Shipbuilding: UK Competitiveness (Hansard, 23 March 1995)

The Minister of State, Department of Trade and Industry (Earl Ferrers)
My Lords, the Government's policy is to create an economic climate which will offer companies in all sectors the opportunity to develop and compete in the markets of the world.

§ Viscount Caldecote
My Lords, I thank my noble friend for that rather sad and unsatisfactory reply. Is he aware that the average age of the world merchant fleet is now approaching 20 years, which means that there are many ships over 30 and 40 years of age which need to be replaced? That provides great opportunities which are being taken by other European countries. Germany has a forward order book of some 1.7 million gross tonnes; Denmark and Finland, 2.2 million gross tonnes; and the UK, under half a million gross tonnes —1 per cent. of the world market. Is the Minister aware also that no British yard felt able to tender for the new P&O liner "Oriana", which was built in Germany? Are the Government really satisfied with that position? Should not more be done—to take the words of my right honourable friend the President of the Board of Trade—to help the British merchant shipbuilding industry to win more orders?

Earl Ferrers
My Lords, I am sorry that my noble friend thinks that I gave him a sad and unsatisfactory reply. The Government wish to create a climate in which everyone can compete. Indeed, they are doing that. It is true that all shipbuilding industries have suffered from a depressed market but United Kingdom shipyards are now cost-competitive with other European Union yards. My noble friend asks why we cannot give more help. I can only assume that he wants to know why we cannot provide a subsidy or place orders to keep the shipyards going. You cannot place orders with companies on that scale without affecting adversely other companies. It is for individual companies to decide for which ships they will tender.

§ Lord Mason of Barnsley
My Lords, because of the ageing fleet, will the Government consider a scrap and build policy?

Earl Ferrers
My Lords, if the fleet is ageing, there are obviously opportunities but those opportunities have to be competed for with the rest of the world.

§ Lord Boyd-Carpenter
My Lords, does my noble friend not find it very depressing that the very large P&O liner "Oriana", referred to by my noble friend, should have been constructed in Germany whereas previously those large liners were built here?

Earl Ferrers
My Lords, I quite agree. It would have been very good if the "Oriana" had been built in the UK but if no company tendered for it, that was not possible.

§ Lord Stoddart of Swindon
My Lords, does the noble Earl have any evidence to show that the German shipyards which built the "Oriana" received subsidies, if not from national sources, then from all kinds of local sources? Has he investigated that? Has he any evidence of it? If so, will a complaint be made? If not, perhaps British shipyards can be helped in the same way.

Earl Ferrers
My Lords, I am not aware of any unfair subsidies being given to German shipbuilders. They probably have the same kind of subsidy which operates in this country through the shipbuilding intervention fund. That enables 9 per cent. of the contract costs for large commercial ships to be provided in the United Kingdom by the Department of Trade and Industry. As with all other European Union countries, German shipbuilders can have access to the same kind of funds if their government wish to provide them.

§ Lord Peyton of Yeovil
My Lords, does my noble friend not think it time that the Government overcame their rather detached attitude to the problem and examined carefully the practices which exist in other countries to encourage shipbuilding? Perhaps they might remind themselves from time to time that we remain an island.

Earl Ferrers
My Lords, that remarkable geographical interpretation is one I share. The Government are not detached in their attitude towards what they wish to do to help either business or, in particular, shipbuilders. There has been major overcapacity in shipbuilding throughout the world. Japan and Korea succeed in building far less expensive ships than we do. We must try to ensure that the climate in which our shipbuilders operate is as competitive as possible. We have achieved that.

§ Lord Haskel
My Lords, does the Minister agree that this Question sadly comes 10 years too late because during that time the British flagged merchant fleet has declined from 1,500 vessels to 250 vessels? Does he agree that that decline is one cause of our reduced capacity for building merchant ships? Would not our shipbuilding industry be helped if some encouragement were given to increasing the size of the flagged fleet?

Earl Ferrers
My Lords, I am unable to confirm or deny the figures which the noble Lord, Lord Haskel, has 1313 produced. I have no reason to believe that they are not correct. But there has been a great diminution in shipbuilding and maritime activity over the past 10 years or so. It may be that there will be opportunities to build ships in the future. However, people have been tending to use aircraft rather than ships and the shipbuilding industry as a whole has suffered.

§ Lord Clark of Kempston
My Lords, does my noble friend agree that one of the difficulties with the industry is the lack of harmonisation in capital allowances for corporation tax purposes? Would it not be a good idea to have harmonisation, especially as regards the European Community, so that we have a level playing field with the indirect subsidy given to foreign shipbuilders through taxation? Should we not perhaps follow their example?

Earl Ferrers
My Lords, I certainly take note of the suggestion made by my noble friend. However, from 1st January 1996, the OECD agreement states that all shipbuilding subsidies will be abolished. That places the commercial and the defence industries on equal footings, both in this country and in others.

Lord Bruce of Donington
My Lords, is the Minister aware that we have been listening to talk of creating the correct climate for at least 15 years? Does he not think that the explanation is now wearing a little thin? Will he consider—or advise his colleagues to consider—adopting a much more constructive and nationally oriented policy in relation to merchant shipping?

Earl Ferrers
My Lords, the fact that the climate is being created has not worn thin: that is why 40 per cent. of all the investment by Japan in the European Union comes to this country. Moreover, 43 per cent. of all the investment which the United States makes comes to this country. There is one very good reason for that; this country is competitive.

§ Viscount Caldecote
My Lords, can my noble friend explain why Scandinavian and German yards are so much more successful than ours if the subsidy is the same.

Earl Ferrers
My Lords, I cannot explain why; indeed, I would rather question whether that is in fact the case. It is certainly true that labour costs in shipbuilding yards in the United Kingdom are lower than they are in Germany.