British Shipbuilders

HL Deb 07 December 1988 vol 502 cc612-23

5.40 p.m.

Lord Strathclyde

My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Chancellor of the Duchy of Lancaster on British Shipbuilders. The Statement reads as follows:

"Mr. Speaker, with permission I wish to make a further statement about British Shipbuilders.

"In my previous statement on 14th November, I was able to report good progress towards a successful sale of most of the remaining elements of BS, following that of Govan earlier in the year. That progress has continued. Agreement is now close for the sale of Clark Kincaid in Greenock, and of the Appledore yard in North Devon, and negotiations for the sale of the Ferguson yard at Port Glasgow are under way.

"I can additionally report today that I have accepted British Shipbuilders' advice that the preferred bidder for Marine Design Consultants should be the team led by the managing director. Depending on progress with new orders, their bid envisages work being continued both in their Sunderland and their Dundee offices. I have asked British Shipbuilders to press ahead with detailed negotiations.

"As I said on 14th November, the yards and other facilities I have mentioned account for five of the six owned by BS, and nearly two-thirds of those employed by them, when the process of seeking private sector purchasers was started by my predecessor last April.

"The remaining undertaking is of course North East Shipbuilders at Sunderland.

"On 14th November I told the House that, although none of the original bids for NESL had proved acceptable, BS had received three new expressions of interest. To allow time for these to be explored, I was therefore giving until the end of November to establish whether proposals could be developed which gave a firm basis for negotiation. This would entail a clear statement of the work envisaged for the yards, evidence of the technical and financial capacity of the bidder, and the prospect of arrangements likely to be compatible with the European Community Sixth Directive concerning state support for shipbuilding.

"In the event, two of those who had expressed interest prior to 14th November did not submit proposals. The third did so, and two other new proposals also came forward. All three have been carefully considered by British Shipbuilders and their independent financial advisers, against the criteria I set out.

"As a result of the examination, British Shipbuilders' clear advice to me is that none of these proposals could form the basis of a viable future for merchant shipbuilding in the Sunderland yards. None provides evidence of sufficient financial resources, given the major uncertainties of the shipbuilding market. None gives evidence of sufficient work for the future. All would entail levels of subsidy which, in one case in particular, could have faced difficulties under the Sixth Directive.

"Reluctantly and with great regret, I therefore have to tell the House that I see no further realistic prospect of maintaining NESL in its present form, and its shipbuilding yards will therefore progressively close as the current workload runs out. There remain possibilities, which I have asked BS to make every effort to explore, of selling Sunderland Forge Services, which currently employs nearly 400 people; and interest has also been expressed in one of the yards for purposes other than shipbuilding.

"Mr. Speaker, both my predecessor and I have made clear that, should it not prove possible for shipbuilding to continue on Wearside, we would bring forward a range of measures to assist those affected and to promote alternative employment in the town.

"There will be three main elements. First, we propose a new Enterprise Zone for Sunderland. As with existing zones, this would mean relief from rates for 10 years for all new developments, a simplified planning regime to help speed up such developments, and 100 per cent. capital allowances on new industrial and commercial development. My right honourable friend the Secretary of State for the Environment is urgently undertaking the necessary consultations with the European Commission, and will give details as soon as possible.

"Secondly, I have asked English Estates to start work immediately towards the early provision of over £7 million of advance factory space, over and above their existing commitments in the North-East. This will provide around 220,000 square feet of high quality factory space for new or expanding businesses.

"Thirdly, some £10 million will be made available over the next three years for a programme of measures to encourage new enterprise and employment opportunities in Sunderland. About half will be used to give financial support to new or expanding businesses. The other half will be used to assist the present employees of NESL to develop new skills and find new jobs. My right honourable friend the Secretary of State for Employment will provide services on the shipyard site to advise the workforce on opportunities for jobs and training, including help for those who wish to apply for immediate retraining.

"Taken together, the measures I have announced have a total cost of some £45 million. They will significantly reinforce what is already being done to promote economic development in the area through the Enterprise Initiative, regional assistance, and the work of the Tyne and Wear Urban Development Corporation, which will itself be announcing a number of new projects shortly as a result of the additional funding o ff 11 million for Sunderland announced on 25th November. I hope they will also further support and encourage the private sector initiatives which are under way or being considered.

"Mr. Speaker, the House will share my own regret that, despite every effort, it has not proved possible to find a way forward for NESL. But it must now be right to concentrate on securing a new industrial future for the town, and I believe we shall have the support of the House in what I have announced to that end."

5.47 p.m.

Lord Peston

My Lords, perhaps I may thank the noble Lord for repeating the Statement made in another place. I also understand that this is the first Statement which the noble Lord has read in your Lordships' House and therefore, as a matter of courtesy, I must congratulate him on that. Having said that, those are the only kind words I have to offer.

This is an extremely sad day for Sunderland and for the North-East in general. Perhaps I may ask the noble Lord whether he is aware that shipbuilding has carried on for 600 years on the Wear and that it has taken this Government to bring that to a close. Perhaps I may also ask the noble Lord whether he is aware, given the alleged concern of the Government for people in the North-East, that in that area some 60,000 jobs have been lost in the period that this Government have been in power. One wonders quite what is the nature of the Government's concern.

The Statement refers to enterprises that might have and did show an interest in taking over the shipyard. As I understand what has been said, eventually there were three possibilities; namely, one of the first three when two dropped out and then, as the noble Lord said, two new proposals. He says that they were considered against the criteria set out but they failed those criteria. I believe that the Government are obliged to say more than that simple statement that they did not meet the criteria. Perhaps the noble Lord could enlarge on the criteria employed and on the failure of the proposals to meet them. Perhaps he can explain what he means by: None provides evidence of sufficient financial resources, given the major uncertainties of the shipbuilding market". What does that mean? What scale of financial resources did they fail to provide evidence of? Of course, the shipbuilding market is uncertain, but am I not right in suggesting that at the moment the uncertainty is in the upwards rather than the downwards direction?

The Statement says: None gives evidence of sufficient work for the future". What kind of "evidence of sufficient work for the future" were the Government looking for? In particular the Statement refers to possible "levels of subsidy". Can we be told what those possible levels of subsidy were? Is there any particular significance to be attached to the word "could"? The Statement says: could have faced difficulties under the Sixth Directive. The Statement does not say "would" have faced difficulties. Can we have elucidated for us whether the distinction between "could" and "would" is important? Am I not right in thinking that under the directive subsidy is certainly possible? Am I not also right in thinking that our partners in the EC find much more subtle ways of subsidising this and other sectors of their economies without running into these problems?

The Government referred to announcing measures at a total cost of £45 million. I asked about subsidies that might have been relevant. In that respect, how does the £45 million compare with the subsidy that might have been paid? How does that compare if we add to that £45 million all the unemployment benefit that no doubt will be paid out over a great many years?

The Government refer to a number of ad hoc measures that they are carrying out. However, one must ask why the Government do not plan these things. There are no problems in the North-East that are suddenly new. Why do we have the use of sticky plasters to deal with a major haemorrhage? Why do the Government lurch from one ad hoc intervention to another? Surely one could plan in such a way that one runs down the shipyard—if one has to run it down at all—exactly in line with the creation of new employment and new enterprise but no faster. That seems to me to be the minimal way to do it. Why have the Government not planned in that way?

Finally, the Statement ends with the extraordinary sentence: But it must now be right to concentrate on securing a new industrial future for the town". I must ask the noble Lord this. If I were a worker of middle age in Sunderland what reason would I have for believing a word of what the Government say in that sentence? What have the Government done to suggest that the workers can have any confidence that the Government believe in the required interventions or would actually carry them out?

Lord Ezra

My Lords, I join with the noble Lord, Lord Peston, in expressing grave concern at the decision announced in the Statement and repeated in this House this afternoon. I put three specific points to the Minister.

First—and this links with what the noble Lord, Lord Peston, said—have the Government fully considered the full impact of this decision on Sunderland? There will be an immediate and direct loss of 2,400 jobs but I understand that 6,000 further jobs will be indirectly affected, with all that means to the families. The measures which the Government have enumerated will clearly take a long time to materialise. What will happen in the meantime while all that occurs? That is my first question.

Secondly, is not this closure taking place at the wrong time? There are now signs of a recovery in world shipping. It is known that the Sunderland yard is an advanced and modern yard. Why should we be closing a modern yard, strategically located, at a time when world shipping is picking up? That seems to me to be an extraordinary error in timing.

Thirdly, why is it assumed that recovery can take place only under private ownership? There have been impressive instances recently of a substantial recovery in publicly owned enterprises. I mention British Airways and British Steel, both of which were recently in the news. The chairman of British Seel has been awarded recognition as being one of the leading industrialists in the country. Until yesterday he was in public enterprise.

To sum up, therefore, I feel that this is a most unfortunate decision, the implications of which do not seem to have been fully worked out and the timing of which is wrong. I feel that those who work at NESL should be given an opportunity to take advantage of the recovery in world shipping.

Lord Strathclyde

My Lords, I am grateful for the words of the two noble Lords who have spoken. I have to say at the start that the Government take no pleasure in making this announcement about North-East Shipbuilders Limited. It is a great sadness after 600 years that the yards have to close, but I shall seek to justify that in the next few moments.

First, the noble Lord, Lord Peston, asked why we were closing the yards since there seemed to be an upward trend in orders. The answer is relatively simple. For years shipbuilders have been forecasting the next market peak and that it is always but a few years away. Each time those forecasts are revised downwards, pushing better days further and further away. Meanwhile, more low cost nations enter the scene. North-East Shipbuilders represents a mere fraction of world capacity and it is only significant—I say it is significant and important—in local towns, which is why we have to seek new options for the people who work in the area.

The noble Lord also asked about the Sixth Directive. Subsidies are allowed in supporting shipbuilding in European Community member states, but there are strict limits on how much subsidy can be provided. All member states, therefore, are similarly restricted and it did not appear that we, as a Government, would be able to subsidise the yards sufficiently for them to continue building ships.

As for the criteria concerning the bids from private industry, the proposals did not show evidence of a sufficient forward workload to fill the yards, nor of a sufficient financial ability to demonstrate that the yards could recover from their severe loss-making position. In the past year North-East Shipbuilders made a loss of £56 million on a turnover of only £69 million. Over the past five years it has been subsidised by the taxpayer to a total of over 50 per cent. for each contract carried out.

I was asked why the Government sought private ownership in the first place. British shipbuilders in general, and NESL in particular, have lost literally hundreds of millions of pounds—just over £1.9 billion over the past 10 years. That includes massive losses on contracts over and above the subsidy allowed. The Government felt that this could not go on for ever and that we had to look at new options not just for the taxpayer but also, genuinely, for the people of the North-East.

Reference was also made to the new packages we are to introduce in the North-East, and evidence was requested that they will actually work. That evidence is clear from similar packages introduced at the time of the steel closures. For example, Consett closed with a loss of 4,370 jobs, Corby with 6,000 jobs, Scunthorpe with 5,800 jobs and Shotton with 8,500 jobs, but the packages we introduced there have been very successful. In March 1986 unemployment in those areas stood at 17.6 per cent., 20.3 per cent., 17.5 per cent., and 19.5 per cent. respectively. Now they are down considerably, to between 8.7 per cent. and 13.1 per cent. That is what we want to do in Sunderland. I sincerely hope that we shall be successful. I trust that the noble Lords from across the House will join with me in hoping that these packages will help to regenerate the economy of the North-East.

6 p.m.

Lord Dormand of Easington

My Lords, is the Minister aware that this is an utterly disgraceful decision as regards Sunderland? This is a case of sheer dogma placing money before people. We on this side of the House are as concerned about economic efficiency as members of the Government and other noble Lords opposite. But there are instances where this does not apply. is he aware that unemployment for Sunderland is 27 per cent.? Does it not mean anything at all to the Government that a town like Sunderland is so affected? I live near Sunderland and have done so all my life, so I have some idea of the ethos of that town.

Can the Minister say something about the Cuban orders? What is significant is that nothing was said about them. The information that some of us have is that those orders were tied up and that they were ready to go. But we have had no reference or detail as regards that matter today. Do the Government not place any importance at all on the possible future recovery of the United Kingdom shipbuilding industry? My noble friend referred to this, as did the noble Lord, Lord Ezra. It seems that, despite the information we are getting from the Minister tonight, this is a matter that is probably more important than anything else to be said on the subject.

There is the question of alternative employment. The Government's record on this is a myth. The Minister referred to Shotton, Corby and three or four other instances, yet in this House we never get the actual figures. I can go a little further because I thought the Minister might refer to Consett in County Durham, which is near the county of Sunderland. Sunderland used to be in County Durham, as he may know. The steelworks in Consett were abolished as a result of this Government's actions, and we are constantly informed that those jobs are being replaced. I say to the Minister and to the Government that that is simply not true. It is not happening. Yet today we are presented on a plate with the measures as regards the enterprise zone which will make a minimum contribution to solving the problem that we have before us today. That and the other proposals will simply not meet the needs.

Finally I repeat the important point made both by my noble friend and by the noble Lord, Lord Ezra. Why cannot the Government have an interim period, perhaps for the Cuban orders, so that at the same time as alternative employment is increasing (if it does increase) the Sunderland shipyard may be gradually run down? I hope that these are practical and sensible suggestions and that the Government will have second thoughts.

Lord Strathclyde

My Lords, the noble Lord rightfully sounds annoyed at what has been going on in Sunderland. The government officials in the Department of Trade and Industry and the Chancellor of the Duchy of Lancaster have spent literally months trying to find ways to keep the shipyards open. The officials have travelled the world talking to different people and different bidders for potential orders to see whether any can find their way to the North-East. Unfortunately this has not been the case.

The noble Lord said that we were being dogmatic about this approach. Neither we nor the European Community could have tolerated British Shipbuilders' losses for much longer at NESL. As he knows well, the Danish ferry programme collapsed and there was strong reason to doubt that British Shipbuilders could have won the Cuban order, at least without further substantial losses. The North-East yards have lost more than £100 million in the past three years. Furthermore, as regards the Cuban order, the BS chairman doubts whether the order could have been secured against fierce international competition, especially given deteriorating costs over recent months.

In addition, there is still the corporation's appalling record of losses over and above the estimates to be considered. There was an average of more than 20 per cent. on costs over and above the European Commission limited assistance on ships delivered in the past three years and between 12 and 17 per cent. on costs for the ships most recently delivered to Cuba.

Finally, the noble Lord mentioned Consett. In my initial reply I mentioned Consett also but it was in percentage terms, which are sometimes difficult to grasp when they are said quickly. I point out to him that 4,500 new jobs have been created in Consett since the steel closure. That is a sign of what we can do in the rest of the North-East and it is also a sign that unemployment is going down right across the country.

Lord Elliott of Morpeth

My Lords, I suggest to the noble Lord, Lord Dormand, who shares with me a great interest in the North-East of England from which we both come, that the interim period for which he asks for northern shipbuilders is something that we have had. I assure my noble friend that to the best of my knowledge there is considerable appreciation in the region that everything possible has been done by all concerned, including the Government, to keep these yards open if humanly possible. It has been found impossible to do so. I believe that the decision now made is the right one and in the best interests of the people of that town.

There must come a moment when it is wrong to keep in being an industry which has no future. There must come a moment when it is wrong to continue to train young people in a town like Sunderland for an industry that has no future. I believe that that moment has come and that we must face facts. I heard on the radio this morning comment being made by workers in the shipyards as they were going to work. Quite a number were saying that it had to come and that at least a decision has been made. Thank goodness the decision has been made one way or the other. The period of indecision has been bad for the region.

I suggest to my noble friend that the announcement today of the extra measures of support for Sunderland are most welcome, including the creation of a new enterprise zone. Those existing in the region are so successful and they have created much new employment. There is the suggestion that there should be new encouragement for enterprise and initiative, as there has been in other parts of the region. I very much agree with my noble friend about Consett, where unemployment after the closure of the steelworks there in September 1980 meant immediate unemployment for something like 14,000 people. The recovery of Consett is a minor miracle within our region. I am quite certain that with the right spirit on the part of Government and of those agencies set up to create new employment to assist such places as Sunderland to have a new future, and if it is engendered by government assistance, it will mean that Sunderland too has a considerable future. I certainly wish it well.

Lord Strathclyde

My Lords, I am genuinely grateful for the intervention of my noble friend. He is absolutely correct in saying that everybody who has been concerned with the issue of the North-East has worked extremely hard to get a satisfactory result from the closure of this yard. The Member of Parliament for Sunderland, North, Mr. Bob Clay, has tried particularly hard to see what could be done. Ultimately we feel that there comes a point when it is no longer credible to go on trying. We owe it to the people of Sunderland to end the uncertainty that has plagued their lives for far too long and now to offer the town a new future. The town is not short of committed business people willing to do their utmost and to make it work. I have been assured of the role that they are prepared to play. The opportunities will be there if people wish to take them and we shall be doing our utmost to make sure that the money and infrastructure are available to help to create those new jobs.

Lord Glenamara

My Lords, is the noble Lord aware that if the Government decided to pull down Westminster Abbey the noble Lord, Lord Elliott of Morpeth, would stand in the middle of Parliament Square saying, "Trust Mrs. Thatcher; this is for the good of the country"? Is he aware that most of us from the North-East are shocked, appalled and disgusted by the Government's decision to disperse for ever this magnificent labour force which is well known to many of us, as I am sure it is to the right reverend Prelate who was a dedicated curate in Sunderland.

The noble Lord has not told us the size of the problem. The noble Lord, Lord Ezra, has told us. It involves not only the 4,500 men who work in the shipyard but all the people who depend on it. This amounts to more than 10,000 people. The noble Lord, Lord Dormand, has told us that unemployment in Sunderland is currently 27 per cent. What will happen when these 10,000 people go on to the dole? The figure will not be 27 per cent. It will be 30 per cent., 37 per cent. and 40 per cent. for male unemployment. Is the noble Lord just shaking his head or is he tired? Unemployment will rise to about 40 per cent. That is quite appalling.

The noble Lord has said that the shipyard is uneconomic. Will he tell me where there is a farm anywhere between John O'Groats and Land's End that is economic? Will the noble Lord tell me of one? There is not one. In the case of farming we do not refer to losses. We subsidise farming and rightly so. I agree with that. However, if we can subsidise every farmer in the country, why cannot we subsidise the shipyard workers in Sunderland?

The dispersal after 600 years of shipbuilding in this northern city is a tragedy. The Government ought to be thoroughly ashamed of themselves.

Lord Strathclyde

My Lords, the noble Lord says that he is shocked and disgusted by the way in which the Government have behaved. I have to remind him that £1.9 billion of taxpayers' money has gone in support of British Shipbuilders since 1979.

Lord Glenamara

How much has gone in support of British farmers?

Lord Strathclyde

My Lords, British farming is an entirely different issue. The noble Lord is quite entitled to have a separate debate on that subject. Today we are discussing North-East shipbuilding and British Shipbuilders as a whole. Enormous funds have been poured into them over the years.

Lord Glenamara

And into farming.

Lord Strathclyde

My Lords, we have explored every single avenue available to us. We have considered 13 approaches and extended the deadline twice but none can offer a secure future for NESL. That is the reality of the situation. Furthermore, as to the figures mentioned by the noble Lord concerning unemployment, they exaggerate the dependence of outside jobs on the yard. They take a wholly unjustified view of the prospects for new employment in the town. They greatly exaggerate what is needed to revitalise the economy of Sunderland. I need not go on.

We do not believe that the closure will blight the area. On the contrary, it is an opportunity to create new direction in the local economy, not a dying area which it has been in recent times—

Lord Glenamara

Rubbish!

Lord Strathclyde

We should see, for example, the recently announced major investments by Gold Star, the South Korean electronics company. It is hoped to create up to 1,000 jobs for an £8 million capital investment in the region. That is the direction to go in and I sincerely hope that it will be successful.

6.15 p.m.

Lord Greenway

My Lords, if the present trend continues we shall shortly find ourselves without a merchant shipbuilding capability. Is there not a strategic reason for keeping some of the yards in being, if only in a mothballed state, so that if ever the time came when we needed to build ships in a hurry we had somewhere to build them? One cannot produce a shipyard out of a hat.

Lord Strathclyde

My Lords, in reply to that point I have to say that I have never heard of ships being built in a hurry in any case. It always takes a long time. I cannot believe that the situation would arise in the future whereby we had to do exactly that and build them in a hurry.

Lord Peston

My Lords, I am sorry to intervene a second time but I asked a question of fact in my original intervention. I asked the noble Lord to give us all the relevant figures so that we could compare the costs of closing down the shipyard with the costs of keeping it going. He made a number of qualitative statements and a number of other statements with no evidence. I asked for information which would be enormously helpful to your Lordships. If the noble Lord does not have the information, I am willing to accept it subsequently. Central to this whole discussion are answers to my first questions.

Lord Strathclyde

My Lords, I do not appear to have that information at hand at the moment. I am not sure which figures the noble Lord wants. If he wants to know how the Government calculated that it would be cheaper to close the yards than to keep them open, the answer is that the disposal to any of the new parties would have cost British Shipbuilders more than closing the yards. The advice that the Chancellor has received is that none of the bids offers a commercially viable basis on which to negotiate a future for NESL. The question of quantities should be taken into account but does not necessarily arise. I suspect that the noble Lord wants hard figures.

Lord Peston

My Lords, if I may dare to interrupt the noble Lord a third time, which I do not care to do, I should like the numbers. I should like to know whether it is cheaper to close the yards down than to keep them in public ownership, with I agree a degree of subsidy. If we are to discuss this sensibly we have to look at the figures. We cannot go ahead with broad remarks like, "It was not viable". That is a meaningless statement. If the noble Lord does not have the figures I shall have to have them later. However, they are central to the issue.

Lord Strathclyde

My Lords, cost comparisons are irrelevant in themselves until one has a bid that might offer a viable future for the yards. We know the criteria we have used to define viability.

Lord Williams of Elvel

My Lords, the noble Lord has not understood my noble friend's question. It is not the comparison between the close-down costs or the sale costs; it is the comparison between the cost of keeping the yard going and the cost of the Government's programme.

Lord Strathclyde

My Lords, if I misunderstood the noble Lord, Lord Peston, 1 am sorry. I do not have the figures at hand. However, the package announced today is designed for the longest term. We have felt for a while now that the shipbuilding yards will not be viable forever.

Lord Blease

My Lords, I want to conform with the conventions of the House on Statements of this kind and so I shall put my points quickly. Concern has been expressed about the unemployment that will arise in shipbuilding in the North-East. That is a tragedy. However, the question is much wider. The Government's policy has allowed shipyard after shipyard to drift on to the rocks. It has allowed more than that. The Government are sinking them before they have had an opportunity to be saved. I cannot see how they can separate the shipbuilding industry of the United Kingdom, an island community, from the shipping industry.

The industry has experienced a complete decline. We are allowing other nations to build ships for us. The Government have no policy either for shipping or for shipbuilding. This is a wide issue. If we do not have shipping interests, we will not have shipbuilding. The Government should have a rolling programme of taxation to allow shipping interests to be promoted in the United Kingdom instead of allowing them to be taken over by other interests from Greece and Japan.

I should like to put it to the Minister, in view of the fact that this shipyard has been closed down, that other shipyards are closing and losing their link with shipping. Will he convey to his right honourable friend the Minister that two parliamentary Select Committees, representing all parties in this Parliament, have gone on record and expressed deep concern about shipping and shipbuilding? Further, will he ask him to initiate or commission an independent study of the needs of shipping and shipbuilding in the United Kingdom?

Lord Strathclyde

My Lords, I shall certainly pass on the noble Lord's suggestion to my right honourable friend the Chancellor of the Duchy of Lancaster. However, I must point out to him that as regards the link between shipping and shipbuilding, NESL has built very few, if any, ships for UK owners in recent years. Therefore it appears that there is currently no great link between the two in the North-East.

Further, it has been suggested that there has been some kind of conspiracy to wipe out merchant shipbuilding in this country. Nothing could be further from the truth. We would have been delighted to have made a different announcement this afternoon. After all, we were able to sell Govan to private industry. I hope that that example will be followed by other facilities.

There is also the shipbuilding industry in Northern Ireland, about which a question remains. We have successfully privatised many yards and this shows—indeed, I hope it proves—that the Government have no intention of letting British shipbuilding drift on to the rocks.