§ Sir Keith Speed (Ashford)I am grateful for the opportunity to raise an important subject which affects the future of more than 200 families in my constituency and an important workshop which has served the British Army well for a number of years. Last year, the director of the Army Base Repair Organisation referred to it as the "jewel in the crown". ABRO took over the workshops of various support units which serve the Army and its vehicles, renovating various vehicles coming from Europe or wherever.
The Ashford workshops, in common with many other ABRO workshops, have been examined as part of a Ministry of Defence and ABRO study of workshop overcapacity in Britain. Given the cuts in the Army, Navy and Air Force, we know that support services must also be cut back. Indeed, announcements were made today for cuts in some Navy store support services in the west country.
An additional complication has arisen in this case, as one of the main workshop sheds is directly in the line of the channel tunnel rail route announced by my right hon. Friend the Secretary of State for Transport in April last year.
The study of overcapacity has been going on for a considerable time. Last October, when I was in Moscow on parliamentary business, my right hon. Friend the Minister took considerable steps to explain to me by telephone, that it was proposed, as part of the study on overcapacity, that the Ashford workshops should be closed. He agreed over the telephone that the rail link through the site was not a key factor in the decision to close the workshops. He further agreed to meet a delegation from the work force in my constituency.
Accordingly, on 12 December I met my right hon. Friend with such a delegation. My right hon. Friend was extremely courteous and heard what we had to say. One of our main complaints was the lack of market testing of the workshops in Ashford so that it was difficult to see precisely how good or bad they were, although I and the work force believe that they are very good and have served the Army well. A few days later, my right hon. Friend went to Ashford and saw the workshops for himself. As a result, he wrote me a letter just before Christmas saying that he had asked for a further investigation into the various proposals that had been made, not least the investment options. He said that there would be an extended period for consultation and that he would be in touch with me again in due course. So there was a short temporary reprieve.
At the end of December, however, both the work force and I were concerned and felt some consternation when Brigadier Drew, chief executive of ABRO, replied to a number of my constituents who had written to him. In a letter dated 20 December 1994 he said:
The decision to recommend the closure of ABRO Ashford results from a number of factors. A rationalisation study commissioned by the organisation identified significant overcapacity within our workshops. For those workshops, such as Ashford, providing a service to Army units within their geographical area, the study team recommended that the overcapacity should be addressed via the market testing process (that is in the preparation of a bid in competition with industry to provide the service to the 957 Army). The team was also asked to consider the impact of external factors on rationalisation and the intended use of the Ashford site for the high speed rail link was taken into account. In order for the closure of the Ashford workshop to be effected in time to meet Union Rail requirements, the existing workshop site must be excluded from the market testing options.That letter went down like a lead balloon with all concerned, as it seemed totally to foreclose any conclusions that my right hon. Friend the Minister might make. It appeared to say that the considerations for Union Rail, which is currently responsible for the channel tunnel rail link, were more important than considerations for my constituents, ABRO or the British Army.Consequently, I wrote to my right hon. Friend what I hope was a courteous though terse letter expressing my concern about those matters. That resulted in a meeting between us and others of the ABRO team at headquarters last week. Indeed, it has resulted in today's debate. So far, no final decision has been taken.
Over the past month or so, the workshop has provided headquarters with information, as a result of which it has been proposed that there should be either 70,000 man hours work district load, plus an additional 35,000 hours special project work from the workshop or, alternatively, just a 70,000 man hours district load, which would reduce by 2,000 or 3,000 hours with the closure of the Queen Elizabeth military hospital in Woolwich in a few months' time. Currently, the workshop does some 200,000 man hours and the work force believes that market testing would show that it could more than meet that job. For example, as the Minister and I have seen, the workshops do a good job on Land Rovers for the Army. I have been told privately that they are probably the best Land. Rover service and refurbishment centre in the world, not just the United Kingdom. Be that as it may, if the workshops were able to market-test against Rover, we could find out whether they were as good as they and I think they are. The 200,000 hours may not be pie in the sky.
Proper consultation has not been carried out between the management teams in Ashford and ABRO headquarters. If everyone's heart was in the right place, efficiencies could have been found just by sitting, round the table and discussing the matter. It is a pity that some of the information technology that Ashford requires to make itself more efficient has been withdrawn for other parts of the system in recent months.
If the national market tests are as important as the brigadier said, why was the decision taken even before the workshops were given a chance to market-test? Why was the investigation appraisal not carried out as part of the market study? That would have made a lot of sense. My constituents sent in information on how they could cope with the various loads and make further efficiencies.
ABRO considered that on some of those matters, such as staff costs, contracted-out services, costs of utilities, property management, equipment costs, vehicle maintenance and petrol-oil lubricants, my constituents had been over-optimistic. It therefore scaled them down in the investment appraisal to the tune of some £100,000 a year, which is significant in view of the possible savings that may be made. I do not know whether such scaling down is right, but it would have been helpful if the management team in Ashford could have discussed the matter with the management team at ABRO headquarters. We would then all have had a clearer idea of what was going on.
958 There is no question that the existing "A" workshop will have to be demolished. That leads on to the question of replacement. My right hon. Friend has confirmed in writing and verbally—there is no dispute about it—that the cost of replacement of the workshops will be borne by Union Rail or the company who build the high-speed rail link in precisely the same way as they will provide compensation or cost of replacement to various other companies within my constituency that will be similarly affected.
As a result of investigations, two excellent possible replacement sites are available at Sevington. They have been produced by Eurotunnel developments and would offer brand new, energy and utility efficient sites, properly laid out with excellent access. They are being built at the moment and will be ready soon. The total cost, which will be borne, once again, by Union Rail and not by the Ministry of Defence, would be about £5 million.
Another alternative site, which is even nearer home—just across the road from the current workshops—is the former East Kent Bus depot. With a little refurbishment and modernisation, that would provide an energy efficient replacement workshop at a total cost of about £1.5 million.
Alternative sites for the workshops are therefore readily available at costs within the terms of the compensation that Union Rail would be prepared to pay. Those sites would be available for the market testing that my constituents are keen should be conducted. They would provide an excellent relocation site for the workshops if, as I hope, they are reprieved by my right hon. Friend.
The crunch behind the country-wide exercise is what money will be saved. There is no point in embarking upon such an exercise, the result of which may mean that many people will lose their jobs and commerce in the area will be badly affected, if the savings achieved are minimal or even non-existent.
Other workshops have been closed at Donnington and Old Dalby and the savings achieved, if not huge, have not been insignificant. In cash terms, the savings over the long-term costing period, which I understand is 10 years, range from £18 million to £35 million. In net present value terms over the LTC, long-term costing, the savings range from £14 million to £27 million. Those are considerable sums of money and were no doubt taken into account when considering the future of the organisations at Donnington and Old Dalby.
According to ABRO's own figures from headquarters, given to me by my right hon. Friend, the likely savings to be achieved at Ashford work out at a different level. If one takes the first option of the 70,000 man hour load plus the 35,000 hours special project work, one finds that the cash saving over the 10-year period is about £300,000 a year and the NPV, net present value, saving is about £250,000. Those sums are arrived at either by comparing the cost of transferring all the current work to a new-build workshop provided by Union Rail or by closing the ABRO workshop and transferring the work to other ABRO facilities, for example, to Aldershot and to contract repair.
If one takes the largest option, covering the 35,000 hour special project work and the 70,000 man hour load, one is talking about savings of between £200,000 and £300,000 whether that is worked out in cash or NPV terms. If one considers the 70,000 man hours option and none of the 959 special work, the figure saved is even lower at about £210,000 in NPV or about £260,000 in cash a year over the 10-year period.
That is not the end of the story, because on top of that one must add the redundancy and replacement costs of all those affected—some 200 people gross or perhaps 150 net given the mobility of some of the work force and the redeployment of others. According to my sums we must be talking in terms of £3 million for the first cash redundancy payments alone. That is more or less equivalent to the projected entire savings over the 10-year period. That £3 million, however, is up front and is not spread over 10 years. I am aware that that cost does not fall upon the budget of the MOD, but I am a Member of Parliament and a taxpayer and my right hon. Friend is a member of the Government, so we must be interested in the taxpayer and public expenditure as a whole.
We must also accept that some people will not be able to rush out and get a similar job, so we must remember the on-going costs of unemployment, income support, the loss of income tax paid and national insurance and other contributions. We soon find that huge sums are run up. Are we really to deny the Army of a facility that has worked extremely well and efficiently—the nearest facility to continental Europe and to the channel tunnel—in exchange for an overburden on and increased cost to the taxpayer?
I speak as a former Defence Minister and, in terms of MOD figures, when we talk of savings of between £200,000 and £300,000, that is the equivalent to washers. Such sums are within the calculating errors that may occur. If my right hon. Friend wants to save that sort of money I can point him in various directions where I am sure he knows that more than that money could be saved.
The proposed closures are not worth the candle at the end of the day. Alternative premises could be made available at no cost to the MOD, which would be more efficient than the current premises. If that happened we would retain a workshop for the Army that does extremely well and which could then be market-tested against anyone else. My constituents are more than confident that they would emerge triumphant from that test. In any event, the financial argument in favour of closure does not stand up.
I know that my right hon. Friend goes carefully into such matters. I hope that, with all those facts in mind, he will be able to tell me and my constituents, if not necessarily today, certainly within a few days, that he has examined the figures and looked carefully again at the possible alternative sites that I have mentioned. I hope that he will say that it will be possible for the jewel in the crown to remain the jewel in the crown of ABRO.
§ The Minister of State for Defence Procurement (Mr. Roger Freeman)I congratulate my hon. Friend the Member for Ashford (Sir K. Speed) not only on his robust defence of his constituents, in the best interests of the town of Ashford, but on succeeding in raising the matter on the Floor of the House. A formal Adjournment debate can serve many purposes and at least one of them is to ensure that the facts are properly available to everyone.
960 I shall certainly study the record of what has been said, although my hon. Friend will not expect me to answer all his questions today. I do not intend to take a decision today or next week, because the issue needs to be subject to proper analysis. The Ministry of Defence is considering several dozen proposals for rationalisation, all of which affect jobs. Approximately, in the decade 1985 to 1995 the defence budget has fallen by 25 per cent. in real terms, with a much sharper fall in recent years for the support services. We are wrestling with the need to reduce support costs by up to £750 million per annum by 1996–97, which presents difficult choices.
One thing is clear: every decision must be taken in a proper, rational fashion which in turn can be justified in a robust fashion to the House. We are certainly not in that position yet regarding Ashford. It might help if I sketch in some of the background and answer some of the points that have been raised.
We are talking about the district workshops and not the base repair workshops, such as those at Bovingdon, which were market-tested. The in-house team won that contract for the repair of tanks. On 31 January, I announced the decision to withdraw work, sadly, from Old Dalby and to concentrate it, for planning purposes, on Donnington. In due course that site will be subject to exposure to competing for quality, which may include market testing. I hope that the private sector and other parts of the MOD will take the opportunity to present proposals for tackling some of the work packages at Old Dalby rather than letting them go to Donnington. That must be a more efficient option than that work going to Donnington.
§ Dr. John Reid (Motherwell, North)On Old Dalby, is the Minister absolutely convinced that the figures on which he is working are accurate? According to the figures that I have seen—I accept that they have been produced by people who have a direct interest in and would suffer the consequences of any changes at Old Dalby—the rationalisation plans, far from achieving any significant savings, may result in insignificant savings, have a deleterious effect on Old Dalby and cost the MOD in the long run. Can the Minister say anything about those figures?
§ Mr. FreemanI should be glad to go through the figures for Old Darlby, either in writing or in a briefing to the hon. Gentleman. I am sure that the margin of savings there, as my hon. Friend the Member for Ashford said, is of a different order of magnitude from the margin of savings for Ashford. I am cautious about Ashford at this stage for the reason that my hon. Friend outlined—the fact that some of the figures bear thorough analysis, and I do not think that we have reached that position. There was an extensive survey for Old Dalby. Even making assumptions—perhaps taking into account more pessimistic assumptions about transport costs of moving equipment—I am satisfied that the decision on Old Dalby was robust and sensible. However, if the hon. Member for Motherwell, North (Dr. Reid) wishes me to pursue that another time, I shall be glad to do so.
Why have we proceeded to consider Ashford prior to, as my hon. Friend the Member for Ashford describes it, a market test for the district workshops? We need to rationalise now before the market test for all the district workshops, which will be done nationally. We are market-testing the service of the district workshops—not 961 the sites—and therefore we are testing the alternatives for providing immediate support to the Army in terms of repairing vehicles.
Why do we seek some rationalisation now? The Army needs some savings in its votes, and it is easier to market-test if one is able to offer the private sector a clear and sensible range of services and, indeed, current workshop sites. It is more difficult to market-test if there is any serious doubt about where the locations will or will not be.
We have overcapacity of about 40 per cent. in our district workshops. That is a function not only of the run-down in the size of the armed forces but of the fact that rationalisation has not occurred in the past. Prior closures have included York, Bridgend and Liverpool, all in 1993. Therefore I believe that it was sensible for ABRO to consider Ashford now, to discover whether there was a case for closure of that workshop.
Why select Ashford when there are other workshops? There are three reasons, all of which are sensible. First, Ashford is not a garrison town and, compared with Catterick, Colchester, Aldershot and Warminster—other district workshop locations—there are relatively few Army units in the area. The location of the channel tunnel is not so relevant as might at first have been thought, because heavy equipment will enter the military port of Marchwood and then be sent for onward transmission to the appropriate district or base workshop. The existence of the tunnel and the rail link, projected and present, is not so relevant to the issue as some people might initially have thought.
The second reason for selecting Ashford is that the site is obviously affected by the route of the channel tunnel rail link. Indeed, I am grateful to my hon. Friend the Member for Ashford for not drawing attention to the obvious fact, which I want to put on the record, that I was the Minister who announced the route through Ashford. However, I assure him that I now discharge a different function and approach my job on behalf of the Ministry of Defence. I am not trying to justify the implications of that original decision.
The routing of the channel rail link is not a compelling reason for closure in itself. It is relevant only for the reason cited in Brigadier Drew's letter, which my hon. Friend the Member for Ashford quoted: the existence of the site right in the middle of the proposed channel tunnel rail link means that one cannot market-test that specific workshop on that specific site. He did not mean to say—I am happy to correct the position—that that would preclude considering the reprovision of the workshop, either within the specific army property where it is located in Ashford, which contains several other units, or elsewhere in Ashford.
The third reason for selecting Ashford was the declining workload. It is an efficient operation and we pay tribute to the work force. However, efficient labour productivity should not be confused with an inefficient work site, which may be a function of the excessive size of the premises and the overheads that go with guarding, maintaining, heating and lighting a very large workshop. The men are obviously efficient; the site may not be, even without the impact of the rail link, and even without the impact of the need to rationalise the district workshops.
Those were the reasons for selecting Ashford. Incidentally, I should put on record that it is proposed to enter into a direct exchange scheme for Land Rover 962 engines. That has not happened, but I am advised that that is proposed, and that it should provide greater efficiency. I say, "should"; it needs to be tested, and argued rationally in ABRO, before ABRO decides to proceed, but it intends to proceed with that scheme to improve the efficiency of engine repair.
My hon. Friend the Member for Ashford was right; consultation papers went out on 27 October 1994, a delegation visited me on December 12 and I visited the workshops on December 15. I then asked for a fresh appraisal to be done because it had not been assumed that the workshops—indeed, smaller workshops—would be reprovided by Union Railways, either in the premises owned by the Army or elsewhere in Ashford, and I am happy to confirm that the new investment appraisal assumes that. There is, at worst, a nil effect on the appraisal because of the assumed reprovision. As we have assumed reprovision at someone else's expense, the running costs of the new workshop will fall. It will be smaller and will be more efficiently heated and lit. I understand that it will be cheaper to run by about £6 million, expressed in net present value terms, over 10 years. That saving is not taken into account in the investment appraisal.
No decision has been taken, but I will repeat the facts for the record. The appraisal assumes 70,000 man hours per annum of what is called district load—regular repair work to vehicles, and so on. In addition, it assumes 35,000 hours of special project work. That is work which can be directed by the ABRO organisation from anywhere in the United Kingdom specifically to Ashford—for example, the demountable rack offloading and pickup system vehicles used in Bosnia to move ammunition and other supplies.
The net present value cost, a standard way of conducting an appraisal, discounts the stream of cash costs of running the operation into present-day pounds. If one stays in Ashford, in a new building, the net present value cost to us will be £13.9 million. If one closes Ashford and moves 50 per cent. of the work to Aldershot—at marginal cost, simply because Aldershot has the capacity to do the extra work—and 50 per cent. of the 70,000 man hours of district load are contracted out into the local community, to local engineering and shops and garages, at local rates, the net present value cost will be £11.4 million. That is a saving of £2.5 million in net present value terms.
However, there are redundancy payments. My hon. Friend the Member for Ashford was right to mention those. We have assumed that 192 staff would be affected. Twenty-one mobile grades would be redeployed, leaving 171 staff who might be eligible for redundancy payments.
Some redundancy will happen anyway as, irrespective of whether one moves work from Ashford, one needs to slim down the activity. I have assumed that that would cost about £500,000. If one moves the special project work elsewhere, the total redundancy bill could be about £1 million in any case; that would affect about 60 jobs. If one closes the whole of Ashford, the full bill would be about £2.7 million for those 171 people. That is a very 963 significant sum, and it is up front, as my hon. Friend fairly said. So the saving of £2.5 million that I referred to earlier—
§ Mr. FreemanIf the hon. Gentleman will forgive me, I must finish and I have only two minutes. The saving of £2.5 million in net present value terms is substantially reduced, perhaps by as much as £1.7 million, which is the additional incremental redundancy payments that would be involved in closure in addition to that which might happen anyway. One is left with a margin of perhaps £750,000, as the net present value—that is a lump sum, not expressed on an annual basis—of the closure. Obviously, it is finely balanced, which is why no decision has been reached at present.
I conclude by putting on the record two factors that would support closure. I would welcome further comments, not only from my hon. Friend the Member for Ashford, but from representatives of the work force at Ashford. If we look over 20 years, for example, the savings will grow even larger because of running cost savings, as the hon. Gentleman pointed out. Even if we discount that stream of saving, the total value of savings will grow over 20 or 30 years.
Some local employment will be created by withdrawing from Ashford, although is difficult to estimate how much. However, I estimate that 35,000 man hours of work will be created through contracting out, as well as a couple of dozen jobs which either will not be lost or will be created in the engineering works in Ashford.
I thank my hon. Friend the Member for Ashford not only for his courtesy but for his thoroughness in raising the issue. I assure him that the Minister of Defence will reflect on what has been said today and it will continue its appraisal of the proposal to close Ashford and concentrate work within the district workshops in order to reach a sensible conclusion.