§ 4.35 p.m.
§ Lord Trefgarne
My Lords, with your Lordships' permission, I should like to repeat a Statement that is being made in the other place by my right honourable friend the Secretary of State for Defence about the 1121 royal dockyards at Devonport and Rosyth. The Statement is as follows:
"On 17th April I outlined a number of options for the future management of the dockyards which have an annual turnover of over £400 million. They ranged from a trading fund in the public sector to full privatisation. I said at the time that the Government's preferred strategy was for a scheme of commercial management and I initiated a period of consultation with a view to a final decision before Parliament rose for the Summer Recess. I have now had the opportunity to consider the many representations submitted during the consultative period, including the timely reports of the Public Accounts Committee and the House of Commons Defence Committee.
"There is almost unanimous agreement that a significant change is needed in the way that the dockyards are run. Indeed the House will be aware that action has been called for in reports associated with the Mallabar Committee in 1971, with Hughes in 1973, with Brightling in 1978 and with my honourable friend the Member for Ashford in 1981. Last year we had the PAC stating that:'We regard determined—and if need be radical—action as essential to resolve the fundamental issues still outstanding'.But little has happened in consequence of the reports as there was no agreement as to how to proceed.
"The option of a Trading Fund would not in the Government's view go far enough in freeing management and workforce from the restrictions and interference of Government. Full privatisation today on the other hand would leave the Government with insufficient influence over a major establishment in the defence field at a time of considerable transition. Commercial management on the other hand has the advantage of freeing the local management from the more restrictive public sector constraints, of enabling the private sector to seek to expand the opportunities in the areas concerned while retaining a significant degree of accountability to the Royal Navy and particularly of securing a climate of maximum competition. The option of commercial management remains therefore the Government's preferred solution and we intend to proceed along these lines. I should tell the House that I am much influenced by the fact that this is also the preferred solution of the Navy itself.
"The Government are convinced that the right way ahead is to retain ownership of the fixed assets and to bring in commercial management to run them. I therefore intend to seek competitive tenders from competent British companies to manage the dockyards. These tenders, which would be for a period of some years, would be evaluated for their management and pricing proposals and would be expected to contain a strong incentive element. I am encouraged by the number of companies who have shown interest in these proposals, including those of the stature of Babcocks, Balfour Beatty, Costain, Plessey, STC, Trafalgar House, the Weir Group and other major industrial concerns acting either alone or in consortia. I hope to introduce the necessary 1122 legislation as early as possible with the intention of introducing commercial management no later than 1st April 1987.
"Regardless of the longer-term management structure for the dockyards there must be improvements in efficiency in the dockyards now. These will involve reductions in jobs. We believe that the majority of these will be achieved by means of natural wastage and voluntary redundancy. Compulsory redundancies will be kept to the minimum possible. I should also tell the House that my honourable friend the Under-Secretary of State for Defence Procurement has informed my honourable friend the Member for Gosport that we are making available to the trade unions today a consultative document proposing how best we might improve the efficiency of the Marine Services organisation.
"In view of the extra work associated with the Trident programme the problems at Rosyth will be relatively small and shortlived. But there will be a special problem at Devonport. We have already embarked upon a programme of help. We have set up a Devonport Development Unit which will be the focal point for the activity necessary to generate new jobs, and I have announced our immediate intention to make available for development two small but significant areas of land in prime positions in the city. My department is examining its expenditure profile with a view to identifying any opportunities for expanding local commercial activity.
"We are looking urgently at the potential of the historic and attractive site at Royal William Yard for development and the creation of employment. It should also be possible to identify other opportunities for expansion.
"Mr. Speaker, each dockyard will have a core programme of essential work as the basis for its long-term future. What commercial management will ensure is that the work is carried out in as cost effective a way as possible and that, through greater efficiency, the dockyards are in a position to win orders in a wider market than at present and expand their activities".
My Lords, that concludes the Statement.
§ Lord Graham of Edmonton
My Lords, I thank the noble Lord the Minister for repeating the Statement made by his honourable friend in another place. In hearing that Statement, we have the benefit of the report which was published last week by the Defence Committee. We can therefore view what the Minister has said today against what was said on 17th April and against the comments of the Defence Committee and the Public Accounts Committee on both policy and what has happened since.
Is the Minister aware that the report of the Defence Committee is the most damning indictment of a Secretary of State, and of a Department of State and its policy, that one could ever envisage? Is the Minister further aware of the unanimous decision of a committee on which sat seven Conservative and three Labour Members? How does the Minister view the severe strictures by the committee on the honesty and 1123 integrity of the Secretary of State's co-called consultation procedures? Does the Minister recall telling the House that:I cannot over emphasise the fact that we are today embarking upon a process of consultation, which will of course include the trade unions very fully"?—[Official Report, 17/4/85, col. 714.]Against that assertion I draw the attention of the House to what was said by the committee in paragraph 19 of its report:The Committee accepts the view of a majority of witnesses that the time allowed for consultation was much too short. We further consider that the MoD's handling of the consultation process has been inept and insensitive".Does the Minister also recall telling the House that:We have not brought forward a single proposal; we have brought forward a range of options and we look forward to hearing the views on them"?—[col. 716.]How does the Minister now square that assertion with paragraph 20 of the committee's report, which states that:What is not acceptable is for Ministers to suggest that options are open, and to invite interested parties to discuss them, when those options have in reality been closed"?Will the Minister comment on that? Further, paragraph 21 of the report states that:By its handling of the consultation process, however, the Government has forfeited much of the goodwill that might have been forthcoming for a resolute attempt to secure the long-term future of the yards. If genuine consultation has been attempted, it is hard to conceive of methods less calculated to lead to the Secretary of State's 'wide, constructive and fruitful discussion' than those which have been employed on this occasion".Given those comments from such an authoritative source, surely the House will agree that the Secretary of State has been thoroughly discredited as a fit and proper person to hold such high office.
Although commercial management, which is at the heart of the report and the Statement, is the preferred option, how does the Minister answer the charges made of the gravest kind, particularly the charge dealing with strategic interests in paragraph 29 of the report? Will the Minister confirm the central point made in paragraph 29, where it states that:Efficiency and competitiveness are of course aims that should be vigorously pursued, but in the last resort they are secondary considerations set beside the needs of the Fleet and the defence of the nation"?Does the Minister recall the scandalous situation revealed by the same committee last year concerning the security of certain Ordnance factories—one of the worst cases being the Enfield Small Arms factory? As the committee says, we now have a relegation of national security in the interest of false economies. Will the Government never learn? When will the Government put the interests of Britain's national security first and the interests of shareholders and private profits second?
Is the Minister sanguine when spokesmen from the Ministry of Defence have told the committee that the preferred option was a high risk option, a greatly complex concept and a substantial problem? Other witnesses told the committee that the preferred option would be a huge leap in the dark.
If this Government have abandoned their first responsibility—that is, to national security—and are 1124 justifying such fundamental changes by the savings of public money, how does the Minister square that with the view of the committee expressed in paragraph 47, that:The Ministry's own figures, however, even supposing their basis of calculation to be valid, show that the savings likely to be made will not be substantial"?According to the PAC, the saving would be of the order of about 1 per cent. on total expenditure.
The most damning indictment of the cavalier attitude taken to this crucial aspect of our national defence by the Government is found in paragraph 48, where the committee states:The sporadic issuing of hastily-written briefing papers throughout the consultation period, and the contents of those papers—many of which raise more questions than they answer—confirm the impression that much of the necessary information is not yet available within the Ministry of Defence. Neither Parliament nor the Trade Unions nor the public have been given enough information to enable them to reach a well-informed verdict on the options, or to contribute to a sensible solution".The Statement mentions consultation. Can the Minister tell the House whether consultation in future will be any more meaningful than that which has taken place on these matters in the past? The Statement mentions the timely reports of the Public Accounts Committee. I suggest that they are not only timely but are devastating and condemnatory. The Minister speaks of a lack of agreement to proceed. Does he not understand that the manner in which the consultation has been carried out has certainly aided and abetted that lack of agreement?
In view of the Government statement that there is an intention to introduce necessary legislation as early as possible, I may say to the noble Lord the Minister that it is the intention of Members on this side of the House to oppose legislation that is based four-square on the Statement made today. We will oppose it and delay it as long as we possibly can.
Finally, in view of the savaging which the Government have received from the Defence Committee, led by Sir Humphrey Atkins, who is not only a distinguished former Chief Whip but also a former member of the Cabinet, will the Government, even at this stage, not go away and think again—think big, and think British—and then return to the House when they have done their homework and have learned to treat British interests, British dockyards and the British people with the respect they all deserve?
§ Lord Kennet
My Lords, the Government are right to echo the PAC in saying that a radical solution is required. I need hardly remind the Government that we on these Benches would have preferred the trading fund, which would have been pretty radical.
I come to the point. The course of action selected is hardly in accordance with the main thrust of the PAC and Select Committee reports, let alone the main thrust of the evidence received by those two bodies. As to the consultation afterwards, I have no need to echo what has been stated, perhaps in terms more suitable to a debate, by the Labour Opposition Front Bench.
The question of the commercial management comes to rest on the Falklands precedent. The Government showed themselves aware in this Statement of the need not to have 1125insufficient influence over a major establishment in the defence field".Can the Government put their hands on their hearts and say that they are convinced that commercial management will give them sufficient influence in the event of another Falklands crisis? Would it have been possible to send the task force if there had been commercial management at Devonport and the other dockyards three or four years ago?
Can the noble Lord please elucidate on what is meant by the incentive element in the tenders? The Statement says that tenders invited from firms for the commercial management contracts,would be expected to contain a strong incentive element".An incentive to whom, and to do what? It appears to me that here the Statement seems to descend into gobbledygook; and when it comes to Devonport the Government are whistling to keep up their spirits in the dark.
The Statement says that the Devonport development unit will be a focal point in the activities necessary to generate new jobs. What is a focal point? What is activity? Will the unit be funded in any useful way? What do these words mean? Again I quote from the Statement:My Department is examining its expenditure profile with a view to identifying any opportunities for expanding local commercial activity".What does that mean? Does it mean buying tinned salmon in Plymouth and not elsewhere? If not, what does it mean?
Finally, can the Minister kindly explain what is meant by the dockyards trying to,win orders in a wider market than at present"?Does that mean British merchant ships? Does it mean merchant ships from anywhere in the world? Does it mean foreign warships? We shall be glad to know.
§ Lord Trefgarne
My Lords, I am sorry that the noble Lord, Lord Graham, viewed the Statement with such distaste. As for his suggestion that the consultation period was inadequate or ineffective, while I agree that there were some sentiments of that kind expressed in the House of Commons Defence Committee report, nonetheless the fact is that we embarked upon a three-month period of consultation and I know of no one who wished to express views who did not have an opportunity to do so. I can assure the noble Lord that all those views were taken into account.
We start from the point of view, which I believe the noble Lord shares, that something needed to be done about the dockyards. They were not operating as effectively as they should have done. That is why we believed it necessary to move forward with as much speed as we reasonably could. In the event, we have adopted the middle way, if I may use that expression.
The most radical solution of course would have been total privatisation. We decided that that would not be appropriate. At the same time a less radical solution, but one which we think would have been so much less radical as not to have achieved the very necessary improvements in the performance of the dockyards, would have been a trading fund; although there were of course some important arguments in favour of that course of action, too. However, at the 1126 end of the day we concluded that the right way forward was the one which we indicated, I confess, as the preferred way forward when we made our original Statement in April: namely, the commercial management of the two dockyards concerned.
The noble Lords, Lord Graham and Lord Kennet, both referred to the need to maintain our strategic interests. The noble Lord, Lord Kennet, referred particularly to our experiences during the Falklands conflict. I can assure both noble Lords that we are clear that the solution that we now propose will maintain our interests in a way that both noble Lords would wish. In any event, during the Falklands conflict private shipyards and dockyards supported the Royal Navy most effectively and I have no reason to believe that the solution we now propose for the royal dockyards will not do exactly the same if the need arises.
As for incentives, to which the noble Lord, Lord Kennet, referred, one of the real shortcomings of the dockyards as they are at present is their inability, as we see it, first, to deliver our ships on time; and, secondly, to deliver them within the budget price set. It is incentives to achieve a better performance in those areas that we shall be writing into the contracts that we set with the contractors.
The noble Lord, Lord Kennet, also asked about the wider market which is referred to in the Statement. That will be a matter for the commercial management of the dockyards in question when they take over in due course. We do not see any reason to impose any constraints upon them provided they remain able to meet the contract terms with the Royal Navy, which will include as necessary a provision to ensure that they can meet emergency requirements arising for the Royal Navy, which of course happen from time to time.
The noble Lord, Lord Graham, asked about the savings. He said that he thought they would be only 1 per cent, or so. The savings will be significantly more than that. As I said in the Statement, the turnover of the dockyards is of the order of £400 million a year and we expect savings in the early years of about £25 million per annum, possibly rising to £30 million or more once the initial costs of the changeover have been achieved.
§ Lord Boyd-Carpenter
My Lords, is my noble friend aware that, far from having to defend himself against the charge of hasty action, it would seem to many of us that there is the much more serious charge against the Government of not having grasped this nettle earlier? Is my noble friend further aware that 17 years ago the Public Accounts Committee, of which I happened then to be chairman, drew the attention of Parliament and the then Government to the fact that it cost substantially more to build a frigate in the royal dockyards than it did to build a frigate of the same class in the private yards? The PAC suggested that action should be taken then, 17 years ago. Is my noble friend aware, therefore, that some of us are very glad to see action being taken now? The fury and indignation of the noble Lord, Lord Graham of Edmonton, recalled to some of us the observation of Prime Minister Salisbury:Heaven forbid that I should ever touch a vested interest".
§ Lord Trefgarne
My Lords, I am not sure that I need specifically to respond to the words of my noble friend. I am afraid that I was not around 17 years ago on the occasion to which my noble friend referred. Yes, it is the case that there were some important improvements which needed to be made to the royal dockyards, but now that we have determined the right course of action as we see it I hope that my noble friend will agree that we ought to proceed with all speed.
§ Lord Mulley
My Lords, those of us who have been concerned with defence will appreciate that the royal dockyards have been a source of problems, both financial and management, for not just the last 17 years. I remember the first Select Committee on which I served in another place, as long ago as 1950. It was concerned in a inquiry into the royal dockyards. I believe it has been a very long-standing problem.
However, it has not been due entirely, or even mainly, to the workforce or the local management. It was often due to the Royal Navy being under pressure and finding it difficult to send in its ships to the dockyards. When one has one's car serviced one cannot demand a service to suit oneself. One has to fit in with the programme of the garage if it is to be done efficiently and well. Unfortunately, in my experience we could never get the Royal Navy and the dockyards to work to their optimum efficiency.
At the same time, I am glad that the Government have recognised their strategic importance. Will the Minister explain how the Government found that unnecessary in their treatment of the royal ordnance factories? I should have thought that it is as important to retain control of certain aspects of the royal ordnance factories as it is for the royal dockyards. I would personally have preferred the trading fund approach which I introduced into the ROFs and which, in my experience, worked reasonably well.
What interested me immensely in this new form of privatisation, if I understand it aright, is that the assets will remain with the Government. That means—and the Minister will correct me if I am wrong—that if the private contractor needs new capital in order to do these jobs efficiently the Government will fund that investment. In other words, this is an innovation of privatisation in which the contractors will have a chequebook drawn on the Treasury. That seems to me to be a most interesting innovation. Clearly if the contractors argue that they need new capital in order to do their job efficiently and the assets are the Government's, the Government must find the money. I wonder to what extent the estimate for the necessary capital investment has been considered recently in this short period of consultation.
The other worry, of course, is that once a contractor for a particular dockyard has his contract he is in a monopoly position. We are back to the old problem of having a private monopoly in a quasi-public sector, without it being subject to the normal controls that Parliament has over the Royal Navy.
§ 5 p.m.
§ Lord Trefgarne
My Lords, the answer to the last part of the noble Lord's question is of course the important point that the contract will not be an open-ended one; it will be for a fixed time. The precise 1128 period of time has yet to be determined but it will not be open-ended, so that if a contractor is abusing his position in any way, then in due course he can be brought to book for it.
On the question of capital investment, the dockyards have of course been the beneficiaries of very considerable capital investment in recent years, not least with the proposed advent of the Trident system, and I am not anticipating any need for significant capital investment, in the medium term at least. If and when the time arises for some more capital investment, as doubtless it will, the Government will have to consider how best to proceed. It will rather depend on the contractual position at the time.
§ Lord Mayhew
My Lords, will the Minister tell us whether we are to assume that the Navy will have no representation on the boards of these companies? That being so, what arrangements have been made to ensure that the interests of the Royal Navy are fed into the big decisions of these companies, so that work for Britain has priority over much more profitable work for foreign governments?
§ Lord Trefgarne
My Lords, the most important avenue by which the naval interest will be secured, will of course be through the negotiation stage in the contracts, to ensure that the companies are required to make available such facilities as the Royal Navy will require for the duration of the contract. There will be a special department set up within the Ministry of Defence to oversee the implementation of the contract and to ensure that the very important interests to which the noble Lord has referred are properly covered.
Lord Bruce of Donington
My Lords, I ask the indulgence of the House in asking this question of the Minister, which arises from my membership of another place representing the constituency of Portsmouth North, in which I still retain an interest. As I understand it, one of the principal reasons for the step that has been taken is to free management and workforce from the restrictions and interference of government. Are we to infer from that that the restrictions and interference at the hands of the Government of which he is such a distinguished member have in themselves resulted in bad management of the dockyards? If indeed that be the case, then the remedy will lie in the Government's own hands: to cease to interfere in a way that inhibits the proper management of the dockyards. Is the noble Lord saying that the directions under which the new company will operate will be such that the Government will have no control over it at all?
§ Lord Trefgarne
My Lords, refitting ships is essentially a commercial operation, and I am bound to say that I think Ministers of any political persuasion are the people who are least well equipped to conduct commercial undertakings, and that is why we are moving in the direction which we are proposing. Incidentally, the noble Lord referred to Portsmouth, and in parenthesis perhaps I should say that the naval base of Portsmouth is of course not affected by these proposals.
§ Lord Ironside
My Lords, I am one who welcomes these proposals for the commercial management option, and if I may I should like to ask my noble friend two questions. First, he has said that the Government will go out to competitive tender for contracts involving some years of operation. I think that the House will be aware that the experience of GOCO contracts only really exists in the United States and that the contracts there are complicated. In this country we are in an evolutionary process with the dockyards and the commercial management proposals. Will the noble Lord give the House some assurance that the contractual arrangements will be kept simple? We are in this evolutionary period and we want to develop the best method of conducting this particular operation. I hope too that the contract period can be longer than five years and preferably eight years or even more.
The second question that I should like to ask my noble friend is whether he sees that successful contractors such as the names he has mentioned will, under the GOCO arrangement, be able to compete for capital equipment requirements in the dockyards as they are able to do if they also succeed as contractor operators?
§ Lord Trefgarne
My Lords, my noble friend asks for an assurance that the contracts will be as simple as possible. Certainly we should like to see them just that, but I have to warn my noble friend that there will be important features to these contracts which are to some extent perhaps unusual and which may militate against the pure simplicity that he has in mind. Not least among those important requirements is the one that was mentioned by the noble Lord, Lord Mayhew, concerning the need to ensure that the Royal Navy gets the service that it requires not only on a scheduled, regular basis, but on an emergency basis if that situation should arise, as doubtless it will from time to time.
There is a slight difference between what we are now proposing and the GOCO system to which my noble friend referred and which is much used in the United States. It is that the successful contractor will be entitled to use the facilities that he is managing for purposes other than just the Royal Navy's purposes, thus ensuring the most effective use of the assets that are available to him.
§ Lord Ironside
My Lords, perhaps my noble friend will answer the second question about whether the successful contractors will also be able to compete for capital equipment requirements when they arise?
§ Lord Trefgarne
My Lords, I am not quite sure what capital equipment requirements my noble friend has in mind but, if he would like to tell me privately, I shall look into the matter and let him know.
The Earl of Selkirk
My Lords, may I presume that the Navy will have similar access to both repair work and the building of ships to what they have at present in a private yard? That is to say, will naval officers be there from a very early stage in the carrying out of the work? If I may say so, I hope that this development will be successful and I am sure it is necessary. I 1130 certainly know that for perhaps 25 or 30 years the Admiralty was trying very hard to bring better organisation into the dockyards, and so far as I am aware it was not by any means wholly successful. I certainly remember the head of the boilermakers telling me something of the contempt that he had for the dockyard, though he had been trained in it, and of the pride in what he called "his yards" which were of course the private yards, which he considered very much more efficient than the dockyard. I remember that very vividly. Therefore I think it is right that an experiment of this sort should be carried out.
§ Lord Trefgarne
My Lords, I can assure my noble friend that the work will always need to be conducted precisely in accordance with Royal Navy requirements and we shall see to it that the proper machinery is put in place to ensure that that happens. But as my noble friend also indicated, it will also be open to the Royal Navy to put their work out to other commercial dockyards if and when the need arises.