§ The Secretary of State for Defence (Mr. Michael Heseltine)
As the House knows, I have been considering the results of a tendering exercise for two type 22 frigates for the Royal Navy. Cammell Laird, Swan Hunter and Vosper Thornycroft were each invited to tender for these warships—one, the fourth replacement for warships lost in the South Atlantic, and the other an addition to the naval programme which I authorised in 1983.
The tendering process has been unusually protracted, for several reasons. I have been concerned to obtain the best available prices and tauter contract terms than we have been accustomed to in this area of defence procurement. The earlier tender replies did not adequately contribute to this objective, and it was not possible to take a decision on the order before the validity of the tenders expired. A final round of tendering was initiated in late July last year. The results of this round met several of the concerns to which I have referred, and, as with the earlier rounds, showed that the competition had been close and keenly fought.
The House will be aware that the decision on the orders for the frigates has important implications for each of the competing yards. I have considered the implications carefully, in consultation with my ministerial colleagues.
At this point, I should say that the deplorable and unnecessary industrial action which occurred last summer at Cammell Laird would, as I made clear at the time, had it continued, have excluded the yard from further consideration in the competition. The courage and determination shown by the moderate element of the work force at Cammell Laird, in the face of the intimidatory behaviour of their former work colleagues, has averted the almost certain closure of the yard at an early date.
The cheapest solution from the point of defence procurement would be to place the order for both ships with one yard, but, in the light of the wider and relevant factors involved, I have decided that an order for one type 22 frigate will be placed with Cammell Laird and for the second with Swan Hunter, and I am prepared to authorise the necessary expenditure. This offers the prospect of survival of Cammell Laird as a major warship builder; without such a contract the yard would have closed. I hope that the yard will succeed in obtaining other business in the short as well as the long term.
Swan Hunter, which is a much larger firm and is implementing a large redundancy programme at the moment, could face further substantial redundancies even with the order which I have just announced. The Government wish to do what they reasonably can to prevent this. Last autumn we embarked on the construction of a new class of frigate, the type 23, and negotiated a first order at Yarrow on the Clyde. I have decided to negotiate an order for the second type 23 frigate at Swan Hunter as soon as this can sensibly be done, and subject to satisfactory agreement on price and other contract terms. I will expect the price for this frigate to reflect the economies obtainable with an order for two frigates rather than one; and to be competitive. In order to establish this, tenders will be invited for the third type 23 order in the same time scale from all United Kingdom yards capable of carrying out the work.
§ Mr. Denzil Davies (Llanelli)
The Secretary of State's statement will obviously be welcomed both by the Royal Navy and by the two warship yards which have been given orders to build the three new frigates. It will be welcomed especially because it seems likely that this will be one of the last statements on major equipment orders in defence which the Government will make in this Parliament. From now on it is likely to be cancellations all the way.
The statement has an air of desperation about it. The Secretary of State is desperate because the Treasury will demand, if we read the public expenditure White Paper correctly, larger and larger cuts in defence. He is desperate also because the cost of Trident over the past months has increased by about £200 million a month. For the Secretary of State to talk about "tauter contract terms" is cynical and ridiculous. When are we to see tauter contract terms for Trident, the costs of which have doubled under the Government?
Why was there delay in placing the order, especially for type 22 frigates, the first one of which will be a replacement for the one lost in the Falklands war? Why does the Secretary of State not make it clear that the delay stems from budgetary problems in his Department and not from industrial problems at the yards? What will be the cost of a type 23 frigate? Some of us remember that one of the reasons for closing Chatham dockyard was that type 23 frigates would be disposable vessels and would cost about £70 million. What is the cost of a type 23 frigate now? If the type 23 is not to be disposable after all, is the right hon. Gentleman satisfied that the Royal Navy, after he and his business partner, Mr. Levene, have finished with it, will have the necessary dockyard facilities to refit the types 22 and 23 and all the other warships of the Royal Navy?
§ Mr. Heseltine
I suppose that the House will sympathise with the right hon. Gentleman for talking about everything except the subject of the statement. I shall answer the relevant questions that he put to me. The delay of which he spoke has nothing to do with any budgetary problems in my Department. Anyone who has any idea of the considerations that have been brought to this matter will know that. The approximate price of a type 23 frigate now is about £110 million. We shall ensure that there are adequate servicing and repair facilities. Our problem is one of over-supply of facilities, rather than under-supply.
The House will perhaps judge the sincerity of the right hon. Gentleman's contribution to my statement against the background of the Government having increased defence expenditure in real terms by £3 billion a year, while the Labour party was committed to reducing it by a third as soon as it came to power.
§ Sir Antony Buck (Colchester, North)
Is my right hon. Friend aware that most of us on the Conservative Benches will welcome his statement, which will certainly end the uncertainty about these matters? When are the type 22s likely to go into service with the Royal Navy? Similarly, when will the type 23s, which will be following thereafter, go into service?
§ Mr. Heseltine
I am grateful to my hon. and learned Friend. As a rule of thumb, one can broadly assume that an order takes four to five years—probably nearer four years—to complete. That will give my hon. and learned Friend and the House the answer to his question.
§ Mr. Tam Dalyell (Linlithgow)
Has the Secretary of State seen the statement attributed to Admiral of the Fleet Lord Hill-Norton about a scandal behind the selection procedures for Her Majesty's ships, particularly in relation to the Osprey? Is the Secretary of State confident that these procedures are proper?
§ Mr. Heseltine
I read the newspaper report this morning and I have asked to be kept fully informed about the matter, but I understand that the story carried in The Times this morning is a very long way from the truth.
§ Mr. Peter Viggers (Gosport)
My I draw my right hon. Friend's attention to the fact that three warship yards—Vosper Thorneycroft, Yarrow and Cammell Laird—are classified as lead warship manufacturers, and, therefore, maintain appropriate design staffs? What implications does my right hon. Friend's policy have for Vosper Thorneycroft, and what expectations can the yard have of further Royal Navy orders?
§ Mr. Heseltine
I fully understand my hon. Friend's concern. The capacity of Vospers is well known to my Department and the yard will be able to compete for the third type 23 order to which I referred in my statement. Of course, it is competing now for other ships for the Royal Navy.
§ Mr. Stephen Ross (Isle of Wight)
As it appears that Swan Hunter has not had to tender for the type 23, can the Secretary of State tell us whether the same sort of situation would apply to Vospers, which is a yard with a fine record of achievement, but which now faces heavy redundancies? Can the right hon. Gentleman also tell us the price for the type 22s, following the keen competition for them?
§ Mr. Heseltine
The hon. Gentleman will know that we do not announce the detail of contract prices that have been negotiated in any of the work for the Ministry of Defence. However, broadly speaking, the cost of the type 22—on the same basis as the cost of £110 million that I gave for the type 23—is about £140 million. I am sympathetic about the position of Vospers, but I did not see how I had the capacity easily to help that situation. I very much hope that Vospers is successful in some of the competitive negotiations that it is now undertaking.
§ Sir David Price (Eastleigh)
Is my right hon. Friend aware that, after a delay of 16 months, those of us who have Vosper Thorneycroft in our area are very unhappy about his decision? Will he make it a little easier by publishing the rules of tendering, about which there has been considerable doubt—especially on how overheads are spread—and the comparative costs that he received? It has taken so long that most of us have grave doubts about the integrity of my right hon. Friend's tendering procedures.
§ Mr. Heseltine
I understand my hon. Friend's concern, but I cannot add to what I said. The Ministry does not customarily produce a list of prices at which contracts are awarded or the list of those who have tendered but not won contracts. The position that the Ministry faces is that all three yards are subsidiaries of one company, which is sponsored by my right hon. Friend the Secretary of State for Trade and Industry. That company is more likely to lay down the rules under which tendering takes place than is the Ministry.
§ Mr. Eric S. Heffer (Liverpool, Walton)
As a former senior shop steward at the Cammell Laird shipyard and a 24 Merseyside Member who has many shipbuilding workers in his constituency, may I tell the right hon. Gentleman that we welcome the decision to have one of the ships built at the Cammell Laird shipyard? That is good news for Merseyside.
However, is the right hon. Gentleman aware that it was unneccesary for him to attack the workers at Cammell Laird, who were fighting for jobs—rightly or wrongly? The fact that they fought for jobs and went to prison because of it may have helped to determine that the order announced by the Secretary of State should be brought to Merseyside.
§ Mr. Heffer
My hon. Friend the Member for Birkenhead (Mr. Field) says "No." That is a matter for him. I have given my opinion. I believe that it is vital that all workers should fight for jobs, because Merseyside has been battered more than any other area in the country.
§ Mr. Heseltine
The hon. Member for Liverpool, Walton (Mr. Heffer) has put to the House his interpretation of the events that led up to my statement today. I must tell him that he is categorically wrong. Nothing was more likely to close Cammell Laird than the action of those who occupied HMS Edinburgh, which is under contract to the Ministry. The idea that any Secretary of State for Defence would place another order with a shipyard that was occupying a ship under construction is unthinkable, and I said so at the time. The men who must be praised are those who have crossed the picket lines against the abuse and intimidation of a wholly unrepresentative minority. That minority has done so much to bring to Merseyside the reputation which it should shed at the earliest opportunity.
§ Mr. John Wilkinson (Ruislip-Northwood)
Can my right hon. Friend inform the House at this stage which points defence system has been selected for the last two type 22s and two leading type 23 frigates as an effective defence against sea-skimming missiles, which proved to be the main requirement for frigates during the Falklands war?
§ Mr. Frank Field
I thank the Secretary of State for his decision. His statement will be a relief to the men and women in the yard. All five hon. Members who represent Wirral constituencies have been equally active in pressing the needs of Cammell Laird. So that unnecessary myths are not manufactured locally, will the right hon. Gentleman again take the opportunity to stress what would have been the result of his decision today if the action in the yard of 37 people had been successful against two mass meetings at the yard which opposed that action?
§ Mr. Heseltine
I praise the local Members of Parliament on both sides of the House for drawing the attention of the Government to the problems that face Merseyside, and Cammell Laird in particular. I can state categorically that if there had not been an order for Cammell Laird that yard would have closed within this calendar year and 1,700 jobs would have gone.
§ Mr. Christopher Chope (Southampton, Itchen)
Is my right hon. Friend able to say which yard put in the lowest tender, which put in the second lowest and which put in the highest? Is he able to confirm that Vosper Thornycroft was beaten on tender price? Is he aware that, if he is not 25 able to confirm that, there will be a suspicion in Southampton that Vosper Thornycroft has been punished for being able to obtain some overseas orders?
§ Mr. Heseltine
I appreciate my hon. Friend's concern. I am bound by the conventions of the Ministry, under which we do not provide commercial in-confidence information. No Government have ever done so. We do not provide details of prices at which contracts are let or the list of prices that fail to secure contracts. However, I can give the House an interesting figure, in that we have concluded an arrangement, in terms of the procuring of the two frigates, at a price which is lower than that which we first received on the first tenders.
§ Mr. Don Dixon (Jarrow)
I, too, welcome the fact that a decision has been made on these orders. Will the right hon. Gentleman ensure that the type 22 order is placed as early as possible with Swan Hunter, for without that order there will be further redundancies? Will he also ensure that the laying of the keels of these ships is not delayed for as long as the orders were? Has he any news about the auxiliary replenishment tankers, for which Swan Hunter is urgently waiting?
§ Mr. Heseltine
I have nothing yet to say about any further orders for which we are currently awaiting or considering tenders. However, it is my Ministry's intention to press ahead with the orders for the type 22s as urgently as we can.
§ Mr. Albert McQuarrie (Banff and Buchan)
Will my right hon. Friend say why Hall Russell of Aberdeen and Scott Lithgow of Greenock were denied the opportunity of tendering for these vessels? Can he also say why he decided not to place the second order at Yarrows but instead to give it to some other yard in England?
§ Mr. Heseltine
My hon. Friend will understand that we must make judgments about where orders are sought, and I believe that the facilities at the yards to which he referred might not have been adequate for the job that we had in mind. This is not a matter which one should try to divide between England and Scotland. We had a difficult decision to make and we hope that in the new round of tendering for the type 23 there will be a wide and competitive opportunity for firms on both sides of the border.
§ Mr. Dick Douglas (Dunfermline, West)
Will the Secretary of State be more forthcoming about orders for the type 23? I understand that he proposes to keep Yarrow as the lead yard and have the second order go to Swan Hunter. How does that reflect on the loading of Yarrow, which is designed to produce three type 23s simultaneously? Will he reflect on the employment position if further orders for type 23s are not placed there, despite the present tendering position of British Shipbuilders?
§ Mr. Heseltine
The position at Yarrow is not, as the hon. Gentleman will understand, a responsibility of my Department, so with some hesitancy I trespass on the preserves of my right hon. Friend the Secretary of State for Trade and Industry. As I understand it, Yarrow has a substantial workload which includes the construction of the first class type 23. The opportunity to tender for the third type 23 to which I have referred will be available to Yarrow as it will be to other United Kingdom yards. That aspect, together with the fact that Yarrow has tendered for 26 additional mine countermessure vessels, which will add to the potential workload, puts Yarrow in a relatively better position than some of the other shipbuilding yards.
§ Mr. John David Taylor (Strangford)
Although the largest shipyard in the United Kingdom was not involved in this tender, can the Secretary of State none the less confirm that Harland and Wolff Ltd. will be retained on the list of shipyards that are invited from time to time to tender for Ministry of Defence contracts?
§ Mr. Heseltine
Harland and Wolff is certainly considered for Ministry of Defence contracts, and has such contracts, but the firm is not a contender for this type of ship.
§ Mr. Kevin McNamara (Kingston upon Hull, North)
I congratulate the Secretary of State, at a time when the Secretary of State for Trade and Industry is busy dismantling regional policy, on showing his firm conviction and belief in that policy and sending two projects to areas of very high unemployment. We welcome the triumph of Stockton over Thatcher.
What exactly did the Secretary of State mean when he said that British Shipbuilders was more responsible for the tender terms than was the Ministry of Defence? I thought that the Ministry of Defence was the purchaser in this matter. It would, therefore, lay down its criteria, in the terms of the tender, that have to be met, and would not do so via British Shipbuilders. When does the right hon. Gentleman expect these ships to come into service?
The Secretary of State said that he would look at the problem as urgently as possible and view fresh orders. Does that statement not reflect the squeezing of the Navy's budget? That budget has been squeezed and squeezed for Trident, and we will be very lucky to have any more orders for these frigates in the next two or three years.
§ Mr. Heseltine
I am grateful to the hon. Gentleman for giving me the opportunity to clarify what I meant when I referred to the ability of British Shipbuilders to influence the tendering procedures. Of course, the specifications are laid down by the Ministry of Defence. We are the customers. The actual decisions within British Shipbuilders about the rate of profit and rate of overhead recovery are taken by British Shipbuilders on behalf of the subsidiaries within its control. To that extent, there is a limit to the degree of competitiveness between the yards that would occur if those yards were within the private sector. I hope that that point clarifies the position.
The hon. Gentleman asked about service. I answered that question when I said that it takes between four and five years — nearer four years — for these ships to be constructed. If one takes the order date and adds that period of construction, one comes close to an answer to the question.
On the hon. Gentleman's last point, there will be more orders from the Ministry of Defence. We have substantial available cash resources to spend in part upon the orders for the Royal Navy. The Opposition's forecasts on this matter will prove as ill founded as their forecasts on everything else.
§ Sir David Price
Yes, Mr. Speaker. In view of the totally unsatisfactory explanation by my right hon. Friend 27 the Secretary of State on why Vosper Thornycroft has been so harshly treated, I give notice that I shall seek the earliest opportunity to raise the matter on the Adjournment.