Merchant Fleet

HC Deb 09 July 1992 vol 211 cc552-69 8.50 pm

Mr. Mark Wolfson (Sevenoaks)

I am very glad to have the opportunity to open the debate on the defence implications of the reduction—and I immediately emphasise, the continuing reduction—in Britain's merchant fleet. The issue is not new: it has been raised in questions and debates in the Chamber and in Committee many times in the past decade, and also before that. Many right hon. and hon. Members and many Members of another place have, so to speak, hoisted the red ensign to express their worry and to warn the nation and to alert the Government to an increasing weakness in our defence system. Until now, those warnings appear to have fallen on deaf ears.

Until 1966, Britain's merchant fleet was the largest in the world, but since the mid–1970s there has been a dramatic and, some of us would say, catastrophic reduction in the size of the United Kingdom fleet and in the number of United Kingdom seafarers. The United Kingdom-owned British islands fleet—vessels owned and registered in the United Kingdom, the Isle of Man and the Channel Isles—has declined from almost 9 per cent. of the world total in 1957 to just 1 per cent. in 1991. By 1990, British seafarers employed on United Kingdom ships numbered little more than a third of those in 1975.

Early this year, the Chamber of Shipping reported that, unless urgent action was taken by the Government to arrest the decline, the merchant fleet could well cease to exist in three years' time. Even in recent months, major British shipping companies such as Blue Star and Shell among others have re-flagged some 40 ships to tax havens and hired foreign crews in order to remain competitive.

A simple projection of the decline shows that the United Kingdom-registered fleet, currently some 3.7 million tonnes, will disappear by 1995. It is already one tenth of the size it was 10 years ago, on the eve of the Falklands war. That figure is very little appreciated by the nation at large. A further 11 million tonnes is British-owned but foreign-flagged, yet, on present trends, that could also go within the next 20 years. The experience of the Gulf war, when foreign ships were chartered to transport British forces, makes it crystal clear why shipowners and naval officers at the very highest levels argue that the British fleet is already dangerously small.

In their responses to the repeated reports of the Select Committee on Defence on this matter, the Government have said that they do not share the concern about foreign shipowners and crews being unwilling to sail into a war zone, and that insurance arrangements could encourage neutrals to trade. Is that a sound view, and on what information is it based?

Britain's defence strategy now emphasises the necessity to be able to deploy our land, sea and air forces in distant places. The Falklands and Gulf conflicts demonstrated that need, and the requirements for transportation by sea. The number of British seafarers is already inadequate to fulfil the likely sea transport requirement in the event of a future conflict without mobilisation and direction of labour but—more important, because I am looking forward—unless measures are taken now to stop the decline of the merchant fleet, even that very inadequate pool of personnel could disappear.

There are no longer sufficient numbers of militarily useful merchant ships on British registers to fulfil the national requirement for sealift in an emergency. Again, that already inadequate fleet is coming to the end of its life. They are the major problems—vessels and men—and the solution is to re-establish a healthy national shipping industry.

For years, the industry has suffered from unfair competition. The Government admit that, but argue that the way forward is to persuade our competitors to stop their tax subsidies and other benefits to their shipping industries, which will achieve a level playing field. Worryingly for the British shipping industry—and, I argue, worryingly for all of us and for our defence forces —there is no evidence that progress is being made in achieving a level playing field. I believe that the reverse is the case. Other countries continue to improve their Government's help for their shipping industries. If that is not the case, perhaps the House will hear my hon. Friend the Minister of State for Defence Procurement give examples to prove me wrong.

I now examine in more detail some of the points that I have already highlighted in support of my arguments. A clear trend can now be seen in British strategic orientation since the end of the cold war. The United Kingdom has redefined her defence policy away from a major commitment to land and air forces for the now non-existent central front towards flexible forces available for global contingencies in a range of conflicts, be they lateral or multilateral. Our leading role in the NATO Rapid Reaction Force clearly demonstrates that, as does the new orientation of the Royal Navy away from submarines towards carrier and amphibious task forces, which are capable of projecting our power on a global scale.

Britain has chosen to play its part in the maintenance of stability in Europe and beyond by having a real ability to employ and maintain mobile and flexible ground forces. The arguments for that were used all the time in debates and questions in the Chamber when justifying the changes being made in the armed services. We have an amphibious brigade that is based in the United Kingdom, an airborne brigade and two mechanised brigades. Based in mainland Europe, we have an armoured division and an air mobile brigade. Added to that, the Royal Air Force is in a position to provide a powerful striking force.

What we have not done is define the shipping that is necessary to deploy these forces. I argue that without that shipping being available immediately as required, those forces—they are purchased at great expense—may well not be able to operate where and when we immediately require them.

We must learn from recent experience. The Falklands war demonstrated what was needed to deploy two lightly equipped brigades to the other side of the world, far beyond the reach of an airlift. We still have a continuing commitment to defend the Falklands, and that cannot in the longer term be fulfilled without sea vessels. The fact that we decided to procure a strengthened amphibious squadron for the Royal Navy implies that maritime flexibilty is still a national priority. Unless we have the sealift to back it up, there is little point in building expensive and specialised amphibious shipping.

The Gulf deployment demonstrated another sort of United Kingdom global operation—the distant deployment of a reinforced armoured division and an RAF striking force. That involved 144 voyages—70 roll on/roll off, 67 general cargo and seven container. All but eight of the voyages involved foreign-flagged ships, of which 105 were chartered, along with five British vessels. Although we were able to charter ships, there were particular features of the Gulf war that enabled that to be done. It might not have been possible to do that in other circumstances.

What were the special features? There was a truly remarkable international consensus behind the operation. No Government had to exert pressure on their seamen to co-operate. Some countries saw involvement with merchant ships as one way of making their participation real. There was only a limited threat to the coalition shipping that was involved in the sealift. That might well not be the position next time, especially as submarines are proliferating in other defence forces.

Ships were readily available, because it was the time of a seasonal downturn in the shipping market. Even more important, there was time to look for suitable shipping on the international market. In addition, total shipping demand in 1990 was probably the minimum required for such a deployment. There was the availability of the Suez canal, good fuel supplies locally, an excellent port infrastructure that enabled us rapidly to unload, and over-flying rights and landing facilities for the Air Force. Without those factors, the number of ships needed and the tonnage required could have been very much higher.

Personnel is the other vital consideration. There are not enough ships available flying the red ensign, in its various forms, to be available to service future military deployments. Whether there would he sufficient reliable personnel to man those ships is also dubious. Since 1979 —for 12 years— the number of British nationals employed in the United Kingdom shipping industry has dropped by 60 per cent.

Some of the tonnage that was chartered by the Americans for the Gulf war had crew difficulties. That demonstrates that there is no certain substitute for a country's own nationals in a crisis or a war. In the Falkland crisis. British seamen had to replace personnel who were forbidden by their Governments or their unions to take part. Unless the disappearance of the mercantile marine is prevented, the current stock of seafarers will rapidly waste away. The average age of a merchant seaman officer is now more than 40. Indeed, the Department of Transport has said that it expects a serious shortfall of United Kingdom seafarers by the year 2000.

According to some authorities, we have about 166 ships that could be reliably used as a militarily useful fleet. Those figures are frighteningly small for a country that only 20 years ago had well over 2,000 ships on its registers. I contend that the assumptions of 20 years ago still hang around. There have been many warnings in this House and elsewhere about the problems that could be caused by the decline of the British merchant fleet—yet many people, for one reason or another, still assume that the ships are there. They are not.

What about any future crisis? Each war is unique. Modern defence policy, even more so than the defence policy of the cold war, is about preparing for the unexpected. Again, those were the arguments used for "Options for Change". If we assume that a deployment were needed in future, comparable to that which went to the Gulf but in a less favourable geographical position, the demand for shipping could he very much higher. If an airlift were impossible. up to eight cruise liners or large ferries could be required to move personnel; some 60 ro-ro vessels, mostly cargo ships, would be needed to move the equipment; and about 125 general cargo ships would be needed to provide stores and ammunition. Perhaps 10 small and 30 medium-sized tankers would be required to supply fuel and water to the forces ashore and to the fleet. About three large container ships would be needed to transport aircraft.

Overall, that possible demand is far above the capacity of the current British registers—and it takes no account of attrition or action damage. We have no guarantee that repair facilities could act swiftly enough to make those ships available again during the crisis.

Then there is the age problem. The existing fleet is coming to the end of its active life. The average age of the United Kingdom-owned and registered fleet is now something over 18 years. If we take 20 years as an average for the normal life of a merchant ship, 1994 will see all five United Kingdom-owned and registered large break bulk cargo liners over age, along with 14 of the 24 large container ships and five of the seven passenger liners. Those are disturbing statistics. I come hack to my earlier point: the only way to overcome that problem is to rebuild a healthy merchant fleet on the basis of the present British shipping industry.

It is not just members of the Select Committee on Defence or Back Benchers who have been concerned about the issue. The Select Committee on Transport, in its report on the decline of the United Kingdom-registered fleet as long ago as 1987, identified various arguments for maintaining a United Kingdom-registered merchant fleet. Among those arguments was the danger in defence and economic terms of being totally dependent on others to move the United Kingdoms imports and exports and the further loss of international influence.

Surely it is not unrealistic to suggest that the defence dimension needs to be taken into account in Government policy towards our shipping industry. The French used that argument in the report on their contribution to the Gulf war. They said that the rapid and effective deployment of their merchant fleet and its ability to make a significant contribution to their forces in the Gulf war justified in their view the support that it was given on commercial grounds, but that in that case there was a justification for that support on defence grounds as well.

We know very well that the British shipping industry is asking for a beneficial tax regime of capital allowances for its ships and specific personal taxation benefits for British-based seamen. Those arguments have been deployed many times in the House, but they have not been acted upon by the Government. I believe that they should be, not only because of the commercial importance of the British merchant fleet, on which I have not focused tonight, hut, most importantly with regard to this debate and my hon. Friend's response tonight, in defence terms.

We want to hear the justification of the Ministry of Defence for its apparent complacency that all is well and that, if a future crisis arose, we would have the capability —not surely with British flagged vessels but by chartering foreign vessels—to meet our needs. I doubt that, and I look for reassurance tonight.

9.14 pm

Mr. Peter Luff (Worcester)

It is a great privilege to follow such a comprehensive account of the problems caused by the decline in Britain's merchant fleet. I thank my hon. Friend the Member for Sevenoaks (Mr. Wolfson) for his introduction to the debate.

Let me declare an interest. For nearly three years, I have had the privilege of advising the Chamber of Shipping—formerly the General Council of British Shipping—on matters relating to the debate. Some hon. Members expressed surprise at my intention to speak. feeling that a landlocked constituency such as Worcester hardly qualified for serious concern in connection with the future of the Merchant Navy. Let me give them a brief history lesson.

Not so long ago, Worcester was one of Britain's biggest ports. In the early days of the industrial revolution, it sent coal to Coalbrookdale and Ironbridge. I am reliably informed that the county of Hereford and Worcester also enjoys the highest per capita recruitment to the Royal Navy. Distinguished retired and serving Merchant Navy and Royal Navy officers and ratings live in my constituency. Moreover, as many people are in danger of forgetting, 95 per cent. of the country's trade goes by sea. The future of the Merchant Navy is therefore crucial to every hon. Member.

As I said, I have advised the Chamber of Shipping for some time, and during that period I have become convinced of the urgency of its case. There is a tragic irony in the decline so eloquently described by my hon. Friend the Member for Sevenoaks. Although it is easy to paint the picture of an industry in a terminal condition, many sectors of that industry are still the best in the world. Its ferries, cruise ships and container ships are the envy of the world, as are its officers and ratings and its management skills. If we throw away the shipping industry, we shall bear a heavy burden of guilt.

The debate is primarily about the defence implications of the decline in the merchant fleet. I find it extraordinary that we can be so complacent about the decline. The Merchant Navy provides a fourth arm of defence, at no cost to the country. Indeed, if the Government introduced the modest measures suggested by the shipping industry, they would probably find that a profit would be made as the fleet revived. That cannot be said of many elements of the defence budget.

I do not pretend to be a military analyst; I must look to others for advice on defence matters. In June 1991, Lord Fieldhouse observed: The number of British-manned ships, sailing under the British flag and available for defence purposes, is now at a crucial level and may already be too few. We ignore this situation at our peril. I believe that we are inoring precisely that. How many of our constituents really understand the impossibility of mounting another Falklands operation in 1992? My brother-in-law served in that operation, in a ship taken up from trade, and I know the crucial role played by such ships in its successful completion.

The Ministry of Defence often argues that the Gulf war proves that we no longer need a British flag fleet. My hon. Friend the Member for Sevenoaks explained eloquently how untrue that is. No serious risks were posed to ships that participated in that operation. As Lord Sterling—a past president of the General Council of British Shipping —observed, as soon as a shot was fired, those chartered ships would have disappeared like snowflakes on a summer day. I do not want the debate to focus entirely on the defence implications of the decline. I [...] that, if we allow it to do so, my hon. Friend the Minister will give an eloquent account of why he does not share our sense of urgency, and the whole case for the shipping industry will go by default. We must remember that the industry brings at least four more clear and distinct benefits to our country. First, it contributes some £4 billion gross—£2.4 billion net—to our balance of payments. The loss of that contribution—a loss that must be very much on the cards if the rate of decline that we have seen during the past three or four years continues—would mean a halving of the country's invisible surplus, and I do not think that that could be tolerated.

Secondly, it is not widely appreciated by those who do not study such matters deeply that the maritime skills and expertise created by those who work in the industry bring enormous benefits to other aspects of the economy. The shipbuilding industry, the marine equipment industry and the ports and harbours cannot function without an adequate supply of retired officers returning to serve on shore and bringing their skills to bear in vital economic activities. The City of London's earnings depend more than is widely recognised on the continuing strength of our merchant fleet. Maritime banking and insurance, shipbroking, ship classification and legal services all depend on the credible position of this country in the world as a significant maritime nation.

As the chairman of one of the country's leading P and I clubs said to me recently, the red ensign fleet provides the ballast to all this country's activities. It is also appropriate, at a time of increasing environmental concern, to recognise the fuel efficiency of the merchant fleet. We hear a great deal from our right hon. and hon. Friends in government about the need to shift goods from road to rail, which I welcome, but we could make an even more significant contribution towards saving our valuable fossil fuels if we shifted more goods to seaborne transport, especially the coastal trade, which is by far the most fuel-efficient system of delivering goods in this country.

Almost exactly a year ago in the Chamber, in an attempt to still the vocal criticisms from hon. Members on both sides of the House—my hon. Friend the Member for Dover (Mr. Shaw) was one of them—the then Chief Secretary to the Treasury and the then Financial Secretary both promised that a statement would be made to the House on the defence needs of the shipping industry. A year later that statement has still not been forthcoming. I regard that as a significant breach of trust by the Government.

The British industry is lean and fit. It can take on the world, but only if the unfair barriers in other countries are met by similar action in this country. As my hon. Friend the Member for Sevenoaks said, it is simply not credible to expect other countries to dismantle the protection which they give to their domestic industries when they are doing so well from it.

In the last Session of Parliament, before I had the privilege of joining the House, early-day motion 500 attracted what was almost a record number of 353 signatures—the 10th highest ever number of signatures to such a motion, I believe. The motion set out, more briefly than I have done tonight, the basis of what I have been saying, and concluded that the House

calls on Her Majesty's Government to take immediate and positive action to first ensure that the British fleet is strengthened by appropriate stimulation of investment in modern tonnage and second encourage the recruitment, training and employment of British seafarers. That motion flowed directly from a report by the Government's joint working party with the industry. It has given added strength and urgency to all that we have heard this evening.

I am concerned that the Government are playing a game of financial pass-the-parcel between the Ministry of Defence, the Department of Transport and the Treasury—and, to a lesser extent, the Foreign and Commonwealth Office and the Department of Trade and Industry.

Not so very long ago, the red duster ruled the world. It could so so again today, because of the inherent strength of the industry. The modest concessions on cabotage recently won by my right hon. Friend the Secretary of State for Transport are welcome, but they are not an adequate response to the challenge that the industry faces. If the British merchant navy is to make the contribution that it can and should make to the defence of this country, something must be done. The industry has suggested capital allowances and national insurance and taxation reliefs for seafarers. One of those measures was before the House yesterday, but sadly it was not moved.

I understand that the Government do not like those proposals, but if they do not like them, let them suggest some proposals of their own. Something must be done, and soon, if the consequences that have been spelt out tonight are not to take place all too early.

9.23 pm

Mr. Andrew Robathan (Blaby)

I congratulate my hon. Friend the Member for Worcester (Mr. Luff) on his passionate plea for the merchant marine, and also my hon. Friend the Member for Sevenoakes (Mr. Wolfson). I cannot, I fear, back up their detailed exposition of facts and figures, but I shall consider the subject in a historical perspective. We all know that those who ignore the lessons of history are destined to repeat the mistakes of the past.

Most if not all of us in the House were brought up on tales of brave sailors of the past—Hawkins, Raleigh and Drake. If we look back beyond the Gulf war and the Falklands, right back to the armada, we see that it was our sailors and our ships that protected our shores. In Napoleonic times, the battles of the Nile and of Trafalgar developed our naval strength in the protection of our own shores. Many members of another place if not of this House will remember how crucial was the battle of Jutland in the first world war.

Dr. John Reid (Motherwell, North)

As was the battle of the Falklands.

Mr. Robathan

That is so. You, Mr. Deputy Speaker, will remember Dunkirk, when our merchant ships, small ships, and amateur sailors came to this country's defence. They saved the British Expeditionary Force, played a crucial part in raising morale, and ensured a successful outcome to the second world war. So, too, did the Atlantic convoys. I could mention many other examples.

Many people viewed the Suez crisis with some misgivings, but our Royal Navy and merchant ships lent their support in that episode, too. We heard from other hon. Members about the Falklands and the Gulf war. Less than two years ago, we relied on our merchant shipping and merchant sailors to support our operations overseas.

Times change. It may be argued that we no longer need such defence support. Who can predict the future and know what it will hold? Whose crystal ball could have predicted the anarchy in Yugoslavia given that, when Tito died, a marvellous future seemed to await the Balkans?

It will not have escaped the notice of the House—including those right hon. and hon. Members who usually sit on the Benches opposite, which are now empty—that we are an island. However many tunnels are built, we will always rely on shipping. As we withdraw from overseas territories such as Hong Kong, it is more important than ever to have home-based ability and experience in reserve. In future, we will not be able to call on our friends and dependencies overseas.

At army staff college I was taught about something called STUFT. As right hon. and hon. Members can imagine, that prompted many puns. It actually stands for shipping taken up from trade. The importance of STUFT was the great lesson of the Falklands. Shipping taken up from trade is no longer available because the British merchant marine has declined so much.

Positive action is required. I ask my hon. Friend the Minister to examine the issue closely. Financial incentives are needed to keep British shipping alive and vibrant. I will not dwell on the consequences for trade—and we will always be a trading nation—gross national product, and the employment of mariners if they cannot be provided.

My hon. Friend the Member for Worcester said that the House was promised a statement last year on the grave defence implications of the rundown in merchant shipping. That statement must be made. If we have no merchant fleet, we will weaken our defence. We will have no mariners, experience, tradition or shipping to call on. We cannot sit hack and let the merchant fleet perish by default. I ask my hon. Friend the Minister to produce a happy solution.

9.28 pm

Mr. David Shaw (Dover)

My hon. Friend the Member for Sevenoaks (Mr. Wolfson) did well to continue a Kent tradition, in securing a debate on shipping. Over the past 12 months, I have initiated two debates on the subject—as right hon. and hon. Members might expect from a Member of Parliament with considerable constituency interests in shipping, in terms of both jobs and a thriving ferry industry.

In my Adjournment debate earlier this year, I secured from my hon. Friend the Minister for Aviation and Shipping a promise to monitor carefully the subsidies and support given by other countries to their shipping. I was therefore disturbed to hear my hon. Friend the Member for Sevenoaks say that other countries are still increasing their support and subsidies, whereas we are not competitive in that regard.

As my hon. Friend the Member for Worcester (Mr. Lull) said, I initiated a debate last year, to which a Treasury Minister replied. I was promised that the defence review would consider whether support should be provided under the Defence budget as approved by the Treasury and how some assistance might be appropriate in that area. I hope that my hon. Friend the Minister will be able to deal with that specific issue later. The excellent speeches made by my new hon. Friends the Members for Worcester and for Blaby (Mr. Robathan) raised a number of issues which suggest that our shipping industry is not thriving as it should be and that we shall have to monitor it most carefully. The Government must take an active role in that respect.

The merchant fleet is terribly important to this country. Attention has been drawn to its military and civilian importance. The ferry industry in my constituency provides many thousands of jobs and I hope that it will continue to do that for many years to come. Many of the seamen who live in my constituency do not just work in the local ferry industry: they work on our deep sea ships and travel to ports around the country to engage in our shipping industry.

The decline in our merchant fleet has not simply occurred under this Government. It is important for the House to recognise that the decline started when Labour was in power in the mid-1970s. The British shipping industry was not helped by the subsidies made available by the then Labour Government to Polish ships. Nor was it helped by the support given by the Labour Government to the United Nations Conference on Trade and Development code which encouraged the developing countries to develop subsidised fleets of their own. That competition in the international shipping markets was severely subsidised and it caused considerable damage to our fleet.

The changes that the Government have made to capital allowances—ironically made by the predecessor of my hon. Friend the Member for Blaby—have gone too far. They have encouraged disinvestment in shipping to which my hon. Friend the Member for Sevenoaks referred earlier. Many ships are now transferring to foreign flags.

When my hon. Friend the Member for Sevenoaks referred to tax havens, I was reminded of my debate on that subject yesterday. I am concerned that there is a considerable transfer of assets away from the United Kingdom to tax havens in other countries which make it more favourable for ships to he held as assets registered in those countries. That is ludicrous. If, as I am sure my hon. Friend the Minister will claim when he replies, those ships would be available to the Royal Navy if they were required in times of war, they should be available as ships registered in the United Kingdom.

We should ensure that our tax regime is sufficiently favourable so that the tax havens do not receive the business. Why should lawyers and accountants in those countries form companies and earn the fees? The money should be brought back to this country, be that in respect of the advisory services for lawyers and accountants or through ship ownership.

It is in the interests of the Ministry of Defence to persuade the Treasury that the capital allowances regime is enouraging disinvestment, not investment. My hon. Friend the Minister represeents a constituency which has shipping interests and I know that he will endeavour, perhaps with a little difficulty, to reconcile his sympathies with his responsibilities. However, I am sure that we can rely on him for a forthright speech which will endeavour to point out that he will take forward the battle in Whitehall in the interests of shipping and in the interests of his constituents. I hope that, in due course, he will try to tackle within Whitehall the issue of re-flagging to tax havens, as it must be stopped. I hope also that he will take a robust line in negotiations with the Treasury and point out that the money should not come out of the budget of the Ministry of Defence. It is an adjustment to capital allowances that has gone too far.

The capital allowances regime is unfavourable. There have been international reports, and I have previously referred to the report of the Federal Reserve Bank of New York into international allowances on assets. I hope that my hon. Friend the Minister will go into battle on capital allowances and tax matters. My hon. Friend is an expert on financial matters, having had a financially oriented career, among other skilful careers. I hope also that he will seek changes to the capital allowances regime which will allow our shipping industry to develop further and allow us to be comfortable and to sleep easy in our beds at night knowing that our defence is properly integrated not only in terms of military shipping, nuclear deterrence, or having many skilled people in our Army, as we saw in the Gulf war, but in terms of a properly managed defence capability that is backed up by a competent, able and well-invested merchant marine.

9.35 pm

The Minister of State for Defence Procurement (Mr. Jonathan Aitken)

The House has been privileged to hear four excellent speeches amounting to a useful and interesting debate. I particularly congratulate my hon. Friend the Member for Sevenoaks (Mr. Wolfson) on the way in which he presented his case. He is a worthy champion of the red ensign, and he asked a number of questions to which I shall return. I was glad that he recognised the changing defence strategy of this country and our emphasis on mobile and flexible ground forces. He is right to ask whether we have the sea-lift required to move those forces in certain situations and whether we have defined the shipping required for such operations. I shall return to those questions, but I can tell him now that the answer is in the affirmative.

I also congratulate my hon. Friend the Member for Worcester (Mr. Lull) as a new, fluent and articulate voice on the subject of British shipping. I noticed in his presentation a slight difference of emphasis from that of my hon. Friend the Member for Sevenoaks, who, at one point, seemed almost to make our flesh creep by his descriptions of the terminal decline of British shipping, whereas my hon. Friend the Member for Worcester perked us up no end by his strong words about how British shipping is still the best in the world and the ballast to all our activities.

My hon. Friend the Member for Blaby (Mr. Robathan), who brings to such debates his own distinguished military experience, was right to go back to the lessons of history. It certainly struck a chord with me when he rolled off his tongue great names such as Hawkins and Drake. Only yesterday, I was in Plymouth standing at the site where Drake had been when, just 304 years and 16 days ago, he launched the armada. It is impossible to be in such surroundings without wondering whether the lessons of history will teach us that we have to learn again from the lessons of the past and that one day again we will be launching major seafaring operations. The probability is not high, but Defence Ministers have to plan for improbabilities. I was glad that my hon. Friend reminded us of the importance of not forgetting the lessons of history.

My hon. Friend the Member for Dover (Mr. Shaw) has long been a persistent and passionate crusader for Britain's seafarers and British shipping. In the previous election campaign, he was something of a heart of oak, politically. The local paper predicated that he would lose the seat of Dover with a swing of 23 per cent. to Labour, but the good arguments that he has put forward in the House on behalf of his constituents' interests won him the day and he came back. We are very glad to see him.

Dr. Reid

I am grateful to the Minister for giving way, as he knows that I am somewhat restricted by protocol because I shall speak in the European fighter aircraft debate. As he has paid such compliments to the erudite and informative speeches that have been made, and as he knows that, even in 1989, the Defence Select Committee was speaking of six successive years of decline in the merchant marine, he will know that the defence statistics that have just been revealed show evidence of the claim of a further 42 per cent. reduction in the number of United Kingdom-registered general cargo vessels between 1984 and now. Even more alarming, there has been a 40 per cent. reduction in the number of officers and ratings since the Falklands conflict in 1982.

Therefore, will the Minister respond to the erudite speeches made tonight by going to the heart of the problem and what Conservative Members called at one stage a breach of trust [strong words indeed from the Minister's own side? The Government said in the White Paper that they were conducting a detailed review of the defence requirements for British merchant ships and seamen in times of crisis. While we welcome that, what does the Minister mean by "in times of crisis"? In what strategic context is he considering the requirements? Is he contemplating changes in the legislation? Which organisations is he consulting as part of the review? In order that we do not have a further breach of trust next year, will he say when the review which has been announced again this year of the merchant marine will be completed?

Mr. Aitken

I am glad to respond to the hon. Member for Motherwell, North (Dr. Reid). I shall do so quickly and cover the detail later. First, the review is complete and I shall announce it tonight, although it will not necessarily gladden his heart. It was an interdepartmental Government review, but we took into account the representations that have been made by a range of organisations, including at various stages the Chamber of Shipping, the National Union of Marine, Aviation and Shipping Transport Officers and other such organisations. We also studied the Grove report.

I do not accept that there has been any breach of trust in the matter of the regrettable decline in the British merchant fleet. I shall turn to the specific statistics which are at the heart of the hon. Gentleman's case and that of my hon. Friend the Member for Sevenoaks in a moment. As my hon. Friend said, the subject is not new. My hon. Friend the Member for Dover reminded us that I, too, as a maritime Member represent a channel port. We have debated the decline in Britain's merchant fleet for all the time that I have been in Parliament.

Of course, the decline in our merchant fleet is a matter for general regret. To give some hard facts, the number of United Kingdom registered trading vessels of 500 gross registered tonnes—that is, of a size likely to be important in any defence calculation—has fallen from 1,614 in 1975 to 321 at the end of 1991. However, in the past few years the decline has slowed and in the four years since 1988 it has been at the rate of some 12 or 13 ships a year.

My hon. Friend the Member for Sevenoaks somewhat over-emphasised the nature of the decline when he said that the British merchant fleet would soon cease to exist if the rate of decline of the past four years continued. The cessation of existence of the merchant fleet is certainly a long way away.

The reasons for the decline are many and various. They include the changes in the pattern of international trade and the commercial pressures on British shipowners to sell vessels or transfer them to foreign registers. I take the sensible point made by my hon. Friend the Member for Dover about the need to crack down on tax havens which may encourage such transfers. Then there was the decision of the last Labour Government to begin phasing out capital allowances for ships. That perhaps started the process of decline.

The reasons are many and the solutions are also many. The Chamber of Shipping, in which my hon. Friend the Member for Worcester properly declared an interest, has been vociferous in suggesting solutions, as has the former chairman Lord Sterling, who has made many representations to my right hon. Friend the Chancellor of the Exchequer and others.

The ingenious fiscal concessions that have been suggested are not within my responsibility. I hope that my hon. Friends will understand if I do not refer to them at any length other than to say that I will bring them to the attention of my right hon. Friend the Chancellor of the Exchequer and others.

My hon. Friend the Member for Sevenoaks concentrated on the defence dimension of the issue, as I wish to do.

Mr. Wolfson

I am grateful to my hon. Friend for giving way. On tax measures, I compared the position in the United Kingdom with those abroad and mentioned our lack of progress in achieving a level playing field. I hope that my hon. Friend will return to that subject, as he promised.

Mr. Aitken

I heard what my hon. Friend said, and I undertake to bring his remarks to the attention of the Chancellor of the Exchequer. A Defence Minister cannot respond satisfactorily to such subjects as the level playing field on tax concessions. During the debate on the Finance Bill last night there was an opportunity to raise those matters, although sadly the amendment concerned was not moved. Debates such as those on the Finance Bill, when a Treasury Minister is responding, are the proper occasion for those subjects to be ventilated and questions answered, but I shall ensure that my hon. Friend's argument is considered by the Treasury.

Mr. David Shaw

May I support my hon. Friend the Member for Sevenoaks (Mr. Wolfson) on that issue, and declare an interest in what I am about to say, as a chartered accountant. The Treasury is well staffed with accountants and other supporting staff who are used to figure work. If the Ministry of Defence is taking that argument and need on board, it might be appropriate for it to sort out the accounting arguments with its accountants, ready for the battle that needs to be fought in Whitehall.

Mr. Aitken

As my hon. Friend is an accountant, he knows more about battles between accountants than I do, but I am sure that they will, as usual, occupy the attention of the Treasury. The defence of the realm transcends accountancy. The question whether we have to spend public money, or in any way change our policy, because of the defence requirement is to be decided not through mere financial calculations, but through the deeper defence calculations.

Dr. Reid

Before the Minister gets into a labyrinth of tortuous arguments about accountancy, and without any sour grapes, as it is not often that a Minister gives me a straight answer to a question, he said that the review has been completed and that he is about to announce it. Does he think it appropriate that a review of the merchant marine, presumably undertaken with a view to reversing some of the disastrous trends of the past few years, should be suddenly announced at this time of night, at the tail end of a Session?

Mr. Aitken

I repeat that I do not think that the review is likely to gladden the hon. Gentleman's heart. Nevertheless, we shall announce our conclusions at the earliest possible opportunity. It has literally just been completed. No one can he accused of trying to smuggle something under the carpet if a Minister responds to a debate and answers the questions that have been asked. There will be plenty of other opportunities to ask questions, including at Question Time, but I can assure the hon. Gentleman that we are not engaged on some nocturnal concealment exercise—far from it—and I shall face up to the announcement of the review,. although it may be found disappointing.

Mr. Bryan Davies (Oldham, Central and Royton)

Is the Minister confirming that the review will be the subject of a statement to the House in the near future, or simply that it will be made public at some stage?

Mr. Aitken

Towards the end of my speech I shall announce the results of the review. As I said earlier, the frissons of excitement that seem to be building up may not be entirely justified when the announcement is made.

I was about to turn to the historical theme, the necessity for preparedness, touched on by my hon. Friend the Member for Blaby. In recent history, there has rarely been a time when the strategic uncertainties of a changing world, and the changing threats that come with it, have posed such difficult challenges and questions to defence planners and Ministers.

It remains a near certainty that in times of tension or war the United Kingdom will need a significant number of merchant ships. The hon. Member for Motherwell, North tried to bowl me what he thought was a clever question about the definition of a time of crisis. I can only say that a time of crisis is when the House of Commons has the kind of debates and exchanges that took place at the time of the Falklands or the Gulf war, which suggest that we are in an hour of national crisis. Parliamentary indicators are as good a signpost of crisis as any.

It is a virtual certainty that in such times the United Kingdom will need a significant number of merchant ships for European and out-of-area reinforcement. The merchant ships will also be required to support naval operations. It is possible that with lower force numbers, longer warning times, larger aircraft and newer methods of transportation, such as the channel tunnel of which my hon. Friend the Member for Sevenoaks was once such an ardent enthusiast, we may have a more flexible task when providing such reinforcement and support. Nevertheless, the importance of merchant shipping for Britain's defences in an emergency remains pivotal. There is little doubt, therefore, that the theme of this debate is correct: a healthy British merchant shipping industry may have to provide a vital lifeline and supply line to British forces in an hour of peril.

In an ideal world we should like to have a large pool of British-flagged, British-crewed vessels to choose from in time of war or crisis. Unfortunately, we do not live in an ideal world when it comes to the health of the British merchant fleet. We share the concern of my hon. Friend the Member for Sevenoaks at the decline in the number of British-registered vessels—I have already said that it is down to 321 vessels of 500 tonnes or above. However, we do not believe that the situation is so critical that we could not manage to carry out the type of crisis resupply and reinforcement task that faced us at the time of the recent Gulf war or at the time of the Falklands invasion—tight and more difficult though that task might be.

May I remind the House of what happened at the time of the Falklands crisis and of Operation Granby for the Gulf? In Operation Granby 109 foreign-flagged vessels and five United Kingdom vessels were engaged in the reinforcement and movement of men and equipment to the Gulf. On the return phase, 81 foreign vessels and three United Kingdom-flagged vessels were chartered. The cost of the operation was about £140 million.

We had no difficulty in obtaining all the British forces shipping requirements on the open market. Virtually all the movement of men was done by air, hut the equipment was largely moved at sea. Although some might say that it was disappointing that the United Kingdom-registered vessels represented a comparatively small percentage of the operation, that was a voluntary decision on the part of the British shipping industry. Lord Sterling wrote to The Times during Operation Granby to say that the British shipping industry was then extremely busy with existing contracts and did not necessarily wish to hid for the contracts that were on offer to the shipping industries of the world. We were able to undertake Operation Granby successfully.

At the time of the Falklands crisis 52 merchant ships were used, the majority of them British. Half of them were requisitioned, half chartered.

Dr. Reid

I am sory to intervene again, but I did not realise that such a substantial response would be made tonight.

Does the Minister realise that what he has said about Operation Granby is at total odds with the Select Committee on Defence analysis, on which it spent a great deal of time? It concluded that there was an almost total absence of UK shipping from the lists of ships providing the sealift for Granby … The significance of the degree of dependence displayed must be addressed by MOD in its analysis of the lessons of Granby. Is the Minister saying that the Select Committee was totally wrong and that its analysis has been either ignored or rejected after investigation under the MOD review? Can he confirm that MOD police are now investigating allegations of fraud during the chartering operation for Granby? I am not asking for details, but can he confirm that an investigation of fraud during the chartering contracts process is under way?

Mr. Aitken

The answer to the hon. Gentleman's last point is that I can confirm that the Ministry of Defence police fraud squad is conducting investigations into the chartering of some shipping for the Ministry of Defence during the Gulf crisis. It is not our practice to comment on Ministry of Defence police investigations while they are under way, and the hon. Gentleman will appreciate that.

The answer to the hon. Gentleman's first point is that the Select Committee was factually correct, and in my factual analysis I confirmed that. There is a difference of opinion between the Government and the Select Committee in that we believe that Granby was a successful operation, that it offered charters to British shipping and that while those offers were perhaps not taken up as widely as we would have hoped, our job was to make sure that Operation Granby was a success. From the point of view of shipping, it was a success. We believe it indicated that a British defence movement on that scale is entitled to go and can successfully go out on to the open market to fulfil Britain's defence needs.

Mr. Luff

I am sure that the Minister is not suggesting that the shipping industry in some sense turned its back on Operation Granby. Will he join me in congratulating the British shipping industry on the efficiency with which it is run, which meant that it did not have ships available at the drop of a hat? Will he learn the lesson from that and accept that if we could encourage the industry to grow, more ships would be available for such an operation?

Mr. Aitken

My hon. Friend makes a sound point. The British shipping industry was at that time enjoying a high level of success and efficiency and, reasonably enough, did not want to disturb its existing charter arrangements. The wider interests of British shipping to which he referred earlier are well taken.

The Falklands operation is the kernel of the argument because it was a British-only operation and the question is whether we could do it again if we were called on to do so. That is extremely unlikely, particularly as we have built a new runway in the Falklands and installed there a formidable garrison.

Without being complacent. the answer is that we could. Fifty or so similar ships could still be requisitioned or chartered from the United Kingdom shipping register or from the British dependent territories shipping register. Although it would be tight in some categories, the answer, without being complacent. is that we could do it again.

Mr. Robathan

I seem to remember that during the Falklands operation the Indian Government objected to some of its nationals on British ships being sent to the Falklands.

Mr. Aitken

My hon. Friend is correct, and I shall come to the subject of seafarers, which is different, though important, in relation to the subject of ships, with which I have been dealing so far.

Even though there are fewer British flag vessels from which to choose, it can be claimed, without complacency, that we should be able to mount operations similar to Granby or the Falklands. There are good grounds for believing that by a combination of chartering foreign vessels on the open market and chartering or, in some cases, requisitioning them, British ships could meet the expected requirements of a crisis or wartime situation, even in the worst and surely unlikely scenario that we were acting alone, without allies or friends.

Mr. Wolfson

Is it not a fact that a key difference between the Falklands operation and the Gulf was the need to requisition ships, as opposed to being able to charter on the open market? In addition, there was danger to shipping—as was seen in what happened in terms of sinkings—in relation to civilian ships. The need to requisition must be a high focus for the Ministry of Defence.

Mr. Aitken

My hon. Friend is right. There are circumstances of greater danger than Operation Granby. There were dangers—which have been somewhat minimised in this debate—to shipping at the Lime of Operation Granby and we must, and do, focus on the possibility of requisitioning British ships, not only from the United Kingdom register, as we are entitled to do, but from the United Kingdom dependent territories register. The figure given earlier of only 166 ships being suitable was not correct when one takes into account, for example, the ships on the Bermuda register. There are many BP tankers and other vessels on that. We have carefully considered the requisitioning possibilities.

I said that I would mention the review that we have been conducting internally—as promised—between Government Departments on the defence requirement for merchant ships in times of crisis. It follows from the argument that I have been advancing that the review concluded that there was no need for special measures for the British shipping industry now. However, there may be a need to do something more about crewing to ensure an adequate supply of British seafarers, and that aspect will be the subject of further study. I shall tell the House something of our thinking and past practices on that feature.

Given the importance of merchant shipping, the Government have introduced a number of measures to help the industry and ensure the availability of vessels and crews for national needs. Those include financial assistance for the training of recruits under the Government's assistance for training scheme—the GAFT scheme—which commenced in 1988. Before the introduction of that scheme, the annual recruitment of cadets had fallen to a low of 162. By the end of the 1988–89 period, the figure had risen to 289, and it reached 521 at the end of 1990. Government assistance has also been made available for the travel expenses of deep-sea crews for the repatriation of seafarers, and there has been a relaxation of foreign earnings deduction rules to allow British seafarers to spend more time in the United Kingdom. In addition, a Merchant Navy Reserve was established in May 1989 to provide a pool of British seafarers who could be called upon in times of national emergency to man merchant vessels. That reserve establishment was a direct consequence of some of the problems that arose in the Falklands war, to which my hon. Friend the Member for Blaby referred.

The purpose of the establishment is to cover two perceived shortfalls in manpower. First, it replaces foreign nationals serving in United Kingdom flagships when, in time of crisis or war, they are deemed to be a security risk, or when they express a desire to leave the ship or are ordered to leave by their Government. I think that that is what happened in the Indian shipping case to which my hon. Friend referred. Its second purpose is to man British-owned but foreign-flagged vessels returning to the United Kingdom flag in time of tension or war as a result of emergency legislation. In that case, it may be necessary to provide full crews.

Recruiting for the Merchant Navy Reserve got off to a slow start, but a campaign in major British ports at the beginning of 1992 increased the numbers in the reserve to more than 650. The Department of Transport, which administers the scheme, hopes to build up the reserve's strength to more than 1,000 by 1993, and is aiming for a final establishment of about 2,000.

The Government also provide war risks insurance to indemnify shipowners against loss: and there are agreements with open registry states. In that connection. we have already signed agreements with Liberia. Bahamas, and Vanuatu, where there are approximately 100 British-controlled ships registered. That would mean that in times of crisis it would be possible to gain access to those vessels with the consent of the countries of registration. Furthermore, in the unlikely event of a full-scale war involving the North Atlantic Treaty Organisation, we would have access to the shipping resources of our NATO allies.

The Government also participated in a joint working party with the British shipping industry. The recommendations of the working party included the introduction of more flexibility into the rules governing the nationality of officers on British ships. The main justification for those rules is one of defence, and we have made major concessions at the request of the industry. The Department of Transport has recently issued a consultative document recommending that the existing nationality conditions for United Kingdom-registered merchant vessels, covering the ship's master, first officer and chief engineer, be relaxed to require that only either the master or the first officer be British. In the case of those vessels of strategic importance, the master would still be British.

I hope that the House will accept from the range of measures and practices that I have outlined that some progress has been made on the availability of British seafarers in time of war for ships that have to go to an area of danger.

I realise that the announcement of the review that I have made will not be greeted with cheering and will not gladden the hearts of my hon. Friends who have so properly and ably raised matters of concern tonight. I hope that they will accept that the argument about the defence dimension in Britain's merchant shipping is really about defence priorities and defence spending priorities. There are competing requirements for defence funds, and our review of the defence requirements for merchant shipping in times of crisis shows that at this juncture we cannot allocate defence funds in support of the British shipping industry. I am sorry to be the bearer of those bad tidings, but I hope that it is some reassurance to know that we have taken careful measures to ensure an adequate supply of British seafarers in times of crisis.

There is a vital role for merchant shipping in an emergency and we continue to keep a close watch on the state of the industry and the trends to ensure that our plans are capable of being met. We carefully review shipping requirements and our latest review shows that there is no need at the moment for any special measure. I assure the House that we continue to give the defence needs of merchant shipping a high priority, and I hope that after this useful debate there is still no doubt about our commitment to making sure that this need will continue to be met.