the hull and the basic marine systems in the ship, which will be intrinsically exportable allowing those companies to hopefully be successful in that area. We might put a more complex weapons system ourselves onto those platforms in order to satisfy our own requirements, but those companies are becoming very successful these days in taking a more modular approach to the way that they build these ships which will allow them to put different weapons systems on for a different customer in a different part of the world and to be internationally competitive on that basis.
Q499 Mr Davidson: That is very helpful. Could I follow that up by just discussing the question of government-to-government orders and the extent to which you believe that in future, particularly shipbuilding orders for large platforms, that will depend more upon government-to-government relationships rather than simply commercial ones and the extent to which you think Scottish industry and Scottish shipbuilding will benefit from being linked to the UK Government rather than to a smaller independent Scottish Government.
Baroness Taylor of Bolton: I will take that because I think what you are saying is almost a statement of the obvious, is it not, that if you have got a government which is making orders of its own and people in certain Armed Services who can talk about the equipment then you are more likely to be convincing exporters that those are things worth buying. I know that there is a keen interest and within MoD we do try to help the new DSO part of BERR. We had DESO in MoD and it has now gone to BERR. I was out in Malaysia for 48 hours talking to them about what they might be buying in the future, BAE Systems are out there potentially providing frigates for them. We do have close links and we do try to help British industry with orders abroad.
2 Note from the witness that the figure is £14 billion over the next 10-15 years. Back
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