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Westminster Hall

Tuesday 26 April 2011

[Annette Brooke in the Chair]

Submarines and Frigates (Plymouth)

Motion made, and Question proposed, That the sitting be now adjourned.––(Miss Chloe Smith.)

9.30 am

Oliver Colvile (Plymouth, Sutton and Devonport) (Con): I thank the Speaker’s Panel for selecting the subject of base-porting destroyers and submarines in my constituency for this debate, and I thank you, Mrs Brooke, for chairing it. My hon. Friend the Member for South West Devon (Mr Streeter) will try to make an appearance—he has been caught up on the train—because he is keen to support the debate. I realise that the Government are still considering their base-porting strategy, and that the Minister may not be able to give me many answers at this stage. However, I hope he will take my arguments into account during the few weeks remaining before the decision on base-porting is made.

More than 25,000 people in the Plymouth travel-to-work area are employed in the defence industry, either through contractors or in the armed forces. That and the university have been a magnet for a cluster of maritime industries in a part of the country that is dependent on the public sector for employment. In the next few moments, I want to concentrate on the context of Plymouth Devonport within the strategic defence and security review, Devonport’s strategic case as a principal naval port, the benefits of base-porting frigates, destroyers and submarines in Plymouth, Plymouth’s economic dependency on the naval base and our dockyard, and the social and economic consequences of any further reduction in Plymouth as a strategic naval port.

In my submission to the Government’s strategic defence and security review last summer, I made it clear that as a maritime nation we need a strong Royal Navy. The United Kingdom’s basis for our defence should continue to operate through NATO and its framework of collective security, and our relationship with the United States of America. However, that contribution should reflect our geography, maritime history, and our trade and other relationships throughout the world. In that context, the UK’s obvious contribution to NATO should be sea and air power, supplemented with our amphibious and special forces capability.

The naval role should explicitly equip the UK to undertake naval policing responsibilities, including dealing with piracy, drug trafficking and international environmental responsibilities such as conservation of our fish stocks. In addition, the Navy should be equipped to offer more effective international assistance to countries and communities experiencing the consequences of natural and other disasters when they need assistance from the international community, as part of an explicit deployment of soft power as an arm of foreign and defence policy. The implication of that judgment about the UK’s role in NATO is that the Navy should be larger and equipped with greater transport and logistical capability. I fully

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support the building of the two new aircraft carriers. The Air Force should be maintained to provide effective air power, with multi-purpose aircraft in sufficient numbers to protect the homeland and to wage state-on-state warfare. In addition, it should be equipped with much greater heavy-lifting and cargo-moving capacity.

In my submission, I added that politics is about making political priorities. I welcomed the Chancellor’s decision to reduce the financial envelope of public expenditure in general and to cut the deficit during the lifetime of this Parliament, but I stressed that government is about reordering priorities, and that spending on defence should have a greater emphasis within our budget. Defence spending has fallen not only as a share of national income, but as a proportion of total Government expenditure. The study by the Office for National Statistics in 2009 on public sector output productivity between 1997 and 2007 exemplifies, among other things, how public expenditure priorities have been changed. The weight given to defence within general Government expenditure by service weight fell from 15.1% to 11%. That shows that, during a period of increased international risk when we engaged in more than two protracted operations in Afghanistan and Iraq, and public spending was rising rapidly, the priority given to defence was reduced. In my judgment, those priorities must be reversed.

Mr James Gray (North Wiltshire) (Con): My hon. Friend is making a powerful point: that at time like this, we should not cut defence spending. Does he not agree, however, that we have sold the pass on that issue because of the appalling legacy that we inherited from the previous Government? It is now essential that from 2015, no matter what the world looks like, we must see the uplift in defence spending that has been promised for the subsequent five years, without which this country will never again hold its head up in the world.

Oliver Colvile: The decision has been made, but other issues must be taken into account. I agree that we inherited a £38 billion shortfall, which needs attention. I also agree that from 2015 we must ensure that we have the ability to build up our capacity.

Mr Kevan Jones (North Durham) (Lab): Will the hon. Gentleman explain where he gets the figure of £38 billion from? Even his own Front Benchers have now retreated from that election propaganda put out by Conservative central office.

Oliver Colvile: That debate is certainly above my pay grade, but my understanding is that there is a shortfall within the defence budget, and that needs to be sorted out sooner rather than later. What is important is that we must contain public expenditure. It must be reduced, and that is part of the general thrust of what we inherited and must try to deal with.

The principal issue of the level of defence spending is not affordability, but deciding political priorities. If the events in the middle east continue, I firmly believe that our defence budget may have to be reviewed. During the past 13 or 14 years, there has been real uncertainty about Devonport’s future both as a dockyard and as a naval base. Let me make it clear that I am not suggesting that Plymouth should take precedence over Portsmouth,

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Faslane or Rosyth, but I am arguing that Ministers should not put too much reliance on one naval port for surface ships, and another for submarines. Indeed, my right hon. Friend the Secretary of State for Defence has already said that we should avoid putting all our eggs in one basket. However, I want to challenge the previous Government’s plans to base-port both aircraft carriers, all the Type 23s, all the Type 45s and eventually the new Type 26s in Portsmouth, and to move the submarines currently based in Plymouth and the submarine school at HMS Raleigh in Cornwall to Faslane.

Last October, when I asked my right hon. Friend the Prime Minister to confirm that Plymouth Devonport will continue to play a major role in the defence of our country and will remain a premier naval port, he replied:

“I can absolutely confirm that.”—[Official Report, 19 October 2010; Vol. 516, c. 817.]

In all fairness, he added that both Plymouth and Portsmouth would have to face some challenges. We in Plymouth are up for that, but we are worried that if the previous Government’s plans are implemented, there will be a real threat that Devonport will be left with just three amphibious assault ships and five survey vessels.

I am grateful that the strategic defence and security review confirmed that Devonport will retain flag officer sea training, and deep maintenance work at the dockyard, and that the city will host the amphibious capability through 3 Commando Brigade, which is currently in Afghanistan. However, I am worried that the decision to move the seven Type 23s from Devonport to Portsmouth was taken at a time when the four Type 22s were expected to stay in service for at least another few years. That could make quite a difference to the balance of UK base-porting, and could do enormous damage to the skills base in a city and region where both skills and wages have traditionally been low. If the Government allow Devonport dockyard’s waterfront work to decline, they could make it difficult for Babcock, or its successor, to retain and attract the skilled work force needed to refit our nuclear submarines and surface ships. In my opinion, such a collapse in a service that provides unparalleled value for money could have an impact on whether Babcock is able to deliver economies of scale. That in turn could see greater costs for the Ministry of Defence and the taxpayer, and lead to a reduction in competition.

Penny Mordaunt (Portsmouth North) (Con): I congratulate my hon. Friend on securing this important debate. He may expect me to go in to bat for Portsmouth, but I add my support to his call for all three naval bases to remain open and viable. One of the millstones around the neck of both Plymouth Devonport and Portsmouth is the amount of the defence budget that is spent on maintaining historic buildings. There are about 200 such buildings in Portsmouth’s naval base and, as in Plymouth, although there is no shortage of developers who want to take over those buildings, they are restricted by the MOD’s current procurement protocols. If we want both bases to be able to wash their faces, that issue should be a priority for both the MOD and the Treasury.

Oliver Colvile: I agree we should make sure that we use what moneys are available, and spend them on delivering ships, sailors and the kit needed by our

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armed services to do their job. Later in my speech I will speak further about some of the ways in which one might manage the estate, and I thank my hon. Friend for her contribution.

If all work associated with basing the Type 23 frigates at Plymouth was transferred to Portsmouth, it is likely that the relevant skills and experience would transfer with it. Such a loss could make it difficult and expensive to recreate that frigate expertise back at Plymouth if it is subsequently decided to base some of the new Type 26s at Devonport in the future. Moving the Type 23s would leave Devonport very much as a nuclear dockyard, unable to make use of its additional work force capacity, should submarine work be in a trough.

I welcome the building of the new Type 26 frigates, but I would like to see more of them and more landing platform docks once public finances become available. Ideally, I would—needless to say—like the Type 26s to be located in Devonport. The UK maritime sector takes a great interest in the evolution of Type 26s and the global combat ship programme as the Navy’s next—and only—major surface combatant proposed to replace Type 23 and 22 frigates. Most hon. Members who represent royal naval garrison towns, including my hon. Friend the Member for Portsmouth North (Penny Mordaunt), recognise the significant potential for the export of that platform, and it rightly lies at the heart of the coalition Government and the MOD’s agenda. Although the sector recognises that BAE Systems has the lead in the ship design and ultimate build, the industry—and we as taxpayers—look to the Government to help ensure that the rest of UK industry gains opportunities to provide the ships with key systems and equipment. We must ensure that other defence contractors are able to make changes to the equipment provided as and when necessary.

Having looked at a number of ships over the past year, I am aware that there is a tendency for pieces of equipment to be bolted on to current frigates and destroyers. No doubt that is also true for submarines and aircraft carriers. The approach I suggest will help maximise export opportunities for the UK, which in turn will deliver much needed growth and create new jobs. Although UK exports of ships have been challenging for some years, the maritime sector’s suppliers of systems, equipment and services have maintained an active export drive that could clearly benefit from further association with this flagship programme.

I understand the argument for moving submarines from Plymouth to Faslane because of the depth of the loch and access to the Atlantic on the west coast of Scotland. I recognise that Faslane has genuine merits, but I feel that the Navy should have submarines based in more than one location. Plymouth has a practical and convenient natural harbour to complement Faslane. When service families are relocated from one part of the country to another, there are always costs. However, whenever I look at arguments about location and the associated costs, I become aware that all Departments, including the MOD, have weak information about their unit costs. It is a matter for the Public Accounts Committee and the National Audit Office to pursue with vigour and vim.

I do not want to concentrate too much on Devonport’s geographical location, but its position on the western approaches means that it is within easy reach of the

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necessary training area. It was of little surprise that the previous Conservative Government decided to transfer flag officer sea training from Portland to Devonport in the mid-1990s. If the seven Type 23 frigates were moved from Plymouth to Portsmouth, they would regularly have to travel 150 nautical miles to participate in any training exercises.

Fresh water from the Rivers Plym and Tamar means that the Sound is permanently flooded, and the channels are kept from silting up. Plymouth Sound is not subject to the same amount of commercial traffic as the Solent. Although a terrorist could potentially sink a ship in the Sound—as they could in the Solent—by placing all our frigates and destroyers in Portsmouth, we could run the risk of bottling the vast majority of our surface ship fleet in one port without easy access to the channel. Portsmouth is a busy commercial port, which, with increased traffic, could make naval shipping movements more complicated and hazardous.

I will conclude by talking about the social impact that would be faced by Plymouth and the sub-region should there be a further reduction in the Royal Navy’s presence. Over 38% of the city’s employment depends on the public sector, not including the 5,000 people who work in the dockyard, which is also dependent on defence contracts. The city council, working with trade unions and other interested parties, has commissioned work from Plymouth university to quantify the impact that a further downgrading of Plymouth as a naval base and dockyard would have on the local benefits bill should there be a further loss of skills and jobs. Once that report is ready I will, if I may, brief the Minister on it so that he is aware of some of its findings.

That is not the only piece of work the city is undertaking. As many hon. Members know, Plymouth has an excellent, dynamic university with a fine reputation for marine science research and engineering. It is a global centre for maritime activity and has an historic dockyard and dramatic waterfront. I am currently working with the dean of the university’s business faculty, the editor of the Western Morning News and the council to identify ways in which Plymouth can create a cluster of maritime industries. I am delighted that my right hon. Friend the Prime Minister recently wrote to the editor of the Western Morning News to voice his support for that initiative and encourage the dean and the editor to explore ways of making greater use of land that may become available once the base-porting strategy has been finalised. That land-management initiative could deliver further savings to the MOD and ensure that more money is available to be spent on equipment and troops—especially important at a time when the defence budget is under such pressure. I would welcome the chance to brief the Minister on that work once it has been completed. An enterprise zone to deliver that maritime cluster would be most useful.

Whatever decision is made on the base-porting of frigates, destroyers and submarines, I would be grateful to be told the timetable so that we in Plymouth can make the necessary plans to accommodate any changes. As a country, we must place greater emphasis on defence within Government spending than we currently do. We must recognise that we cannot do everything, and we should make our contribution to NATO through an air and sea power capability that reflects our history, geography and wider interests. The Royal Navy should be a central

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part of that, and I believe that Plymouth can play an important and cost-effective role in helping to make that contribution.

9.49 am

Alison Seabeck (Plymouth, Moor View) (Lab): I congratulate my neighbour, the hon. Member for Plymouth, Sutton and Devonport (Oliver Colvile), on securing the debate. He made a strong argument for base-porting frigates in Plymouth and gave a detailed explanation of not only Britain’s position in the world, but Plymouth’s role. Those arguments have been made, tried and tested under successive Governments, but let me focus on base-porting.

The hon. Gentleman’s predecessor, Linda Gilroy, fought long and hard on the issue of base-porting, and so, too, have the trade unions in the dockyard and the naval base. As a result of the close synergy between what happens in the dockyard, which is now under Babcock’s marine division, but which was previously under Devonport Management Ltd, the unions have frequently voiced the view that base-porting is vital to not only the dockyard’s industrial base, but the city as a whole.

The importance of retaining the work that the frigates bring and the economic benefit that the crews and their families generate cannot be understated. No local MP will have attended a meeting locally or with Ministers at which base-porting was not on the agenda. The issue has certainly always been raised by the outgoing dockyard works committee chair, Roger Darcy, who knows just how big this issue is for Plymouth. I would like to take this opportunity to thank him for his hard work and commitment over 47 years—this is his last year in post.

Perhaps I can describe the position in which we find ourselves following the strategic defence and security review, or at least the position we think we are in, given that the turmoil in the middle east has called into question whether we have the right priorities. The frigates Cumberland, Chatham, Campbeltown and Cornwall have, in some cases, had to respond to the demands placed on them by the Government and NATO despite being en route to be decommissioned and scrapped. We must be clear that we have the right resources in the right places, and that we can apply force or the threat of force effectively against our enemies wherever that is needed. I agree with the hon. Member for Plymouth, Sutton and Devonport that the strategic defence and security review should be revisited.

The naval bases are undoubtedly an important part of our capability and significant strategic assets. That said, there is a recognition that we should have three naval bases. The maritime change programme announcement under the previous Labour Government effectively confirmed that position, as did the Prime Minister and Foreign Secretary in the run-up to the general election. The hon. Gentleman suggested that the Labour Government had effectively said that all the frigates would go to Portsmouth, but that is incorrect—it was still a matter for debate, and it has ever been thus. What we really need is clarity, and I hope that we will get some from the Minister.

The naval bases are assets in which the nation has invested billions of pounds over decades, so it is crucial that the best and most efficient use is made of them. Is optimum use being made of Devonport? It has 4 miles

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of waterfront and 640 acres of landside space, whereas Portsmouth has only 3 miles of waterfront and 297 acres of landside space. Portsmouth—I am sorry to make this comparison, but it is important—must share its space with a substantial flow of commercial shipping, including busy cross-channel services. It is also due eventually to become the home port to the two aircraft carriers, the Type 45s and minesweepers.

We have just had the announcement that the replacement for HMS Endurance—the MV Polarbjorn, which is soon to become HMS Protector—is to be base-ported in Portsmouth. Why? That, too, is not a sensible decision, given all the expertise in Plymouth and the clear link to all the meteorological, survey and hydrographical work that happens there. We also have expertise in civilian science at the university and Plymouth marine laboratory, which could support and benefit the base-porting of that vessel in our city.

We need to have the Type 23 frigates, and eventually some Type 26s, to ensure that dips and troughs in the work stream at the dockyard can be filled and that Babcock does not have to reduce the full-time work force below a core level that can retain the skills that are vital to support the fleet. Plymouth also has the capacity to provide naval personnel with adequate accommodation, some of which is new and refurbished, at the naval base and HMS Raleigh.

Plymouth loses out every time, and never on the grounds of capacity, skill or added value, all of which we always offer. We can hope that a Minister will be brave enough at some stage to take on the Navy top brass in Portsmouth and to support Plymouth’s case. A Treasury Minister might also work out that it actually saves the Treasury money if vessels are based in the most cost-effective and efficient naval base in the country, and that any diminution of the Royal Navy’s commitment to Plymouth has a massive socio-economic impact on the region. Plymouth is very peripheral; we need the naval base and the work that it brings, and we need the frigates tied up there.

The hon. Gentleman touched on the fact that academics are undertaking work on the socio-economic impacts, and I urge the Minister to seek that work out before finally reaching any conclusion on base-porting. I support the suggestion that MPs from the area should talk to him about the report when it reaches its first stage.

We need joined-up government when we look at these issues, because the implications of not base-porting in Plymouth are serious. I urge the Minister to talk to the Department for Business, Innovation and Skills, the Treasury, the Department for Work and Pensions and the Department for Communities and Local Government, because they will pick up the tab if the wrong decision is taken.

There is strong case for keeping the Type 23s, as well as for basing some future surface combatants in Plymouth. The Minister must be concerned that surface fleet sailors will be lost if vessels are moved out of the city of Plymouth, because they may want to leave the service rather than uproot their families. That view is expressed in a good article in Warships magazine, which also suggests that Plymouth might feel

“betrayed by a coalition of idiots”.

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I hope that the Minister will prove that view wrong by showing eminent good sense and deciding to ensure the ongoing base-porting of frigates at Devonport.

The article, which was published in March, goes on unfairly to attack civic leaders in Plymouth for their lack of commitment to protecting the future of the naval base. However, leaders from our city have brought Plymouth’s case repeatedly to Whitehall on a cross-party basis, most recently just before the recess. We were seen by the Secretary of State, and although we were given reassurance, there was no commitment.

It would be wrong for the Government, in five years’ time, to allow Devonport to be reduced back to a home for amphibious ships that have been mothballed and for decommissioned frigates and submarines that are waiting to be sent for scrap. My fear is that Plymouth could then be closed shortly afterwards. Perhaps the Minister will tell us today that that will not happen. When will we know when the decision will be taken? Will he confirm that he will take the time and trouble to talk to colleagues across the Government for whom his decision could have significant cost implications?

Clearly, the discussions that I and the hon. Members for Plymouth, Sutton and Devonport, for South East Cornwall (Sheryll Murray) and for South West Devon (Mr Streeter) have with the city about future developments at the dockyard are extremely important, but the decision ultimately rests with the Minister, and I hope that he will make the right one.

9.58 am

Dr Julian Lewis (New Forest East) (Con): It is a great pleasure to participate in the debate under your chairmanship, Mrs Brooke. It is also a great pleasure to see my hon. Friend the Minister in situ to respond to the debate, and I am sure that he will be as typically robust in responding in government as he was in opposition.

It is a particular pleasure to congratulate my hon. Friend the Member for Plymouth, Sutton and Devonport (Oliver Colvile) on initiating the debate and on ranging so widely in his approach to it. We would err if we focused entirely on basing without considering, as he did, the larger issues of the state of the Royal Navy, the country’s strategic requirements from it and the amount that the country feels it can spend on it.

I want to start, however, by taking up some of the comments made by the hon. Member for Plymouth, Moor View (Alison Seabeck), who rightly said at the beginning of her speech that events in the middle east have rearranged the strategic furniture, as it were. She will not have been surprised by that, given that the odds are, strange to relate, usually very great that it will come as a surprise when some sort of conflict breaks out in that way. When conflicts have yet to break out, and still more when we are already fighting in such conflicts, it therefore behoves us not to be too dogmatic and rigid as we make arrangements for the Royal Navy and, indeed, the other armed services.

Alison Seabeck: I am merely pointing out that such conflicts come as a surprise, but is it not always the Navy that seems to be the first responder?

Dr Lewis: I will try to be as non-partisan between the services as possible but, following the hon. Lady’s provocation, I cannot resist pointing out that the Navy would have been an even quicker responder to the

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Libyan crisis had we not decided shortly before that blew up to take our last remaining aircraft carrier out of service. I have raised that issue a number of times, particularly with the Foreign Secretary, who on the most recent occasion informed me—I am sorry that he has such a low opinion of my knowledge of things nautical—that an aircraft carrier would not have been necessary because a Tornado could not be flown from it. I am reassured to know that the Government are well aware of which aircraft can fly from aircraft carriers and which cannot, but I do not hesitate to say that if we had had an aircraft carrier in commission when the events in Libya blew up so unexpectedly, I would have bet the farm on the fact that that particular warship—an aircraft carrier—would have been the first to be dispatched to the Mediterranean in response. It is very unwise to make decisions in peacetime, and still more unwise to make decisions when we are involved in not one but two conflicts simultaneously, that will bind us rigidly into circumstances that we might regret when the strategic situation changes as unexpectedly as it almost always does.

Let us consider the position with regard to frigates and submarines. I have never hesitated to say that the 1998 strategic defence review was a well thought-out document. The problem, as we know, was that the plans it outlined were not fully funded, although at least one had the feeling that a theory was being set out, which meant that some sort of balance was understood and some sort of flexibility was retained. We did not take the view that because our circumstances in the world were more limited in terms of the interventions we could make, we should reshape our defence forces in such a way that we would be incapable of responding to an unexpected crisis as we had responded in the past.

At one point during the years of the Labour Government, a naval base review was carried out. My hon. Friend the Minister will recall that we, as the shadow defence team in opposition, were adamant that it would be most unwise to rely on only two naval bases in the entire country, one of which would be in Scotland and the other in either Portsmouth or Devonport. In particular, we had regard to the argument put forward so eloquently by my hon. Friend the Member for Plymouth, Sutton and Devonport in his introduction to the debate: if we put all our eggs in one basket, or all our ships in one or two ports—one at one end of the country and one at the far end from that—we will be in danger of the basket of eggs getting smashed or the ships getting bottled up. We therefore argued strongly for retaining the ports at Devonport and at Portsmouth, and it would be a grave mistake to change that argument now. If we believe that it is strategically wise, strategically necessary and, I would say, strategically essential to continue to have the potential to use both Devonport and Portsmouth as naval bases in the future—I can never emphasise enough that we cannot predict the future—it follows that we must spread out our assets to ensure that both ports remain viable. I have no prejudice as to which assets should be in Portsmouth and which should be in Devonport, but some assets should be in each of the two ports.

The Labour Government took office in 1997, and when their SDR was undertaken we had a total of 35 frigates and destroyers. The deal done in the SDR was that in return for the great future promise and asset

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of two large aircraft carriers, the number of frigates would be modestly reduced from 35 to 32, and the number of attack submarines—nuclear-powered, but not nuclear-armed—would be reduced from 12 to 10. We know what happened over the years: the number of frigates went down successively from 35 to 32, as predicted, and then to 31 and 25. If I remember correctly, at the last count the figure had gone down to 19. It is true that during that period six new Daring class—Type 45 —destroyers came into play, and they are, of course, much more powerful, potent and potentially lethal, so one could argue that they are a much better deterrent than the destroyers they replaced. However, one should fight shy of getting into the position that Geoff Hoon, the then Secretary of State for Defence, got into of saying that because a new warship is so much more powerful than the warship it replaces, the number of “platforms”, as they used to say—the number of ships to the rest of us—becomes irrelevant. That is not true, because no matter how powerful a warship is, it can be in only one place at any one time. Unfortunately, but necessarily, the activities of the Royal Navy often have to take place in many places simultaneously. At the moment, we are considering what we should do in relation to events in Libya.

There is something else that slightly bothers me: I lost count of the number of times that Conservative spokesmen said in opposition that although we could not be sure whether we would spend more money on defence until we saw what the books actually said about the economics, we would definitely keep expenditure on defence in line with the commitments undertaken. I often stood up and said that we would need either to spend more on defence or to reduce our commitments. In reality, as we know, we are very stretched indeed as a result of the ongoing commitment in Afghanistan, and we now find ourselves suddenly with an additional commitment in Libya. After some prodding, the Foreign Secretary conceded that its cost, on which I was rather aggravatingly pressing him, would be met from the Treasury reserve, but all signs are that the commitment to a Libyan no-fly zone will not prove decisive in ousting Colonel Gaddafi, even though it may prove, and arguably has proved, effective in preventing him from initiating the wholesale mass slaughter that he was not only ruthless enough but stupid enough to announce to the world that he intended to visit on the citizens of Benghazi.

If those two statements are true—first, that the no-fly zone will not be enough to oust Gaddafi and, secondly, that it will nevertheless be effective in limiting the massacre of innocent civilians, which was our purpose for intervening—the logical consequence is that the commitment will go on for a considerable time. The Government will have to think hard about what they are prepared to spend on defence.

The Government cannot meet the costs from Treasury reserves indefinitely. We all know what then happens: we tend to get ourselves into the situation encountered by Tony Blair, who said towards the end of his time as Prime Minister that spending on defence had remained roughly constant at 2.5% of gross domestic product throughout the decade of Labour rule, but then added the crucial words, “if the costs of Iraq and Afghanistan are included.” In other words, the cost of those two wars was effectively being counted as part of our basic expenditure on defence. Such a thing will always happen.

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The Government must think clearly about whether to put the economic case at the top of their agenda or whether to put up there instead the ability to intervene, as we have intervened in Libya. They cannot have it both ways. Many countries, including in Europe, would doubtless love to be able to intervene to stop massacres in Benghazi, but they do not do so—or not more than minimally—because their simple view is, “Well, we’re very sorry but we’re too small, too ineffective, too weak and too poor, and we cannot afford to maintain the armed forces necessary to do that sort of thing.” That is fair enough.

Penny Mordaunt: My hon. Friend makes a case for flexibility and options versus the economy, but it is worth remembering that we need a strong Navy with the right number of platforms to protect trade, our fuel security and our fibre-optic cables. Our economy depends on the Royal Navy.

Dr Lewis: I thank my hon. Friend for that intervention, which takes my argument forward exactly as I intended. The key point is that the things that she outlines are constants. Those requirements of a strong Royal Navy will carry on regardless, even if we were not involved in those additional conflicts. It really worries me that if we continue to be driven by every crisis that pops up in other parts of the world, whether or not we have what is commonly described as a dog in the fight, something else will have to give. Unless we see a genuine increase in resources and in the priority given to defence, if we continue to take on roles such as the worthy one of trying to intervene in Libya, something will have to give, and it is precisely the sort of core functions to which my hon. Friend adverts that may suffer.

If we cap the defence budget, we might have to sell off or mothball vital defence assets, or not introduce new assets that had been planned for, but I am concerned that whenever a crisis pops up in another part of the world, we want to be at the forefront and to punch above our weight. There will be only one outcome of that approach: our very limited defence resources will be used up in dealing with these ad hoc crises, which are not of our choosing, but then one day, when we face an existential threat to the security of the United Kingdom, we will not have the assets necessary to defend ourselves. I predict that there will be attempts to derail the renewal of the nuclear deterrent on the grounds that we are so stretched in other conventional areas that we cannot afford to build those submarines.

That is not a subject for this debate but, with your indulgence Mrs Brooke, may I say that I am particularly alarmed about the Trident Commission? The commission is orchestrated by a well-known anti-nuclear group called the British American Security Information Council, and is funded by such anti-nuclear bodies as the Ploughshares fund and the Joseph Rowntree charitable trust but, nevertheless, such distinguished people as two former Secretaries of State for Defence—my right hon. and learned Friend the Member for Kensington (Sir Malcolm Rifkind) and Lord Browne of Ladyton—have agreed to sit on it. What will the commission come up with? In my opinion, it certainly will not come up with a recommendation for the like-for-like replacement of

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Trident. What will it say? Will it say, “We’d better not have continuous at-sea deterrence,” or, “We must join up with the French”? Whatever it says, I bet that the root of its argument will be the statement that we cannot afford to continue with a properly self-sufficient strategic independent nuclear deterrent. If so, future generations may have cause bitterly to regret the sort of arguments that have been put forward when we one day find ourselves vulnerable as a result of that omission.

How does that relate to base-porting? It is simple: during times of economic stringency, it is vital to conserve defence assets. Whatever final decision my hon. Friend the Minister and his colleagues make about what should be based at Portsmouth or Devonport, one point is vital. Something must be based at each of those two ports so that their viability is retained, because we might need those naval bases one day not simply to allow us to intervene in wars of choice, but to safeguard ourselves against an existential threat to the United Kingdom itself.

10.16 am

Mr Kevan Jones (North Durham) (Lab): It is a pleasure, Mrs Brooke, to serve under your chairmanship. I congratulate the hon. Member for Plymouth, Sutton and Devonport (Oliver Colvile) on securing this debate. He follows his predecessor Linda Gilroy, in being a strong advocate of Plymouth and the dockyard. As a Member, she was tenacious in debate. As a member of the Select Committee on Defence, she put the case not only for Plymouth but for the Navy. On numerous occasions, as a Minister I was on the receiving end of her representations.

Like the hon. Member for Plymouth, Sutton and Devonport, I pay tribute to the people of Plymouth. As a Minister, I had the honour to visit the town several times. Its contribution to the defence of the country is not only recent, and we should be thankful for what it did previously. I also pay tribute to the men and women of the Royal Navy currently serving in Afghanistan, including the Royal Marines, mentioned by the hon. Gentleman. We often see Afghanistan through an Army prism, but it is important to recognise the contribution made by the Navy.

The hon. Gentleman mentioned HMS Raleigh. It is an excellent facility, and I once had the honour of taking a passing-out parade there. The best of British youth can be changed in a matter of 10 weeks from what one mother described as being difficult to get out of bed and not knowing how to use an iron to people who can make a huge contribution to our country’s defence. We should be proud of the young men and women at HMS Raleigh.

Oliver Colvile: May I associate myself with those remarks? I recently visited Lympstone, another Royal Marines training centre. I decided not to go into the sheep-dip because I did not want to spend two hours walking about soaking wet. Nevertheless, I was desperately keen and interested in what was being done.

Mr Jones: The hon. Gentleman is right to recognise the work that is done at Lympstone. He and my hon. Friend the Member for Plymouth, Moor View (Alison Seabeck) mentioned the economic contribution that the dockyard makes not only to Plymouth itself but to the

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surrounding area; some 25,000 individuals are directly employed by the dockyard and there is a knock-on effect on local business. In addition, I have seen for myself the support that exists for the excellent university.

My hon. Friend rightly paid tribute to the trade unions at the dockyard which, over many years, have campaigned for the dockyard and ensured that its case is put to both Tory and Labour Governments. The hon. Member for Plymouth, Sutton and Devonport mentioned the cross-party nature of the campaigning that has been carried out by the local authority. When I visited Plymouth, I was very impressed with the way in which the members of the local authority, irrespective of political party, spoke with one voice for Plymouth and the dockyard.

The previous Labour Government conducted a naval base review, in which the decision was made to support Faslane, Plymouth and Portsmouth. However, there were those who said that we should put all our eggs in one basket at Portsmouth, as the hon. Member for New Forest East (Dr Lewis) mentioned. I am sure that there are many who still say that and the Minister will have to address those pressures in the coming weeks. It has been said, perhaps unfairly, that some of the naval top brass prefer Portsmouth to Plymouth because it is nearer to London.

The review was supposed to bring some stability to the future footprint of the Royal Navy in the UK, which is important. Earlier, we mentioned forces accommodation. When I was the Minister responsible for armed forces accommodation, I was conscious that we needed long-term investment in the naval estate. However, that is difficult, especially if the sword of Damocles is hanging over a site—whether it be a naval base, an RAF base or an army base—because there is a tendency not to invest. We have certainly seen that at Faslane and other places. The delay by the previous Government in making a decision on the long-term basing of submarines meant that investment did not go into armed forces family accommodation. If we want our armed forces to be ready for deployment and to fight in difficult situations, it is vital to have good family accommodation and support. For far too long, we have thought of the families as secondary to the fighting forces. They are, in my opinion, integral and important. That is particularly relevant for the Royal Navy because individuals are away at sea for many months. It is important that, while they undertake their duties, they are content and feel that their families are being well looked after.

The naval base review agreed that HMS Ocean, HMS Albion and HMS Bulwark would be based at Plymouth along with the hydrographic survey ship and the Type 22s and Type 23s. More importantly, there was also a 15-year agreement with Babcock Marine on the dockyard itself. When people look at the arguments for or against Plymouth or Portsmouth, they should consider the fact that the dockyard at Portsmouth has not been viable since 1984, when it was closed. That is an important argument for retaining Plymouth. We need a dockyard capability not only for nuclear but for the refit of existing frigates and other service ships.

With the decommissioning of the Type 22s under the strategic defence and security review, there will be very little left at Devonport. The current review will consider whether the dockyard has a future. However, as the hon. Member for New Forest East so eloquently put it,

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to put our eggs in one basket would be a mistake. The arguments that were proposed by the previous Government in their base-porting review are relevant today. Although the SDSR is a defence and security review, it is basically led by the Treasury. Having dealt with the Treasury on a number of occasions, I am sure that it will be breathing down the neck of the Minister to ensure that it gets every last pound from any decisions that are made to free up money in the short term.

Alison Seabeck: If the defence review was, as we all believe, Treasury led, does my hon. Friend not find it surprising that the Treasury does not seem to be listening to the wider socio-economic case about the implications for Plymouth, given the huge cost implications of making the wrong choice?

Mr Jones: I agree with my hon. Friend. The hon. Member for Plymouth, Sutton and Devonport suggested that that review is being presented to Government. I urge my hon. Friend and the hon. Gentleman, along with the trade unions and the local council, to make the case strongly to Government. However, I have to say that I sympathise with the Minister. Under any Government, the bottom line is that the Treasury will look only at the budget of the Ministry of Defence. My hon. Friend is right to make the wider case. Closing a dockyard might save money on the defence budget, but in terms of the overall spend to Government, it would cost money in the long term.

I was impressed with the way in which Plymouth, and particularly the university, tried to diversify into other naval-related and maritime sectors. Such efforts would be taken away if the dockyard were closed and the effects would be felt for many years to come. I come from a region which unfortunately saw the end of naval shipbuilding on the River Tyne under a previous Conservative Government, so I am not sure whether this Government will take much cognisance of the wider effects that such closures will have on the region or its capabilities.

The danger that we face is that the Treasury, which is leading the decisions in the SDSR, will make short-term decisions that will have long-term implications. If we were looking for an example of where a short-term decision could be made and we could get things wrong, this would be it.

Although I accept that the hon. Member for Plymouth, Sutton and Devonport is a strong advocate for the armed forces and would argue for a larger defence budget, I have to say gently to him that it is naive to pin his hopes on an increase in the defence budget after 2015 saving his dockyard. The Treasury will not reopen facilities once they are closed and will not invest in new capacities. Its policy will be one of entrenchment rather than expansion. Both he and my hon. Friend must ensure that the case for Plymouth is put very strongly and effectively.

In closing, we are already seeing the effects of the short-term decision not to have any carrier-based air strike force for 10 years, in terms of our inability to deploy air power in Libya effectively and swiftly. Certain Ministers in the Ministry of Defence are recognising that it is now time to look again perhaps at the SDSR and to do so not only through the prism of the Treasury. We must realise that, if we are going to be a nation that

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wants to project power around the world—both naval influence and other types of influence—a strong, effective Navy is an important part of that aspiration. In addition, a well financed and strategically thought out defence policy is a cornerstone of any such aspiration.

10.30 am

The Parliamentary Under-Secretary of State for Defence (Mr Gerald Howarth): Mrs Brooke, it is a great pleasure to serve under your chairmanship for this important debate.

I must state at the outset that I am responding to the debate on behalf of Her Majesty’s Government in the stead of the Under-Secretary of State for Defence, my hon. Friend the Member for Mid Worcestershire (Peter Luff), who is the Minister with responsibility for defence equipment, support and technology. I am very pleased to say that he is in Japan undertaking work that I hope the House will approve of: promoting Britain’s defence interests and defence exports to that country. Consequently he is unavoidably detained overseas and so it falls to me to respond to the debate.

As is customary, I begin by congratulating my hon. Friend the Member for Plymouth, Sutton and Devonport (Oliver Colvile) on securing this important debate. I also congratulate the other hon. Members who have taken part in it, most notably my hon. Friend the Member for Portsmouth North (Penny Mordaunt), my hon. Friend the Member for New Forest East (Dr Lewis), who is an esteemed former Front-Bench colleague, and the hon. Member for Plymouth, Moor View (Alison Seabeck). Along with my hon. Friend the Member for Plymouth, Sutton and Devonport, all three of them have taken part in various defence debates in this Parliament. Indeed, my hon. Friend the Member for New Forest East and the hon. Member for Plymouth, Moor View have participated in such debates during the many years they have been in the House, and are therefore noted contributors to the wider issues of defence. They are not limited simply to their constituency interests, which I always think is a rather healthy manifestation of political expression in the House. It is healthier than simply articulating the case for one’s own constituency.

I must also say that, as ever, it is a great pleasure to participate in a debate with the hon. Member for North Durham (Mr Jones). I have sparred with him for many years and personally we have always enjoyed the best of friendships, although I am delighted to say that I am now on the Government Benches and he is on the Opposition Benches.

Where Royal Navy vessels are based is an important topic for the entire House. It has an impact on both service personnel and their families, and on local jobs and infrastructure. I want to take this opportunity to acknowledge the important role that Plymouth has played in the defence of the nation throughout our seafaring history and to pay tribute to the constituents of my hon. Friend the Member for Plymouth, Sutton and Devonport. Those men and women have contributed so much to the United Kingdom’s defence, at home and overseas.

The story of the naval base at Plymouth stretches back as far as the time when the English fleet sailed out to face the Spanish armada. Famously, Sir Francis

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Drake, who was a vice-admiral in that fleet, was playing bowls on Plymouth Hoe when he sighted the armada. Indeed, the fleet accommodation centre at the base in Plymouth is still known within the Royal Navy as HMS Drake, in his honour. Since the time of the armada, the base has survived more than four centuries of warfare, including heavy bombing during the blitz. That is thanks in large part to the hard work and resilience of the people of Plymouth.

As everyone knows, we have had to make some difficult decisions in recent times as a result of the utter incompetence of the previous Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), who virtually destroyed the public finances. It always astonishes me how few people in this country understand the magnitude of the budget deficit problem that we inherited. I ask people at various gatherings, “How much was the budget deficit in May 2010?”, and very few people—even well informed ones—know the answer. For the benefit of putting it on the record, I will say now that the deficit then was £150 billion. For those of us interested in defence, that translates to the cost of three Type 45 destroyers each and every week of the year. The deficit is that great. To put it in a wider historical perspective, my hon. Friend the Member for New Forest East and I both remember that in 1979 the budget deficit was £8.25 billion; now it is some 20 times greater. [ Interruption. ] That statement is true. The hon. Member for North Durham is mumbling away, but I remind him that Jim Callaghan left an economic legacy almost as bad as that left by the last Labour Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath, last year.

Of course, it is in the context of the current budget deficit that we have to address the position on defence. As my right hon. Friend the Secretary of State for Defence has said, the budget deficit is itself a threat to our national security, and if we were not dealing with it in the way the Chancellor is dealing with it now, the UK would most likely have found itself in the same position as Greece, Ireland and Portugal.

Mr Kevan Jones: What a load of nonsense.

Mr Howarth: It is not a load of nonsense. I was in the financial world and I understand how important it is to secure the support of the international financial community. It is just as important for an individual, if they have an overdraft, to have the support of their bank manager. When the nation is in the dire straits it now finds itself in, it is absolutely imperative that we have the support of the international financial community. That support is what deserted Greece, Ireland and Portugal. Does the hon. Gentleman wish to intervene?

Mr Jones: I just wish that the Minister would not keep peddling this absolute nonsense. The idea that the UK economy is the same as the Greek economy is utter rubbish. The idea that somehow the UK’s credit rating was in peril, in terms of receiving the support of the international financial community, is complete nonsense. If he looks at long-term borrowing for Greece, he will see that more than 50% of its debt is on short-term loans of about three years. Most of the UK’s debt is on loans that are in excess of 14 years. If he is using the deficit argument as an excuse for decimating the armed

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forces, I can accept that he needs some cover for what he is doing; but he should acknowledge economic reality rather than just continually peddling nonsense.

Mr Howarth: It is wonderful that the hon. Gentleman can still come to the support of his former boss, the right hon. Member for Kirkcaldy and Cowdenbeath, after the devastation he wreaked on the country.

Penny Mordaunt: Does my hon. Friend the Minister agree that, in addition to the deficit that we inherited, it was the web of incompatible programmes that made the strategic defence and security review a particularly difficult exercise to carry out? Does he also agree that if there is any justification for not having a carrier strike force in the short term, it is that the SDSR has drawn a line in the sand and we are now preparing for the future? To do that, we need to look at maintaining three Navy bases in this country.

Mr Howarth: My hon. Friend is absolutely right. The SDSR sought to reflect the position that we found ourselves in. The hon. Member for Plymouth, Moor View was perfectly right to refer to the Treasury. Inevitably, the Treasury had an influence on the SDSR. My hon. Friend the Member for Plymouth, Sutton and Devonport made the point at the start of the debate that government is a question of priorities. This Government is not a Conservative Government; it is a coalition Government and the priorities were set by the Cabinet. The good news is that the Ministry of Defence took a lesser hit than many people imagined it would, and that is in large measure thanks to my right hon. Friend the Secretary of State for Defence, who ensured that the MOD did not fare as badly as some people had feared.

My hon. Friend the Member for New Forest East said that he wants me to be robust, and I will be. He is absolutely right to say that we face a dangerous world. That is what we said when in opposition, and the world is just as dangerous—if not more dangerous—than it was then. However, the cupboard is bare and we have had to allocate our resources as best we can. He also made the fair point that the 1998 strategic defence review was itself never fully funded, and therefore last year, when the Chancellor came to allocate the Budget across the Departments, the Ministry of Defence was hobbled by the fact that it was already underfunded for what it was trying to do—we took a double hit, one might say. These are challenging times, and the SDSR has had, and will continue to have, an impact on all areas of defence, but I can assure my hon. Friend that we are determined to maintain a strong and capable fleet that preserves our long and glorious naval tradition.

Nowhere is there greater evidence of that than at Devonport, which is the largest naval base in western Europe, stretching along four miles of coastline. The naval base and the associated dockyard employ approximately 12,000 people and are an important part of the local economy. The dockyard has been privately owned since 1997, and operated by Babcock Marine since 2007. Babcock also manages naval base support services in Devonport. Devonport contributes to the UK’s defence capability through its vital role as the only facility in the UK able to carry out the deep maintenance of submarines, and it undertakes the long overhauls that all submarines must undergo at least once during

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their service life. As well as that unique role, it carries out valuable work on the support and maintenance of complex warships, and is a centre of excellence for sea training and for the UK’s amphibious capability.

Babcock Marine, along with BAE Systems Surface Ships, is one of our key maritime industrial partners, and the Department works closely with it to ensure that Devonport and the other naval bases and dockyards have the level of work they need to sustain them, ensuring that critical skills, such as high-end design, systems engineering and combat systems integration are not lost, and that we continue to maintain the ability to carry out such work in Britain.

Alison Seabeck: Given that the Minister is standing in for the Minister with responsibility for defence equipment, support and technology, this is possibly an unfair question: under the business agreement—which was signed and is generally very welcome—how firm a commitment is expected from the companies, whether BAE or Babcock Marine, to continue to operate in Portsmouth, Plymouth or Faslane? The Minister might want to come back to me later on that.

Mr Howarth: As I understand it, the decisions are based on where the case for the best enterprise can be established. The agreement is between Babcock Marine, BAE Systems Surface Fleet and the Ministry of Defence, and the idea is to allocate the work around the three bases. As I shall say again in a moment, repeating the Prime Minister’s assurance, all three naval bases, including Portsmouth, will be maintained, for the very reason that everyone has been articulating: to maintain the capability and not to put all our eggs in one basket. That is the basis upon which the decisions are made, but I could invite my hon. Friend the Minister with responsibility for defence equipment, support and technology to drop the hon. Lady a note about it, if that would be helpful.

One of the mechanisms in place for ensuring that we can maintain the capabilities is the surface ship support alliance between Babcock Marine, BAE Systems Surface Ships and the Ministry of Defence. In answer to the hon. Lady’s question, the alliance meets regularly to discuss the best allocation of support work, so that the work is balanced between various locations. The alliance has been in place since September 2009, and the proof of concept phase has demonstrated the benefits of collaborative working between the Department and the industry, and should lead to the delivery of a more sustainable programme of surface ship support work. I hope that that addresses the hon. Lady’s point.

It is important to emphasise that the Department is not alone in providing employment opportunities in Plymouth. Plymouth city council and local business leaders are actively seeking to attract investment and business into the area, and I hope there will be further opportunities to maximise the benefits to the city from the proposed release of MOD sites. We remain committed to working with other Departments, and with trade unions and local councils, as opportunities emerge.

Moving on to base-porting more specifically, the Devonport flotilla includes HMS Ocean—a landing platform, helicopter and the largest ship in the Royal Navy—on which last year I was privileged to sign a defence co-operation treaty with Brazil. The 22,000 magnificent tonnes of British steel standing there in the

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harbour were a manifestation of the influence that the military can bring on behalf of our country around the world, and we should not forget that. Also based in Devonport are the active Type 22 frigates, seven of the 13 Type 23 frigates, HMS Albion and HMS Bulwark—amphibious landing platform docks—four ships of the oceanographic squadron, and six Trafalgar-class nuclear-powered submarines. That is a substantial portion of our naval fleet, and the flagship of the Royal Navy, HMS Albion, is the first Devonport-based ship in living memory to hold the responsibility of fleet flagship.

The tough decisions that have had to be made as part of the SDSR mean that the Royal Navy’s fleet will decrease in size. As a result, the number of vessels based at Devonport will be reduced, but Devonport’s importance as a vital strategic asset supporting the Royal Navy will not be diminished. As I mentioned a moment ago, the Prime Minister confirmed in the debate that followed the SDSR announcement last year that we are determined to retain all three naval bases, and to keep them busy. We advocated that in opposition, and have kept our word. Any decisions taken on future base-porting arrangements for the Royal Navy’s vessels will therefore take into account the long-term sustainability of all three naval bases.

The SDSR made it clear that the Royal Navy has a bright future, with new aircraft carriers, Type 45 destroyers, new submarines and new frigates, and that maintaining 19 frigates and destroyers was the best option for delivering a sustainable and flexible surface fleet. To implement that decision, the Secretary of State for Defence announced on 15 December that the four remaining Type 22 frigates—HMS Chatham, HMS Campbeltown, HMS Cumberland and HMS Cornwall—would be removed from service. The decommissioning of Cumberland was delayed because of her involvement in supporting enforcement action against Libya under United Nations Security Council resolution 1973, and I should like to take this opportunity to congratulate the ship’s crew for their fantastic work during that deployment, which emphasised the versatility of the Royal Navy at its best.

The seven Type 23 frigates based at Devonport, along with the six at Portsmouth naval base, will form the backbone of the Royal Navy’s frigate fleet until the introduction of the Type 26 global combat ship at around the turn of the decade. I am lead Minister for the global combat ship, which we hope to build in collaboration with a number of other countries, and, like my hon. Friend the Member for Plymouth, Sutton and Devonport, would like to see more of them. We advocated in opposition that although the ships should not be exactly cheap and cheerful, they should not have the sophistication of the Type 45 destroyer, the unit cost of which was £1 billion—simply unaffordable.

Alison Seabeck: I understand the need for much more of a workhorse vehicle than an all-singing, all-dancing one; however, lovely as it will be to have the new Type 26s, I hope the Minister will strongly consider the fact that Plymouth has the skills to manage and support some of those vessels into the future.

Mr Howarth: I hear the hon. Lady’s representations, and shall duly convey them to the Minister responsible, but I have to say that we are nowhere near making the base-porting decisions on the Type 26.

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Alison Seabeck: I understand that that decision is not imminent, but in thinking through the decisions that need to be made, the Department must look ahead. The decision must be part of a bigger strategic vision for the future.

Mr Howarth: The hon. Lady makes an extremely important point, which I endorse and emphasise for the record. It builds on something that the hon. Member for North Durham said about the Treasury. If we are to have the Future Force 2020 that we seek, it will depend on uplift in financial resources from the middle of the decade. One of the last things that the outgoing Chief of the Defence Staff, now Lord Stirrup, said to me was that if we want that uplift in 2015, we must start planning for it now. It is important that we as parliamentarians understand the importance of long- term planning. I hope the hon. Lady will forgive me for latching on to the point that she made about base-porting for the Type 26, but it feeds into a wider argument about defence planning, and she is right to make it.

Dr Julian Lewis: In referring to the new frigates as cheap and cheerful, to use the Minister’s phrase—

Mr Howarth: It was your phrase.

Dr Lewis: My phrase was “cheap as chips”, actually. It upset the First Sea Lord of the day, although not too much. Will the Minister confirm that the reason why it is important and practicable to make the new frigates in that way is that modern methods of naval design enable the production of a ship that is modular? Therefore, we can produce a considerable number of hulls initially and then upgrade them with bolt-on modules as resources allow, rather than producing something expensive from the outset.

Mr Howarth: My hon. Friend, as ever, has latched on to an extremely important point. A big selling-point in my discussions with other nations about working in co-operation on the programme is that modular building design not only gives extraordinary flexibility, but is something in which we in the United Kingdom have a world lead. We did it with the Type 45s and we are doing it with carriers; we can do it with global combat ships as well.

My discussions with the Royal Navy, from the First Sea Lord down, have proved extremely encouraging. The Navy has understood the force of the argument and is working enthusiastically to that end. All of us in the House have an interest in ensuring the success of the programme. Personally, I am staking a lot on it myself. If I were to leave office having done only one thing—securing a new fleet of frigates for the Royal Navy—I should feel extremely proud.

On submarines, we have made it clear that the Clyde naval base will become the base port for all Royal Navy submarines. The Vanguard class submarines are already based there, and as the Astute class enters service, it too will be based at and operated from the Clyde. The Department has announced that it will move in-service Trafalgar class submarines from Devonport to Faslane, although we are still assessing how best to implement that decision. None the less, Devonport’s highly skilled

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work force will continue to be called on to deliver the highest standards of engineering in the vital area of submarine maintenance.

It is important to recognise that decisions about changing the base-porting of naval assets are not simple or straightforward. Although factors such as sustainability and work loads are of importance locally and to the nation as a whole, I am sure we all appreciate that any changes have a major impact on the welfare of the service personnel affected, particularly those with young families. Any decisions to change the arrangements are made only after extensive deliberation and consultation. At this point, I would like to put on the record—I am sure on everybody’s behalf—what an immense debt of gratitude the nation owes to the families of our servicemen and women in all three services. Without their support, the men and women on the front line would never be able to do their job.

As part of the process, as the hon. Member for Plymouth, Moor View said, full consideration must be given to the impact on naval service personnel and their families, reflecting the need to give them sufficient notice to plan their futures, in line with the naval service individual harmony guidelines. The guidelines exist to ensure that naval personnel retain the ability to enjoy leisure at their place of duty and that they do not spend excessive time away from their homes and families.

I am pleased to be able to confirm, therefore, that we have made a decision that I hope will reassure my hon. Friend the Member for Plymouth, Sutton and Devonport and the hon. Member for Plymouth, Moor View. We have decided to make no changes to base-porting arrangements for surface ships, including Type 23 frigates. The frigates at Devonport and Portsmouth will remain where they are for the foreseeable future. That will provide a period of stability for naval personnel and their families at our naval bases, for the naval bases at

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Devonport and Portsmouth and for our industrial partners, which I know my hon. Friend and other Members were seeking. It is our view that any review of those arrangements should be linked directly to the wider studies informing future strategic defence and security reviews, which we have committed to undertaking during each Parliament, so we do not anticipate any changes until 2020 at the earliest. I recognise that that decision will be of interest to many Members. The Minister with responsibility for defence equipment, support and technology, my hon. Friend the Member for Mid Worcestershire, will write to those Members shortly to provide the detail that I am sure they seek.

To answer a couple of points made by the hon. Member for Plymouth, Moor View, HMS Protector will be based at Portsmouth because, as I understand it, that reflects the base-porting arrangements in place for HMS Endurance. However, we expect to decide on the longer-term delivery of that capability, including base-porting arrangements and the future of HMS Endurance, next year. I hope that that puts the matter in context. My hon. Friend the Member for Plymouth, Sutton and Devonport referred to the university of Plymouth study. I say to all local Members that Ministers will be pleased to receive the results of that study.

In summary, I assure my hon. Friend and the whole House that we remain determined to make the fullest use of all three naval bases, including Devonport, and to capitalise on the excellent skills and experience that they have to offer. Difficult decisions have been taken, but everyone involved can now look forward to a period of stability, confident in the knowledge that they will continue to be central to our island nation’s influence, prosperity and security.

11.57 am

Sitting suspended.

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UK Oil Refining Industry

11 am

Michael Connarty (Linlithgow and East Falkirk) (Lab): It is good to serve under your chairmanship again, Mrs Brooke.

May I start by thanking a number of people who have helped me over the 18 years that I have represented Scotland’s only refinery? Believe it or not, I worked there in 1967 and in the winter of ’68, when I was a student, and I have ended up as the Member of Parliament. My thanks go to the staff and the management. Although there have been a few differences of opinion, particularly over pensions, the one thing about Grangemouth is that the industry comes first, because it is a vital part of the lives of the people of central Scotland. It is also important to the Scottish economy and, of course, the UK Exchequer.

I thank Gordon Grant, the present site manager, and his colleagues, Colin Pritchard and Gary Haywood, who have been active, both in writing to the Select Committee on Energy and Climate Change during its inquiry and in speaking to me about their concerns about the future of the industry. I also thank Stephen Deans and Mark Lyon, who are the joint shop steward secretaries for the industry in the area, and the national organisation for refineries which represents both the management and the work force in the UK, and which works closely with the United Kingdom Petroleum Industry Association and other organisations.

If we look at the report produced by the Energy and Climate Change Committee in June 2009 about the oil and gas industry in general, we will see that the odd thing about the situation was that the industry faced

“a quadruple whammy of high costs, low prices, lack of affordable credit and a global recession.”

At that time, we did not know that it would also have to deal with a predatory Chancellor of the Exchequer, who would take £2 million per annum out of the upstream. When taxes and the structure of taxes are changed as quickly as that, it frightens investors, and the question in relation to UK refining at the moment is about investment—is there an investment future for UK refining?

My questions to the Minister require serious replies. Do the Government realise what the impact will be of the forthcoming proposals to change climate change levies, the European Union emissions trading scheme and the so-called carbon reduction commitment energy efficiency scheme? UKPIA has said that that is no longer based on climate change methodology, but that it is a tax, because the revenue will go not to the Department of Energy and Climate Change or to anything to do with climate change, which was the original decision on climate change levies, but to Her Majesty’s Treasury. It is a tax-raising power and will do no good in terms of climate change and energy reduction. It will just boost the Chancellor’s coffers.

It is as if the DECC document is living in a fantasy world when it says that

“the downstream oil sector has demonstrated its resilience to various supply disruptions”,

although it goes on to say that

“there is always scope to improve”.

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There has, however, been a blindness on the part of Government to the real purpose of high taxes on a very important manufacturing industry, and to the impact of those taxes on that industry’s ability to survive in the world. That is why this debate is about competitiveness. It is not about the environment and the other things that the Minister has to carry in his brief. It is about something that should be answered by the Department for Business, Innovation and Skills. It should be a BIS Minister present, but BIS refused to take this debate because it has shifted the issue. The debate was secured before the recess and with that Department in mind, but a BIS Minister said that he could not handle it, because the issue is not seen as part of its remit. It is tagged on to the work of the hard-working Minister of State, Department of Energy and Climate Change.

What has been happening recently in the refining industry is interesting. At one time, refining was the downstream part of a multinational commitment to exploration and production. British Petroleum was in the North sea and other parts of the world, and refining in Grangemouth in my constituency. Royal Dutch Shell was all over the world and refining in Stanlow, which is in the constituency of my hon. Friend the Member for Ellesmere Port and Neston (Andrew Miller), and French-owned Total was in Lindsey. They were all part of world exploration and production, but what is the situation now? INEOS has bought more than 26 of BP’s refining and olefin and derivative sites, including the refineries in Grangemouth and in Lavera in France. It is, essentially, a stand-alone commodity producer and it treats refining as another stand-alone commodity. Owing to heavy indebtedness in terms of purchase and the world downturn, INEOS has sold 50% of the refineries in Lavera and Grangemouth to PetroChina for £1 billion, thereby reducing its debt burden. That may or may not be a good thing, and I will talk about it specifically later.

My hon. Friend will talk more about this, but Shell in Stanlow has been 100% bought by Essar, whose declared intention is to bring in, from its own refinery in India, high-quality diesel for the European market basically to use the UK as a pipeline to sell its product in Europe. There is talk of some upgrading and I am sure that my hon. Friend will talk about that, but that is the strategy. I have been shown a clip from a website that was viewable before the deal was done. The company said that it was going to buy Stanlow, shut it and use the pipeline. That, thank goodness, has been fought off by both Shell and the work force, but that is the situation.

We were once the floating assembly shop for Europe for computers, televisions and white goods, because we had incentives from the European Union. Where have they all gone? Where has Chunghwa gone from Lanarkshire? Where has Motorola gone from Bathgate in my constituency? They have disappeared because we have become a transit route for selling into a large market in Europe. That is my worry.

Lindsey has been sold to the Klesch group, which is owned by a gentleman who makes his money by buying distressed debt from companies that are in trouble. I do not think that Total is in trouble; it just wanted to offload the refinery. We have no idea what its financial plan is, and that is the great problem that we face. Are the conditions there for the UK refinery industry to compete in Europe? When it is introduced, part 3 of the European emissions trading scheme will increase the

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cost in the UK by 10% against the EU. At the moment, because of climate change costs, the product of EU refineries is 15% more expensive than anywhere else in the world. We will then be disadvantaged by another 10% against Europe, which means that we will be 25% disadvantaged against the world in terms of our product. It is clear that Europe has been targeted, as has Australia, because there is a high price for refined product.

Another problem is that we do not have enough capacity. The UK refining industry, Grangemouth apart, is still geared towards the high petrol demand of the 1970s, when we should have been gearing up for high diesel demand, because high-quality diesel is what Europe is demanding. When Lord John Browne was in charge of BP, he showed me the new investment BP had made in high-quality diesel for Europe, and thank goodness it did that. Frankly, if the timing and the taxes were right, and if the burden were not going to put investors off, it is possible that, with the PetroChina deal, my refinery in Grangemouth—I am possessive of it, in the sense that I have always fought for it and that it is important in my constituency—could upgrade itself to supply all the demand for high-quality diesel in Europe and all the aerofuel required at the moment in the UK. That would be the by-product of decoking the heavy oil that is being taken out of the ground in Africa by PetroChina. There is serious talk about that. However, there can be that investment only if the taxation structure and the incentives are correct. There have been no incentives to help the industry; instead, tax burdens have been put on it.

I ask the Minister to think seriously about trying to convince the Chancellor—who, by the way, should get out more—about that. A man who has spent all his time in Conservative party central office does not know what the real world is like. As my father would say, he has never done a day’s work in the industry. We cannot save manufacturing by burdening it with taxes that mean it cannot carry the load and attract investors.

I want to make the following argument on the emissions trading scheme to this Minister, who is supposed to be responsible for the environment. We could have a situation whereby the UK, which is carrying the burden of such a scheme, does not invest. However, let us consider what happens in relation to other companies, for example, Essar. What kind of conditions does the Minister think exist in its refinery in India? Does he think it is anywhere near as climate friendly as the refineries in our industry, considering the burdens that are put on it? No, it is not. What will happen is that we will ship abroad to more polluting, heavier and probably more dangerous environments with lower health and safety standards.

Dr Julian Lewis (New Forest East) (Con): In cognation of what the hon. Gentleman is saying, can I point out that the Fawley Exxon refinery in my constituency accidentally under-reported its CO2 emissions by one third of 1%? In accordance with the emissions trading scheme, as soon as it discovered what had happened, it reported it to the Environment Agency whereupon it was fined €1 million, which is more than some of the firms at fault in the Buncefield disaster are being fined. When a firm behaves responsibly and is punished for doing so under schemes that do not apply to other refinery companies in other countries, that does not constitute a level playing field.

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Michael Connarty: That is a very important point for the Minister to take on board. He will have to argue—and I hope that he pledges to do so today—against the next wave of climate change costs, because they will just shift the burden. Those costs will not get rid of climate damage; they will shift the problem to other countries where climate damage is much greater. It is much more sensible for the UK to realise that it has to have a genuinely level playing field with Europe. We also need incentives for investment and sensible rewards for companies in this country that have a high standard of climate control and health and safety.

I recall when ICI decided to get rid of anthraquinone, which is a wonderful product. Anthraquinone was the green gunge in all UK fabric dyes. I am an honorary member of the anthraquinone club, for which someone gets a tie with a picture of the molecule on it. Anthraquinone was sent to India because it did not meet the health and safety and pollution standards in this country. However, it continues to be made in India. That is the problem. We think we are doing well by tackling our emissions but, in fact, we are just pushing them somewhere else.

I honestly have to say—and this is not because I am in any way a great supporter of the company concerned—that a considerable amount of money has been spent in UK refineries, particularly at Grangemouth, to reduce emissions. For example, it has invested massively in heat and power plants. It did not have to do that; it could have taken power off the grid. However, it has invested in a low-emission method of producing power and electricity. The company at Grangemouth is telling me that DECC’s new consultation contains no clear statement about exemptions, reductions or rewards for those vast investments. That is wrong.

That company has also asked who was at the table when there were talks about the impact of energy and climate change. BP was not at the table and, as far as I know, Shell was not at the table. It has asked other companies if they know who was at the table talking to the Minister. I presume an organisation that sets itself up to represent the industry was present, but where was the industry and where were the people who have to take these investment decisions day to day? They were missing; they were not at the table. How can someone make a decision in such a way about the future of a company that, in my area, employs 1,350? I should add that I am not just talking about my constituency. There are more people employed at Grangemouth who are from the constituency of my hon. Friend the Member for Falkirk (Eric Joyce). People from Redcar and Nantwich are also permanent employees of the Grangemouth refinery. It is important that the industry is treated correctly.

The regulatory impact of the new carbon floor provisions could add 50% in total to the climate change costs of the refinery in Grangemouth. That is not acceptable. That will not incentivise investment and get us into a position whereby we can supply Europe with high-quality diesel and supply the UK and even possibly Europe with aerofuel, which is what we should be doing. Will the Minister say what he intends to do about that? I know that everyone is in thrall to the Treasury and that, at the moment, it collects taxes rather doing anything else.

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On the effect of the changes, the Heren forward electricity prices scale shows that, during summer 2012-13, there will be a £3 increase in electricity prices to £56.50, which is a 5% increase. For a high energy using industry such as the oil refinery industry, that is a massive burden that must be carried. The things produced are commodities. From one of the biggest refineries in India, Essar can ship in high-quality diesel. We are not going to get the money back. The elasticity of demand is very low. It is up to the Minister. Does he want an industry that is capable of competing in the world, not just in Europe?

In Europe, Lavera would be advantaged 10% over Grangemouth if the climate reduction levy and the EU emission trading scheme went through. We have to convince the Treasury that this is a vital part of our future. I do not know what other refineries are up for sale. There was a rumour that there were two others, but I do not know if that will turn out to be true. We do not know what the plan is for one of the biggest refineries that has just been sold. We must consider how to incentivise the industry and how to protect it from a predatory Chancellor who just wants taxation.

There is also a port at Grangemouth, which has briefed me in detail. It has pointed out that the new climate reduction scheme was supposed to target offices and large buildings that were not caught by the emissions trading scheme or the climate change levies. However, that is not the case. The new scheme will be a tax and will do nothing to incentivise people to reduce their energy use. Why should we let the Chancellor get away with it? We should take him on and argue that this industry and the future of manufacturing are vital. Oil refineries are at the centre of manufacturing, not just in my constituency and in Scotland, but throughout the UK. I hope that the Minister will respond to that. We will certainly back him up on it, as I think anyone from any party would. This is an industry that we must not sell out to anyone.

11.18 am

Stephen Metcalfe (South Basildon and East Thurrock) (Con): I congratulate the hon. Member for Linlithgow and East Falkirk (Michael Connarty) on securing this important debate. My constituency has a long tradition of refining. Like my hon. Friend the Member for New Forest East (Dr Lewis), I am only too aware of the challenges that the industry is facing in a very uncertain world.

It is important to reiterate that refining companies are not oil companies. They may have been once but, in today’s world, the vast majority of refining companies sit between the oil companies and the resellers. In the UK, 75% of the companies—six of the eight—are margin businesses. They take a raw product—oil—refine it and turn it into fuel, and somewhere between the price of oil and the price of petrol, which are both set by the market, they hope that they can make a margin. At present, however, that is proving increasingly difficult.

Some 20 years ago there were many more refineries. In my constituency, there were two; we are now down to one. In the past 10 years, the number of refineries in the industry has dropped from 12 to eight. The margin—they are margin businesses—is now down to 2%, which I

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believe is the tightest in the history of refining. The situation is even tougher than it was in 2009, and that was deemed to be a particularly challenging year.

It is also important to understand that refineries offer different capabilities. The hon. Member for Linlithgow and East Falkirk mentioned that our refining capability is designed to produce petroleum, but the reality is that the major demand is for diesel. The individual refineries do not know what they will get out of the crude that they put in at the start, because different crudes yield different saleable products at the end of the process. There are therefore a number of challenges and, as I said, the margin is particularly tight and difficult.

As there have been a number of sales in the industry recently, one could argue that the market overall must be healthy. If people are investing in the UK and buying up refineries, they think either that the industry is healthy, or that it will be healthy in the future. It is important, however, to look at the actual sale price of those refineries. A good example is Stanlow, which was recently sold at approximately 10% of its replacement cost. While there is investment and some movement in the market, that does not represent the true value of the facilities that are being sold. While the headline figures that get bandied around are particularly high, it is important to remember that they will include the stock being held by refineries. As we know, given that oil is at a particularly high price, that stock could make up the majority of the price.

The recent sales are therefore not necessarily an indication that the market is healthy, but the situation gives rise to a number of questions. Is it important that the UK has its own refining capability? Do we value the energy security that our own capability provides, bearing in mind that it provides 33% of all fuel used in the UK and 90% of all petroleum products? Do we want to retain the engineering excellence that is developed through our refineries and the 150,000 jobs that are supported through the industry, either directly or indirectly?

Eric Joyce (Falkirk) (Lab): My hon. Friend the Member for Linlithgow and East Falkirk (Michael Connarty) said that the industry supports many jobs in Falkirk. He talked about its relevance for the engineering sector, as local colleges, particularly in Falkirk, supply people who are trained specifically for the refinery at Grangemouth. Does the hon. Member for South Basildon and East Thurrock (Stephen Metcalfe) agree that the implications of getting the costs right are enormous for the local economies in all our constituencies?

Stephen Metcalfe: Yes, I do. It is important that the industry is supported because it supports the sort of jobs that we are trying to create in our economy and creates the impetus for colleges to produce highly-skilled individuals. It is therefore very important that we continue to support the industry.

If we answer yes to the questions that I posed, it falls on us to decide how best to support the industry. UKPIA, the trade association that represents the industry, has made a number of recommendations of which I am sure the Minister is aware. I do not propose to reiterate all of them, but I would like to make three broad points.

First, refining is a global business. We are competing with China, India, Russia and the middle east, all of which can export to the UK and the EU, but are not

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under the same stringent environmental conditions as the UK industry. While in principle it is right and proper that the industry does what it can to reduce its environmental impact and emissions, we must recognise that it is competing in a global market. If we do not support the industry here, we might just move the environmental impact offshore and into countries that do not have the same extent of regulation.

Dr Julian Lewis: To illustrate that point further, may I point out that the Esso refinery at Fawley, in my constituency, has something called the combined heat and power unit that enables it to generate not only the electricity to run the plant, but steam, which is also of great value in the process? That has been exempt from taxation in previous regimes, but under a new proposal, that exemption will go. Once again we have a situation in which an uneven playing field is being made even more uneven.

Stephen Metcalfe: My hon. Friend makes an excellent point. That is why we must do everything we can to make the impact of legislation as proportionate as possible. As I have said a number of times on the Floor of the House when referring to business in general, we must not gold-plate regulation. We have to get regulation right and consider the impact that it will have on industries across the whole economy. My hon. Friend highlights a particular piece of regulation that will have a dramatic effect on a vital industry in the UK. It is crucial that we create a level playing field, and that should be not just in the EU—that would help, because our gold-plating is sometimes a disadvantage to ourselves—but, if at all possible, throughout the rest of the world, which I understand is a bigger challenge. We have to balance the cost of regulation against the impact that it will have on our own UK capabilities. The EU legislation that is being brought forward will have a significant impact on costs to an industry that is not making any money.

Simon Hart (Carmarthen West and South Pembrokeshire) (Con): Does my hon. Friend agree that another particular blight is that of health and safety, which perhaps applies at a different level in the UK from elsewhere? The problem is relevant to the Murco refinery in the constituency of my hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) because it could be holding up the sale of that perfectly viable refinery.

Stephen Metcalfe: The health and safety issue is a real challenge. In this country we seem to ask who is to blame when something goes wrong, but other countries ask what went wrong. We have to get the balance right. We seem to want to create an environment that makes it almost impossible for businesses to function properly. No one is suggesting that we cut corners on safety, but we should at least try to have the same safety regulations across the whole of Europe so that we are not trying to compete with one hand tied behind our back. I understand that the Health and Safety Executive has been asked to cut costs, but I think that I am right in saying that rather than doing that, it has passed on additional costs to the people with whom it works. In this case, that is refineries, but the refinery industry is not making any money. It is a very tough environment out there, so my hon. Friend highlights an important point.

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Secondly, the industry has strategic importance to the UK economy. Our economy relies heavily on oil. Maintaining our own refining capabilities is of great importance to securing our energy supply. It gives us the ability to adapt to our domestic needs, and to the demands of the motorist and the regulatory framework, without us being in the hands of people who are outside our control.

My third point relates to the importance of the industry to the UK economy as a business. Refining is a large manufacturing business. It takes a raw product and makes something. We have said that we want to rebalance our economy and that we want to move away from financial services and encourage manufacturing. This industry employs tens of thousands of people in skilled jobs. We need to do what we can to support those jobs. The skills generated through those jobs—this is the driver for engineering excellence—will not only help to rebalance our economy, but give us expertise that we can export around the world and improve capabilities elsewhere. We have made a commitment to focus on those areas.

I have a good example from my constituency: the Petroplus refinery down at Coryton. I would be delighted if the Minister were to visit—it is the nearest refinery to London—and if he were to do so, I am sure he would receive a warm welcome. He could then hear at first hand about not only the challenges but the good things going on at Coryton: the hundreds of people employed, its apprenticeship schemes and the graduate training programme.

The industry needs our support. I would like to think that the Government recognise that, that they want to do what is right and that they will be able to find a suitable way to balance the regulatory demands coming down the line so that they are not so onerous that they damage a struggling industry even further. We should do what we can to maintain a viable and vibrant refining industry in the UK that supports not only our economy, but the many thousands of people employed in it.

11.30 am

Andrew Miller (Ellesmere Port and Neston) (Lab): I congratulate my hon. Friend the Member for Linlithgow and East Falkirk (Michael Connarty) on securing this important debate. I agree with him that we are in an unusual situation, which in some respects is highly positive. The UK Petroleum Industry Association, the industry’s trade association, is working closely with Unite, the union, in this vital area, and I congratulate the parties on bringing people together to discuss an industry that is hugely important to our country.

Some of the rumours about Essar described by my hon. Friend have, I am pleased to say, now been comfortably put to bed. I am comfortable that we will have a productive relationship with an interesting and developing company which has refining expertise in two other continents, as well as other manufacturing skills elsewhere. I have met people at the highest level of Essar, whom I look forward to introducing to the Minister. He will find them a breath of fresh air in some respects, compared with some of the manufacturing industries he has to deal with. I recognise that the area commands cross-party concern, and we should look at the refining industry carefully.

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I agree with my hon. Friend the Member for Linlithgow and East Falkirk that the Department for Business, Innovation and Skills has ducked the debate. The refining industry is a key part of the manufacturing sector and—I will come on to this—fundamental research is also involved, coming under the responsibility of the Minister for Universities and Science.

I will turn specifically to Stanlow, to put on record what is happening. Essar will own and operate all the refinery assets. The crude used is shipped to the Tranmere terminal, in the constituency of my hon. Friend the Member for Wirral South (Alison McGovern), and transported to the refinery by a pipeline, which will also be owned and operated by Essar. The terminal will remain under the ownership of the Mersey Docks and Harbour Company—part of the holdings of the Peel Ports Group—and the intention is to transfer the lease from Shell to Essar.

A number of smaller business operations will be in the Essar perimeter, including the lubricants blending plant, the polymer-modified bitumen plant and the liquefied petroleum gas terminal, where LPG is loaded on to road tankers for delivery. Also in the Wirral South constituency is the Eastham refinery, which will remain operated by Eastham Refinery Ltd and owned by Shell and its partner, Nynas AB.

The chemicals industries on the plant site reinforce the argument that the debate ought to be about manufacturing. There are two processes, manufacturing higher olefins and alcohols from ethylene, which is derived from natural gas from the North sea and delivered by the Shell-owned and operated north-west ethylene pipeline, linking up with Mossmorran in Scotland. Some ethylene is subsequently transported by pipeline to Carrington, Manchester. That business, including the manufacturing units, will remain under Shell ownership but will be operated by Essar.

The point of putting all that on the record is to illustrate what a complex, interrelated series of businesses is involved, covering the key transportation of fuel to Manchester airport and our military air bases, as well as key parts of the supply chain to the major chemical manufacturing operations in the north-west of England, and integrating with other business operations, including those of the Peel Ports Group such as the Manchester Ship Canal. The network is complex, and it is hugely important that the Government understand how such an integrated network impacts severely on the country’s ability to run if things do wrong. The Buncefield disaster, which was mentioned earlier, could have had a profound impact on the supply of fuel to the UK. Fortunately, with some smart management in utilising pipeline networks and road transport, the industry responded and managed to keep the supply chain thriving.

Ten years ago, the fuel protests started, when fuel prices were £1 a gallon or so cheaper—it is extraordinary that there were protests then, when fuel was considerably cheaper. When that happened, the civil contingencies secretariat Cobra was put into operation because of the recognition of how this complex, integrated industry could have a profound impact on the well-being of the nation in every possible respect.

The distribution of products manufactured at the refinery utilises the ship canal and the pipeline, and goes down to the Kingsbury terminal near Birmingham.

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The main pipeline from Stanlow to Kingsbury will remain under the ownership of Shell, BP and Chevron but will be operated by the British Pipeline Agency, which is a joint venture between Shell and BP. I am not sure how BP comes into things, given how small a share of the business it has in the UK. The issues are enormously complex and interrelated.

Furthermore, at Stanlow is the fundamentally important Thornton research centre, which has a significant number of graduate scientists on site. It has been working on fuel and fuel efficiency for a whole range of vehicles for many years. Putting on my other hat, as Chair of the Select Committee on Science and Technology, I am the first to recognise that the nature of research in such a centre will change and move away from the physical testing on banks of engines to more computer-based modelling of what happens inside an internal combustion engine.

I am relaxed about the nature of the research changing, but I am anxious to ensure that Thornton, which in a sense will be isolated—still part of the Shell empire, but located on land inside the Essar perimeter—remains protected. I ask the Minister to seek assurances urgently from Shell that it will continue to invest in research and development. I ask him to raise the issue with his colleague, the Science Minister, because it is hugely important to research effort in the north-west.

Overall changes will emerge in detail in June or July, as it will take until then for all the final dots and commas to be inserted into the various contractual relationships, and we will see Essar people on the site driving the managerial effort. I hope that before then we can deal with some details to ensure that the existing work force are protected in terms and conditions of employment; that commitments have been given; that we work on agreements to introduce further apprenticeships on to the site—to which Essar is committed—and that those aspects of the site that are within the Essar perimeter but remain under Shell’s control are properly protected.

Turning to the broader issues raised by my hon. Friend the Member for Linlithgow and East Falkirk, I agree that the Chancellor needs to wake up to this hugely important challenge. If we do not get this right we will lose to other countries a hugely important manufacturing industry that directly and indirectly employs thousands of people.

I listened carefully to the comments of the hon. Member for South Basildon and East Thurrock (Stephen Metcalfe) about health and safety. Colleagues may be aware that I have been asked to serve on the independent review of the health and safety legislation, and I am collecting anecdotes about the myths and facts of health and safety. If colleagues have any real examples of abuse of health and safety regulations, I would welcome them. My experience of dealing with the Health and Safety Executive is of a highly professional team that operates on common standards across the UK, working closely with UKPIA, the operating companies and the trade unions.

As for inconsistencies with other countries, I agree that we ought to have a consistent approach within the EU, but I am sure the Minister would not want us to harmonise down to the lowest common denominator of health and safety standards elsewhere in the world. I recognise that my hon. Friend the Member for Linlithgow

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and East Falkirk was not saying that. However, we have to ensure that on balance, using fiscal levers and all other available tools, we make the UK an attractive place in which to continue to refine oil for the domestic market, particularly the hugely important area of aero-engines, which are increasingly key to parts of the British economy. An awful lot of fuel flows down the pipeline from Stanlow to Manchester airport every day of the week. The north-west economy is driven by important locations such as that. That does not mean that we duck our responsibility towards environmental issues. We should be working with the industry and research centres to drive forward pollution standards to the highest level. We should also be working on a multi-national basis to ensure that we pull other countries along with us.

An hour and half barely does justice to this huge issue. I know other colleagues wish to speak so I will terminate my remarks. I conclude by saying to the Minister that he has a huge challenge to face. It is a challenge for the coalition Government, and we have to get the balance right between pressures from the Treasury, the Department for Business, Innovation and Skills, the Department of Energy and Climate Change and so on. We have to ensure that we attract the next generation of apprentices and graduates into the industry. It is an industry with a genuine future, but only if we do our bit.

11.45 am

Huw Irranca-Davies (Ogmore) (Lab): It is a pleasure to serve under your chairmanship, Mrs Brooke, and I congratulate my hon. Friend the Member for Linlithgow and East Falkirk (Michael Connarty) on securing the debate, which gives us a timely opportunity to discuss an important downstream industry in the UK. My hon. Friend reminded us of his background representing his refinery constituency for a decade and a half and more, and his work there as a student. When I was teaching archery in the United States, he was getting his hands dirty at the forefront of British industry. He spoke with authority as an MP who understands the industry intimately, as did other hon. Members, including my hon. Friend the Member for Ellesmere Port and Neston (Andrew Miller).

As of summer 2010, the UK had the fourth largest refining capacity in western Europe. According to the UK Petroleum Industry Association, the UK’s eight major operational oil refineries supply about 33% of the energy used in the UK, and approximately 90% of the petroleum products sold in the country. As hon. Members said, all that is done as a result of a significant investment in 150,000-plus jobs. As has also been said, the industry itself has invested significantly. While creating those jobs, it has invested an average of £350 million a year over the past five years in reducing the environmental impacts of its products and operations, and we have heard constituency examples of how that has been made real. As the Minister’s colleagues in the Treasury will be aware, the industry also contributes to Treasury coffers about £30 billion a year in fuel duty and VAT.

Trying to maintain and build the competitiveness of the vital oil refining industry at the moment can be described, at best, as extremely challenging. UK refineries, in common with those in the rest of the EU, are under enormous pressure due to: a very difficult operational

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climate; fluctuating demand for oil products; increased competition from export refineries, particularly in Asia; structural imbalances in supply and demand; and a challenging and complex legislative background.

In 2007, a Wood Mackenzie report for the old Department of Trade and Industry said that relative to other EU refineries, for a range of reasons, UK refineries were mid to low performers on competitiveness. It remarked that the UK oil refining industry consequently failed to secure discretionary investment and was hampered by a shrinking pool of work force talent, which we know can be followed by a spiral of downward decline. At that time the UK ranked 17 out of 26 countries, which was behind many in central and eastern Europe, but ahead of France, Norway and Ireland. The report noted that countries such as Hungary, the Slovak Republic and Poland were

“highly competitive, partially as a result of large investments which were carried out, frequently with assistance from the European Bank for Reconstruction and Development, in order for each country to satisfy EU accession requirements.”—

in effect, they had a leg-up. The report said that the UK’s position reflected our specific national characteristics of high-cost crude and significant exports.

It is worth noting that the average net refining margins in the UK industry fell from the equivalent of $2.79 a barrel in 2008 to just $1.11 in 2009, which was the lowest recorded figure for 13 years. The effect of that was that the 2009 UK refinery output was the lowest recorded, but that is not a new trend—the key point is that it goes back decades to the 1970s. If clearer indications are needed of the challenges facing the industry today, we need look no further than decisions taken by major refining companies in recent years to withdraw from the UK. BP has sold its two refineries in the last four years, Petroplus has closed its Teesside refinery, and Shell, Chevron, Total and Murco have sought buyers.

Given those challenges, what can be done to improve the UK oil refining industry’s long-term competitiveness and secure the jobs that rely on it? I shall pose a series of questions to the Minister on the competitiveness of oil refining industry and future investment in the sector. I hope that he will answer them as fully as possible. If not, perhaps he will write to me and to other hon. Members who are taking part in the debate.

First, the UK oil refining industry recommended a single benchmarking system under phase 3 of the post-2012 EU emissions trading scheme for all 98 EU refineries, based on the complexity-weighted tonne. That system was supported by the European Commission and has now been adopted. However, even with a proportion of free allowances allocated under the benchmarking system, early estimates of the cost of purchased allowances to UK refineries are around €70 million a year at current prices. Given the nature of international competition and recognising that qualifying for free allowances under the EU ETS is paramount, the risk remains, as hon. Members have said, that the UK may be disadvantaged compared with refineries in non-EU countries that can export to the UK. Do the Government plan to support the industry’s ongoing eligibility for free allowances under the benchmarking system, and do they intend fully to address the risks of carbon leakage?

Secondly, on biofuels, the EU renewable energy directive requires, by 2020, 10% by energy renewable content in fuels, and the EU fuels quality directive requires

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6% greenhouse gas emissions by 2020. The renewable transport fuel obligation in the UK sets a requirement of 5% biodiesel from April 2013. Stakeholder consultation is ongoing on how to transpose those directives into UK law while at the same time maintaining competitiveness in the downstream industry. Will the RED, FQD and RTFO targets be set so that all suppliers can comply on a stand-alone basis, recognising that they operate in different markets? Will a carry-over of energy and carbon certificates, trading and buy-out options be included to provide flexibility for refinery shutdowns and supply chain issues?

Does the Minister accept that the delay until the autumn in announcing the carbon and sustainability criteria, which are required for biofuels to meet the RED, will leave little time for suppliers to make arrangements for the new criteria to be implemented in December 2011? If so, what can he do to help the industry to prepare for that on a vastly condensed time scale?

Achieving the 2020 biofuel targets may require four grades of fuel on larger petrol station forecourts after 2015, with two high bioblends at least for petrol E10+ and diesel B10+. Smaller sites might be disadvantaged as they can accommodate only protection grades for older cars that are unable to take the higher grades E5 and B7. That disadvantage could risk the closure of rural and small sites, so does the Minister intend to take any action to help smaller and rural petrol station sites to adjust to the new biofuel regulations and to ensure the future of their businesses?

On the compulsory stocking obligation, the Government have been reviewing the arrangements under which the UK meets its EU and International Energy Authority obligations for compulsory stocks of oil products. The requirement currently stands at 67.5 days and will rise to 90 days post 2014. With the slow decline of UK oil production, there will come a point towards the end of the decade when the UK’s derogation will cease and we will be faced with an increased oil stock obligation. I understand that the downstream industry strongly favours a move to an independent and industry-funded oil stocking agency with the aim of providing greater transparency and certainty in the way we meet our obligations in future, as well as of improving resilience of the current supply infrastructure. With that in mind, will the Minister tell us whether he is considering any of those proposals and, if so, when they will be published?

I am aware that DECC’s downstream oil and industry forum task group recently undertook a number of reviews of the UK’s oil market, including on supply and demand balances, safety, planning and regulations, supply infrastructure, and the refining market. I understand that officials will shortly submit advice to Ministers on areas of public policy that could be addressed to ensure that we have resilience and security of supply. Will the Minister give an update on this matter with particular regard to the future competitiveness of the UK oil refining industry?

Michael Connarty: My hon. Friend referred to supplies to petrol stations in remote areas. Is he aware that there is deep concern that the infrastructure of terminals where stocks are held is being threatened? I am told that

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one reason why that happens is that if a UK refinery wants to ship to a UK destination, it is taxed on the volume in the tanker when it leaves the terminal, but anyone coming from abroad to the UK is taxed on what they offload. That can add £2 to £3 a tonne to the cost of shipping within the UK, so terminals do not do that. To secure terminals, surely the Government should allow those who ship out of refineries such as Grangemouth to a terminal in the north of Scotland to be taxed only on what is offloaded at the terminal in the north.

Huw Irranca-Davies: I was going to come on to that pertinent point, and I hope that the Minister will address it. If he does not have the details, because they require dialogue with Treasury colleagues, perhaps he will write to me and other hon. Members in the Chamber. The matter is important, and involves trying to achieve a level playing field so that the UK industry can compete effectively.

Does the Minister intend—his officials might be doing so already—to consider providing a long-term policy platform that will provide a level playing field for UK refineries to compete with both EU and non-EU competitors, while ensuring security of supply of petroleum and other products at competitive and affordable prices? Is there any consideration of a coherent policy platform for the industry?

The DOIF study outlined the growing imbalance between petrol and diesel demand and supply in the UK. The UK currently imports around 3.5 million tonnes of diesel and around 6 million tonnes of jet fuel, and those imports are forecast roughly to double by 2020, even if refining capacity remains the same. At the very least, new investment will be needed for import facilities or for desulphurisation of fuel as demand grows. Does the Department have any plans to address that growing imbalance, either by incentivising new investment in import facilities, or by improving the uptake of petrol? If so, when will the details be published?

[Mr Lee Scott in the Chair]

On training, the 2007 Wood Mackenzie report for the DTI stated that the UK oil refining industry was hampered by a shrinking pool of work force talent, and similar concerns have been raised in other parts of the energy industry. Will the Minister update us on the current state of play for the availability of a talented work force for the UK oil refining industry? Is he involved in active discussions with the industry about improving and developing skills that are suitable for a competitive UK oil refining industry in the long term? As has been noted, some of those points are highly applicable to BIS Ministers as part of our industrial strategy, but I am sure that the Minister will be more than able to answer questions on skills, training and work force talent.

One interesting aspect of North sea oil and gas concerns the upstream perspective on the competitiveness of the UK oil refining industry. More and more of the world’s remaining crude oils are likely to be heavier than those of today, which are finer and sweeter, and that change in the character of future crude oils will make them more complex to refine. As the Minister knows, the UK continental shelf tends to produce finer and sweeter crudes, although I know that heavier oils are found west of Shetland, and some heavy oils are, we hope, awaiting development in the North sea. Therefore,

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sustaining investment in the UK continental shelf to maximise the safe recovery of high-grade oil found around the British isles is helpful in providing feedstock for north-west Europe’s refineries, including those in the UK. Does the Minister believe that the Chancellor’s decision to impose an increased tax burden on UK oil and gas production could have unforeseen consequences—I hope they are unforeseen—for the industry and the future viability and competitiveness of UK refineries?

Eric Joyce: UKPIA, the union Unite and others have pointed out that the carbon price floor will lead to an additional cost across Europe of about £36 per tonne. In the UK, it will be more like £54 per tonne, which in Grangemouth alone could lead to an initial cost of £10 million. That has enormous implications for a unit of that size.

Huw Irranca-Davies: Indeed, and when the Minister responds, it would be helpful if he would consider the implications for the downstream industry, which is the subject of the debate, of the announcements in the recent Budget. A range of implications have been noted by the industry, including direct costs to it, and the potential effect on investment and jobs.

Michael Connarty: My hon. Friend will have heard me mention the shock rise in electricity prices of £3, which is equivalent to a 5% increase. ICIS Heren, which analyses the prices of gas and electricity, stated:

“The planned introduction of a carbon tax from 2013 in the UK remained the key driver with all contracts from Summer 2013…climbing at least £2.20/MWh.”

That is the effect of the carbon tax on forward purchasing, which people have to do to guarantee supplies of electricity to the UK refining industry. That is perhaps an unintended consequence, but it affects the cost base of our refining industry.

Huw Irranca-Davies: As far as I am aware, this is the Minister’s first opportunity—both personally and on behalf of the Department—to speak about the carbon price floor. In his response, perhaps he will tell us how well or otherwise that is linked to the EU scheme. If it is linked closely, some of the negative effects could be avoided, but if it is disjointed and there is a splitting of ways, there could be a significant impact. This is not only about costs, important as those are, but about carbon leakages. In effect, we export our carbon emissions. My hon. Friend makes his point well, and rather than us waiting for a response from the Treasury, I hope that the Minister will take the opportunity to address it. He is the right person to tell us what thought has been given to the competitiveness of UK industry, including the refining sector, compared with that of other EU nations and their industries.

I have outlined a series of questions for the Minister, but my comments could be summed up in two questions: first, does the Minister have any plans to formulate a coherent future policy framework for the UK oil refining industry that ensures long- term investment in, and the future competitiveness of, the industry; and, secondly, how would any such framework fit in with the UK’s overall energy policy objectives? I do not doubt that the UK oil refining sector can be competitive in the future. For decades, the downstream industry has enhanced the

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security of the nation’s energy supply through the consistent provision of a range of fuels and industrial feedstock at competitive prices, and it can continue to do that. However, the industry has many questions for the Government at this point in time, so I hope that the Minister has the answers.

12.5 pm

The Minister of State, Department of Energy and Climate Change (Charles Hendry): It is a pleasure to serve under your chairmanship, Mr Scott. It has been a constructive and well-informed debate and there has been a considerable amount of agreement from hon. Members from all parts of the country and different political parties on the critical importance of the downstream oil industry, the role it plays in constituencies across the country, and the vibrant and important future we want it to have.

I congratulate the hon. Member for Linlithgow and East Falkirk (Michael Connarty) on securing the debate. He paid tribute to and thanked some of the people who have helped him, particularly on a local level. I add my thanks to UKPIA for the work it has done, and for its constant engagement with me, my officials, and hon. Members across the House. It makes us aware of the issues faced by the industry in a constructive and thoughtful way.

The hon. Gentleman spoke about the start of his career when he worked in the refinery. I had a similar experience at the other end of the chain because my first job was working as a petrol pump attendant on the outskirts of my constituency. Petrol cost 36p a gallon for five-star—we do not even have that any more. That shows the incredible change that has taken place, although I am not as old as I look. The hon. Gentleman raised a range of important issues, and other hon. Members have taken part constructively in the debate.

The hon. Gentleman asked why the matter has not been taken up by the Department for Business, Innovation and Skills. I see all issues that affect the industry as integral to the work of the Department of Energy and Climate Change. In all aspects of the energy supply chain—upstream through to downstream—it makes sense for a single Minister to have responsibility for what goes on, rather than saying, “I can’t go into that issue too much, because another Department deals with it.”

The other point on which I wish to reassure the hon. Gentleman and other hon. Members concerns the cross-departmental work carried out by the Treasury, BIS and DECC to look at the challenges of potential carbon leakage, and ensure that we fully understand the consequences of measures that are discussed either in this place or in Brussels, and the wider impact they may have on British industry. It would be unfortunate and irresponsible for measures to be implemented that resulted in the sort of changes outlined by the hon. Gentleman, where companies decide to stop working in the UK and go somewhere else, meaning that carbon emissions are greater and we lose jobs and income. That is why we are determined to focus on that issue in our cross-departmental work.

Michael Connarty: The Minister complemented UKPIA, and I echo that. How does he divide his focus, commitment and responsibility between the environment and competitiveness? The climate reduction commitment,

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which was designed by the previous Government after a great deal of discussion with industry, has been described by UKPIA:

“With revenues now going to Her Majesty’s Treasury, the scheme is now looking like a burdensome additional tax that does little to encourage energy efficiency beyond what prudent businesses do already.”

Surely the Minister should be arguing for the abandonment of that tax as called for by UKPIA. It has no effect on climate change.

Charles Hendry: The other side of that coin is found in other things that were expected to be charged on people’s bills. For example, the refinery industry was extremely concerned about the renewable heat incentive and its impact on bills, but the Government have now said that there will no longer be a direct charge on bills as the initiative will be funded out of general taxation. If we want such policies to continue and believe it is right for them to be funded out of general taxation, it is equally right for some of the funding to go directly to the Treasury to be divided up and spent on those different projects.

Michael Connarty: The Minister is coming dangerously close to saying that he rejects the argument I have set out and that he is not willing to argue with the Treasury that this measure should be scrapped if it does not affect climate change and energy use; he is taking the side of the Treasury against the industry.

Charles Hendry: I am sorry the hon. Gentleman has chosen to introduce that tone. We had good discussions with the Treasury, based on discussions I had had with UKPIA about its concerns regarding what the renewable heat incentive would do to the industry’s costs and competitiveness. The Treasury listened to those concerns and decided that the RHI should be funded not by a charge on bills, as planned by the previous Government, but out of general taxation. That was an example of DECC, the Treasury and the industry working together co-operatively to deal with issues as they emerged. I am in no doubt that that is the right way for us to deal with these issues as we go forward.

My hon. Friend the Member for South Basildon and East Thurrock (Stephen Metcalfe) talked about skilled jobs, the nature of these employers and the attractiveness of the work they provide. He rightly reminded us of the importance of striking the right balance between the need to move towards a low-carbon economy and the need to protect industries with tremendous strategic, regional and local significance. I very much welcome his support.

My hon. Friend the Member for Carmarthen West and South Pembrokeshire (Simon Hart) talked about the role of the Health and Safety Executive. I am delighted that the hon. Member for Ellesmere Port and Neston (Andrew Miller) is one of the people who will look into the way in which the HSE works to make sure that the rules and regulations it puts in place and the way they are interpreted are appropriate. I hope that hon. Members will make not only the hon. Gentleman, but myself and ministerial colleagues in the Department for Work and Pensions, which looks after the HSE, aware of concerns should the HSE be seen to be overly

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heavy-handed. I will come to some of the points made by the hon. Member for Ellesmere Port and Neston, but I would be grateful to meet Essar through him and to have a chance to hear first hand some of its plans.

We have had a good debate, and I should say how pleased I am to see my hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) in his place. Although he is bound and gagged and not allowed to speak in such debates, he is an effective and articulate advocate of the industry’s interests, and I was pleased to have the chance to go with him to talk to Murco some while ago so that I could hear first hand the issues that the industry faces.

There is no doubt that we understand the crucial role that petroleum products play in the daily lives of people in this country. DECC’s data show that the total consumption of petroleum products in the UK was about 80 million tonnes in 2009. Our projections for primary energy demand to 2025 show an important, continued role for oil in the energy mix. Indeed, annexe H of DECC’s updated emissions projections for 2010, which I am sure Members have studied, looks at the central price scenario and shows that oil was 36.3% of total primary energy demand in 2010 and is projected to be nearly 38%—a slight increase—by 2025.

As Members have said, the UK operates in an international market for petroleum products. Although imports and exports have fluctuated over the past decade, a significant proportion of the products consumed in the UK are imported, and a similar level of UK production is exported. Overall, the UK has been a net exporter of products almost every year since 1974, although with different balances between products.

As others have said, the UK market is mature. Levels of overall demand are projected to remain flat for the next 15 to 20 years. Equally, the market has been characterised by increased and sustained levels of competition. Perhaps the most visible trend over the past few years has been the entry of supermarkets into the fuel retailing market. The UK’s refining sector has evolved over time. Industry data show a gradual contraction in the number of refineries, from 19 in 1975 to the eight primary operational refineries we have today.

Consumers benefit from a well-developed distribution infrastructure, which comprises more than 50 primary fuel distribution terminals, 3,000 miles of product pipelines and about 8,700 service stations across the country. The sector is a major employer in the UK, with more than 16,000 people directly employed by the major oil companies alone. In addition, more than 150,000 people are employed in other roles, such as service station staff, contractors and road tanker drivers. As has been said, refinery jobs offer a considerable productivity premium over jobs in comparator industries, and work conducted for DECC by Deloitte LLP in 2010 suggests that that could account for as much as £270 million per annum.

Over recent years, however, the refining sector in the UK and internationally has faced considerable challenges. Since the 2008-09 global economic recession, there has been a significant downturn in European and US product demand, with a major impact on European refining margins. DECC data show a reduction in overall petroleum product consumption by consumers of 5% during 2007-09. That constitutes the largest single consumption contraction since 1985 and it appears to be driven largely by the

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economic slow-down. Industry projections suggest that regional refining margins are unlikely to recover significantly before 2015. In its 2010 medium-term oil market report, the International Energy Agency bears that analysis out.

Over the past 10 to 15 years, the UK’s demand for oil products has changed. That has been driven by the growth in the aviation sector, the increasing number of diesel vehicles and a reduction in the use of oil for power generation. DECC data show that petrol constituted about 30% of total UK petroleum product demand in 1990; by 2009, however, that had reduced to about 22%. Similarly, diesel and jet fuel combined accounted for about 22% of total petroleum product demand in 1990; by 2009, however, that had risen to nearly 44%. Compared with current UK demand, UK refineries produce a surplus of petrol and fuel oil and relatively little in terms of middle distillates, as they are configured to meet historically higher levels of petrol demand.

DECC has worked with the industry over the past few years to gain a better understanding of it and the challenges it faces. Work conducted in 2009 and 2010, much of it in conjunction with the downstream oil industry forum, focused on the sector’s resilience. A key contribution to DOIF’s work was made by a report produced by Wood Mackenzie, which looked particularly at the industry’s infrastructure. Together with work produced by UKPIA on the refining sector, that valuable work has allowed us to develop a clearer picture of the sector.

Wood Mackenzie concluded that the position of UK refineries is middle to low relative to their European competition, as the hon. Member for Ogmore (Huw Irranca-Davies), who speaks for the Opposition, said. That is due to structural factors, such as the fact that central European markets are landlocked and hence less open to imports and competition, and the fact that UK refineries process North sea crude feedstock, which is higher quality and therefore higher cost than is the case in much of Europe. Overall, the work identifies a long-term trend towards rationalisation in the UK refining industry, low levels of non-discretionary investment in the downstream oil infrastructure, static total UK oil demand, and supply and demand imbalances. Those are all factors.

Although that work has not focused in detail on regulation, it has noted certain policy areas that may enhance the likelihood of future investment in the sector as a whole. Those include legislation governing refinery emissions, the implementation of biofuels policies and legislation governing compulsory oil stocks, and all those issues have been brought up in the debate. A key finding of the work is the importance of encouraging a level playing field in the EU by avoiding disadvantaging the UK refining base relative to its competition.

In addition, work conducted last year for the Department assessed the UK sector’s capacity to withstand a range of supply constraints. The report considered seven scenarios involving supply interruptions for the UK. Those ranged from crude and refined product import disruptions through to a UK refinery outage and a fuel terminal-related incident. The report found that, in the short term, the UK downstream oil market should be resilient to a range of disruptions, although product prices were likely to increase to balance supply and demand. The work noted that the retention of a UK refining base

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enhances resilience by reducing dependence on refineries outside the UK, although it is likely in practice that the UK will increasingly rely on imports for diesel and jet fuel.

As many of those who have spoken have said, a number of operators have signalled their intention, are negotiating deals or have concluded deals to sell refining and related assets. As the hon. Member for Linlithgow and East Falkirk said, INEOS recently announced a joint venture agreement with PetroChina regarding the Grangemouth refinery and related assets. Shell has recently reached agreement on the sale of Stanlow refinery to Essar Energy, and, as I said, I would be keen to meet Essar’s representatives in due course. Chevron Texaco has announced an agreement for the sale of the Pembroke refinery and related downstream assets to Valero Energy Corporation, which is extremely good news for the local community, which is so dependent on the energy sector. Last year, Total announced that it was seeking buyers for the Lindsey refinery and, separately, for a number of related downstream assets. As Murco announced last year, it is seeking to sell the Milford Haven refinery and some related UK downstream assets.

We all recognise that these trends can be unsettling; they certainly indicate a significant shift in the ownership profile of the UK’s refining base away from household name, international oil companies. In many ways, that reflects what we see happening offshore as well, where much of the new work developing reserves in the North sea is being done by smaller, more specialist companies rather than the international oil companies. We should welcome how the market is adapting to the challenges. The trend has been under way for the past few years, and PetroPlus and INEOS have both purchased refining assets in the recent past.

We must be open to new investors. Different companies have different strategic priorities and target markets, and will find different synergies between UK assets and those they hold elsewhere. I am encouraged by the initial plans that have been shared with my Department already, and I look forward to learning more as the negotiations under way bear fruit. It is clear from the contributions to the debate this morning that, for those people who have been talking to the inward investors, it is about the ideas and plans. They want to build on the assets and to see the industry become critical to this country.

As we have seen, the sector is going through a particularly difficult period, both in the UK and internationally. It is an internationally structured sector and is subject to competitive forces. The market is international, and the UK will continue to rely on a mixture of indigenously refined and imported products. I absolutely believe that the retention of a refining sector in the UK enhances security of supply, as it balances product reliance between the market for crude oil and refined products. However, I do not believe that the precise balance between the two can be centrally defined. Operators and investors in the market are ultimately best placed to determine how best to meet evolving product demand.

Earlier this year, my officials launched additional work with consultants to examine in more detail the evolution of the UK’s downstream oil market over the next 20 years and, in particular, to evaluate more closely the relative levels of competitiveness between UK and competitor refineries, and the likely evolution of the

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international market for petroleum products and its implications for the UK. That takes us in the direction in which hon. Members want policy to evolve. The work will build on the conclusions of the earlier studies mentioned and will evaluate some of the longer-term security of supply implications in the models. Once complete and evaluated, I will be happy to share the work with the House and industry representatives.

I very much recognise the concerns the industry has raised about legislation and regulation. There are many relevant areas of policy, some of which are owned by DECC and others are owned elsewhere in Whitehall. Some areas are EU-led and some are the preserve of the UK Government. I want to pick up on those areas that have been referred to in the debate.

The hon. Member for Ogmore mentioned biofuels. Biofuels policy raises challenges and opportunities for companies in the sector. The Government are progressing implementation of legislation in this area in a balanced way. We have ambitious climate change and renewable energy targets to meet, but equally we recognise that there are still questions to answer on the best way to deploy biofuels across the different transport sectors. The consultation on proposals to implement the transport element of the renewable energy directive and the greenhouse gas savings requirements of the fuel quality directive was launched on 10 March 2011, and the consultation period will run until 2 June. Consultation documents are on the Department for Transport website and elsewhere.

We need to think about where biofuels will be best deployed across the transport sector. It may be best for the limited supplies of biofuels that can be sourced sustainably to be focused on the transport modes for which no other low carbon energy sources are viable, such as aviation and heavy goods vehicles. It is undoubtedly an area in which we have more work to do and more to learn.

We are also aware of the need to address questions regarding accounting for life-cycle greenhouse gas emissions from transport fuels under the fuel quality directive. The European Commission is assessing options for a methodology, but we have made it clear that, in our view, any approach should be based on robust and objective data and should treat all crude sources equally. The Department for Transport is conducting a consultation, and I hope that people will take part in the debate.

Andrew Miller: The Minister has covered a series of areas fundamental to the research and development of the industry, so will he now respond to the point I raised about Thornton research centre?

Charles Hendry: That is one point on which I will write to the hon. Gentleman, if that is all right. As he is aware, we need to discuss the matter directly with Shell and be aware of what its plans are, rather than speculate over what they might be. I hope he understands if I write to him and other hon. Members on the exact position of the centre.