HC Deb 26 March 1990 vol 170 cc183-90

Motion made, and Question proposed, That this House do now adjourn.— [Mr. Lightbown]

12.28 am
Mr. Frank Field (Birkenhead)

The Defence Select Committee recently published a report on a large subsidy which was recently paid to Harland and Wolff. I am sure that the Minister will be reassured that I have no wish to debate that report in detail, nor do I expect him to reply to me in this debate. As a member of the Select Committee, I would think that that was the wrong procedure. However, I hope that the Minister will allow me to take the salient points from the Select Committee's report so as to build up the case that my hon. Friend, as I shall call him tonight, the Member for Wirral, South (Mr. Porter) wishes to support—the knock-on effect that this has had on Cammell Laird.

According to the Select Committee's report, the story begins in the middle of 1983 when the Ministry decided to replace an old aviation training ship by converting a large merchant vessel. Harland and Wolff and Cammell Laird were asked to submit bids. Although the bids were substantially different, the Ministry did not investigate why they were so different. A contract was awarded to Harland and Wolff in March 1984 for £49 million.

The reason for the haste in making that commitment was that the Government wished to spend that money before the end of the financial year. Neither I nor the hon. Member for Wirral, South complain about that. Cammell Laird once benefited from the need for money to be spent before the end of the financial year. One understands the accounting procedures.

I do not intend to detain the House by listing the reasons why Harland and Wolff was unable to meet the contract for the set price of £49 million. They are set out in the report. The point is that Harland and Wolff was unable to fulfil the contract at that price and there was a dispute between the Ministry and the shipyard. The Ministry offered an additional £5 million, but Harland and Wolff asked for an additional £26 million.

At some stage the Ministry of Defence decided that a rapid settlement was needed not because the end of the financial year was approaching but because the privatisation of Harland and Wolff was on the horizon and very much part of the agenda. I do not wish to probe the political sensitivities of that move. It is not important to the case that I intend to put forward.

What is important is that a £49 million contract ended up as a £71.5 million contract. If Harland and Wolff were the only shipyard in the world, there would be no point in holding this debate, but apart from not being the only shipyard in the world it is not the only shipyard in this country. There is one on the Mersey, in my constituency.

It is wrong for Government spokesmen to say that there was a happy ending to the story. Although it was a happy ending for Harland and Wolff, it was a less than happy ending for Cammell Laird, the other yard that made a bid for that work. Recently, 800 workers at that yard have been told to get on their bikes. That is very serious for them and for the shipyard as a whole.

The Government's decision to place an order that they must have known was underpriced and then to bail out Harland and Wolff in that way has had an important knock-on effect on Cammell Laird which can easily be explained. The Minister knows as well as every other hon. Member who is participating in the debate that a shipyard is governed by the normal rules of business—that fixed costs have to be spread over the order book. Therefore, every order gained is an order over which the fixed costs can be spread. More orders mean that present production will be at lower average costs, and they allow future work to be bid for at lower average costs.

Since the Government did the deal to stitch up the privatisation package for Harland and Wolff, Cammell Laird has bid for two important orders for type 23 frigates, both of which it failed to secure. No one could say that those bids would have succeeded if the original tender had been successful; all that can be said is that they would have been more successful than they were, because the costs would have been lower. The result of that failure has been the breaking up of a successful work force.

Let me end as I began, by representing the interests of a shipyard whose interests I am proud to represent. It is no ordinary shipyard, as the Minister knows—not only from the visit that he kindly made last year, but from its history. Not so many years ago, a small group of people decided that, with the right hon. Member for Chingford (Mr. Tebbit) as Secretary of State for Trade and Industry, the way in which to get orders out of the Government was to stage a sit-in. The decision was put to three mass meetings in the yard, and was decisively rejected. Another small group then decided that they could get the decision through if they held a ballot in one of the yard's many shops: they obtained a majority, and an official strike was called.

I do not suggest that the yard immediately sprang to defeat that abuse of the democratic process; indeed, if all the workers had shown such apparent bravery, it could almost be said that they could not be described as brave. People are brave because it is difficult to do things, and it was difficult for the men and women in that yard to turn their backs on what they had thought to be proper, traditional trade union practice—such as the rule that picket lines should not be crossed in the event of an official strike—by holding a vote outside the picket line and returning to work. But they did that, and the yard survived.

The Wirral Members have been at pains to put to the workers—men and women, management and employees alike; we make no distinction, because this is a yard that works—that, although they have acted so courageously, they cannot expect special treatment from the Government, and orders will be placed on the basis of fair competition. I disagree with Government policy in that I believe that when industry is becoming more efficient it needs incentives to take the next step, and the Government perhaps expect it to take that step too quickly; nevertheless, that is the line that we have sold. However, on our recent visit to the yard—after the publication of the report—we were asked, rightly, how the preaching of hon. Members that the Government placed orders on the basis of fair competition could be justified through the Select Committee's findings.

Do not the Government owe a debt to Cammell Laird? Their policy of fair competition has not been fully implemented throughout all shipyards. There has been a "noble exception"—noble, that is, if one represents Harland and Wolff; far less noble if one represents Cammell Laird, because Cammell Laird lost out. I have already explained to the Minister about the likely knock-on effect. Cammell Laird now faces redundancies. I hope that we shall hear about the programme of work that is coming up—a programme that the yard was told must be won on the basis of fair competition. We want a Government guarantee that there will indeed be fair competition. We should also like the Minister's comments on whether the Government are not now in the debt of Cammell Laird, which it has damaged severely in its attempt to ensure the privatisation of Harland and Wolff.

The work force at Cammell Laird is not asking for special treatment for turning back those militants who were out to destroy our yard; it is not asking for special treatment for crossing the picket line and going into work, although many people were beaten up by the thugs on the picket line. The women who work in that yard are not asking for special treatment for undergoing all the verbal sexual abuse from rent-a-gang on that picket line to keep the shipyard open. They are asking—and expect from the Government—special treatment in the next round of orders, and we hope that the Minister has something to announce this evening.

I now invite the hon. Member for Wirral, South to join in the debate.

12.39 am
Mr. Barry Porter (Wirral, South)

That invitation is gratefully accepted. First, I always support my own Member of Parliament, the hon. Member for Birkenhead (Mr. Field), so far as I can and when he is not making party political points—and he rarely does that. Secondly, it is not unknown that I take a great interest in the affairs of Northern Ireland. I am a member of the Trade and Industry Select Committee which visited Harland and Wolff prior to privatisation and played some part in persuading the Government—if persuasion were needed—that certain moneys should be paid prior to that privatisation. I make no complaint about that. It was entirely appropriate that those moneys should be paid and that the yard should be privatised.

One of the reasons why I take an interest in the affairs of Northern Ireland is that I believe in the union of the United Kingdom and that all its parts should be treated equally. I know that the Province has particular problems and that there are particular reasons why it should be treated differently, but that should not be so differently that other parts of the United Kingdom are put at a disadvantage.

We all know why the money was given to Harland and Wolff and nobody complained about that, but, as my own Member of Parliament said, Cammell Laird should not be placed at a disadvantage, for the reasons that the hon. Gentleman gave. The work force and management have done everything that the hon. Gentleman described. They went through an enormously difficult period, they crossed vicious picket lines and did everything that workers on Merseyside are supposed not to do. The Government should bear in mind what they did for Harland and Wolff and what the workers and management of Cammell Laird did for themselves. We do not ask for special treatment; we ask for parity and equality and that is not much to ask in the circumstances.

12.43 am
The Parliamentary Under-Secretary of State for Defence Procurement (Mr. Michael Neubert)

First, I congratulate the hon. Member for Birkenhead (Mr. Field) on securing the Adjournment debate as it yet again testifies to his tireless concern for his constituents who work in the Cammell Laird shipyard at Birkenhead. Those workers at the yard will also be grateful for the intervention of my hon. Friend the Member for Wirral, South (Mr. Porter), who takes a close, consistent and informed interest in these matters.

I hope that the hon. Member for Birkenhead will forgive me if I do not follow his argument about what the position and viability of Cammell's would now be if, in 1984, the yard had won the contract for the aviation training ship. While his reasoning undoubtedly seems logical, it is none the less hypothetical. Furthermore, I doubt whether the outcome of a single competition would have had quite the influence that the hon. Gentleman believes and whether it can be blamed for as much as he has claimed. I was very heartened to see, when I visited Cammell Laird in his company last autumn, the spirit of co-operation and partnership that has now grown up between work force and management.

I am grateful that the hon. Gentleman does not expect me to anticipate now the formal response that the Government have yet to give to the Defence Committee's report on the supplementary estimate that referred to the payment that was made to Harland and Wolff plc in settlement of the outstanding claim on the aviation training ship prior to the privatisation of that yard last year. As the hon. Gentleman, from his experience on the Select Committee, has acknowledged, that formal Government response is being prepared, and will be issued in the usual way. On that aspect, therefore, I can do more than rehearse the facts as the Ministry of Defence witnesses presented them to the Committee in the published evidence. Having done that, which I shall do on the basis of the memorandum submitted to the Committee, which is published on pages 25 and 26 of its report, I shall, if I have time, look to the future of Cammell Laird.

The history is significantly different from the version presented tonight by the hon. Member for Birkenhead. The background is as follows. In 1984, a replacement was needed for the aviation training ship then in service with the Royal Navy, RFA Engadine. The vessel was near the end of her useful life, was too small to operate modern anti-submarine helicopters, and had severe limitations for deep-water operations in bad weather. Our requirement for the replacement vessel was that it should have a larger flight deck than Engadine, be able to operate six Sea King helicopters—three of them simultaneously—and be able to operate in motion in all but the most severe weather. We therefore needed command and control facilities for operating helicopters safely. These facilities, together with others, such as a self-defence system, an action information organisation and communications, were collectively known as the weapon system. This is important to the later stages in the story.

Vickers Shipbuilding and Engineering Ltd. undertook a concept study for us, and we decided that it would be feasible to meet the requirement by converting a merchant vessel. As the ship had to be able to operate six Sea King helicopters, as well as ferrying 12 Sea Harrier aircraft, a vessel of some 15,000 tonnes was needed. VSEL identified three ships that might be suitable for conversion, including the Contender Bezant, a vessel built in Italy in 1981. We invited firm price bids covering two options—the purchase and conversion of an existing vessel, and a new build—so that we could consider and evaluate the cost-effectiveness of both.

Tenders were submitted by Harland and Wolff plc and by Cammell Laird. As Cammell Laird was then part of the nationalised British Shipbuilders, both yards were in the public sector and were thus on an equal footing. Both companies proposed to buy and convert Contender Bezant, and we concluded that the Harland and Wolff proposal was the more cost-effective way of meeting the requirement. We accordingly placed a firm price contract on Harland and Wolff in March 1984 to buy and convert Contender Bezant at a cost of some £49 million. Harland and Wolff bought the ship later that month and began work soon after.

For the weapon system, we produced a cardinal point specification in April 1984, and Harland and Wolff ran a subcontract competition, which Racal Marine Systems won. Harland's placed the contract on that company for the ship weapon system authority in December 1984. It was thus identified as the prime contractor for both the ship and its weapon system. This change extended the build period of the vessel by nine months and raised the contract price by some £11 million. Other approved alterations, worth some £3 million, brought the final price to £63 million, with a contract acceptance date of December 1986.

Converting Contender Bezant was a major task. It involved stripping out and refurbishing and extending many of her systems, as well as major changes to her structure to change her from a roll on-roll off container ship to one with a flight deck, hangar and the services needed for helicopter operations. Harland and Wolff accepted liability for any consequential work arising from her condition. Much rectification work turned out to be needed, including major refurbishment of the main engines. The ship was eventually accepted into service as RFA Argus in March 1988, some 14 months later than the revised contract acceptance date. She was well finished and fully meets the Royal Navy's requirement. Argus became fully operational with commander in chief fleet in January 1989 and has since then been available for flying training operations. Argus is a very good ship.

In February 1987, Harland and Wolff submitted an interim claim for reimbursement of some £26 million. It claimed that those were extra costs incurred up to December 1986 for reasons that it alleged were the Ministry of Defence's responsibility. We prepared a detailed rebuttal of the claim. After inconclusive discussions, the company filed a final claim for £45.3 million in August 1988. In general, the company claimed that this represented extra spending that it had to make because of actions by the Ministry of Defence. We recognised that a small part of the delay and dislocation and extra cost resulted from finalising certain requirements for communications equipment, but not to the extent that could justify the sum claimed. We also held that the claim was not supported by factual evidence, as required by the contract.

While that large and complex claim was being considered, proposals for privatising Harland and Wolff began to emerge. The Government regarded it as a matter of urgency to achieve a viable private sector solution, and one of the many issues that it was felt important to resolve before the transfer of the business to the private sector was the outstanding claim on the aviation training ship. The Ministry of Defence had a particular interest in the successful privatisation of Harland and Wolff because the firm was the prime contractor for the design of the auxiliary oiler replenishment vessel and is now building the first of class, RFA Fort Victoria. As outlined in the Select Committee's report, we considered it right, taking into account the wider circumstances of the privatisation and the need to safeguard the AOR programme, to make a settlement of the claim. We finally settled on a figure of £22.5 million to be paid to Harland and Wolff plc. That was entirely without prejudice to our legal position and without admission of liability. That payment of £22.5 million appeared in the supplementary estimate, into which the Select Committee inquired.

It is clear from that account that the £22.5 million payment is not a subsidy to Harland and Wolff and it certainly has no bearing on the original competition some six years ago. The settlement of £22.5 million was made with the public sector Harland and Wolff plc to clear the way for privatisation and will be used by that company to repay grants from the Northern Ireland Department of Economic Development. It is therefore not funding for the private sector firm Harland and Wolff Shipbuilding and Heavy Industry. While it is possible to argue, as the hon. Member for Birkenhead has, that, had Cammell Laird won the ATS competition, it would not have made the same claims on the Ministry of Defence in respect of the ATS, it is equally possible that it would have, or that Cammell Laird would have made claims that Harland's did not. It is all quite hypothetical.

Mr. Barry Porter

I am sorry to interrupt my hon. Friend, and I am delighted that he is reading the brief from the Ministry so splendidly. It is the perceived view that Harland and Wolff has been treated more generously by the Government than other shipyards, including Cammell Laird. Does my hon. Friend agree that that is a fact? The hon. Member for Birkenhead (Mr. Field) and I do not object to that; we are saying that Cammell Laird deserves the same treatment.

Mr. Neubert

I do not dispute that it may be the perceived view, but I hope that my hon. Friend will ensure that it is not taken as a fact.

What is not hypothetical is that the Ministry is not subsidising Harland and Wolff. The contract for RFA Fort Victoria was won competitively and was carefully scrutinised by consultants to ensure that it was unsubsidised. When the yard was privatised, the contract was totally assigned by the public sector Harland and Wolff plc to the private sector Harland and Wolff Shipbuilding and Heavy Industry, and there was no relaxation in the terms of that contract. The ATS contract was won by Harland and Wolff in competition at a price that the MOD considered at the time, and still considers, to have been realistic. Although, in the event, costs did overrun on the aviation training ship, there was no reason at the time to believe that the Harland's tender was unrealistic. I have explained the background against which some costs were incurred. The Northern Ireland Department of Economic Development was assured by Harland and Wolff that the tender was on a full-cost basis including profit, and no losses were expected on the contract.

I now turn to the prospects for Cammell Laird. I should first confirm that our procurement policy for warships, as for all other equipment, is founded upon value for money and competition. Commercially competitive bids will win our work. Cammell Laird should, if it wishes, be able to bid for a wide range of MOD work—major surface vessels and conventionally-powered submarines in particular. As I said during the debate on the Royal Navy on 5 February, we have plans to run competitions for our requirements in several categories, and we would expect Cammell Laird, as part of the VSEL group, with its combination of design ability and physical capacity, to be able to be among the competing firms.

The redundancies that the yard has recently announced are certainly to be regretted, but I must stress that employment levels at defence contractors are a matter for them and not for the MOD or, for that matter, of any other Government Department. Equally, it is not for me to advise the warship yards on their commercial strategy, but we would always welcome diversification by defence contractors into areas of civil work. Not only does that allow the best use to be made of defence-related technology, but it broadens the customer base of our suppliers, so strengthening their ability to undertake our work cost effectively. So I am pleased that Cammell Laird is actively pursuing some merchant order prospects, and I wish it every success in those efforts.

Although I do not wish to trespass on the territory of my hon. Friends the Minister for Industry and the Under-Secretary of State for Northern Ireland, my hon. Friend the Member for Wiltshire, North (Mr. Needham), I can assure the House that the Government will not provide any special support to the privatised Harland and Wolff beyond the terms of the privatisation package, apart from intervention fund aid on merchant contracts and other grants normally available to other private sector companies in Northern Ireland. The Government have given no guarantees about future levels of employment at Harland and Wolff. I can appreciate that the hon. Member for Birkenhead, and even perhaps my hon. Friend the Member for Wirral, South, who is well informed about Northern Ireland matters, may find Harland's continued access to intervention fund aid unfair.

Mr. Frank Field

indicated dissent.

Mr. Neubert

However, it is not and I am glad that the hon. Member for Birkenhead agrees. He will recall that the restructuring of British Shipbuilders in 1985 provided that yards designated for privatisation as warship yards would not be eligible for intervention fund support. It was on that basis that Cammell Laird was privatised and the buyers knew this. But Harland and Wolff was privatised as a merchant yard, and it is not able to compete with the warship yards for front-line ships, such as frigates and submarines, even though it can build support vessels such as the AOR.

Cammell Laird has a future, despite the recent redundancies, but that future is wholly in the hands of the firm itself, not of the Government. The future of Cammell Laird lies, as the hon. Member for Birkenhead said, in the continuing drive for efficiency to which management and work force are both committed. That is to their credit, and I wish them well.

Question put and agreed to.

Adjourned accordingly at two minutes to One o'clock.