Harland and Wolff

HC Deb 27 May 1988 vol 134 cc641-50

11 am

Mr. Peter Robinson (Belfast, East)

The hon. Member for Greenock and Port Glasgow (Dr. Godman) spoke with considerable knowledge and feeling about the effect of current conditions in shipbuilding and marine engineering, particularly on the lower Clyde, and outlined part of the history of shipbuilding in Scotland. The shipbuilding industry in Northern Ireland goes back to 1636, although many could trace its origins back several centuries before that. Shipbuilding is a major part of the Northern Ireland economy. I know that the Minister flew back from Northern Ireland last night. If he had had to make his way by plane this morning as I did he might have decided that it would have been quicker to go by boat, as we had to circle London for at least an hour before we were allowed to land.

Changes in transportation clearly affect shipping. Nine years ago this month, when I was elected to the House, the shipbuilding industry was suffering the impact of the oil crisis. The outlook was particularly gloomy for my constituency, which depends heavily on shipbuilding, not only for jobs in the yard but for the supply and sub-contracting work that flow directly from the industry. So depressing was the picture that the newspaper headline writers—not always the most enthusiastic or cheerful of characters—heralded the shipyard's closure as a very real possibility. We read headlines such as: Yard shuts soon if no orders come in and Harland and Wolff faces Tory axe and Harland and Wolff—does it have a future? and again Harland's fight for survival.

For many years after 1979 such headlines appeared in our newspapers almost weekly. It was suggested that the closure of the shipyard was just around the corner. Harland and Wolff led a hand-to-mouth existence. I can recall many occasions when we were waiting for an eleventh hour decision—whether from BP, the Blue Star Line, or the Ministry of Defence—in the hope that we would get a vital order that would maintain shipbuilding in Belfast.

It was recognised then that there would be an upturn in the shipbuilding market. Then, as now, it was a matter of hanging on for that upturn. Those in the shipbuilding industry believe that it will happen in or around the 1990s, and I do not think that the expectations are misplaced. Several indicators suggest a brighter hope for shipbuilding on the horizon. First, there has been a vast reduction in laid-up tonnage over the past few years. In 1983 it accounted for about 18 per cent. of the world's fleet whereas it has now been reduced to 3 per cent. to 4 per cent. Secondly, both new build and second-hand prices have increased quite substantially—albeit admittedly from a low level—and there are sound forecasts that the trend will continue.

Thirdly, a significant percentage of the world's fleet is nearing the end of its useful life; 60 per cent. of the world's supply tonnage and more than 70 per cent. of its tanker tonnage is over 10 years old. Moreover, 57 per cent. of the fleet is in the 11 to 15-year-old class and that should lead to considerable demand for replacement over the next five years. Furthermore, the differential in price between the British and European shipbuilding industry, and the far eastern yards is beginning to narrow. In that sense, I take issue with the Parliamentary Under-Secretary of State for Industry and Consumer Affairs who answered the previous debate. It is clear that yards in the far east are beginning to encounter new problems. The exchange rates for the Japanese yen and the South Korean won have made the position of those countries less advantageous. There have been considerable problems of industrial unrest in South Korea with demands for higher wages. Over the past year, wages in South Korea have increased by 40 per cent.

I am not saying that the gap has closed, but there are signs that it is closing. Last year, the differential between the prices that could be offered by European yards and by Japanese and South Korean yards ranged from about 48 per cent. except in one respect—for cruise liners, where the differential was only 16 per cent. The only ships falling within the 28 per cent. specified in the EEC directive on intervention funding would be cruise liners and more sophisticated ships. As the gap narrows and problems continue to arise in the Japanese and South Korean yards, those countries will be forced to increase prices still further, and it will become more difficult for them to keep their prices down artificially.

It is towards cruise liners and more sophisticated ships that the managers of Harland and Wolff have directed their attention because they believe that they can be most competitive in that sector. The Ultimate Dream contract is a key component to a better future for Harland and Wolff. For once it is not a matter of obtaining or gaining an order. The order is sitting on the table. Instead. it is a matter of the Government establishing whether they are prepared to forward the standard funding permitted under the European Community regulations. Any other shipbuilding country with the building capacity to carry out that contract would grasp the opportunity with both hands, and yards in both France and Japan have been attempting to wrestle the order and unseat the Belfast firm.

Lest anyone is unaware of the position, let me make it clear that the Ultimate Dream contract is not the product of a cosy backroom deal between Harland and Wolff and the ship owner. It is the result of a design and build competition with other yards world wide. I recognise that the Government must make calculations, and that they await a study of the figures from the yard before they can make a decision. Although I expect that the figures will not be available until next week, I urge the Minister to inject a little enthusiasm into the Government's attitude and approach to the project.

Does the Minister accept that winning the order would open great possibilities for Harland and Wolff? Does he agree that a new concept such as the Ultimate Dream will present an unavoidable challenge to cruise operators, who must keep up with improved standards and increased facilities if they are to get their share of the market? If he accepts that, he must recognise that other cruise operators will have to modernise their fleets. Does the Minister accept that there is a potential for the cruise liner market to take off? If he accepts that, it follows logically that the builders of the Ultimate Dream will be in the lead when that move comes.

Does the Minister recognise that the order would represent four years' work for Northern Ireland—a region that has the highest unemployment in the kingdom— and that it will maintain thousands of jobs in the United Kingdom? He will know that 1,200 firms in Great Britain and more than 700 firms in Northern Ireland are likely to benefit from the contract. It will help to maintain and, we hope, increase the 4,000 jobs in the shipyard, plus 1,500 jobs in support firms in Ulster as well as more than 4,000 jobs in Great Britain. More than £160 million worth of orders would be placed on the mainland United Kingdom if the contract went to Harland and Wolff—orders for steel, other materials, components, equipment, insurances here in London and sub-contracting work. The deal will be good not only for Northern Ireland but for the United Kingdom.

In the past year, Harland and Wolff spent about £75 million with outside suppliers. Of that, £15 million was spent in Northern Ireland, £55 million in Great Britain and £6 million overseas. Of the £55 million, 30 per cent. was spent in the south-east, especially in Greater London, on insurances and on much of the electronics needed in the yard—25 per cent. was spent in Scotland—and 20 per cent. was spent in the north and north-east, concentrated in traditional shipbuilding industries, especially engineering. The project will benefit all parts of the United Kingdom.

It is estimated that the total tax revenue from Harland and Wolff and its supplier companies, above that which would occur if the yard was not getting business and its employees were receiving benefits, is £20 million a year. That money goes into the Treasury. Interestingly, the yard is looking for about that amount from the intervention fund to secure the contract. The Minister should not regard it as a loss. By maintaining jobs in the shipyard and in the supplier companies, the Treasury will gain to exactly the same extent through tax, VAT and national insurance.

When I mentioned my next point yesterday, the Minister concentrated more on personal remarks. That is not what I was suggesting. Does he accept that in many quarters the level of debate on the order has not been high? In some parts of the press it has verged on the scurrilous. Had the Minister been here for the entire debate on British shipbuilding last week, he would have heard—they were not exactly whispered—comments from hon. Members on both sides of the House implying a similarity between the failed De Lorean project and the Ultimate Dream. I am sure that he will wish to emphasise that there can be no comparison between the two. Unlike the car assembly industry, which was in Belfast for only a short time, shipbuilding is an integral part of the industrial structure of Northern Ireland and is familiar to workers there. It is not an innovation to the work force in the Province. The business styles of John Parker and Ravi Tikkoo do not fit comfortably with that of John De Lorean. The Minister will agree that such implications and uninformed comments are capable—if they were not so designed in the first place—of turning away customers. No other shipbuilding country would treat potential customers to such a barrage of abuse.

Have either the Minister or his officials taken steps to reassure the customer that the subsidy application will be given a fair hearing? Would it worry the Minister if the customer went elsewhere? I have to ask such basic questions because the Minister and the Secretary of State have been uncharacteristically poker-faced on the whole issue of the Ultimate Dream contract.

I do not belong to the school of thought that closes its eyes to the role played by Government and the taxpayer in the survival of Harland and Wolff. I and the men of Harland and Wolff recognise that substantial sums have been allocated to shipbuilding in the Province. That very fact forces me to urge the Government positively to study the viability of the project, because it would be inexplicable if the Government funded the yard through a period of decline, when the prospects were grey and bleak, but held back now when hopes are dawning of a brighter prospect and there is evidence of a better future for Harland and Wolff.

Logic demands that the project he supported. Moreover, the yard deserves and has earned support in view of the steps that it has taken during the past few years to strengthen its position. It has a first-class management team led by John Parker. No one disputes his capabilities and foresight. His ability is transforming the yard, and the spirit and morale of its work force is very much in evidence. The craftsmanship of the work force has never been in doubt. In the words of Ravi Tikoo, it is simply the best in the world. Harland and Wolff takes second place to no yard in terms of quality and high standards.

For the past four years, Harland and Wolff has been undergoing a change in strategy and direction. Many might say that a strategy change is not the most appropriate term to use. Perhaps major surgery would be more suitable. The company has been streamlined, and, while that process was necessary, the metamorphosis is always painful. It has reduced its work force from 9,000 in 1986 to 4,000 today.

Rationalisation, modernisation, diversification and improved efficiency have been the guidelines for the new-look yard. Significant changes in company organisation and personnel have taken place from the boardroom down. New technology has been embraced and is as advanced as any to be found in the world. New construction methods are being employed, using modular techniques, quality assurance programmes, cost reduction programmes and computer-aided design and manufacturing systems, which take the yard to the forefront of the European shipbuilding industry.

The adaptation of facilities, including the closure and demolition of older buildings, was initiated with the aim of moving the yard not only to high-tech design and build capability but to a highly competitive environment for the expected upturn in the 1990s. That approach has already shown success.

The design and build of, undoubtedly, the world's most sophisticated ship, the 73,000-tonne displacement single well oil production ship for BP, designed to recover oil from the marginal fields in the North sea, is one example of the yard's new capability in action.

Harland and Wolff has come from a position in 1982–83, when its trading losses per employee were three times greater than those of British Shipbuilders, to one where comparable losses are half that of the nationalised yards. The company has become more competitive.

In spite of those achievements, the management regards the changes as an unfinished symphony, and recognises the need for constant updating. The cut in the work force and the reduction in the yard's area increase its viability, yet still it is the largest of the European yards and employs more people. Those factors give Harland and Wolff a competitive edge, which will help the yard to take its share when the upturn in the market occurs.

I urge the Minister to ensure that the order comes to the yard to bridge the gap between now and the shipbuilding revival in the 1990s. He will know that much of Harland and Wolff's deficit last year resulted from the restructuring programme and the redundancies that flowed directly from it. Few other organisations undergoing such major changes have been expected to absorb massive job cuts in such a short period of time.

Does the Minister accept that the greatest incentive for increasing productivity is a substantial order book? It is human nature that, when men are on the last contract, they know that the harder they work the faster they will be out of a job.

We must bear in mind that Harland and Wolff is not seeking more intervention funding than any European competitor would receive if it had won the order. It should be made clear that it is not a massive lump sum payment, as has been suggested in some quarters of the press. The contract would last for about four years and the funding would therefore be spread over that period.

The Government are considering proposals from the Norwegians about the sale of Govan. Is not central to Kvaerner's willingness to purchase an understanding that intervention funding will be available from the Government? That should not be regarded as surprising or unrealistic as it is accepted practice among European shipbuilding nations to match far-eastern prices. In the past, even the far-eastern shipyards have operated policies of capturing orders at any price. I make no judgment on the Kvaerner bid, but surely a British-owned yard may expect no less favourable or generous treatment than the Norwegians?

The innovative new concept of the Ultimate Dream project has been remarkably well received throughout the shipbuilding world, and is recognised as a major breakthrough in cruise shipping. It would therefore be a matter of major regret if any discouraging noise or negative comment were to come from the House or elsewhere that would cause a potential customer to look away from Belfast to one of our European competitors. Let us not forget that there is no United Kingdom competitor for the contract; Harland and Wolff is not taking it from another region of the United Kingdom. Indeed, it is bound to diminish Harland and Wolff's dependence on other orders that are being sought by British yards.

The Government and the House must face two inescapable questions. Are we prepared to let the order go? Are we prepared to hand it over to our foreign competitors, and with it the prestige of further similar orders? To do so would effectively remove the United Kingdom from the large passenger ship market.

Do not let the rules of doctrinaire economic policy stop this order coming to Belfast. If the Government want Britain to rule the waves, they will have to waive the rules.

Support for the contract coming to Northern Ireland has come from Ulster Unionists and, I am pleased to say, the Social and Democratic Labour party and hon. Members of all parties. I trust that the Minister will say something that will cause us to feel that the thrust of the Government's approach is to make the Ultimate Dream a present-day reality.

11.26 am

The Parliamentary Under-Secretary of State for Northern Ireland (Mr. Peter Viggers)

The hon. Member for Belfast, East (Mr. Robinson) has expressed his concern about the future of Harland and Wolff, which has been a major employer in Northern Ireland since the last century and has played a significant part in the local economy. I am, of course, aware of the concern felt by all about the future of the company and I shall address the extent of commitment that has been shown by the Government in supporting it.

I agree with the hon. Gentleman that the level of debate on the proposed Ultimate Dream ship has not been high. Criticism has been levelled at the possibility of Harland and Wolff building it. I further agree with the hon. Gentleman that the yard and the customer, Mr. Tikkoo, deserve better than the criticism that has sometimes been levelled at the suggestion. I exempt from that criticism the way in which the hon. Gentleman presented his case. It was a model of the manner in which an hon. Member should submit a case on behalf of his constituents. I am happy that he had the good fortune to win a place in the Adjournment debate, which gives me an opportunity to respond.

I acknowledge the rich history of Harland and Wolff and the part that it has played in the Northern Ireland community over the past 126 years. More than 1,700 ships have been built by the company, including many famous passenger ships such as the Olympic, the Southern Cross, and the Canberra.

During the second world war, Harland and Wolff played an important role in the war effort and built over 250 naval and merchant ships. In addition to those new builds, the company repaired or converted over 22,000 ships in Belfast and its other locations. Employment at Belfast rose to over 30,000 during the war years, with over 20,000 employed at other locations throughout the United Kingdom.

In the immediate post-war years, Harland and Wolff produced a greater tonnage of ships than any other British company and, in the three years 1946 to 1948, the company headed the world league of shipyard output. In the 1960s, it built Britain's first supertanker and achieved further success in launching the oil platform, Sea Quest.

The 1970s were a traumatic time for shipbuilders worldwide, including Harland and Wolff, and orders became increasingly difficult to obtain. The facilities were best suited to building the types of ship that were no longer required in such numbers, and where competition from the far east was most severe.

These sophisticated ships required new skills and approaches to work. With Government support, the company continued to rationalise its facilities and implemented sophisticated computer aided design and manufacture facilities. New systems of ship production, including the greater use of pre-outfitting, were introduced in an attempt to improve productivity.

Despite the undoubted successes of the past, Harland and Wolff has not been immune from the more recent crisis facing the shipbuilding industry worldwide and particularly in western Europe. I recognise the efforts that have been made by the management and work force over the years to deal with the situation. Employment in the yard has fallen from 10,000 in the early 1970s to under 4,000. Some of that fall has been the result of declining orders, but part has been the result of efforts to cut operating costs. The company has also altered its marketing strategy to seek to obtain orders for more sophisticated ships where the competition from the far east is currently less intense.

As a consequence of the global changes in the industry, which I have described, Harland and Wolff has suffered severe financial difficulties over the past 20 years. Between 1966 and 1975, when Harland and Wolff was taken into public ownership, the company received some £60 million of public funds. Since 1975 it has received a further £450 million, of which approximately £240 million has been provided by the Government in the past five years alone.

Every merchant order which the company has won recently has required significant support and there have been other losses due partly to overcapacity at the yard. In the year to 31 March 1988, the Government paid £58 million to Harland and Wolff and in the previous year the amount was £64 million. Those are very large sums of money, equating to almost £15,000 per employee per year, and they demonstrate the commitment which the Government have shown to the company.

I should like to take this opportunity to stress the extent to which the Government have been supportive of Harland and Wolff. The company has been provided with the finance to acquire new facilities and every assistance to win orders. Ministers have been supportive in the effort to win orders for the shipyard. The problems which it is facing are linked to changes in the industry worldwide and are not attributable to any lack of support by the Government.

As regards the present order book, Harland and Wolff recently completed the RFA Argus—a conversion of a standard container ship to an aviation training ship. That was the first major contract won by the company from the Ministry of Defence for many years and provided the opportunity to enter this sector of the market. The finished ship is, I believe, a very significant addition to the auxiliary fleet. It is the largest ship serving with the Royal Navy. The conversion proved to be more difficult than Harland and Wolff expected and, unfortunately, the ship was delivered much later than had been expected and there were cost overruns. Those extra costs are now the subject of negotiations with the Ministry of Defence.

Work is now progressing on the single well oil production ship for British Petroleum, commonly known as SWOPS, which is one of the most technologically advanced ships ever planned. Construction is largely complete and the ship is now entering its complex commissioning phase in which the mass of sophisticated equipment which has been installed will be tested.

Production delays and difficulties have been caused to a considerable extent by the failure of sub-contractors to provide the complex equipment on time. Sometimes it has been necessary to change the phasing of the production of the ship so that, instead of equipping the ship, as originally intended, with sophisticated computer and other equipment which was ready to be installed as the ship was being completed, it became necessary to cut holes in the ship to put in the computer and other equipment later. That obviously caused difficulties for the shipyard, but it is doing its best to overcome them and has been largely successful.

In April 1986 Harland and Wolff, after intense competition, won a contract to design and build the first of class auxiliary oiler replenishment vessel for the Ministry of Defence. The design of the ship has been largely completed and construction has commenced. This is the first whole ship procurement to be placed by the Ministry of Defence where the contractor is responsible for providing the whole ship, complete with weapons, for a fixed price. As it is the first such ship ordered in this manner, and as it is the first of class, both Harland and Wolff and the Ministry of Defence are having to deal with many new aspects. It is an exciting project, and Harland's progress is being closely monitored.

The hon. Member referred to the major potential cruise liner order with Mr. Ravi Tikkoo. The design produced for Harland and Wolff was ambitious and imaginative. It was a substantial achievement to be selected by Mr. Tikkoo to carry the project forward. I concur with the hon. Member on this subject. I accept the importance of such a large project to Harland and Wolff and to Belfast. It will be a massive ship, the largest cruise liner ever constructed. I assure the hon. Member that the potential order has been given the serious response that he would wish and expect of the Government.

My Department maintains close links with Harland and Wolff. Officials and my right hon. Friend the Secretary of State for Northern Ireland have met Mr. Tikkoo. I cannot say, however, how the Government will respond to any approach relating to this ship. Harland and Wolff has still not yet completed its costings and has not made any formal application to my Department for contract support, nor to the Export Credits Guarantee Department for guarantees for credit facilities. I understand that the yard has asked sub-contractors to tender and give prices for certain components making up the ship. When those are amalgamated by Harland and Woff, the company will be able to produce its final detailed costings. As and when those costings are produced, they will be scrutinised by specialists on behalf of my Department. It will then be possible for us to appraise the ship. At this point, it is too early to say much more. I assure the hon. Member that the application will be thoroughly and carefully reviewed to determine whether the provision of any additional financial resources needed to win the order would represent good value for money in terms of Northern Ireland expenditure priorities.

We are, of course, all anxious to develop projects that have the potential to create and sustain employment. I note from a recent Northern Ireland Economic Council survey that the total of direct and indirect employment generated by Harland and Wolff in Northern Ireland is between 5,300 and 5,800 staff. My Department's estimate of the indirect labour is rather lower, but I gave that figure because the hon. Member mentioned the number of people dependent on the Harland and Wolff yard. Although the record of the Government's commitment to the yard cannot be challenged, we have the obligation to ensure that the public funds required for such projects as the Ultimate Dream represent real value for money. The taxpayer would expect nothing less from us.

As regards the future, we have to be realistic. Productivity in shipbuilding in the far east is at a very high level. Although the situation is changing, Korea also still has the advantage of a low labour-cost economy. Although productivity in United Kingdom industry has increased recently, this will need to continue to improve if we are to retain the opportunity to compete with shipbuilding companies there. The management and the work force at Harland and Wolff have been making strenuous attempts to cut costs and improve productivity through such measures as labour flexibility and by attacking overheads. It is crucial that this progress should continue, and I am encouraged to know that all parts of Harland and Wolff seem to recognise the importance of this and to be determined to make their efforts successful. There should be no doubt about the nature of the challenge: there is a major objective for shipbuilders in Britain in closing the gap in productivity compared to our competitors in Japan and Korea.

Harland and Wolff has, I believe rightly, set out to attract orders for more specialised and sophisticated ships. The strategy is correct—it takes advantage of the strong engineering base in the company and in Northern Ireland generally. It does, as I have already alluded, present new problems for the company in switching its strategy away from building the large tankers around which its facilities were built and in coping with the demands of making new engineering technologies perform within the difficult working environment of a ship.

However, the ability to build sophisticated ships is not a safeguard against worldwide competition. As an example, at the end of 1987, a Spanish yard won a contract for a floating oil production system, which will not be restricted to one well, similar to SWOPS. That order was won in competition with four other European yards, and is an illustration of the type of competition that Harland and Wolff will have to face, if it is to capitalise on the expertise that it has gained on the SWOPS vessel.

That said, the overall outlook for world shipping at the start of 1988 shows at least some promising signs of improvement. The volume of goods carried by sea in 1987 increased, and there was a significant growth during the second half of the year, particularly in the carriage of grain. The size of the world fleet continued to reduce, and, with falling efficiency as the existing ships aged, the balance between the demand and supply for shipping came closer to equilibrium.

The overall reduction in the size of the fleet, together with the increasing age of many ships, suggests the possibility of a certain upturn in demand for replacement of obsolete ships. Such a development would ultimately offer some prospect of better conditions as regards the shipbuilding market. Despite those encouraging signs, it is extremely difficult, especially when looking at future trends in world trade, to estimate shipbuilding requirements over the medium and longer term.

Throughout the 1980s there has been a number of long-term forecasts of shipbuilding demand produced by shipbuilding trade organisations including the Association of Western European Shipbuilders. Each of those has predicted an upturn in demand before 1990, but that has not yet occurred. Consequently forecasts of an early upturn need to be treated with caution. To add to that, the offshore oil and gas market has not made any substantial recovery since the last fall in oil prices; and there is now more than adequate shipbuilding capacity to meet the United Kingdom's naval defence requirements.

Even when there is an upturn in the market, the competition for new orders will be intense, especially from the far east and some new shipbuilding countries such as Brazil and Yugoslavia.

The hon. Gentleman did not mention privatisation. My right hon. and learned Friend the Chancellor of the Duchy of Lancaster has made a number of statements to the House recently regarding the position of the publicly owned British Shipbuilders, which faces similar problems to Harland and Wolff. He highlighted the large amounts of subsidy that have flowed into British shipbuilding, and correctly concluded that there can be no long-term future in continuing to pour in such amounts.

The most interesting development in British Shipbuilders is the interest now being shown by the private sector in many of the facilities. I understand that negotiations with Kvaerner regarding a takeover at Govan are proceeding, and considerable interest has been shown in Appledore and some of the smaller subsidiaries. We welcome the prospect of returning some of the shipbuilding yards to the private sector if they have a future there.

If those sales are achieved, new management and forms of business will have been introduced. There are people who are prepared to try to turn round loss-making yards into businesses that have a real future. If successful, that approach is bound to be advantageous for the work force in the yards and the local communities. I should make it clear that, were there to be a n expression of interest in the privatisation of Harland and Wolff, the Government would take any such proposals very seriously.

We remain concerned at the high level of support required to keep Harland and Wolff in business, and Ministers keep its performance under regular review. I can assure hon. Members that no recent decisions about the future of the company have been taken, but equally there can be no absolute guarantee of lasting support from public funds regardless of the company's ability to compete effectively. I have already referred to the commitment that Government have shown to the company. The Government are not indifferent to the problems facing the industry but the main challenges relate to the winning of new orders at competitive prices.

In Northern Ireland, we need to look at the best ways of sustaining economic activity and employment. A healthy profit-making manufacturing sector has a vital role to play in creating wealth in the economy. I hope that the shipyard will be part of that but I can give no guarantees. I congratulate the hon. Gentleman on raising the issue and giving me the opportunity to make the Government's position clear.