Dockyard Services Bill

HL Deb 25 April 1986 vol 473 cc1384-423

11.25 a.m.

Lord Trefgarne

My Lords, I rise to move that this Bill be now read a second time.

Many studies of the organisation of the dockyards have been undertaken over the last 15 or more years under successive administrations. There have been almost as many different recommendations as there have been studies, but all have agreed on the nature of the problems facing the dockyards. If they have differed on other matters they have been as one in agreeing that fundamental change in the way the dockyards are run is necessary if their long-term future is to be secure. Even the trade unions have accepted the need for improvement.

But, like the seasons, the reports have come and gone and for one reason or another, government after government have failed to make the sort of fundamental change which those who have studied the dockyards over the years have come to recognise as essential. No one advocates change for change's sake. What we are debating is too important for that. I am as aware as any of your Lordships of the proud history of the dockyards and the service they have given this country over the last 400 years. Certainly no one will ever forget the splendid efforts which the dockyards made during the difficult times of the Falklands crisis in 1982.

The question, however, is not whether the dockyards have performed well, but rather whether they could do better and by performing better whether they could provide a more secure future for themselves, an even better service for the Royal Navy and release resources to be spent elsewhere. The Government are firmly of the opinion that these goals can be realised and the Bill which we have introduced is designed with that purpose in mind.

Changes in three areas are essential for the most efficient operation of the dockyards. First, local managers must be given more authority to manage; secondly, the dockyards, as suppliers, must be clearly separated from the Fleet, as customer, and, thirdly, accounting procedures reflecting normal commercial practice must be introduced. After a period of consultation, we announced our intention to proceed with what had been our preferred option, the introduction of commercial management, but with the assets remaining in the ownership of the Government.

The option at one end of the scale of a dockyard trading fund within the Civil Service would not provide a commercially disciplined environment; nor would it go far enough in freeing management and workforce from the inevitable restrictions and interference of government. The two dockyards at Rosyth and Devonport currently have an annual trading turnover of £400 million. By any reckoning that is an enormous industrial undertaking and, quite simply, such a system does not lend itself to working within restrictions which the Civil Service machine necessarily imposes.

At the other end of the scale was the idea of full privatisation. I can say that there was no support from any quarter during the consultation phase for full privatisation. It was, and remains, the Government's strongly held view that, in the special circumstances of the dockyards, it would be inadvisable to go for an outright sale.

Commercial management, on the other hand, has many advantages. It would free local management from Civil Service constraints. It would enable a proper separation of the Royal Navy, as the customer, from the dockyards, as suppliers. It would allow a fully commercial approach to be introduced in the dockyards. It would provide the spur to ever greater efficiency by the prospect of periodic competition for the contracts. Commercial management would also mean that the strategic defence assets—the dockyard land, buildings and plant—will remain in government ownership, and the Government would be able to regain control of the dockyards if it proved necessary to do so.

The Dockyard Services Bill provides for the Secretary of State to introduce commercial management at the two dockyards, or to operate the dockyards himself, as government-owned plcs. We have long made it clear that if there were insufficient interest from companies in managing the dockyards, or if their responses to our invitation to tender were unacceptable for any reason, the Government s fall-back position was the formation of government-owned plcs.

It might be for the convenience of your Lordships if I were to outline the progress made so far. In doing so—and at risk of stating the obvious—I should emphasise that no commitment has been made; nor will any be made until the Bill (as I would hope) has been agreed by your Lordships and has been given Royal Assent.

The tender documents were issued by my department on the 3rd April to those companies which had submitted an adequate response to a pre-qualification exercise. Those companies which have been invited to tender for the contract in respect of Devonport Dockyard are Devonport Dockyard Limited, which is the company formed by the local management to consider bidding for the contract, and a consortium of Trafalgar House, Plessey and A and P Appledore. For Rosyth Dockyard, the companies are a consortium of Babcock Power and Thorn EMI; a consortium of Balfour Beatty and the Weir Group; and two companies which are considering bids on their own, Northern Engineering Industries and the Press Offshore Group.

So far as timescale is concerned, responses to the invitation to tender have been invited by the 1st August. Our aim is to consider the responses and then select the successful bidders in November. The contracts for the initial period of seven years would be signed in November and the contractors would work alongside the current management before assuming responsibility for operating the dockyards from the vesting day of 6th April 1987. That is the outline programme.

A copy of the invitation to tender was placed in the Library of your Lordships' House on 8th April, and a copy of the draft contract was placed there on 23rd April. The invitation to tender is complete, with the exception of the annex, which refers to the programme of work on which the companies are asked to bid. As your Lordships will appreciate, the refit programme is necessarily classified, but contractors have been informed of the core programme of work for each dockyard which will be equivalent to about 70 per cent, of the total refit programme. The remainder of the programme—the unallocated programme, which we plan to increase in size over the years—will be available for competitive bidding from the dockyards and commercial ship repair yards. Our intention, is that work entering the dockyards should increasingly be negotiated on a fixed price basis.

Also, while the dockyards have been within the Ministry of Defence, they have been largely unable to seek business outside. When commercially managed they will be free to compete in other markets. The many centres of excellence in the dockyards place them in a commanding position to secure commercial work. As your Lordships will know, the dockyard at Gibraltar has been successful in securing such work, and I see no reason why the dockyards at Devonport and Rosyth should not also do so.

I have already explained the benefits which we expect to result from the introduction of a commercial approach to the management of the dockyards. Those who stand in the way of fundamental change on the lines we propose ignore the obvious advantages to be gained from a competitive approach to this work. Instead, our opponents argue that commercial management will not result in savings to the taxpayer. I have to say that I think these people are wrong. Our latest estimate for savings to the taxpayer, to which the Committee of Public Accounts in another place have referred in their latest report, published yesterday, is that they will amount to some £21 million a year over the first ten years, during which time, for the purposes of accounting, the £70 million setting-up costs will be amortised. Thereafter the savings are expected to be some £28 million a year.

A saving to the taxpayer of £210 million over the first ten years and greater amounts thereafter is, we believe, a saving well worth making. If we can make savings of that order—and I believe that these are worst case figures—while offering the Royal Navy a better deal in terms of greater cost-effectiveness and more timely completion of refits, we would be failing in our duty not to press ahead with our plans.

Before I refer to the individual provisions in the Bill, which have now undergone some 80 hours of consideration in another place, there are two important areas on which I believe your Lordships would wish me to touch. Both concern our national security interests. The first is the question of foreign control of the dockyards, and the second concerns questions of nuclear safety under commercial management.

The foreign control safeguards will effectively be in three places. There will be safeguards in the articles of association of the dockyard company which my right honourable friend forms at each dockyard, in the contract which my right honourable friend will enter into with the successful bidder to manage either dockyard, and under the Government's normal security rules relating to any company which contracts for classified defence work. Each dockyard company will have a share capital of 50,001 £1 shares, and all but one share will be transferred on vesting day to whichever company has successfully tendered to manage the dockyard. The managing company will own all those shares for the entire period of the contract. The remaining share will be held by the Secretary of State and it will have special rights attached to it. One such right will be that no change can be made to the articles of the company or to its memorandum without the Secretary of State's specific approval.

We have made it clear that we could not accept that the dockyards should be run by foreign companies. Under the contract with the managing company my department will be able to satisfy itself that the level of foreign shareholding in that company—and hence the level of foreign influence over the dockyard company—remains well below the level of control. We propose to set the "trigger point" level at 30 per cent. If the foreign shareholding in the managing company exceeds this level, the Secretary of State will have power under the contract to act where the circumstances are contrary to the essential interests of security, and those interests require such action to be taken. In such a situation the Secretary of State will be able to terminate the contract. Several other courses would be open to him, but it would not be sensible to say that a 29 per cent, foreign shareholding is acceptable but a 31 per cent, share is not. We could all think of cases where even a tiny foreign shareholding would be quite unacceptable and of other cases where a foreign shareholding above 30 per cent, would be acceptable. Protection of security will, therefore, at all times be the paramount consideration.

Finally on the subject of foreign control, I should remind your Lordships that the managing company will be a list "X" company. This means that in order to undertake classified work the particular company has to satisfy the stringent government security requirements (physical as well as personnel) which have existed under successive Administrations.

As regards nuclear safety after commercial management has been introduced, the dockyard companies will be required to operate under a nuclear site licence. That will not be optional; it is a requirement imposed on the company under the Nuclear Installations Act 1965. My department has been working closely with the Nuclear Installations Inspectorate of the Health and Safety Executive, to whom the companies will be responsible for ensuring that the requirements in connection with radiation protection for the dockyard employees are fully met under the terms of existing legislation. Safety has been among our highest priorities, and the safety of the workforce will be as high a priority in the future as it is now.

The heart of this Bill lies in Clause 1, under which the Secretary of State is enabled to form a Companies Act company at each of the dockyards into which the workforce to which the arrangements apply would be transferred on vesting day. I need hardly emphasise the importance we attach to the dockyard workforce. I readily acknowledge that it has been their skills and their dedication which has over the years provided the vital support to the fleet. It is no criticism of the employees to say that, while the Civil Service machinery serves this country well in many ways, it is not, as I have said, best suited to an industrial undertaking, and particularly not one of the size and complexity of the dockyards.

The Government are very conscious of the implications for personnel of our proposals, and it is against that background that we have addressed the personnel issues contained in this Bill. It has always been our intention that the Transfer of Undertakings (Protection of Employment) Regulations 1981 should apply in this case, and Clause 1 (4) makes the position clear. Essentially, the regulations safeguard employees' rights when a business is transferred to a new owner, and, with the exception of some factors resulting specifically from Crown service, their terms and conditions of employment—for example, pay, hours, leave, and allowances—will be the same as those applying in the Civil Service immediately before the transfer.

But there will be no break in employment. So, at the time of this transfer, employees are not in any sense redundant, and are not therefore entitled to redundancy compensation. Clause 1(5) and 1(6) addresses this point. I must emphasise, however, that these subsections do not in any sense affect the right to redundancy compensation of civil servants transfer- ring to the new companies if they were to be made redundant by their new employer at some time after vesting day.

As regards pensions, because the dockyard employees will no longer be civil servants, staff transferring to the new companies will not be able to remain members of the Principal Civil Service Pension Scheme, and the transfer regulations specifically do not apply to pensions. It is, however, the Government's intention to set up pension schemes, one at each dockyard, which transferred staff will join and which will, as far as possible, replicate the provisions of the PCSPS in terms of rules and benefits, including index-linking. Staff will be able, if they wish, to leave their accrued pension entitlements in the Civil Service scheme, or to transfer them into the dockyard companies' pension schemes. For those employees who opt for the second course, the Government will make transfer payments into the company schemes in respect of the accrued benefits. Pension schemes will also be set up for staff joining the dockyard companies after vesting day.

It is also our intention that, even though the means of payment will have to be different, the current Civil Service levels of redundancy compensation will transfer. So, too, will reckonable service for the purposes of redundancy. This means that, should an employee be made redundant by the new company, the calculation of redundancy compensation will be made on the total of service under the Crown as well as with the dockyard company. There are some areas which will need further discussion with the trade unions and the Inland Revenue, and we have recently issued a consultative document dealing with pensions and redundancy which we hope will form the basis of those discussions. A copy of this document, likewise, is in the Library.

Thus the workforce at the two dockyards will transfer to the new companies without a break in their employment, and on broadly the same terms and conditions as in the Civil Service. It is the Government's firm view that, in this way, the interests of the employees are well served, and the new companies set up on a basis that should significantly contribute to the successful operation of the dockyards in the private sector.

The Bill provides in Clause 2(1) for the MoD police who are to be retained in the dockyards after vesting day to have the same full constabulary powers as they have now. The MoD police will continue to provide the protective security of the perimeter and control the gates of the dockyard. They will continue to carry out patrols, and will have access to all premises within the dockyards, including any buildings occupied solely by the contractors. The MoD police will remain under the exclusive control of the Ministry of Defence and not the contractor, and he will not be able to replace the police in the duties I have described. The dockyard land and buildings will remain Crown property, and the MoD police will remain to protect it.

The Bill also ensures that the Secretary of State will be able to make or change bylaws throughout the dockyard after vesting day, just as he can now, and existing bylaws will continue in force. It also provides that dockyard land should continue to be exempt from the payment of general rates. Clause 2(2) ensures that the contractor will not obtain security of tenure under the Landlord and Tenant Act 1954. Under the Government's proposals, the contract with each successful contractor will run for a fixed term of seven years. Were the contractor to acquire security of tenure of land in the dockyard, it would conflict with the Government's intention that fixed-term contracts should provide the competitive spur to greater efficiency and cost-effectiveness.

Finally, I come to Clause 3 which provides that the Secretary of State shall pay out of money provided by Parliament any expenses he incurs in connection with either the formation of a dockyard company at each dockyard or the operation of such a company as a Government-owned plc. The second part of Clause 3 enables the Secretary of State to meet expenses incurred in assuming responsibility for liabilities of a dockyard company.

The Government remain convinced that the introduction of commercial management under fixed-term contracts, with the assets of the dockyards remaining firmly in Government hands, will provide the spur to efficiency and savings which competition and renewable contracts will bring. It will ensure that the operational requirements of the fleet are met, and will continue to be met, and that strategic interests are safe-guarded.

I commend the Bill to your Lordships, and I beg to move that it now be read a second time.

Moved, That the Bill be now read a second time.—(Lord Trefgarne.)

11.46 a.m.

Lord Graham of Edmonton

My Lords, we are all grateful to the Minister for his careful explanation of the Bill. I am grateful to him also for the supplementary information that he has sent to me from time to time during the passage of the Bill. But there, I am afraid, we shall have to part company. I have to tell him that we shall find little to agree upon either in the general debate on Second Reading or at the subsequent Committee and Report stages of the Bill.

The House is particularly fortunate in that it will have today the benefit of the observations of noble Lords on all sides of the House who bring to the debate their unique experience. The noble Lords, Lord Lewin and Lord Hill-Norton, have unrivalled, practical and successful experience. I shall listen with great care and respect (as, I venture to say, will others outside the House) to whatever they have to say. The noble Baroness, Lady Vickers, will virtually be speaking for Devonport. And, clearly, whatever she has to say will add a particular value to our deliberations. My noble friend, Lord Mulley, can speak from his ministerial experiences as a former Secretary of State for Defence. And the noble Lord, Lord Mayhew, can contribute directly from his experience as a former distinguished Minister for the Navy. We cannot but profit from speeches based on such a unique and unrivalled background.

I wish to call as my first witness the Public Accounts Committee. The committee has strongly criticised the Government's proposals. It was particularly sceptical of the validity of MoD costings. Misgivings about the thoroughness and accuracy of the Ministry costings is how it was put. In an earlier report, the committee said,

In view of our doubts about the costings of both the Government's preferred long term option and of the interim measures, we do not consider that the MoD have yet provided enough evidence to enable Parliament to assess the financial aspects of the options. We recommend that Parliament should be given some indication of the expected net savings from the different options when it is asked to consider the Government's proposals for the future and that the information would be more reliably based than that given to us". Despite that censure, no further helpful figures have come forward until now, when we have the benefit of the 21st report of the Public Accounts Committee, to which I shall be referring later. There will always be a variety of sensitive areas in any proposed legislation that command the attention of the critic and upon which his attention will focus and to which answers need to be found. This is done against a background of the imperative for the legislation. So it is in this situation. We are talking about the future of the Royal dockyards. The basis for the Bill is to introduce private management into the dockyards while the Government retain ownership of the fixed assets—private management under fixed-term contract. It is said that these provide the greatest incentives to improving efficiency and reducing operating costs. Thus, when we concentrate on this Bill in this House, we have the benefit of reviewing what has gone on in another place, and what did not go on there. Alas, my Lords!—I have to say, not much.

When we engage the Minister as to how we shall try to improve this Bill we are faced with this bleak prospect. Despite the opportunities given to the Government to reflect on what has happened on costs it is now clear that, far from relieving the strain on the defence budget, commercial management would result in significant extra costs to the MoD. Since the Bill left another place, we have had the benefit of a sight of the Twenty-first Report of the House of Commons Committee of Public Accounts. As it always does, it carries the authority of a high-powered committee with great experience composed of Members from all sides of the House. It would not be proper or prudent to refer to its evidence and conclusions at length. But the PAC committee, put bluntly, spells out the spoiling tactics of the MoD and the highly unsatisfactory basis on which the Minister wishes to proceed.

Let me enlighten the House by referring to one or two of the points which have been raised. In page xii on costings they say this: We note MoD's assurance that their costings are as reliable as they can possibly make them but they are still based on many assumptions, there are considerable uncertainties and they are almost certain to be revised again before contracts are placed for commercial management". That is not a very helpful basis upon which we can be satisfied.

With regard to parliamentary control the report says this:

We note MoD's reasons for proposing that the C&AG should not have access to the contractor's accounts and costings records but remain convinced that such access is essential to provide Parliament with an independent assessment of the success or otherwise of commercial management in securing value for money". The report then continues: We recommend therefore that the Dockyard Services Bill should be amended to make provision for such access". I ask the Minister, when he winds up, to give the House some indication—it may perhaps be too early—of the reaction of the Government to that very firm recommendation.

The Minister then sought to assure the House in a speech that the costings would turn out all right. I refer to page 2 in the evidence that was submitted to that committee by the Comptroller and Auditor General. This is what he says: MoD calculations have not yet included costs which might arise from the following, to the extent that they would only be incurred by commercial management:—

1. (a) costs of activities which might be created in or transferred to other areas of MoD such as the accounting and stores organisations and Fleet Maintenance Bases;
2. (b) costs of setting-up and operating a system of configuration control to ensure the existence of up-to-date drawings of the equipment state of ships;
3. (c) the possible effect on the UK contribution to the European Community in respect of VAT as a result of transferring dockyard activities to the private sector: I understand this might be about £2 million per annum".

So the Minister ought not to be complacent that he satisfies anyone, let alone this House, that there is a clearly undisputed cost benefit to the taxpayer in carrying out the policies which have been indicated.

I am grateful to the Minister for the care that he took in spelling out the foreign ownership aspect. But I want to tell him that there is great unease at the possibility that an undue amount of the ownership of the shares can fall into foreign hands. With regard to strategic interests, Britain's essential defence requirement will be damaged and the ability of the dockyards to maintain the fighting effectiveness of the fleet, in my view, will be impaired.

The Minister took care, and I am grateful, to deal with the aspect of nuclear safety. This is very important. But I wonder whether the Minister can tell the House more concerning the incredible news given to the committee in another place that the managing director of Rosyth dockyard has disclosed that Balfour Beatty—a company to which the Minister referred, one of the companies tendering for the contract—had asked for some basic nuclear training in order to help prepare the tenders where nuclear refitting is concerned. The managing director had said that advice had been given that they should take a two-week course, after which, of course, they would have the lives of millions of people in their hands. The people of Dunfermline and Rosyth, of Plymouth and Devon, I believe deserve better information and security than that. People outside this House will be asking continually: why, why, why? Improve, alter, or make more efficient, but why disturb the existing situation?

We are concerned with Britain's defence interests. The House of Commons Defence Committee have served Parliament and people well. In 1984–85 it said as far as extra costs are concerned, There has been a coyness about the unwillingness of the MoD to come clean and publish some real financial figures to justify this leap in the dark". The Minister has said something about redundancy payments. He will understand that I shall be taking advice and guidance from those outside the House who will from time to time, and particularly during the Committee stage, advise me that those arrangements will be satisfactory to them. It was the House of Commons Defence Committee who said: We were told that the Navy board had considered the national security implications of the preferred option, and was satisfied that there were no dangers. On the other hand, we were also told that the option did involve 'an additional risk' arising from possible disruption during a transition period, over and above that which has always been present from industrial disputes. However confident the Ministry is that"— and this is the House of Commons Defence Committee speaking—

'appropriate steps' can be taken to secure the nation's deterrent, the mere existence of additional risks must be regarded as worrying". When the Ministry of Defence replied to those comments this is what was said: Our misgivings about the Government's intentions have not been allayed by the evidence we have been given, orally and in writing, since the last report". I simply want to say to the Government that, however justified they feel that they have got it right, there is no authoritative source that I have heard so far, inside or outside this House, which is satisfied with the Government's attitudes to these matters.

Cost savings have been put forward as the purpose of this Bill. I suggest that as with transport, telecommunications, gas, airports as with ordnance factories—outrageously in my view—these proposals are justified by but two criteria. They take off the national payroll thousands of public servants and thus fulfil the Government imperative of cutting the Civil Service; and they provide the opportunity for private profit to be made out of public need and the defence of the realm. All other considerations are but dogma. We are also entitled to be deeply worried about the aspects of nuclear safety. That is something to which we shall return time and time again.

Let me review very briefly the options which the Government had before them. As the Minister said quite rightly, there is nothing that is original or has not been fairly thoroughly examined over the past few years. But in 1980 the then Navy Minister chaired a committee which looked at agency management and concluded: The disadvantages are that the management would have little incentive to make itself more efficient while the usual justification for an agent is that he has the resources and skills of the parent company to fall back on. In the case of the dockyards the reverse is more likely to apply. We do not therefore favour this option. That is a quote from the Navy Minister who chaired a committee under this Government in 1980.

The Mallabar Committee of 1971 had this to say: The agency factory arrangement has, we know, been used fairly extensively in times of war emergency. But those of us who have had direct experience of its working are satisfied that this is the way to get the worst of both the commercial and the Government dockyard worlds. We would certainly not recommend it for the dockyards". That is a quotation from a very respectable source.

I want to turn very briefly to some of the local worries. It was the Member for one of the Plymouth seats, Miss Janet Fookes who said on 2nd December (at col. 45 of the Official Report, in another place): I accept along with other individuals, organisations and Select Committees, the need for some change in the organisation of the dockyards. In saying that I am paying no disrespect to the workforce, which can only be as good as those who lead it and the system under which"—

Lord Trefgarne

My Lords, I hope that the noble Lord will forgive me for intervening, but I understand that he is not in order to quote a Back-Bencher in another place.

Lord Graham of Edmonton

My Lords, even someone as authoritative as the Member I was quoting? I simply want to say that the Member representing the area of direct concern in Plymouth has certainly indicated to the other place, and I simply report to this House, that the workforce in Plymouth have done nothing to earn the enormous burdens and traumas which are being vested upon them at this particular time.

Already 2,000 jobs have been lost in the Plymouth area and in Rosyth as a result of changes which have been made. When we refer to Rosyth we are talking about no mean business; we are talking about a national asset of great pride and achievement, and the Government think so too. In recent years some £200 millions have been invested in that naval base. The major projects have included a new access road, new facilities for HM ships' companies, new police buildings, new stores and improved nuclear refuelling facilities.

It is planned to spend £200 million over the next 10 years. There are 8,500 direct plus 2,000 indirect jobs involved at Rosyth. There are 650 craft apprentices under four years' training. It has a health and safety record which is impressive by any yardstick. It has a disputes record which many large industrial companies would envy. That is what at present is in a high state of uncertainty and tension as a result of the actions of the Minister and the Government.

The trade unions representing the workforce in the dockyards have responded positively to all reviews and suggestions for change. That is not to say that the trade unions accept the criticisms of the dockyards made by the Government. I shall be arguing their case more specifically at the Committee stage, but they have said that one way to improve the customer-supplier relationship with the Navy, to give managers more authority to manage and to improve accounting procedures would be the creation of a trading fund. The Speed Committee advocated a dockyard trading fund as a total operating regime rather than a mere accounting change, and the trade unions support that.

The noble Lord the Minister will not need reminding that when we debated the ordnance factory legislation we had some anxious moments on assurances to, among others, members of the Defence Police Federation. I am grateful to the Minister for what I believe he did earlier, which was to repeat assurances that were given by his honourable ministerial friend, Mr. John Lee, that there would literally be no change in the status and operating methods of the police. When the noble Lord replies, I should be grateful if he would confirm that he has reiterated the assurances that were given earlier.

If the Minister will not listen to some unbiased and independent observers, perhaps he would care to listen to the views of a former Director of Dockyard Procurement and Support, Rear-Admiral Philip Marrack. He was responsible for production, programming and capital investment in the Royal Dockyards, including the contract procurement of warship refits. In a paper commenting on the Government's proposals he said: Strategic Defence installations of this nature must remain in Government hands, and the UK Government seems to accept this, but they are proposing to inject a contractual block between the Navy and its heavy repair force. He goes on to say

All that a contractual negotiation will achieve is a lot of delay and an increase in the Navy's cost by the Contractors' profit with inflated claims for so-called extras". This Bill is one of the most ill-prepared, poorly researched and irresponsible Bills, which even this Government have introduced over the past six years. Franchising and agency arrangements may be all right for fast foods and hamburger joints or for soft furnishings, but surely such a complex, sensitive and crucially strategic arm of national defence deserves better than a franchising arrangement. This Bill is an irrelevance at the present time. It seeks to shatter the traditions and the achievements of generations of dedicated men and women who proved as recently as the Falklands crisis that they have the flexibility, the skills and the national interests to do all that this Bill wants them to do. All this Bill wants in the national interests is an offer by a government which believe in co-operation with the workforce of a service to the Fleet at all times and in all circumstances.

During the Committee stage we shall seek to stimulate the interest and experience in defence matters which exists on all sides of this House so that we not only save the jobs of thousands of fine workers, but we save the Government from their own stupidity.

12.6 p.m.

Lord Mayhew

My Lords, the noble Lord spoke at some length about the Government's high regard for the workforce and their sensitivity to their interests. However, one would not have gathered that from the Bill, the simple purpose of which is to enable the Government to get rid of the workforce without delay, against the wishes of the workforce. The employees wish to remain servants of the Crown; they prefer to work for the Queen than for the chairman of Trafalgar House, or whatever company, and who will blame them for having that preference? However, the Government say "No", and have produced a Bill to that effect.

I find the actual wording of the Bill peculiar. It calls for:

the transfer by the Secretary of State of persons employed in the dockyards from Crown employment to a company, which would become their employer". It is a transfer against the will of the workforce, provided that the price is right. It is a strange concept. To me it seems autocratic, although it may not seem so to everyone. It seems a strange purpose for a Bill. The noble Lord, Lord Trefgarne, listed the reasons why the Government wished to do this. I suggest that there is another reason, which perhaps for reasons of delicacy the noble Lord did not mention, although the noble Lord, Lord Graham, touched on it. A major reason is that they wish to change the status of the workforce in such a way that Ministers can claim to have cut the Civil Service. That is the real reason. I was a Defence Minister in the Wilson Government, and we did the same, although our motivation was slightly different. We would hive off branches of the defence services, the defence forces, in order to show our political activists that we were cutting defence expenditure. The Government are doing exactly the same thing in order to show their political activists that they are cutting the Civil Service. Not only is this a major reason for the Bill, but it is the only aim in the Bill which stands any chance of being achieved.

The noble Lord, Lord Trefgarne, spoke about saving money; but, as the noble Lord, Lord Graham, pointed out, we have the 21st Report of the Public Accounts Committee. In his speech the noble Lord, claimed that, from evidence to the Public Accounts Committee, £21 million a year would be saved. However, a careful reading of this report shows the opposite. It shows in polite language that the Public Accounts Committee is saying that it does not believe the Government. It does not believe the £21 million. The noble Lord, Lord Graham of Edmonton, quoted to this effect. I could give many more quotations from this report. Of course, the costings which the Government give and which the noble Lord gave are totally inadequate to enable us to judge whether or not this £21 million means anything. We would need far more figures, far more facts, many more estimates, before we could accept this, especially in the light of the conclusion of the Public Accounts Committee.

Turning to the other reason—efficiency—there is a mass of evidence of impartial investigation now by the Mallabar Committee and by the Select Committee on Defence in the other place, which contradicts the Government's claim on efficiency. I was rather struck by a remark by the Minister of State for Defence Procurement in the other place on the Second Reading of the Bill. He referred to the refitting of Polaris at Rosyth. I had some personal responsibility in the old days for this kind of thing and I was struck when he said, "We have no complaint about the quality of that work; the quality is extremely high. But that is not the only work carried out at Rosyth".

It is surely interesting that the Government should be wholly satisfied with the refitting of the Polaris submarines at Rosyth. What is it that they do there that they do not do elsewhere? There is no competition, after all (is there?) in refitting Polaris submarines. Thatcherism has not yet got down to a free market for Polaris. There is no competition. The management system is the same. Why is it then that great results are achieved here which are not achieved in other parts of the dockyard? Possibly the noble Lord can enlighten us on this because it is done by Crown servants in the same way as in other parts of Rosyth and Devonport; and yet the Government are wholly satisfied with it.

I think it is true that the Government believe they will gain in efficiency because the commercial interests of the contractors are bound to coincide with the defence needs of the nation. That is it. It is a theory. It is a doctrine: what is good for Trafalgar House is good for the United Kingdom. This is, I suppose, why it is a Conservative Government, because that is the basic ideology of the Conservative Party.

Suppose the contractors find that they can make more money by spinning out the work, by taking short-term views, by giving one contract priority over another, by cutting down unused capacity in ways that seriously undermine the readiness and operational efficiency of the fleet. It is pure dogmatism, pure ideology, to suppose that there is an automatic corresponding of interest between the financial interests of the contractors and the needs of the nation. Once this Bill is passed and the new system comes in, the navy will not be able to tell the contractors what to do. It cannot tell them to do this or to do that to its ships in this or that order of priority. It cannot do that at all. If it wants something done it must tempt the contractor, it must bribe the contractor, and if it wants something done urgently it must bribe the contractor outrageously because the strength of the position in which the contractor stands is perfectly plain to anyone who has studied this at all. In practice, nine times out often the contractor will be in a monopoly position because the delays and difficulties of taking the job elsewhere will be prohibitive. This will crop up again and again. As I say, the navy can only get its way by tempting the contractors on a basis of commercial profit.

As the noble Lord, Lord Graham of Edmonton, indicated, there are a number of alternative ways of going about this: reforming the existing set-up, having a trading fund or a publicly-owned company. All have advantages and also some disadvantages. We shall no doubt be discussing those a great deal at Committee stage and they have already been exhaustively discussed in the other place. The one point they all have in common, in my judgment, is that they are better than the scheme the Government are now putting before this House.

Nobody really supports this Bill. The Public Accounts Committee does not; the Select Committee on Defence does not; the workforce certainly does not; Rosyth does not; Plymouth does not. We shall hear from the navy later in the debate. The Labour Party, the Liberal Party and the Social Democratic Party united against it. The Minister gave an excellent explanation of the Bill. I do not think he gave the impression of being swept forward by a sense of burning mission in support of the Bill; not at all. I doubt very much whether there is any passionate support for the Bill on the other side of the House.

I urge the Government that the new report of the Public Accounts Committee could give them pause. There is no need to rush into implementing this Bill. It is a bad Bill and we shall have to improve it as best we can during the Committee stage.

12.16 p.m.

Lord Lewin

My Lords, I must first declare an interest in the matter that is before us. I am a part-time chairman of a shipyard on the east coast which employs between 400 and 500 people. We are building a small auxiliary for the Royal Navy—a coastal survey vessel. From time to time we tender to the Ministry of Defence for the refit and repair of very small and minor ships and craft—landing craft, auxiliaries and that kind of thing. The business is very marginal to our affairs. I have another interest, and that is the efficiency and wellbeing of the Royal Navy. One may say that those two interests could be in conflict. From my first interest, I might wish that the dockyards should be inefficient so that we could pick up some of their business. I must assure your Lordships that it is the second interest that is paramount in my concern and in fact I see no conflict.

The noble Lord, Lord Graham of Edmonton, was kind enough to refer to my experience and I shall, if I may, speak from my experience. Looking round your Lordships' House, I can see that only my noble and gallant friend Lord Hill-Norton would perhaps argue with me on which of us has the greater experience of ship refits in dockyards, by they royal or commercial. So long as there have been ships, the navy has had a love-hate relationship with the dockyards. The enthusiastic captain and his ship's company take their beautiful craft into the dockyard. They see her torn to pieces before their eyes and get dirtier and dirtier. They see the pieces of the jigsaw put back again. They see time running out. The completion far too often is hurried and far too often equally is late. They then take the ship out again and spend the next three months bringing it back to its former state of efficiency and beauty.

That is not to say that the dockyards cannot do a good job. Of course they can. I have the greatest respect for the skill and craftsmanship of the dockyard "matey"—and I use that term as a term of affection. I have fondest memories of taking "Hermes" out of Devonport dockyard after a two-year modernisation while she was still in dockyard hands and dockyard control to carry out engine trials. All the machinery, the main auxiliary, was manned by the dockyard. My small ship's company was responsible only for navigational safety and communications. After that two-year refit everything worked magnificently. One of my most treasured ship's company photographs is of myself surrounded by a dockyard matey ship's company of 500 people. I hope that some of them treasure the photograph as much as I do. The modernisation, I may say, finished a month late.

I agree with the noble Lord the Minister that it is not the skill and dedication of the workforce that is at fault, but it is the nature of the management. The dockyards, too, have always had this ability to rise to an emergency. The case of the Falklands has been mentioned, and indeed the dockyards did well. But I would not overstate that case.

The commercial shipyard did equally as well in their modifications in very short time to merchant ships, as did the naval support organisations of stores and transport and armament supply, and of the work that was done in the dockyards a proportion—perhaps quite a significant proportion—was in fact carried out by workers from contractors who supply the weapons systems, the sensors and the warning systems. The dockyards can do a good job. It is the management that is at fault. I am sorry to say that eager ships' captains would often put efficiency first, and are not too concerned about price. It is only later in their careers that they realise the effect of poor timekeeping and high cost on the navy as a whole and the total disposition of resources.

The long-standing dissatisfaction with the performance of both timekeeping and cost is reflected by the frequency of reviews in the dockyard organisation and performance, which the noble Lord the Minister has already mentioned. He mentioned 15 years. May I speak again from my personal experience of 25 years of dockyard reviews, which seem to me to have occurred at intervals of at least two to three years. Since each one takes something like a year to 18 months to conclude, and then the reports have to be studied and considered, this in fact means that the dockyards have been under almost continuous review for, in my personal experience, the past 25 years.

As a junior captain on the naval staff I sat on the Jarratt Committee (an internal committee) which was set up to reconcile how a projected dockyard overload could be tailored to the dockyard capacity. The committee sat for about 18 months. About half-way through our terms of reference were changed to see how dockyard capacity could be tailored to what was now a projected dockyard underload. Some other policy decisions had changed the nature of the load in that time. Fortunately by that time I was back at sea.

In the late 1960s, as Assistant Chief of Naval Staff, I was responsible for a study to decide what dockyard capacity the navy needed for a fleet that was going to be without carriers, the decision to dispense with the carriers having been taken. My recommendation was that we should close Chatham because its capacity would certainly not be needed. Ministers seemed to agree with this, but my naval superiors did not, and Chatham did not close. They were right, because in the ensuing years the dockyard productivity slumped to such a great extent that Chatham was in fact required. I believe that there is perhaps another Parkinson's law, which says that dockyard productivity automatically adjusts to match the load.

We went on through other more prestigious studies which have already been mentioned—Norfolk, Mallabar. In the early 1970s a quango was set up called the Royal Dockyard Policy Board. On it were put eminent accountants, industrial relations consultants, trade unionists. It was chaired by the navy Minister. As the Vice-Chief of Naval Staff I represented the customer. I can remember vividly taking these eminent gentlemen through the entrails of a nuclear submarine deep in refit in Rosyth dockyard, and it brought home to them the complexities of refitting a modern warship. Some time after I was lucky enough to be the First Sea Lord. The problems we suffered in the dockyards at that time—I am talking of 1978 and 1979—were one of my major headaches.

At that time it was my practice to write a newsletter to all officers in command, from the admiral commanding the fleet to the junior lieutenant who commanded a small patrol vessel, to let them know what was happening in Whitehall. I should like, with your Lordships' permission, to read what I said about the dockyards in two of those newsletters. The first was written in February 1978. I said: We have been taking a special look at the dockyards and the problems therein which have plagued us for years (centuries?). The management have the difficult problem of contending with a workforce whose pay and conditions of service are largely outside their control. Somehow we have to win the dockyards to our side, with a stronger sense of loyalty and motivation. The Chief of Fleet Support"— who was at that time that excellent officer, Admiral Eberle— has been working on a new charter for the Royal Naval Dockyards which will recognise their special needs, provide a sense of stability and a new direction for the future. We shall not achieve any dramatic overnight improvement. It will be a long haul and we shall need both political and trade union help. I went on: A complication has been the proposal, pressed on us politically for some years now, to run the dockyards on a trading fund principle. The unavoidable monopoly nature of the customer"— the fleet— [to] the supplier"— the dockyard relationship— coupled with the complexity of modern warship repair … just does not make sense, and we hope shortly to put the idea to bed. We seem to have at least succeeded in doing that.

Fifteen months later I wrote another newsletter. In the intervening period things had not gone well. I said: The summer of 1978 saw the damaging industrial civil servants' pay dispute and its consequences, up with which you all had to put. The frustrating events at the Clyde submarine base, where naval ratings were used to load "Revenge" with replacement missiles, and at other naval bases and establishments are well known to you all. There was disruption of ships' programmes and aggravation and inconvenience for ships' companies both ashore and afloat. Now we are left with a large backlog of dockyard work, which means that we shall certainly have to cancel the second major refits of the Batch 2 Leanders, "and there may be more of the same medicine to come. Meanwhile the morale and motivation throughout the whole of what I look upon as the civilian part of the navy, because without them we cannot operate, remains at low ebb. This is our greatest present concern, for so far no adequate remedial steps have been taken. I went on later in the same letter:

To make up some of the dockyard capacity lost during last year's industrial dispute, equivalent to 10 Leander normal refits, we have had to put more refits out to contract with commercial ship repairers. This has meant further unwelcome turbulence for the ships' companies of some ships, but it has shown the dockyards that they do not have the monopoly that they thought they had. They have seen the ships emerge from successful periods in commercial yards where traditional trade demarcations have given way to a refreshing flexibility. If we can achieve a similar approach in our own yards we shall be able to increase our productive capacity to an extent that will allow us to undertake all but the marginal load in house. Further down I say: I have re-read what I said to you 15 months ago about the dockyards. Then the mesage was the need to win the dockyards to our side, with a stronger sense of loyalty and motivation. Sadly, we have slipped back, and our task is now harder and will take longer, but the aim remains the same. Again our hopes were not realised, and the situation has not improved since that time.

The Navy Minister, Mr. Speed, who has already been referred to, picked up the pieces of the trouble we were in in 1979 and did yet a further study in 1981. By that time I was no longer directly responsible for naval matters, but I understand that he put forward some sound proposals, but they were completely overtaken by the review of our capability undertaken by Secretary of State, John Nott, which made fundamental changes in the shape and size of the navy, removed half-life modernisations from the dockyard programme, and swept away all the basic assumptions which under the Speed review had been carried out.

So there came yet another study, this time by Mr. Peter Levene. This produced a proposal to put management out to commercial tender. This is not a new proposal. It has been looked at before, but never before has it been seen to be politically expedient. I rather suspect that the germ of the idea on this occasion came not from Mr. Levene but from some naval officer with deep experience of dockyard affairs.

I hope that I have not wearied your Lordships with this retrospective. I wanted to show that the dockyard problem is not new and it is very difficult. Indeed, if Lords Anson and St. Vincent, First Lords in their time, who wrestled with dockyard inefficiency with some success, were here today they would find the scene disturbingly familiar. Will these proposals work? In my view they have at the least a very good chance, because they tackle two of the most intractable aspects of dockyard management: the ability of the local management to manage, which as long as the dockyard management and workforce remain within the national Civil Service is impossible, and the ability to escape from the straitjacket of restrictive practices.

The performance of recently privatised ship repair yards and the greatly increased flexibility which it has been possible introduce in Portsmouth, where the dockyard has been subsumed into a maintenance base, give me great cause for optimism. Of course, I have some concerns. Cost has been mentioned. It is difficult without full access to all the facts and all the calculations to make a realistic assessment of costs and whether we shall save money or break even.

It is also very difficult to foresee the future and what may happen to upset any calculation of cost which may be made now. Even if we manage just to break even—I believe there is a very good chance of that—and achieve greater efficiency, we have succeeded. If we could cut normal refits by 25 per cent.—I see no reason why we should not with better management—time is money and we have made a considerable saving by increasing the operational availability of the fleet.

I have another concern. I understand that a new naval organisation under the Director General of Ship Repair has been set up. This organisation will represent the customer. It will specify the work package to commercial management, negotiate the contract and oversee the work. The place of this organisation in the future is crucial. I urge the noble Lord to ensure that it is given the necessary staff, adequate in size and with experience and capability.

The assets are to remain in the possession of the Government. I am concerned that these considerable assets, worth a great deal of money, will be properly maintained, updated and improved and the right level of capital investment to provide for the future is put in. I hope that the noble Lord will reassure us on what arrangement will be made for this.

I was concerned about security, but I was glad to hear that the Ministry of Defence Police responsibility will remain unchanged. I share your Lordships concern on nuclear safety. The present organisation for nuclear safety, which is largely naval, has an excellent record and is tried and tested. I hope it will be possible to retain this and to build on it.

My final concern, which I know all your Lordships share, is for the people. They have given us long, loyal and dedicated service. They must now have considerable anxieties about their future. They must be fairly treated. I hope that great priority will be given to their treatment and to proper arrangements for redundancy and retention of pension entitlement, which should be fully explained to the workforce as early as it is practical to do so. If it is not, we are heading for trouble.

I support this Bill. I believe that it has a very good chance of breaking us out of this long concern with the performance of the dockyards. We cannot go on tinkering and altering here and there. We have to do something radical. This in my belief has a good chance of producing the best long-term structure to meet the needs of a modern fleet. I understand that it is backed by the naval members of the Navy Board and I have great respect for their judgment.

12.35 p.m.

Lord Beloff

My Lords, in view of our pleasant ceremony last Wednesday, it may be thought indelicate to refer to the defeat of the Spanish Armada. Nevertheless, that is a reminder of the long history of the importance attached to the backup for the Fleet and particularly to the role played in this by the West Country.

It is not surprising that this debate has attracted a number of speakers, including the noble and gallant Lord who has just addressed us and his former naval colleague, the noble and gallant Lord, Lord Hill-Norton, who will address us later. The words that have just been spoken in support of the Bill by the noble and gallant Lord, Lord Lewin, should convince those who do not bring to this political prejudice that it represents a possible, and perhaps the best possible, solution to a problem the history of whose innate difficulty we have heard recited.

However, I think that the noble Lord the Minister and his colleagues may have more work to do to convince everyone concerned of the desirability of the Bill, partly because, although Napoleon said that it was desirable that a constitution should be brief and obscure, I am not quite sure that that also applies to Bills. This Bill is both brief and obscure, and, indeed can be understood only in the light of the explanations that have been given to us today by the noble Lord the Minister and in other papers and documents circulated on the Bill's behalf.

There are two questions and two only that I should like to ask. One was touched upon by the noble and gallant Lord, Lord Lewin, in relation to assets. One of the difficulties that must have been in the Government's mind was the handling of something which is not a totally independent company in the sense that it does not own the means of production, and the desirability of giving it managerial flexibility. Since managerial flexibility (freedom from Civil Service rules, if one wishes to put it that way) would in normal situations include decisions about purchases, new equipment, updating equipment and renovation of equipment, it is not clear on the face of the Bill exactly how this responsiblity is to be shared and whether the new management, even though it will be given the kind of freedom in relation to the workforce which is emphasised, understandably, in the Government's presentation, also applies to the acquisition of relevant assets and to whom these assets when acquired should belong.

If the Civil Service routine about purchases is not also removed there will still be a considerable degree of overhead control and that in itself is bound to be expensive. The House is entitled to somewhat more detailed explanation on this aspect of the proposed running of these companies than is apparent in the Bill.

The second issue on which I think one needs a little further conviction—because, after all it is making a considerable change which will affect both the Fleet and, as has been pointed out, the workforce and, indeed, all the inhabitants of the two towns which are principally involved—is whether the Government really believe in this Bill. I will support them with enthusiasm if I feel that that enthusiasm exists. It may be a curious question but there is in the third clause of the Bill a reference, to which the noble Lord the Minister referred, to the Secretary of State taking over the liabilities which the company might have incurred if he were to bring it back into public ownership.

Although the noble Lord the Minister did not enlarge on this, in other documents it has been suggested by the Government that they might require to do this—I think the phrase used is—"in times of tension or war." War, we hope, is not something for which they need to provide at any rate in the near future. Tension, however, I should have thought, is something that is always with us. I cannot see any prospect on the international horizon of a disappearance of tension. Therefore, one has to ask oneself why it is, if the Government are unconvinced that this new arrangement would work in a situation of tension, that they are keen to bring it about.

This may be a misunderstanding. It may be that what they had in mind was something quite different but it seems to me that, apart from circumstances of major war when a great many things have to be altered in relation to defence matters, the system under which one is working should be something in which one has total confidence that, whatever the pressures may be, it will respond. I should like to hear from the Minister, as I imagine would other noble Lords, that the Government are of the opinion that the proposed organisation would respond to the needs of the Fleet. Those needs after all, have brought us here this afternoon.

12.43 p.m.

Lord Denning

My Lords, I should like to say a few words, first because of the close association of my family with the Royal Navy, with my elder brother in the first world war; my younger brother in the second world war, and my nephew in the Falklands, therefore, we are very interested in what happens to the Royal Navy. I am interested also in a close association with the City of Plymouth of which I was the Recorder in 1944. That is my interest. Then, when I come to read this Bill, I am aghast at the powers given to the Secretary of State to upset all that we have known of the maintenance and control of our Royal dockyards. The Minister, Lord Trefgarne, was good enough to say, "The ownership of the land will still remain in the Crown." What about the leases of the land, the fixed equipment, on which we spent millions and millions? That can be let out. The clause says it. What rent will the Government charge? It cost hundreds of millions of pounds to put it there. Will this commercial concern pay a fair and reasonable rent for it or not?

Also, the moveable equipment. That, I suppose, will be let out or even sold or whatever it may be. What is to be done about that? Even more important, what about the new capital cost, whether in new docks, new sheds or whatever it may be or modern devices? Is the company going to provide the capital for that? Surely, the Government would have to do it. Those are the questions in relation to this Bill which it seems to me those promoting it have not considered. That is in regard to the actual use of the property of the Crown in the Royal dockyards which have been the property of the Crown all these years and still remains the property of the Crown, but let out. That is about the land, the equipment, of our Royal dockyards.

What about the workforce? Through traditions coming down for centuries, the essential ancillary to the Fleet is the repair of its ships, keeping them in fighting order. And in the workforce the tradition has come down for centuries? What is to happen to them? Under this Bill they are to be transferred automatically, without any consent of their own, from the Crown to a company of which they know nothing. It is a fundamental principle of our law going back to a case called Doncaster Colliery v. Nokes in 1940. No man is bound to his employer to have him change without consent. That was a case where there had been an amalgamation of two companies. It was said in law the servant was bound to obey and to be employed by the new amalgamation company. The House of Lords said, "No. No man is bound to change his employer without his consent."

What is to happen to this Bill? All those dockyard mateys—and I, too, can use a Naval phrase—will be automatically transferred from the Crown, loyal servants of the Crown as they be, to a private contractor, with no more of the safeguards that they had had before, and contrary to the general principle. That regulation, which is referred to in paragraph 2 of the protection of employment regulations, deals only with transfers between two ordinary commercial concerns. Interestingly enough, there is a special exception for seamen on a British ship that if the ship is sold to another concern, a foreigner, the seamen is not bound to serve that foreigner. That is an exception to that transfer of employment. That is a seaman on a British ship.

What about a dockyard worker in the Royal dockyards? I should like to say that the principle of law still applies. He is not to be forced to take a new employer without his consent. There it is. This Bill overrides the dockyard workers in this. My noble and gallant friend Lord Lewin has said, "Of course, there must be change. The whole thing at the moment is inefficient; it is all governed by the Civil Service, red tape and the like. The work does not get done; it is not done properly; it is not done economically." I can see that. That is all quite right.

But what is the right solution? Is to form the company the right solution? The Bill tells us nothing about it. Although some reassurances were given by my noble friend the Minister, nobody knows anything about this company. So far as concerns the Bill, it is an unnamed, unknown, uncapitalised company. We do not know anything about the shareholders or anything like that. It is all in the Secretary of State's control. The Bill does not give Parliament any control. We are told that about 30 per cent. of the shareholders are British and all that sort of thing. Have your Lordships heard about nominees? Many shares are held by nominees and foreigners and the like. The formation of a company to run our vital dockyard services is a matter of special importance: its constitution, its charter, its formation, its shareholders and the like. Surely, it is a matter in which Parliament should have a say, and it should not be left entirely to the Secretary of State.

We were told that 1 per cent. was to be for the Government and that provisions in the articles of association and the like will give some overall control. But such matters ought not to be left to the Secretary of State. Parliament itself ought to have a say in the constitution, shareholding and management of a company such as this, which is to play a vitally important part in our defences.

I would just say this. Commercial management is not the sole criterion. National security must be remembered. Also, when emergencies arise, whether in the Falklands war or in the other wars we have had, all these services must be called upon at once. Like a fire brigade, they cannot be run commercially. They must be sitting in the rest room, or wherever it is, for six months but then a great fire comes and there is an emergency. That is why our forces in the dockyards are so important. They must be ready at once to step in when an emergency arises.

I would suggest to your Lordships that this Bill needs most careful consideration as it passes through the House to see that national security is defended to the uttermost and that our workforce is well and fairly treated. Subject to that I say let the Bill have a Second Reading and let us amend it a great deal in Committee.

12.52 p.m.

Baroness Vickers

My Lords, I am very pleased to have the opportunity of taking part in this debate, and I should like to start by thanking the noble and gallant Lord, Lord Lewin, for thinking about people, because a great deal of this Bill concerns people in the future.

Before I put forward my views on the Bill, I should like just to say something about Devonport. In 1689 the main threat to Britain came from the Dutch and the French. That was the time when the dockyard began to expand. With all the previous wars, the two world wars and the Falklands within living memory, I think that the dockyard, as the noble and learned Lord who has just spoken has said, has done a wonderful job. Devonport was second only to Coventry in being bombed by the Germans in World War II and people were so keen to do their work at that time that the workers went out and camped at night on Dartmoor so that they could get to work next day when perhaps their houses were being bombed in the city of Plymouth.

Since 1691 the yard has expanded and now encompasses more than 300 acres, with a waterfront which is more than three miles long. In considering the changes which are about to take place, I should like to pay tribute to those who have served and are currently serving in the yard. There is hardly a family in Plymouth which has not had members either working in the yard or serving in the Royal Navy.

Hereditary peers are naturally proud of the service of their ancestors, and I should therefore like to put on record my appreciation and the appreciation of the whole nation for the services rendered by those who have been serving in the yard for generations. I wish all who will continue to serve their country at Devonport and who will be the forerunners in the new technologies which will produce the safeguards for generations to come the very best in their endeavours.

I should like now to turn to the Bill which, as the Minister has said, seeks to introduce a system of management by contractor of Rosyth and Devonport dockyards. The most encouraging aspect of this plan is that it has shown the determination of the Government to do something in regard to the manner in which the dockyards are run. I know that I speak for everyone who is seriously concerned about the future of Devonport dockyard when I say that change is essential for the future of the dockyards. In that I agree with the noble and gallant Lord, Lord Lewin.

I understand that both the management and the workforce are agreed about that point, and indeed I believe that the change will allow the dockyard to realise its full potential. The point with which I take issue concerns the style and the pace of change. Certain moves have recently been taken to improve the effectiveness of the dockyard, and it is important to note that they were taken jointly by the management and the workforce. Already notional attendance has shown a reduction; the refit of HMS "Superb" was completed on time and below estimate; and the comparator exercise COMPLEX showed that the dockyards stand favourable comparison with private yards.

If I may, I should now like to outline what I believe to be the major disadvantages of the management contractors scheme. Most importantly, a company which is awarded a contract to run the dockyards for a period as short as seven years is taking on an impossible task. That worries me. It will be impossible for both the contractor and for the dockyard. To take a dockyard as large and as complicated as Devonport and try to franchise its management, with a change every seven years, can be nothing more than an experiment. The management contractor will not manage in the best interests of the dockyard or the Fleet: he will manage in such a way that only his own short-term interests will benefit. His lack of motivation to manage for the long term will create enormous problems, especially at the end of the contract period. Evaluation of and dealing with such complicated work on such an enormous scale requires far sighted management and long-term plans.

Secondly, this scheme will introduce a system of split control which will entail an enormous and costly organisation (mentioned by the noble and gallant Lord, Lord Lewin) called the Directorate-General of Ship Refitting trying to control the two dockyards at Devonport and Rosyth from its headquarters at Bath. I suggest that it will be impossible to monitor the contractor at such a distance and it will also create a variety of administrative problems. These will enable the contractor to blame the arrangements for any shortfall in his performance.

I know that I am not alone in my fears for this scheme. Plymouth City Council commissioned a survey to look at the many possible options for the future of the dockyards. The survey was made by Peat Marwick Management Consultants, which viewed the Government's scheme as an experiment. Reports by the Defence Select Committee and the Public Accounts Committee in the other place have also cast serious doubts on these proposals.

I agree with many of the conclusions of these reports and should like to read some brief passages from them to illustrate my doubts. The Defence Select Committee accepted the criticism which was made by the majority of the witnesses, who claimed that the time allowed for consultation was too short and that the MoD's handling of the consultation process had been inept and insensitive. In paragraph 34, the Defence Select Committee stated: The MoD have supplied no precise information on how security would be organised". We have heard a little more about that today. In paragraphs 40–43, it is said in the report: The Secretary of State said, 'the proposal is based on American experience' and cited examples of 'large organisations involved in defence being managed under this system.' It seems clear that this would be a misleading assumption. It is difficult to avoid the conclusion that the various government statements citing foreign experience as a precedent for agency management and a guarantee of the respectability of the concept, were not based on any kind of systematic investigation". The Public Accounts Committee said of the scheme: We note that the savings may be as little as I per cent.", and that these were

within the normal margin of error for such calculations". More recently, the head of the MoD Privatisation Planning Team announced that the scheme would cost some £70 million. That is almost as much as the project was intended to save in its first three and a half years. Surely the time has come to look again at an alternative future for the dockyards. A training fund is the scheme which has been recommended by successive dockyard reviews, including Mallabar and Speed. That would allow for the introduction of commercial accounting, make a clear separation between customer and supplier, make possible substantial gains in efficiency, encourage an element of competition and safeguard strategic interests.

Running the dockyard as a Companies Act company (a plc) was recommended by Peat Marwick. That, I know, is regarded by the Government as an alternative solution should there be no suitable bidder for the contract. I understand that the Government have commissioned Coopers and Lybrand to study the fall back option. That would guarantee strategic interests, allow the company commercial freedom and permit employees to take shares in their own future.

I should be grateful if the Minister could also clarify a point about apprenticeships. I hope that he will confirm—I have had information from a different source—that incoming management contractors at the two dockyards will be bound by law to continue apprentice training. Furthermore, I hope that he will be able to confirm that existing pension arrangements will be safeguarded.

To conclude, I should like to say what I believe would present the best possible option for Devonport, Plymouth and the nation. The present management of Devonport dockyard has shown its faith in the future by making a bid for the dockyard. I should like to see it taking control of the yard but not on a contract as short as seven years. It would then be able to continue to improve the manner in which the dockyards are run and to do so with an assured future for all concerned. The question of foreign control has already been mentioned. We should like to avoid the risk of foreign control and we think that management control would be the best way of doing that. It would make certain that a sense of continuity is allowed to prevail as improvements are made. I do not expect the noble Lord to answer today if he genuinely considers all the points that I have put forward, but I urge the Government to think again.

1.2 p.m.

Lord Hill-Norton

My Lords, like my noble and gallant friend Lord Lewin, I must start by declaring two personal interests in the Bill. First, I am retained as an occasional consultant to A & P Appledore, which is a member of one of the consortia seeking the management contract of Devonport dockyard, although I doubt whether it will entirely welcome what I am about to say.

Secondly, I am, as your Lordships will know, still on the active list of the Royal Navy. It will not therefore come as a surprise that my primary and overriding concern and interest in the Bill is whether it will provide the best available solution to the timely, economical and proper upkeep of the sea-going fleet, both in peace and in times of war.

I have been greatly struck by the failure to lay adequate stress on that truly vital matter in nearly all the speeches made about the Bill in another place, in most of the published literature and even in the speeches of the noble Lord the Minister and some other noble Lords this morning. It is not easy to read into the language of the Bill that that is the consideration uppermost in the Government's mind, as it most certainly should be.

Everyone connected with the dockyards, however loosely, over the years—I have an intimate first-hand knowledge of them going back more than 50 years—is agreed that change, and drastic change at that, is essential. At Devonport that is true of local industry, local Members of Parliament, the trades unions, the city council, and, above all, of the Royal Navy. Moreover, it is clear enough that both management and the workforce must by now be prepared for change so as to meet what I have called the overriding interest, by realising the latent potential of those great enterprises and by maximising their effectiveness.

What I regard as the most important issue before your Lordships today is the solution that should be adopted to achieve those aims. I have serious doubts about whether the solution preferred by the Government is the best, if it is, as the noble Lord the Minister has said, straight commercial management, although the Bill does not expressly say so.

There have been a great many attempts, to which many noble Lords and the noble Baroness have referred this morning, to change the present system. Four major initiatives, which I think have also been described this morning, have been taken within the past 15 years. Although all those have failed for different reasons, the problems shown up and the criticisms made of the present arrangements have been common to all of them. They amount to the plain fact that today, and for the past 50 years or more, the dockyards have been inefficient and extremely costly. The primary reason for that state of affairs has been the inability, under the system which has been operating all that time, for management to manage, a point to which many noble Lords have referred this morning, and for the customer, to whom noble Lords have not referred, which is the Royal Navy, to obtain value for money.

The primary reason for that is because the whole workforce is made up of civil servants. Ministers have clearly accepted that analysis, even if they appear to be more interested in apparent tidiness, commercial considerations and market forces than they are in finding a solution which will best serve the navy, so be it.

In the Defence Open Government Document 85/01 the Government explained all those matters clearly. They set out what they believed to be the options for putting that right. I agree with that analysis although I do not think, as I have just said, that they have selected the option which will best meet the Fleet's requirements. I am not alone in that view. As the noble Lord, Lord Graham, and others have said, the Public Accounts Committee was extremely critical of ministerial claims of likely financial savings. The noble Lord the Minister has told us about them and other noble Lords have referred to them. We may save £21 million a year during the first seven years while the start-up costs of £70 million are amortised. It would rise thereafter to £28 million a year.

Those are useful, although they are not large sums, in the context of a defence budget off £18,000 million. There are those certainly in the trade unions who say that the start-up costs will be much higher. I have no view on that. I have no way of forming a view on that. I believe what I am told by the Minister.

If those other people are right and the start-up costs are much higher, the possible savings will be much smaller and might even disappear altogether. What I find deeply disappointing is that Defence Ministers have allowed themselves to be bounced by the Treasury so that, whatever savings come to hand, they will not benefit the defence budget. Indeed, the reverse is true. As the noble Lord, Lord Graham, has said, if those proposals are implemented as they stand, and the figures that we have been given are right, the defence budget will lose £21 million a year and later more. Even after all my years in Whitehall I can still hardly believe it.

The Select Committee on Defence was much more critical than the PAC in several respects, in particular over the consultation process, which it described as much too short, and ineptly and insensitively handled. From what I know of it, I would agree. What concerns me more than that is the view of that committee, which I share, that the preferred option is a high-risk one. I am sure your Lordships will agree with me that it would be most unwise to take high risks over what is the most important element of our defence policy, the Royal Navy.

What are these risks to which the Select Committee, and I, refer? Briefly stated, they lie in the possible change of management too frequently, to which the noble Baroness, Lady Vickers, has just referred, and thus an understandable tendency to have no long-term corporate plan, a weak investment in capital facilities, a confused and possible hostile workforce and a desire to maximise short-term commercial gains. These factors may, and could well, lead to the separation of decisions on investment from those on the day-to-day commercial management of operations. That is a recipe for trouble. The worst trouble to which it could lead would be the lack of adequate capacity in both human and material resources to cope with emergencies, the so called "strategic-surge", which has always happened in the past and is absolutely bound to happen in the future. Success in an enterprise of this nature can come only from management, workforce and the customer having a primary and shared concern in the long-term future. I do not think that this will necessarily flow from the sort of commercial management deal which Ministers have in mind. If it does not, then the Royal Navy will be at risk; and I am bound to find that unacceptable, and so should the Government.

Given the essential requirement of the ability of management to manage, to which I and other noble Lords have referred, and the need to take the whole workforce out of the Civil Service (but not for the reasons rather unworthily suggested by the noble Lord, Lord Mayhew)—without which there is no hope for improvement—it seems to me that the option of a government-owned Companies Act company which the Minister described as a fall-back position is much to be preferred. It seems to me to be much less risky.

There are, and are bound to be, some risks. It is a solution which the Government have used successfully before; for example, in the Royal Ordnance factories. The Government would retain, as they clearly must, overall control. Considerable commercial freedom would become available. Employee participation is likely to improve motivation and moral. There should not be any risk to public expenditure totals. Investment and operation would march hand in hand. I have a strong feeling that the navy would be perfectly happy with such a solution.

Like my noble and gallant friend Lord Lewin, I support the Bill. I do so for the reasons which he gave, but I commend most warmly to the Government the particular solution I have just described. It is certainly allowed for by the Bill before us, and I hope that, amid his very many deeply grave preoccupations, the new Secretary of State will carefully reconsider his position in the light of what I and other noble Lords have said in the debate this morning, with the fighting efficiency of the Fleet where it ought to be—at the very top of his priorities.

1.15 p.m.

Lord Ashbourne

My Lords, I was encouraged to speak in this debate by the final paragraph of the Report of the Select Committee on Defence in another place, printed on 27th November 1985, the paragraph read as follows: We urge the Government to approach the debates on the Dockyard Services Bill with an open mind and a readiness to draw fully upon the opinions expressed from all quarters, in the best interests of the fighting efficiency of the fleet and of the defence and security of the nation I should like to say how much I agree with this paragraph and I hope very much that the Government will adopt an open mind when considering these important matters.

I am going to be as brief as I can be, but this is a complex subject and it is not easy to condense into a few minutes. I shall therefore address three specific problems which I hope will throw some light on the matter. First, what is wrong with the dockyards now, and why is some change in management practices needed? Secondly, how could this change best be done? Thirdly, to what extent would commercial management cure the problems?

The Defence Open Government Document talks of imposing commercial discipline on the navy by introducing a customer/supplier relationship. In several places it refers to introducing competition internally between the dockyards, and also between the dockyards and commercial firms outside. The document further implies that a customer/supplier relationship would make the navy more cost conscious and more thrifty in its demands on the dockyards. All these concepts indicate that the authors do not fully understand the nature of the essential relationship between the navy and its heavy repair force—the way refit work packages develop and are decided, and the impossibility of introducing real competition without making a complete nonsense of dockyard programming.

In most countries having sizeable navies, the naval repair yards are either part of the navy itself or of the country's Defence Ministry organisation—and for a number of sound reasons. The noble Lord, Lord Graham, has already quoted Admiral Marrack who said that stategic defence installations of this nature must remain in government hands. The Government seem to accept this but are proposing to inject a contractural block between the navy and its heavy repair force. The dockyards have to work as an intergral part of the fleet's upkeep organisation. This means that the civilian repair force needs to work almost as directly under the control of the navy's technical authorities as do its uniformed maintainers. The dockyards must be totally responsive to the needs of the fleet.

Under present arrangements this is the case, and when the need arises the Ministry of Defence can tell the dockyards what to do and where to put their priorities. But as the Ministry of Defence has often found to its cost, with the new construction shipyards it cannot tell commercial contractors what to do, as the noble Lord, Lord Mayhew, has already pointed out. It can only ask, and if it is to the contractor's advantage to ignore the needs of the navy—for example, by diverting resources to another customers' work, or applying different priorities—he may well do so. It is very difficult to impose penalty clauses in contracts, particularly on monopoly suppliers like naval dockyards; and if commercial contractors were running the yard there could be no certainty that our ships would be refitted or repaired to meet the operational needs of the fleet to anywhere near the extent that they are now.

There is also a powerful reason why most navies prefer to own their dockyards rather than use commercial contractors. It is virtually impossible to produce any form of contract for a major warship refit that will give the customer real prospects of firm financial control. That is due to the size, complexity and uncertainty of the task. At the tendering stage, warship refit work packages can only be partial statements of the work that will be required. The congested interior of a modern warship means that much essential refit work only becomes known after the ship is dismantled in mid-refit, and the consequent extras as to a contract specification give a contractor carte blanche for heavy dislocation and delay charges, which a customer cannot normally refute. Fixed-price contracts are therefore virtually unworkable, although I was interested to learn from the Minister's opening speech that it is the preferred solution.

The alternative is the cost-plus contract, which is more practical but which literally rewards inefficiency. By cost plus I mean that the contractor charges the navy for the cost of the work plus his profit margin of, say 10 per cent. Contracting for warship refits is very expensive in administrative effort—specification, estimating, contract negotiation and overseeing. It is a recipe for spawning bureaucracy.

The talk of competition in the Open Government Document is largely window dressing, because major warships need costly facilities and teams of dedicated people with specialist experience. Each dockyard is therefore specialised for particular ship classes, and the yards could not sensibly compete except for the simpler jobs. The handful of commercial repair yards are all very small and they are not properly equipped for major warship refit work. The element of real competition possible is therefore small. But much more fundamental is the need to plan the main structure of a large warship repair yard programme well in advance. Without such planning, manpower and resources cannot be matched to the ship workload. Competition would, if it were possible, produce a random load unmatched to resources, and the inefficiency that that would create would be vastly greater than anything we have previously seen.

So much for the background philosophy. Now to the first question: what is wrong with the dockyards today? Before discussing that, it is worth reminding ourselves that dockyard managers at all levels are on average as good as their counterparts to be found in outside industry, and they are probably rather better than the majority of managers in the commercial shipyards. In the fields of technical innovation, project management, planning and production control, the Royal Dockyards are streets ahead.

There are major deficiencies in the dockyards that need correction. The most obvious weakness is the excessively complex trade structure of their workforce, based on a dozen or so craft unions with strictly-enforced demarcation. While there have been improvements over recent years, the demarcation and balance of trade problems still delay progress and reduce productivity. A more broadly-based trained and flexibly-used workforce could certainly do more work, and there are some who conclude from that that the dockyards are over-manned.

But perhaps the most damaging deficiency in the dockyard organisation is the fact that the dockyard management is allowed no control over the size of its workforce and little effective control over its shape. Complements, wages structures, conditions of service and recruiting policy are either directly or indirectly dictated by a branch of the Treasury, which recently took over that role from the Civil Service Department. The Treasury takes those decisions for the whole of the Civil Service on a countrywide basis, and there is no means by which the Ministry of Defence can shield the dockyards' production workforce from Treasury-imposed cuts in Civil Service numbers, or from imposed constraints on wage rates or recruiting.

That can often mean that when the navy's ship workload is increasing, the dockyard workforce will be declining—causing overloading, delays in refit completions, and increased costs; that when key dockyard manpower is being lost to other industries, the dockyards will not be permitted to increase wage rates or recruit leading to an imbalance of trades and ineffective use of manpower. Without the authority and ability to match its production manpower to its load, the dockyards' management cannot man effectively or conduct its work efficiently.

The main source of inefficiency in the dockyards would be removed if the dead hand of the Treasury could be withdrawn from dockyard personnel management. And given proper freedom to recruit as necessary and negotiate with unions, it seems reasonable to expect that dockyard management could unscramble the workforce trade demarcation problems and agree on broader training for improved flexibility. All that is required is for the Treasury to be told to stop interfering with the dockyards' personnel management, and to delegate that task to the senior dockyard management in the Ministry of Defence, who understand exactly what needs to be done and are fully capable of doing it.

If that would violate too many tenets of Civil Service uniformity—and I am aware that probably it would—then it should not be too difficult to restructure the dockyard service as a separate civilian auxiliary force of the Royal Navy within the public service. It would be largely unchanged initially, but would have the freedom to mould its conditions of service to suit the needs of the naval repair yards.

In a curious roundabout sort of way, I seem to have answered my second question: if some change in management practices is needed, then how can that best be done? The best way to achieve the necessary changes with minimum disruption is to leave the dockyards as they are, within the Ministry of Defence, and for the Treasury to delegate its personnel management to the senior management within the dockyard department. The departmental Vote system would ensure that that delegation would involve no loss of financial control. Restructuring the dockyard service as a civilian auxiliary force of the navy would be a viable alternative.

On to the third question: would the introduction of commercial management achieve the required changes? It would clearly be one way of formally decoupling the Treasury from the management of dockyard personnel, but a simple delegation of authority on the Treasury's part would be far less disruptive and much less costly for the navy. Whether commercial management would obtain the required flexibility from the workforce is more doubtful It is difficult to see any suitable commercial firms that have a surplus of able managers who would even begin to understand the unique problems of the dockyards.

The achievements of our larger commercial shipbuilders in that field have not been impressive. Therefore, I doubt very much whether commercial management would provide the whole answer to the dockyard's problems. Commercial management in itself would not even bring improved efficiency. It would have to function without the spur of competition because the dockyards cannot avoid remaining monopoly suppliers. Indeed, commercial managers in a dockyard would have every incentive to overestimate and overcharge, so that the navy would get less work for more money.

To sum up, if the efficiency of the dockyards is to be improved, the yards must generate greater flexibility in their workforce, and dockyard managers must be allowed reasonable freedom to manage their people and match dockyard complements to the load. Any increase in productivity needs to be ploughed back into better upkeep of the fleet.

Without being privy to any inside knowledge, it seems likely that the Government have looked at the productivity of the Royal Dockyards on the basis of the return on capital employed. I would respectfully make this suggestion. I see that the Chief of Fleet Support is sitting below the Bar and so I hope that he is pricking up his ears: he is, and that is good.

Lord Trefgarne

Order!

Lord Ashbourne

My Lords, I beg your Lordships' pardon. I respectfully suggest that return on capital employed is a very poor criterion for evaluating the efficiency of the dockyards. One can no more quantify in financial terms the improved military capability that one has put into a well-refitted ship than one can attribute a financial return to one's stock of submarine torpedoes. The real return from the cost of conferring an improved military capability may be vast or it may be nothing, depending on what calls are made on it in the future.

I must apologise for speaking at length but, as I said at the start of my speech, this is a complex subject and the overriding criteria should be that the navy gets the best possible value for money from its dockyards. From what I have said I hope it can be seen that I take a pretty jaundiced view of the Government's proposals, and I trust that the Government will keep an open mind when considering amendments to this Bill.

1.30 p.m.

Lord Mulley

My Lords, the noble Lord has no reason to apologise for the length of his speech because I thought it was quite excellent and I agree with a great deal of it. Indeed, I hope that when we deal with the detail of the Bill the Minister of State will have the open mind that the Government were recommended to have by the Select Committees. Unfortunately, it would seem that his colleagues in another place approached this subject with a closed mind. Although we enjoyed very much the persuasive speech of the noble Lord, I am afraid I fundamentally disagree with the solution proposed by him and the Government; although, I think with everyone else, I am bound to accept that there is need for change.

We are, of course, all familiar with the many inquiries and efforts that have been made over the years to obtain a different system. The Minister spoke of reports going back 15 years. The noble and gallant Lord, Lord Lewin, spoke of 25 years. Not that it gives me any expert knowledge, and I certainly do not claim to have even a tittle of the experience and information that the noble and gallant Lords, Lord Lewin and Lord Hill-Norton, have—though, interestingly enough, they came to different conclusions—it so happens that the first parliamentary inquiry in which I was involved 35 years ago in another place, by what was then called the Select Committee on Estimates, was on the dockyards. I well remember going to Devonport and the Admiral Superintendent gave us such an excellent lunch that he had rather an easy run when it came to taking the formal evidence afterwards.

However, I agree with the Minister that the basic problem is that the organisation of supply for the navy is not best done through the normal Civil Service machinery. Over and above that, I think not only in this field but in many others the dead hand of the Treasury is largely responsible. I recall over 20 years ago, in another defence context, being concerned (at what I suspect was a very low level in the Treasury) with a tender for six married quarters which was rejected on the ground that they were a few hundred cubic feet too large by the standards that the Treasury thought appropriate for officers of the rank concerned. Although the scheme had the approval both of the senior military people and the Ministry of Defence, it was rejected. This was over 20 years ago, before we had chronic inflation. In the period we were redesigning the scheme to meet Treasury requirements the tenders we subsequently received were substantially higher for the much lower standard of building which the Treasury had insisted upon.

Although there has been some relaxation in Treasury control over defence, it has been very little. Our system, despite computers, and so on, is still subject to the criticism that Mr. Gladstone made all those years ago. He said that we keep our national accounts on a penny notebook system. The only difference is that I do not know where one can now buy a notebook for a penny. We just put income on the one side and expenditure on the other. There is no distinction between capital, revenue, expenditures and so forth. There is also the cut-off at the end of each financial year. Nowadays the actual Votes are changed many times during the financial year so there is no certainty or possibility of planning even for 12 months, let alone on a much longer basis. That is the real problem behind the dockyards.

May I say to the noble and gallant Lords who have naval interests that the navy is not entirely without blame? Repair and supply organisations in any field are extremely difficult to run. I do not know of anyone who would not have found occasion to be dissatisfied, whether concerning their television, domestic appliances or car, about the amount of time taken and the service they receive. May I also say to the noble and gallant Lord, Lord Lewin, that if, after two years, he got "Hermes" back just one month late, that was not too bad an achievement? He will recall that when he and I were working together on some of these matters we put out some conventional submarine refits to commercial yards. The cost was twice that for other submarines which were being refitted in Royal Dockyards at the same time.

I would not pretend for one moment that the dockyards are or ever have been perfect. But the allegations and complaints tend to be exaggerated. Navy personnel, like other individuals, when they want something repaired want it done yesterday. It is a real problem and can be exaggerated. However it is accepted that change is necessary. Where I disagree is with what is proposed. Two or three years ago it would have been unthinkable that the proposal now before the House could have been brought forward. It was very much the philosophy of the then Secretary of State, Mr. Heseltine, and I believe it has very few friends. Perhaps significantly, although he is a busy man, Mr. Heseltine having ceased responsibility for the Bill after introducing it, was not able to vote for it on Third Reading; and nor were any of the other former Secretaries of State present at Third Reading in another place. Indeed, nor was the last Royal Navy Minister, Mr. Speed, who I know takes a very great interest in all matters connected with the dockyards.

This proposal is conceivable only by a Government who, after all these years, have considered the Royal Ordnance Factories with a view to privatising them, and are now buying an aircraft from Brazil for the Royal Air Force. As I understand it, they are now putting out, almost on a month to month basis, worldwide tenders for small arms for our defence forces. I cannot think of any other nation that is not concerned to have direct control of supplies which are essential to its national defence. Moreover, this comes from a Government who criticised me and my Labour colleagues for having sold defence short when we were responsible for it. Frankly, I find it exceedingly surprising that, as has been said, the Government are prepared to take these risks with national defence which is embodied in one aspect of the Bill we are now considering.

I hope that the Government will come a little cleaner about the actual costs involved. Unless one is directly involved, one must accept the figures that are given. However, the initial set-up cost of £70 million seems, from other figures I have seen, to be extremely low. I have seen figures of over £400 million. Perhaps the Minister can tell us whether allowance is made in that £70 million for the pension fund that may be necessary, for redundancy payments and for similar matters. Indeed, I have seen estimates of over £400 million and that the annual extra cost could amount to £50 million more, without the savings that the Minister suggested.

As the noble Lord, Lord Ashbourne, said, I think we need to indicate the problems which come from the nature of the service that the dockyards provide. They are not providing equipment in most cases; they are providing a service. It is rather like the garage that services one's car. If you have faith in your garage, as I hope most noble Lords will have, when your car goes in for service and the garage rings up and tells you that while examining the car it has found that it needs to have the brakes relined or requires this, that or the other to be done to it, it is more sensible to have those repairs done then.

But in case you feel that you may be overcharged by the garage, before you take the car there you can employ—no doubt at a fee—an independent engineer to examine your car and bring you a list of all the things which need to be done to it. If you wanted an estimate beforehand, I am sure that the garage would add a little on to the figure for the unknown contingencies which may arise and items which may take a little longer to put right than it thought.

My experience is that on a fixed contract of that kind one is liable to be taken to the cleaners. In the complicated innards of any modern warship or submarine, many possible defects, as the noble Lord, Lord Ashbourne, has explained, may not be found until the ship or the submarine has virtually been taken apart. If an independent body is to be employed to go through it and draw up the list of specifications, it will be very costly.

But apart from that, I should have thought that it would be bound to miss some things and, as one is always told when building a house or something of that sort, "For goodness sake, don't have any extras, because when you have extras that is when the contractor takes you to the cleaners". I cannot believe that you can put out a complicated machine like a warship to a commercial contractor with such a tight specification of the price of everything and not be completely in his hands. I think that that is the basic problem to which we must address ourselves in this House.

I do not want to talk for too long, but in passing let me say that I was interested in what the Minister said and fully agree with him. It would not only be undesirable but unthinkable that there should be foreign ownership indirectly through these contracts of basic essential defence support. The Minister talked about a special share, but there is nothing about this in the Bill. It only says that a company "may" be set up to deal with these matters. Surely a matter of national importance ought to be in the legislation. Can we have an assurance today that he will introduce a clause of a character to make it unmistakable that the proper and ultimate decision will rest with Her Majesty's Government?

Finally, perhaps I may talk a little about nuclear matters. Like the noble and gallant Lord, Lord Lewin, I was involved in the problems that arose in the dockyards concerning the refitting and recommissioning of the Polaris submarines. I believe that we are the only country with nuclear capability of this sort which has a civil capability to do this. I am certain that in the United States and France it is carried out by military personnel. I am not familiar with how it is done in the Soviet Union, but it certainly could not go out to a commercial contractor. I shudder to think of people being let loose on Polaris submarines having had the fortnight's training to which my noble friend Lord Graham referred, which is apparently all that one of the contractors feels is necessary.

Lord Graham of Edmonton

My Lords, it was not a contractor. My understanding is that it was the managing director of Rosyth who gave the advice.

Lord Mulley

My Lords, perhaps that little difficulty can be ironed out by the Minister, because I am sure that the nation will want to know about it. It the Government's plans for Trident persist, the refuting and recommissioning of Polaris will be an enormous problem, and there is also the nuclear safety problem. I am far from satisfied that the proper arrangements will be made, and this applies to both dockyards.

These are extremely serious matters and I join with those who have already spoken—though they have been rather critical—in appreciating the enormous dedication that dockyard personnel have given to the nation over the years, and, as the noble Lord, Lord Mayhew, made quite clear, their desire and willingness to continue performing this job.

I had to deal with some negotiations in that connection and I entirely accept that it is not satisfactory that they should be subjected to the same Civil Service payscales as are applied to this grade of craftsmen performing all kinds of different work, such as, perhaps, mending things in the Palace of Westminster. Looking after a nuclear submarine is a completely different job and there should be a completely different pay structure.

The idea of having an auxiliary force may be one way of doing it. I agree strongly with the noble Lord, Lord Hill-Norton, who has vast experience, that we should let management manage. I think that a trading fund would be a possibility, though I did establish that for the Royal Ordnance Factories; and God knows why the present Government sought to privatise them, because I thought that they were doing extremely well and were very answerable to Parliament and under the scrutiny of the Public Accounts Committee.

It might be possible, but the best thing, as has been suggested, may be to have an independent management but one which was directly controlled by the Ministry of Defence, in the same way as the PSA is answerable to Parliament through the Department of the Environment or the jobcentres depend on the Department of Employment. That is possible if one wants to hive the dockyards off and count the personnel not as civil servants, which I believe is probably the exercise that is involved. Certainly, the management has to be given more responsibility.

On that basis I think that maybe we could achieve the objectives which I know the navy and many others would like to achieve, but I doubt it. It is quite possible—and I hope that the noble Lord, Lord Hill-Norton, will come forward with some proposals—to bring into force his ideas (which I certainly support) in a Bill with such a vague and long title as to make arrangements for management of the dockyards, but that would completely destroy both the Bill and the Government's present intentions. I hope that the noble Lord will persist in that endeavour. I assure him that many of us would be very happy to support him.

We look forward to having at least an assurance today from the Minister, who after all has the title of Minister of State for Defence Support, and in my view this is an essential element of defence support—that he will keep an open mind on many of the matters which have been discussed today.

1.48 p.m.

The Earl of Selkirk

My Lords, may I intervene for one moment? The noble Lord, Lord Mulley, said that he had been engaged in examining the dockyards 35 years ago. I was looking at them about 30 years ago, when I had the honour of being associated with the Royal Navy, and when we were engaged in a penetrating study in depth of the whole of the dockyards. Everything was to be turned upside down, though we could not do anything until the plan had been put in. I have subsequently found, from inquiries that I made, that the plan did not succeed. This was endorsed by the noble and gallant Lord, Lord Lewin, who said that there had been a series of subsequent plans, none of which had really worked. One is left with the impression that some drastic change really must be made.

I recall a conversation that I had with the head of the boilermakers' union, who was a splendid man. His name escapes me but I remember that he grew apples and lived in Newcastle. He was a delightful person to talk to. He had started work in the Royal Dockyards and then had gone over to what he called the private dockyards, which he called "my dockyards". I am afraid that I must tell your Lordships that he spoke with contempt of the way business was conducted at the Royal Dockyards. He left me in no doubt that in his view, for what it was worth, the standards of competence—and I think he meant management—were very much higher in the private dockyards.

We have heard an extremely interesting speech from my noble friend Lord Ashbourne. But his arguments must, I feel, have been examined by the series of committees that have considered this matter, to my knowledge, over 25 years and maybe much longer. The point that he makes, as everyone makes, concerns the Treasury. The Treasury is spending goodness knows how many billion pounds. It is a terrible responsibility for those people. What the noble Lord is really saying is that the Treasury indicates remote control. That is the objectionable feature. The Treasury is not directly responsible for what is happening. Frankly, what the Government are suggesting is exactly that. They are proposing people on the spot and wholly responsible.

I am not underestimating what was stated by my noble friend Lady Vickers and by the noble and learned Lord, Lord Denning. This is a terribly delicate change. Like them, I am deeply concerned about the personnel. Take, for instance, a place like Rosyth. There, one has a small community almost wholly dependent on the dockyard. The Government have a great obligation to see that they continue to be properly employed.

Those employed at Rosyth are a magnificent body of men, carrying out a splendid job in a dockyard where there has been a great deal of modernisation. They are engaged largely in nuclear work and they are carrying it out, I understand, at a high level. One must not therefore underestimate the delicacy of the job. It is not only a matter of ensuring that the Act of Parliament is correctly worded but also of seeing that a man of outstanding ability is appointed to be in charge on the spot. A man of such calibre to be responsible for management and for overseeing the very delicate and difficult job of transfer will, I hope, be a priority of the Government.

1.51 p.m.

Lord Trefgarne

My Lords, during the debate your Lordships have rightly referred to the long and proud history of service that the Royal dockyards have for centuries given to the Royal Navy. There has also been mention of the high standards of workmanship in the dockyards and of the loyalty of the dockyard workforce. I echo those sentiments. However, as I said in my opening remarks, what we have to consider now is the future. It is our aim that when the dockyards have settled down under a system of commercial management they may be able to look forward to a secure future.

There has been a degree of agreement, I believe, that the Government are right in aiming to make changes in the three areas that I mentioned earlier—that local managers should be given more authority to manage; that the dockyards, as suppliers, should be clearly separated from the Fleet, as customer; and that accounting procedures reflecting normal commercial practice should be introduced. That much is, I believe, seen as a welcome and overdue way forward, and those changes are a fundamental part of the Government's plans to secure the future of the dockyards.

But another vital component in our plans is the need to inject into the dockyards—I can do no better than to use the words of the Select Committee in another place

an entrepreneurial dynamism and a spirit of competition". Important though that is, the Government have always had uppermost in their mind not only the need for better use of resources and more value for money but also, as was very much in the mind of the noble and gallant Lord, Lord Hill-Norton, the need to ensure that the operational requirements of the fleet are met and will continue to be met and that strategic interests are safeguarded.

I turn briefly to some of the points made during the discussion. I daresay that a number will be raised during later stages of the Bill. I shall therefore not deal with all the points that have been raised today in as full detail as they may later deserve. The noble Lords, Lord Graham and Lord Mayhew, referred to the cost of implementing our policy and to the likely savings. Both noble Lords referred in particular to the latest report of the Public Accounts Committee and suggested that it was critical of our proposals. The Government will, of course, be responding formally to that report in the normal way, and your Lordships would not expect me to do so today. All that I would say in respect of costs and savings is that the committee, to which much of the information was made available, has not suggested that savings will not be made. We remain satisfied that our estimate for savings is soundly based.

The noble Lord, Lord Graham, referred to some possible additional costs. There may be further costs, but equally we expect that there will be some reductions in other areas. On VAT, for example, to which the noble Lord referred, ship work which is the major part of docking and works is zero rated. I would not therefore expect any VAT charge to have anything other than a minimal effect. As regards access by the Comptroller and Auditor-General to the accounts of dockyard companies, to which the noble Lord also referred, our position has been that the dockyard companies should be in no different position from any other contractor engaged in vital defence work. But we shall, of course, consider carefully what the Public Accounts Committee has said.

The noble Lord, Lord Graham, asked me to confirm that the future status of the MoD police will remain unchanged. I am happy to give that assurance. The noble Lord, Lord Mayhew, said that the sole purpose of the Bill was to reduce Civil Service numbers. I was interested to hear how the Government of which the noble Lord was, for a while, a distinguished member reduced Civil Service numbers in the defence area. I have to say that if that was our sole aim, as he would suggest, we should not have to introduce commercial management to achieve it.

The noble Lord, Lord Graham, said that this House and others outside it, would do well to listen to the words of the noble and gallant Lord, Lord Lewin. I was happy to hear the noble and gallant Lord say that he supported the Bill as, indeed, for that matter did the noble and gallant Lord, Lord Hill-Norton. The noble and gallant Lord, Lord Lewin, spoke from a position of great experience of troubles in the dockyards over many years. The noble and gallant Lord was right to say that if we are to improve efficiency, then local management must be allowed to manage and that, in the present context of the dockyards, this would be impossible within the Civil Service.

My noble friend Lord Beloff asked about the acquisition of assets. The Ministry of Defence will remain responsible for major capital investment because timescale is measured in years and will span two or even more contract periods. Contractors will be able to make investments in the dockyards on the basis of their own investment appraisals and any residual value at the end of the contract will be paid by the next contractor.

My noble friend also questioned the Government's enthusiasm for the Bill. The Bill gives power to incur expenditure if the company is taken back into Government hands or remains in Government hands. We regard the first alternative as a fallback for use in time of tension or war but only if needed. Defence contractors—this is very important—have met the nation's needs in tension and war. I see no reason why a commercially managed dockyard should not do the same. But we would have been remiss in our duty if we did not retain a fallback power for use in extremis.

The second, retention of the company in Government hands, is also a fallback position only to be used if acceptable or advantageous bids are not received. The Government are enthusiastic about these proposals. We are firmly committed to making a success of commercial management.

I note the considerable links that the noble and learned Lord, Lord Denning, and his family enjoy with the Royal Navy. The noble and learned Lord asked about the level of rent for use of dockyard assets. Fair rental payment will be made for use of dockyard assets, first to ensure an adequate return to the Exchequer but also to ensure fair competition with commercial yards.

My noble friend Lady Vickers asked about apprentices. I can assure the House that the tender and contract both call for apprentice training to continue for dockyard and MoD employment. My noble friend asked me too about pensions. I am happy to assure my noble friend that existing benefits will be protected.

The noble and gallant Lord, Lord Hill-Norton, I think accepts that a major change is needed in the style of dockyard management. But the noble and gallant Lord sees merit in a government-owned plc as a way of avoiding conflict between short-term and long-term interests. I accept that we need to ensure that the risks involved do not damage national security. I see no conflict between short-and long-term interests. The companies interested in bidding are not, I believe, taking a short-term view. They are looking to a substantial long-term addition to their business. But under our plans they will have to fight for this and demonstrate that they should be allowed a second contract by good performance and competitive proposals.

Emergency capacity is not gained by having people and assets waiting idle. It comes from an efficient dockyard, from alteration to priorities at the time, from overtime and shift working, and from greater flexibility.

A number of noble Lords have referred to the customer organisation. I agree that this body will have a crucial role. The Directorate General of Ship Refitting, under a serving rear admiral in the first instance, will build up over the next few months, and will be responsible for acting, as the customer agent for the Royal Navy in securing the refitting and third and fourth-line repair of the operational fleet and of all support vessels in defence service. He will deal with the commercially managed dockyards and with the rest of the private sector as a sharp, commercially-minded customer, seeking value for money and an efficient turnround of ships in refit. To this end he will plan the refitting requirement, draw up specifications of work to be done, secure the finances necessary to carry out the approved programme, and negotiate the contracts for the work to be done.

The Government's proposal to introduce commercial management to the dockyards offers, I believe, the best prospect of improved efficiency, achieves a full separation of customer and supplier, maximises competition, places the operation of the dockyards firmly in the private sector, retains in Government ownership the strategic assets of the dockyards themselves, and ensures that the interests of national security remain paramount. The decision to proceed with the introduction of commercial management to the dockyards has indeed been endorsed by the Admiralty and Navy Boards. Our policy, therefore, reflects the professional judgment of the most senior officers in the Royal Navy.

For years it has been proposed under successive administrations that there must be changes in the way the dockyards are operated. For years attempts to introduce change have come to nothing. For years there has been uncertainty over the future. Now we have the opportunity to end uncertainty. Now is the time to plan for the future.

The dockyards stand at the crossroads. A unique opportunity lies in our grasp. The Government firmly believe that the Dockyard Services Bill is essential if we are to secure the long-term future of the dockyards, and I commend the Bill to your Lordships.

On Question, Bill read a second time, and committed to a Committee of the Whole House.