§ Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Clelland.]
§ 10 am
§ Mr. Alan Campbell (Tynemouth)
I am grateful for the opportunity to raise this important subject, and I do so at a time of considerable difficulty for shipbuilding, ship repair and the offshore fabrication yards on Tyneside. Fifteen years ago, as many as 30,000 people were employed in the maritime industries in the north-east, but that figure has been halved. Current estimates suggest that many of those jobs, as well as about 7,000 jobs in related industries, may be under threat. The sector has been dealt a double blow by the maturity of the oil and gas industry in the North sea and generally diminishing defence budgets. Although most people welcome the peace dividend, it nevertheless makes life more difficult for the yards that compete for defence contracts.
Let me make it clear from the outset that we are proud of our maritime heritage in the north-east. Some of the world's greatest ships were built in the north-east. Shipbuilding is part of the great triumvirate, with coal mining and iron and steel, which dominated the region for so long. More recently, it has been estimated that as much as 80 per cent. of the North sea oil platforms involved companies in the north-east as either a prime contractor or supplier. That means that the north-east has a significant concentration of people with the skills and expertise to compete on the world stage.
The north-east is perhaps unique as a region in that it still has all the people, companies and components to design, build and fit out a ship from beginning to end, yet the average age of the work force in those industries on Tyneside is about 49. However, shipyard workers recognise that previous success, the glories of our past and having the skills and expertise to build ships offer no guarantee in a global marketplace. I make it clear, therefore, that this debate is not about recognising shipbuilding as a traditional or sunset industry, but about claiming that shipbuilding and the maritime industries are part of the new economy. Far from being outdated and old-fashioned, the maritime fabrication industries incorporate high technology and world-class skills. We in the United Kingdom are still recognised as being among the best in the world, and we expect the Government to acknowledge that fact.
When the Shearwater platform left AMEC in Wallsend last month, it did so on time and to price. Its owner, Shell, recognises it as a world-class product. Much of the kit on that platform was the result of innovation and creativity that began with the design and grew as the development took place over months and years. That is part of the innovation and creativity of the new economy.
158WH North Tyneside college, which serves my constituency, has just opened a £2 million high-technology engineering centre which will support the development of specialist engineering skills in the shipyards and the maintenance facilities along the River Tyne. The centre gives training up to national vocational qualification level 4. That includes something called mechatronics, which is a new one on me. Mechatronics develops multi-skilled engineers who can turn their hand to any area of engineering; it is part of the new economy. The facility will support any purchaser of the former Siemens factory in my constituency; it is an investment in the new economy. Companies such as Cammell Laird and Swan Hunter have invested in the new economy and have taken on many apprentices. They are training young people—in some cases, in traditional skills that are to be employed in the new economy. They believe that those skills are relevant to the new economy.
The real issue, however, is how the shipyards on the River Tyne can survive and their skills be renewed to allow the sector to take advantage of future opportunities—and there will be such opportunities.
§ Mr. A.J. Beith (Berwick-upon-Tweed)
I support what the hon. Gentleman said about the economic significance of shipbuilding on the Tyne, and I hope that he recognises that its significance extends far into the region. I hope that he recognises that people who work in the yards—including those with particular skills and creativity—and small businesses that subcontract within the industry are found throughout Northumberland, far beyond the radius of Tyneside itself.
§ Mr. Campbell
I do indeed recognise that. The right hon. Gentleman makes his point well—the matter concerns not only the whole of the north-east, but other regions.
There are clear signs that there will be future opportunities. The Association of European Shipbuilders and Shiprepairers forecasts rising demand in the industry in the early part of this decade. Some forecasters predict the need for more than 2,000 new ships each year until 2010. Four out of five of those will be needed to replace ships in ageing fleets. An upturn is forecast in offshore oil and gas extraction, which will create demand for floating production and storage offshore vessels, which will replace platforms in some respects. A growing consensus suggests that between 25 and 30 FPSOs will be needed, but forecasts suggest that as many as 120 new vessels will be needed worldwide—some, perhaps, in the North sea. The movement of goods in the European Union favours a rise in the number of ships. The number of people in this country who take cruises doubled in the 1990s, so there will inevitably be demand for cruise liners of all sizes. I do not suggest that all those ships could be built on Tyneside. However, there will be demand, and it is important that Tyneside's shipbuilding capacity survives so that the sector can make use of its skills and take advantage of the opportunities that I have described.
I accept that many of the answers to the problems that the shipyards and offshore yards face lie outside the Government's remit. However, I raise these issues as a 159WH constituency Member of Parliament. I no longer have shipyards in my constituency, but, many of my constituents and their families rely on the work provided by the yards along the Tyne. It is fair to ask what the Government can do and to get them to do it.
Let me give some examples. The Government can place Ministry of Defence contracts with UK yards. The commitment in the strategic defence review to develop and rebuild our ageing fleet is welcome, but it is also important to ensure that we bring that work forward so that it is on stream. In that way, we will ensure as far as we can that there is continuity of work in our shipyards while they look for other opportunities and alternative contracts. I urge the Government to bring forward the two alternative landing ship logistic vessel contracts, which have the capacity to generate 4,000 jobs; 2,000 directly and 2,000 in the wider community.
Companies in the north-east ask for nothing more than the opportunity to bid for the order. Like us, they are confident that Tyneside yards can deliver quality work, reliability and value. In relation to MOD contracts, I shall refer to roll on/roll off ferries, which have caused controversy in the past few days. My right hon. Friend the Secretary of State for Defence has recognised that United Kingdom yards have the expertise and capability to build such ferries, and I welcome that. Even at this late hour, the three British yards with an interest are doing unprecedented work on a proposal involving co-operation and sharing work between yards. They are confident that they can compete commercially with foreign yards.
The MOD rightly requested that bids for such ferries include proposals for building them in UK yards. Will the MOD actively consider any further proposals and do all that it can within the rules, guidelines and the law to bring the work to British yards? Such news would be welcome in the north-east of England, Northern Ireland and Scotland. All our companies ask is that they be allowed to compete on a level playing field.
There is concern that overseas yards subsidise work to win orders. A leading offshore company in the north-east told me that it is currently bidding for a major overseas order for FPSO vessels and is in direct competition with Korean yards, which may receive a subsidy of more than 20 per cent. Ironically, there are strong suspicions that International Monetary Fund Money—which originates, in part, from the pockets of European taxpayers—is used to subsidise Korean yards. Pressure is being put on the Korean Government in relation to that. However, in the circumstances, I would press my right hon. Friend the Secretary of State for Trade and Industry to ensure that the shipbuilding intervention fund remains available for British shipyards beyond the end of the year.
Furthermore, we have been told repeatedly that the real work of the contract is not on the hull of the vessel but on the kit that goes inside. Therefore, British offshore yards could be helped to compete in world markets by imaginative application of the shipbuilding fund—perhaps to the top side of FPSOs, demand for which is expected to grow.
The Government could also announce a review of the moratorium on gas-fired power stations. I share concern about the future of UK pits, and welcome my right hon. 160WH Friend the Secretary of State's efforts to secure that future, not least for the last deep-mined pit in the north-east. However, once that decision has been taken, I hope that there will be a review of the moratorium on gas-fired power stations. That would be welcomed in shipyards and offshore yards along the Tyne, as it would act as a spur to the development of gas fields in the UK sector and generate activity in offshore yards.
I would also urge a review of how licences are awarded. It is frustrating that companies may be awarded a licence, only to sit on it until the price of gas or oil is right for it. New licences should be awarded only after companies offer a clear schedule for extraction. I do not seek or expect answers to my questions today, but I want my hon. Friend the Minister to consider them.
I shall speak plainly on another matter, which challenges the Government as much as the companies involved in shipbuilding and offshore on the Tyne. Some companies live for the next contract and do not plan for difficult periods. We are in one of those periods now.
One of the workers on the Shearwater platform, which I visited recently before it left the Tyne, said to me, "Platforms are like relatives at Christmas. You like to see them come, but you like to see them go." The assumption is that another visit will inevitably follow, yet in challenging circumstances we cannot be sure that that will happen. The yards on Tyneside need a sustainable future, which means establishing a long-term vision in a time of short-term pressure. Never has there been a stronger case for the stakeholders on Tyneside—employers, employees, trade unions, higher and further education and the regional development agency—to work together, a development that I urge the Department of Trade and Industry to encourage and support.
The first step might be to commission a study of future opportunities to discover how Tyneside can best position itself to exploit them. The issue of employment and training could be addressed, perhaps leading to continuous employment for some of the shipyard workers for the first time. What a difference that would make to their pensions and mortgages. It would also allow overheads to be cut and training to take place in the quiet periods, which would make the yards on Tyneside more competitive. Such a forum could also explore the possibilities of diversification, through decommissioning or recommissioning, alternative energy supply such as offshore wind farms, and the servicing of offshore platforms.
The centre of gravity in the North sea is shifting southwards; it costs as much as £30 million a year to service a single platform offshore, and in the Great Yarmouth area a partnership of the kind that I mentioned is being created in response to the opportunities presented by decommissioning and recommissioning. Tyneside should learn from that lesson.
The Government have already made an important contribution by helping individual companies to identify potential markets and by helping with export orders. A major offshore fabrication company told me that the Secretary of State is extremely supportive of its efforts to win orders and it is grateful for the Department of Trade and Industry's initiatives. We 161WH must ensure that that support continues and grows, for the benefit of all the yards, so that Tyneside can develop as a centre of excellence for the maritime industries.
There is great anxiety about the current situation, but also confidence that there will be future opportunities in the maritime sector, provided that the yards get through their present difficulty. I urge the Government to do all that they can to help the companies and the work force in their efforts to ensure that there is a future for the industry, and for its work force and their families.
§ Dr. David Clark (South Shields)
I congratulate my hon. Friend from across the River Tyne in North Shields, the Member for Tynemouth (Mr. Campbell), on his perspicacity in securing the debate, which could not be more timely, in the general and the particular sense. There is great dismay in the north-east on the Tyne, the Wear and the Tees, about remarks emanating through persons unknown at the Ministry of Defence that United Kingdom shipyards no longer have the skills to build a roll on/roll off ferry. That sort of ignorant comment, based as it is on falsehood, demoralises the work force. I am delighted that my right hon. Friend the Secretary of State for Defence has made it clear that that is not the Government's view and that the Government still believe that the UK retains the capacity to build merchant and naval ships in UK yards. I emphasise that because there are people based not a quarter of a mile from the Palace of Westminster who simply do not understand the regions. It is therefore apposite that we, as representatives from the regions, are able to redress the balance here; that adds to the value of the timing of the debate.
I continue on a consensual note by stating a fact: Britain is an island. As such, 90 per cent. if our trade is conducted by sea. The basic logic, therefore, is that it would be crazy of us to throw away our capability to build ships to transport some of that trade. Equally, in the North sea, the Irish sea and elsewhere, there are oil and gas fields within our sovereign area. It would seem crazy not to retain the capacity to build and decommission those oil rigs—but I will come back to that.
There has been a dramatic change in the River Tyne. All of us who know anything about the river know that the trade fluctuates—like a relative at Christmas, as my hon. Friend the Member for Tynemouth said. I support my hon. Friend's call for a long-term strategy for the maritime capabilities on the Tyne and other rivers. He was right also to cite the fact that other rivers and estuarial areas in the UK have faced up to long-termism better than we on Tyneside have done. Mea culpa. I accept that. We must do better.
However, I doubt that anyone could have foreseen the dramatic downturn that has occurred in the River Tyne work force. In 1997, an estimated 14,000 people worked in the various yards on the River Tyne; now there are 800. The Aker McNulty yard is in my constituency. Three years ago, 5,500 were employed there; now there are 300. What applies to that yard applies to AMEC, Austin and Pickersgill, Cammell Laird, Swan Hunter and so on. The "so on" is so important because, as the right hon. Member for Berwick-upon-Tweed (Mr. Beith) said, this debate is 162WH about not only the river and the people who work in the yards but the wider region and the other skills that service direct work on the river. I make this point on behalf of my constituents: there has been a massive reduction in employment opportunities in our region. The latest Government figures show that male unemployment in South Shields, where industry is largely male-dominated, is 19.8 per cent. My hon. Friend the Minister will therefore appreciate our concern at the plight of our industry.
My hon. Friend the Member for Tynemouth said that it is not easy to put that right. We know that no one can simply wave a magic wand. We know that the Government are constrained by European Union rules and regulations. I hesitate to say this, but it would not be understood on Tyneside if the British Government awarded a contract to build roll on/roll off ferries to a German company at a time when another German company had dealt such a devastating blow to another part of our manufacturing base in the west midlands. I appreciate the difficulties in the EU, but other countries find ways around this problem.
§ Ms Dari Taylor (Stockton, South)
Will my right hon. Friend acknowledge, Mr. Heseltine, that the Tees would find it—
Mr. Deputy Speaker
Order. I am not sure what form of address the hon. Lady used, but it was not the right one.
§ Ms Taylor
I accept your correction, Mr. Deputy Speaker.
Does my right hon. Friend acknowledge that people on the Tees would find it extremely undermining if contracts were awarded elsewhere? They, too, have a skilled work force and unemployment problems. Over 13 per cent. of the men in my constituency are unemployed and seeking employment, so I ask my right hon. Friend to include the Tees in his comments.
§ Dr. Clark
I will gladly do so. I welcome the support of my neighbour from Teesside. Although we are talking about the Tyne today, clearly we are also talking about the whole of the British shipbuilding industry. We know that there are problems on Teesside, Clydeside, Merseyside and elsewhere. This is a national problem and we need a national policy to tackle it. I want to focus on Tyneside today because that is where my constituency is.
What has so annoyed people on Tyneside about the MOD's comment is that we manage to retain, albeit only just, that critical mass of expertise, capability and companies to build ships. We are still in the process of doing so. Indeed, we have the design staff. We have the skilled personnel, although it is ageing. The average age of the men in the yards is 49, which is far too old. We have just got going again, trying to retain and retrain apprentices. There is a lot of ground to make up to start moving from the short-termism of the past. The past should not be the guide to the long-termism of our future. We still have that critical mass, yet, if orders are not forthcoming soon, we fear that we will shall lose it.
One of the complaints of the Tyneside workers it that they are forced out of the region. I guarantee that, whenever I catch a plane from Heathrow, Gatwick, 163WH Amsterdam, Brussels or wherever, I will meet Tynesiders or Teesiders flying home for a month's break after a period working in Norway, Holland, the middle east or elsewhere. They constantly ask me why they have to go abroad to ply their trade. The skills exist on the Tyne and Tees, and many of these workers would come back and work there if they could.
I cannot add much to the general points made by my hon. Friend the Member for Tynemouth, but I can make a few more points about decommissioning. We are talking about interchangeable skills. They can be used in shipbuilding and in the fabrication of oil and gas rigs. Equally, they can be used in the decommissioning or the recommissioning of oil and gas rigs. The longer term must dominate our thinking at the moment, but to retain our capacity in the long term we are looking for answers in the short term. After about five years there will be a glut of decommissioning or, ideally, recommissioning work from the North sea oil rigs when they are forced to close down, as they must under international law. Some of that work should come to the British yards.
Experts advise that, although most oil and gas rigs are in the British sector, very little decommissioning or recommissioning will be carried out in British yards—unless something dramatic happens—because of the complexities relating to ownership of the facilities. The experts say that all the work will go to Norway or Holland. That is unacceptable. We built most of the rigs and we can take them apart. My hon. Friend the Minister should consider that.
I wrote to my right hon. Friend the Secretary of State for Trade and Industry about whether Aker McNulty, a company operating in my constituency, had applied to the Government for assistance to allow it to carry out research into the task of decommissioning. The company applied for a research grant of £2.5 million in the belief that thousands of jobs on the River Tyne could be retained in the long term. I understand the difficulties faced by my right hon. Friend, who was not able to offer such a grant. I understand, however, that the application may not yet be completely dead.
Just two weeks ago, I wrote to my right hon. Friend the Secretary of State asking about the prospects for success for a grant application from the parent company of Aker McNulty—a Norwegian company—on the basis that the benefits of any research funded by such a grant would be applied only to British yards. I can see that the Government might be worried about using British taxpayers' money to create a centre of excellence in research on the River Tyne, only to find that the parent company takes the benefit from that research across to Norway, and that most of the physical work of decommissioning or recommissioning is done there. I am not asking for an answer on that issue today, but my hon. Friend the Minister might consider it.
I associate myself completely with what my hon. Friend the Member for Tynemouth said, and I reiterate the point that he made. I have been speaking about Tyneside, because that is the subject of the debate, but we all know that what I have said applies also to Teesside, Wearside, Clydeside, Merseyside and other places. It is very important that the alternative landing ship logistic order is brought forward. I understand that 164WH it has already been delayed. We might not win the order on the Tyne, although I hope that we do, but it would help us to retain that critical mass. My hon. Friend mentioned the roll on/roll off contract. I have made my views known about German companies—that is especially relevant at present.
The DTI is carrying out a review of the operation of the Export Credits Guarantee Department and is considering ways of making it more flexible. The difference between the rate for borrowing money in the United Kingdom and that for the euro makes that all the more important. We can be rather smug about how we have a better rate of exchange against the euro and about how its value has fallen, but the bottom line for industrialists is that the base rate in Europe is considerably lower than in this country, and it is easier for industrialists there to borrow money. That is a problem, and I hope that the Government will take it into account.
My key point is that all the stakeholders in the north-east of England—employers, trade unionists, local authorities, Members of Parliament—accept that there must be a long-term future for our river-related industries and that, perhaps, in the past we have not worked together as we should have. If there is to be a long-term future—and there can be a future in shipbuilding and in the oil and gas defabrication industry—we need to plug the gap in the short term. We look to the Government to help us to work with industry in producing innovative ideas that will ensure that the industry will be retained, so that, when there is an upturn in the shipping industry and the decommissioning work starts, we are in a position to win some of that work, and to provide work for our constituents, who feel rather let down at the moment.
§ Mr. Deputy Speaker (Mr. Nicholas Winterton)
Order. We have about 55 minutes left and five hon. Members, including the Minister, have indicated that they wish to speak. I hope that the Minister will be allowed sufficient time to wind up this important debate. Moreover, one hon. Member arrived a little late today and I hope that he will bear in mind my request when he contributes.
§ Mr. Doug Henderson (Newcastle upon Tyne, North)
I congratulate my hon. Friend the Member for Tynemouth (Mr. Campbell) on securing this debate on a crucial issue for the Tyneside region. I echo the points that he has made, and also those raised by my right hon. Friend the Member for South Shields (Dr. Clark): Both made an excellent case for shipbuilding on the River Tyne.
My constituency would not traditionally be described as a shipbuilding constituency; one has to go back about 100 years to find ship assembly taking place there. However, it contains many companies that feed into the shipbuilding industry, and many of my constituents work either on the assembly side of the industry, further down river, or for subcontractors in my constituency. Shipbuilding on the River Tyne is therefore a crucial issue for the people of Newcastle upon Tyne, North.
It would be an omission if I did not pay tribute to the workpeople in the existing shipbuilding and oil rig industry on the Tyne. I felt a great sense of warmth when 165WH several of my hon. Friends joined the unions on Tyneside in a demonstration of their support for the shipbuilding industry. Tribute must be paid to those unions, including my own union, the GMB.
We were told by the previous Government that the future of the British economy was dependent on the service industries. That might have been true for parts of central London, but I can assure you, Mr. Winterton—
§ Mr. Deputy Speaker
Order. I know that the hon. Gentleman has been a distinguished Minister, but he may not be au fait with the way in which to address the Chair in Westminster Hall. It is either Mr. Deputy Speaker or Madam Deputy Speaker.
§ Mr. Henderson
I apologise, Mr. Deputy Speaker. I asked for guidance on that matter from my colleagues, and I am afraid that I was misguided. Although I was always happy with "Mr. Winterton" in other parts of the House, Mr. Deputy Speaker is a most appropriate form of address in this Chamber.
We were told of the importance of the service industries. I know that the hon. Member for South-West Hertfordshire (Mr. Page), who might contribute to this debate on behalf of the Opposition, took a different view on that issue. Others in the Conservative party also disagreed with their Government's view that we could all work in the service industries. That was good, as it strengthens the alliance of those who believe that manufacturing, in its broadest definition, is the key to the success of our economy if we are to be an exporting and trading nation.
The Government believe that manufacturing is a key sector in our economy, and they instinctively believe that shipbuilding should play a crucial role in building and rebuilding the base of our manufacturing economy. However, they need to consider further the advice that they are given. I am not convinced that that advice identifies shipbuilding as a crucial part of the British economy for areas such as Tyneside. I believe that it is an industry with a future. My hon. Friend the Member for Tynemouth said that predictions suggest that there will be a growth in the demand for ships to move goods and people around the world in the years ahead.
The issue that we must face as a nation is whether we are to be a shipbuilding nation. The decision will be crucial for Tyneside. If we are to be a shipbuilding nation, what must we do to make sure that we are in game? The answer is simple. First, we must have the capacity and the investment in future technologies, including e-commerce and other major developments. Without that, we are in difficulty. Secondly, we must have a pool of people with the skills, the application and the commitment to the industry.
As my right hon. Friend the Member for South Shields said, the average age of skilled work people in the industry is 49. I do not think that 49 is particularly old, but I am sure that we all recognise that it would be better for the future of the industry if that average could be reduced and more young people learnt the skills of tomorrow to give the industry a future.
That is where the emphasis must lie. The Government must ensure that we have that capacity, if they believe, as we do, that shipbuilding has a future and is crucial for 166WH the economic prosperity of areas such as Tyneside, and they must take action to ensure that the skills are retained.
I agree with you, Mr. Deputy Speaker, that all hon. Members who wish to speak should have an opportunity to do so and I do not want to take up too much time. The Government may wish to consider two additional points, which have been partly covered. First, there must be close liaison between Departments on Ministry of Defence orders so that the Government's aims are carried out, rather than the aims of one Department. There must be close liaison between the Treasury, the DTI and the MOD on the way in which orders will emerge, the time scale and the investigations that have taken place to ensure that there is a level playing field and that all bidders for the orders operate on the same terms. It is incumbent on the DTI to demonstrate at the end of the process that the playing field was level. I am confident that, if it does, those who bid for the orders in the British sector will be extremely competitive, including bidders from our own river.
Secondly, I want to reinforce the point made by my hon. Friend the Member for Tynemouth about the international context. There is often reluctance in international agreements such as the trade association agreements between the European Union and Korea to give manufacturing industry a place in discussions as a priority. I am not saying that discussions should not focus on what is important for Frankfurt or for the City of London, but the trade association agreements must also pay more attention to the implications for important industries such as shipbuilding. They are not dead, burnt-out, old industries: they are new and vital industries which are capable of adopting all the new technologies to deliver what we want.
That is why the terms of the agreement between the South Koreans and the European Union are not acceptable. They need to be reviewed and, when they are renewed, a far tougher line must be taken on the subsidy that the Koreans give sectors of their manufacturing industry compared with the subsidies given in the European Union. If the Koreans are not prepared to enter into agreements on that basis, the International Monetary Fund should not take a relaxed a view as it has done on the support that it gives to countries such as Korea. I am not anti-Korean, but any country that competes with us in a manufacturing sector should compete on the same terms.
I know that my hon. Friend the Minister will bear those points in mind, as I suspect that he has sympathy with many of them. He has a difficult task, especially in liaising with other Departments, but I am confident that he will fight hard for our cause on Tyneside and I look forward to his response.
§ Mr. Jim Cousins (Newcastle upon Tyne, Central)
Taking your advice, Mr. Deputy Speaker, I shall be extremely brief.
I support my right hon. Friend the Member for South Shields (Dr. Clark) and my hon. Friends the Members for Tynemouth (Mr. Campbell) and for Newcastle upon Tyne, North (Mr. Henderson). This is an important moment for us, and we should remind ourselves that the 167WH shipbuilding industry, associated industries and even universities—my constituency is one of the largest centres of education and higher education in maritime industries in the country—all depend on the existence of significant industry on Tyneside. We are not talking about an industry of the past; it has to change, but it will be an important industry in the future. The impact of economic and environmental change means that, in future, ships and all the structures in the sea will have to be of a different order, with different capabilities, and be able to work with different technologies. Maintaining access to the opportunities that arise from that is crucial and provides the real subject matter of the debate.
I wish to make two further points to underline the comments of my hon. Friends the Members for Tynemouth and for Newcastle upon Tyne, North. First, the age of the work force is important. Gone are the days when a man with a hammer typified employment in these industries. Secondly, the Government must increase their support for training to higher levels—up to NVQ3—so that young men and women have access to employment opportunities. My hon. Friend the Member for Newcastle upon Tyne, North drew on his own experience when he spoke about that.
The Ministry of Defence does well—in terms of product and people—from the north-east, which provides one of the great recruiting grounds for the British armed forces, yet the region contains almost no significant MOD employment, either uniformed or civilian. In view of the region's current difficulties, our people will not expect us to put up with that for much longer. They will expect us to put pressure on the Government to ensure that in future the MOD has a significant presence in our region. It cannot be right that so much of our defence industry—now very sophisticated and based on modern electronic technology—is concentrated in the south-east of England. As I said, that will not be acceptable to us in the future.
§ Dr. Vincent Cable (Twickenham)
I apologise to you, Mr. Deputy Speaker, and to the hon. Member for Tynemouth (Mr. Campbell) for my late arrival.
Following the closing remarks of the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins), I approach the subject with some humility. I represent a prosperous area of the south of England, which has relatively low unemployment. I doubt whether many hon. Members will have heard of the Twickenham shipbuilding industry, but it came as a shock to discover that it now employs more people than some of the great names of the past, such as Swan Hunter. It has become a niche industry and Twickenham has a working boat yard that produces river passenger boats. More important—and reinforcing the point made by the hon. Member for Newcastle upon Tyne, Central—a large and growing consultancy is doing much of the research and development, design and software work for the industry. The industry is developing there, but not on Tyneside.
I wish to focus on the major public policy issues. The right hon. Member for South Shields (Dr. Clark) raised the key issue of subsidy competition, which is important 168WH for two reasons. First, it is damaging to industries on the receiving end of unfair competition. Secondly, it is damaging to all Governments, who are reaching into a potentially bottomless pit to sustain their respective industries in a world of overcapacity.
I emphasise the importance of the potential Organisation for Economic Co-operation and Development agreement, which brings together not just the European countries, but Japan and now Korea. It is not Korea but the United States that is blocking the OECD agreement. Congressional obstruction is preventing us from reaching an agreement to stop this damaging process. I hope that the British Government will emphasise that in trade negotiations with the United States.
Although Korea has replaced Japan as a major player in the shipbuilding industry, the growing force is China, which is rapidly increasing its role. It has an enormous reservoir of labour, much of which is highly skilled, and an opaque system of Government support. It is crucial that China is quickly brought within the World Trade Organisation so that the WTO's disciplines are applied to its shipbuilding industry. If it is not, another industry will founder on what is often unfair, non-market-based competition.
The right hon. Member for South Shields briefly touched on the economic fundamentals. The appreciating exchange rate—15 per cent. overall since the Government took office and 33 per cent. since the trough in 1966—has caused a loss of competitiveness that swamps any benefit that the industry might gain from the subsidy in the intervention fund, which is 4.5 per cent. for big vessels and 9 per cent, for smaller vessels. The over-valued exchange rate and high base rates put the industry, including manufacturers who are not on the Tyne, such as Harland and Wolff a few years ago, at an enormous disadvantage, as they do to much of our manufacturing industry. That problem will continue until the exchange rate is stable and competitive.
My concluding point is a personal one. Although Twickenham is far removed from the industrial problems of the Tyne, my first venture into public life was as a representative of a ward on Glasgow city council. Most of my constituents worked in the upper Clyde shipbuilding industry before it collapsed. I saw at first hand the effect of a contracting shipbuilding industry on a population of highly skilled mainly male workers, many of whom were middle aged and would never work again.
The lessons of the Clydeside experience—the importance of self-help—should be borne in mind for the Tyne. The Scottish Development Agency did a great deal to turn around the Clydeside economy by encouraging regeneration and pulling together the region's stakeholders. Retraining was crucial. The Government should be generous about retraining. If people might never work again, it pays to invest in trying to get them back to work by providing them with lifetime skills. I urge the Government to be broadminded about intervening in the industry. They should look to the future rathere than the past, and not walk by on the other side.
§ Mr. Richard Page (South-West Hertfordshire)
I, too, congratulate the hon. Member for Tynemouth (Mr. Campbell) on his luck in getting chosen in the ballot and on choosing this important subject for debate. We should all be grateful to him for raising concerns that are felt on both sides of the House. Although I am now a soft southerner, I was the Member of Parliament for Workington. I am only too well aware of how deep rooted shipbuilding is in the psyche of the north for economic reasons and of the mental well-being of the people who work and live there. We fully recognise the fears of the Tyne's shipyard workers and the problems that affect the whole shipbuilding industry.
Since 1997, the Tyne's order books have collapsed. If reports are correct, employment has decreased from nearly 14,000 to about 800. I say that with some diffidence because we know that there has been a move to temporary working, so it is difficult to pinpoint those figures. Nevertheless, there has been a savage reduction in employment. Having built four fifths of the installations in the North sea, the Tyne has been reduced to pleading for the development of marginal oil fields and the award of an MOD contract for the landing ships to save what is left of that construction capacity.
The bidding results for the two major orders are now eagerly awaited. The first contract is for up to five alternative landing ship logistic vessels worth £350 million. Both the Swan Hunter shipyard at Wallsend and Cammell Laird at Hebburn have made a bid for them. Cammell Laird is also bidding for a £240 million contract to build the six MOD ro-ro vessels. However, hon. Members have been remarkably tactful in referring to controversy about an MOD official's statement that Tyneside, Glasgow and Belfast lacked the expertise to undertake that ro-ro contract. If those remarks were made, they were unwise and prejudicial to the chances of the Tyne yards in the competition with respect to that order. As a wider issue, how will it look when British shipbuilding companies try to bid in the marketplace if MOD officials say that the skills and abilities are lacking? How will it affect Cammell Laird when it bids for orders in the Philippines? It is highly damaging and the Minister should firmly deny that the official had the authority or knowledge to make that comment.
Hon. Members have asked about fairness of competition, particularly from Korea. The Minister will know that Members of Parliament who are concerned about shipbuilding have signed an early-day motion about the fairness of Korean contracts and bids. The figure of 20 per cent. has been mentioned. In 1994 an agreement was negotiated under the auspices of the OECD to eliminate subsidies in world shipbuilding, including the elimination of contract aid in the EU, the lifting of the Jones Act in the United States and, perhaps most important, the acceptance by Korea of an unfair pricing clause. Although that was signed in December 1994, the failure of the US Congress to ratify it so far has meant that it has not come into force. What are the Government doing—including any action that they are taking with the European Commission—to get the agreement ratified and speedily implemented?
Matters have been made worse by the weak euro vis-à-vis the pound. The latter's strength against the euro and the far eastern currencies will make it that much more difficult for our shipbuilding companies to obtain 170WH orders. This morning, for the first time, the euro's value dipped below 60p. That trend cannot be helpful to our shipbuilding industry.
The fact that we are having this debate—particularly with respect to fabrication—reflects badly on the Government's managerial skills. Their clumsy and ill-thought-out review of taxation on North sea exploration inevitably led to oil extraction companies, which perceived the impact of advance corporation tax and the windfall tax, reviewing their whole programmes. I know from my previous incarnation how marginal some of those programmes were in many respects. The number of orders for fabrication has decreased. Fewer wells have been drilled in the North sea between 1997 and 1998.
Therefore, I ask the Minister whether the financial regime for the North sea has been examined to determine whether help can be given to those fabrication yards involved in making floating rigs for use to the west of Shetland. Platforms are not the right technological solution for extracting oil in the deep sea. What is being done to ensure that those oil extraction companies have the confidence to explore around the west of Shetland and Rockall? Licences have been granted to explore the deep water around Rockall and such exploration needs the new technology.
The right hon. Member for South Shields (Dr. Clark) mentioned decommissioning and the hon. Member for Tynemouth mentioned the loss of fabrication, but the Minister must realise that we will not be able to take advantage of any decommissioning if the ability to fabricate is lost. A huge amount of potentially profitable work could be lost if we do not ensure that our fabrication and shipbuilding capacity is in place.
The hon. Member for Tynemouth rightly mentioned training the young. I am one of the few Members who did not go to university; I did an industrial apprenticeship in mechanical engineering. I would not have swapped that training for all the universities under the sun. Newcastle university has a large engineering department, but without a career path or employment opportunities, the young will not take the first steps to learn about engineering. If skills are not constantly refreshed, we shall have no shipbuilding and fabrication industry.
The Secretary of State for Trade and Industry said:Tyneside does not want ministerial day-trippers; it wants positive action from the Government.—[Official Report, 12 May 1993; Vol. 224, c. 804.]He also said:Tyneside is not using special pleading, but asking for fair play. Shipbuilding is vital to the manufacturing and industrial base of Teesside. If the Government thought that the people of Teesside would sit back and let shipbuilding die, they have made a grave error.—[Official Report, 19 May 1993; Vol. 225, c. 331.]The Minister of Agriculture, Fisheries and Food said:It is with enormous sorrow that I take part in the debate on Britain's manufacturing base to plead with the Government that they do something to save what is left of the shipbuilding manufacturing base on Teesside. No community deserves better from the Government.—[Official Report, 24 November 1993; Vol. 233, c. 533.]I hope that the Minister will answer those questions; I look to him for a response. Several hon. Members have said, very generously, that they do not expect answers 171WH today; they have asked him to think about the problems. However, the problems are not new; they have grown during the past few years, so there is no reason why he should not answer the questions today. He should give the people of Tyneside some confidence for the future, not knock the problems into the long grass. The hon. Member for Tynemouth asked several very pertinent questions, but he did so delicately. I appreciate his position, but no such restrictions have been placed on me and I hope that I have added to those questions. On behalf of the workers on Tyneside and those in shipbuilding throughout the country, I ask the Minister for some answers.
§ 11.3 am
§ The Minister for Competitiveness (Mr. Alan Johnson)
I congratulate my hon. Friend the Member for Tynemouth (Mr. Campbell) on securing this debate. I am pleased that so many hon. Friends and hon. Members from Teesside are present for what, until the previous speech, has been a fascinating and constructive debate. Debates in Westminster Hall are meant to be less confrontational and it is vital that this issue, more than any other, should not be turned into a Punch and Judy show. I shall respond to the important matters raised by my hon. Friends in the debate, and to the Opposition's petty political point scoring.
The issue is critical to people who live and work on the Tyne. My hon. Friend the Member for Tynemouth referred to two important matters on which I shall respond: the prospects for shipbuilding on the Tyne and the prospects for the Tyne's offshore industry.
I reiterate the comments about the excellence of Tyneside shipyards and their importance to the local economy. As hon. Members have said, the debate is about the United Kingdom shipbuilding industry, although we are referring specifically to the Tyne. I am acutely aware however that all shipyards in the United Kingdom face difficult challenges. There is fierce international competition for orders and global overcapacity of about 30 per cent. The United Kingdom's primary competition is from other European Union countries; I shall refer later to Korea. The contract for Queen Mary II was lost to a French shipyard, which, until the end of the year, has the same subsidy arrangements as are enjoyed throughout the European Union. The challenge is not just from Korea.
It is encouraging that, despite those challenges, the industry has not lost confidence in its future, as was shown recently when my right hon. Friend the Secretary of State opened Cammell Laird's new dry dock and began the process of building a second. My right hon. Friend probably did more for shipbuilding and ship repairing in a week than the hon. Member for South-West Hertfordshire (Mr. Page) and his hon. Friends combined in their lifetime.
There have been several important developments in the past couple of years. Shipbuilding, ship repair and conversion on Merseyside are reviving. Late last year, Cammell Laird won the contract for the conversion of the Costa Classica cruiser, the biggest cruise conversion ever, which is worth £60 million. Conversion is more labour intensive and therefore creates more jobs than 172WH shipbuilding. Appledore in Devon recently rescinded 300 redundancy notices after receiving a letter of intent for the second Irish navy fisheries protection vessel.
The United Kingdom remains among the market leaders in Europe, especially for ship conversions. I cannot emphasise strongly enough the fact that the British shipbuilding and ship repair industry has a future, and the key to its future success is its competitive performance. The Government are committed to working closely with the industry to help it to face the challenges and to achieve the improvements necessary to win the contracts that it needs.
I pay tribute to my predecessor, my hon. Friend the Member for Leeds, West (Mr. Battle), who in 1998 set up the first shipbuilding forum, which met around the table in the Department of Trade and Industry. It is remarkable that that had never happened before. We asked the shipbuilding forum, which includes Cammell Laird and A & P Tyne, and representatives of suppliers, customers, trade unions and Government, to tell us what the industry needs. It made 40 recommendations, including a recommendation to enhance Government financial support for the shipbuilding industry.
Much progress has been made. Cammell Laird won the contract on Merseyside because we extended the shipbuilding intervention fund to include conversion, something that the previous Government had never done and without which Cammell Laird would not have won the contract. We have enhanced the home shipbuilding credit guarantee scheme in direct response to a recommendation from the shipbuilding forum. We have also funded a suggestion from the forum that there should be an industry-led study tour of the Netherlands, where the shipbuilding industry has done things differently over the past 20 years. Shipbuilders there collaborate in order to compete, and their investment in skills and training started many years ago. They have carefully examined how they involve the supply chain, which is more crucial to shipbuilding and ship repair than to any other industry. To give due credit to those in the UK industry, they came back from that study tour with many ideas and with a positive approach to the changes that could be implemented in this country—that is benchmarking at its best.
We continue to work closely with the industry through the Shipbuilders and Shiprepairers Association on competitiveness and productivity issues. As hon. Friends have mentioned, we offer the industry significant financial support. We continue to pay the maximum rate of shipbuilding intervention fund for new ships. We have agreed to allow an element of up to 9 per cent. profit in the fund calculations—the third recommendation from the shipbuilding forum's first meeting in 1998 to have been implemented by the end of 1999.
We have brought the DTI scheme into line with our European competitors' practice in several other ways. If there is evidence of any European Union country winning a contract by bending the rules on the shipbuilding intervention fund, we need to know about it, as the DTI has often said. No evidence has been produced to suggest that that is happening.
We have extended the scope of the fund to conversion contracts. We have extended access to several previously excluded yards. Military yards were excluded from SIF 173WH assistance, and we have changed that in response to an industry recommendation. We have enhanced the home shipbuilding credit guarantee scheme by providing support for loans in US dollars and euros in response to an industry recommendation.
We recognise the industry's concerns about unfair trade practices, in particular, in Korea—and we should be clear that such practices exist. At least a couple of yards in Korea would, on any impartial analysis, have been declared bankrupt years ago, but they continue to operate. In response to the hon. Member for South-West Hertfordshire, I should mention that we continue to make vigorous efforts to address the industry's concerns. However, we must acknowledge, as the industry does, that Asian shipyards—in particular, those in South Korea—are more competitive than European yards and possess several strengths, such as a highly efficient equipment supplier base. Even without the distortions caused by what are definitely unfair trade practices, European yards would still face a gap in their competitiveness with Asian builders. It is important to say that, because the industry must ensure that it does not fall into the trap of believing that there is only one problem in the British shipbuilding and ship repair industry and that there would be no others if it were resolved. The industry should not delude itself on that issue.
Nevertheless, unfair trade practices are unacceptable and remain a real concern. We continue to strive for a remedy. Thanks to pressure from the Government, the Commission has engaged for the first time in bilateral talks with Korea, with a view to reaching an agreement on the EU industry's concerns. There are positive indications that Korea will accept an agreement, including a consultation mechanism on unfair trade practices.
In the longer term, the only viable solution to anti-competitive practices is to establish effective international trade disciplines, as embodied in the OECD shipbuilding agreement, as my hon. Friend the Member for Tynemouth and the hon. Member for Twickenham (Dr. Cable) said. I reiterate that our efforts on that have been frustrated by the failure of the United States—which, for obvious reasons, has a great deal of influence over South Korea—to ratify the 1994 agreement. Nevertheless, we continue to pursue our objectives.
I am determined to work closely with the industry on Tyneside and throughout the UK to help it to equip itself to meet the tough challenges of the market, boost its competitiveness and improve its success. The Shipbuilders and Shiprepairers Association shares the industry forum's objective of doubling output and building 50 to 60 ships a year within five years. It also aims to improve the annual turnover derived from repair and conversion by at least 30 per cent. Those are realistic targets. As my hon. Friend the Member for Tynemouth said, it has been forecast that more than 2,000 ships will have to be built every year for the next 10 years, excluding tankers and bulk carriers, which are not built in Britain. The industry is taking a positive approach to that market.
We agreed with all other European Union countries—with the support of the industry and the trade unions—to abolish the shipbuilding intervention fund from 31 December 2000. We made that agreement 174WH on the basis that the SIF has been in existence for 30 years and has had little effect on helping the industry in this country or the rest of Europe.
The SIF provides up to 9 per cent. assistance; by contrast, the gap in the Asian yards is about 20 per cent. It was thought that, rather than carrying on with the SIF, focusing on research and development, building the skills base and improving training would be a step forward for the industry. That has been approved and the EU directive was changed accordingly by a new regulation in 1998. However, only two weeks ago, I met industry representatives who are anxious that the SIF should remain at least until concerns about Asia—and especially South Korea—have been met. Representatives of the Confederation of Shipbuilding and Engineering Unions made the same point when I met them last week.
We shall give those issues serious consideration. The rest of Europe has agreed to abolish the SIF, so hon. Members will accept that we should lead the charge or support it. It may be difficult to change tack now and overturn the position on the SIF, as that would require a recommendation from the Commission. More important, we have told the industry that we must have clear examples of how maintaining the SIF will help us, particularly to get contracts in the face of competition from Asia and especially South Korea. We are still listening to arguments about changing tack on SIF.
I turn to the prospects for the offshore industry. If I have time, I shall address individual points raised by hon. Members, but first I must put on record our ideas and concerns about the offshore sector. As with shipbuilding, it is important to acknowledge the high levels of skills and experience on the Tyne available to the offshore sector. There is a strong tradition of providing complex engineered structures for oil and gas fields in the North sea and abroad. About 80 per cent. of the top sides for more than 70 offshore oil and gas fields in the UK sector of the North sea were fabricated in north-east yards.
However, it is clear that the days of large fabrication orders for the UK continental shelf are over. The offshore discoveries available for development now are only a fraction of the size of earlier fields such as Brent, Forties. It is unlikely that there will be many more huge orders like that for the Shearwater platform, which recently left the Tyne. There is widespread recognition in the industry that there is overcapacity and a need to rationalise; yet there are still orders to be won, even if those for the United Kingdom continental shelf are smaller. The majority of orders are likely to be for smaller platforms and facility work associated with sub-sea development or floating systems, but there is no doubt that the Tyne, and indeed the whole of the northeast, has the capability of producing the quality products required.
A point was raised about the commissioning and decommissioning of oil rigs, which the local industry is considering. We are at a competitive disadvantage with countries such as Norway and Holland, which have the heavy lift barges, but, as we have the necessary skills, the idea now is to work in partnership with the Norwegians or the Dutch so that there is work for Tyneside. That important development is being pursued by the Northern Offshore Federation.
175WH The work of the oil and gas industry task force last year led to improvements to the offshore licensing regime, actions to improve the UK industry's competitiveness and additional relief from capital gains tax. All those actions were designed to stimulate activity on the UK continental shelf. The task force initiatives are being monitored through its successor, known as PILOT. The task force requested that an oil and gas fabrication support group be set up. A meeting took place last month which was attended by more than 40 representatives of fabricators, the unions, enterprise agencies, training organisations and central and local government. A number of the representatives were from the north-east.
The group examined the opportunities for work from the UK contintental shelf and from export markets, particularly for FPSOs. It also considered prospects in other sectors, including decommissioning, offshore wind power generation and shipbuilding. Regrettably, it was clear that the alternative markets will not produce the volume of work necessary to sustain fabrication activity in the UK at anything like the level of previous years, but it identified major areas of work.
We are also working with the leading agencies in each area. One North-east, the regional development agency in the north-east, has already created an action group for the region, which is chaired by Kevin Curran of the GMB. The national fabrication support group will work with the action group to ensure that any options for maximising employment are considered and pursued.
Two more specific points have been raised recently in the north-east. The first concerns offshore licensing procedures. The licences are awarded on the basis of an agreed programme of work to explore thoroughly the petroleum potential of specified areas on the UK continental shelf. The ability to retain the licence beyond specified points depends on a commitment to future work.
The Government are well aware of the importance to the UK economy of continued exploration and development work on the UK continental shelf. That is why officials have written to the managing directors of companies holding licences on the UK continental shelf that have fallow blocks and fallow discoveries in their portfolios, asking them to review their plans for the licences and to report back by Easter. That is another major initiative that addresses the concerns raised in the debate.
The second specific point relates to gas-fired power stations. Suggestions have been made to have a moratorium on power stations. No moratorium is in place, but there is a stricter consents policy for the oil and gas sector. That is a short-term measure to protect energy diversity and security of supply while the electricity market is reformed. We were aware of concerns that a large-scale switch to gas was taking place in a distorted market, with gas-fired plant coming in even though it was more expensive than the coal that it displaced. Hon. Members will be well aware of those issues.
We must level out the market so that it can function effectively, balancing supply and demand in economically sensible ways. To avoid making things 176WH worse, we have temporarily restricted consents for new power stations until the market is sorted out. I cannot say how long the stricter consents policy will last, as relaxation is tied in to the programme to reform the market, but the Government are determined that it will last no longer than necessary.
My hon. Friend the Member for Tynemouth made a number of important points, one of which was about the age profile, which was repeated by others in the debate. I agree that 49 is a young age, but it is older than I thought it was 20 years ago. The industry is addressing the problems, almost for the first time, and recognises a serious skill shortage. Modern apprenticeships have begun only recently and it will be some time before they address that problem, but everywhere I go the people in the industry to whom I talk single it out as a major difficulty.
My hon. Friend also said that the maritime industry was a classic example of the way in which high technology and new technology were married to traditional industries and said that the knowledge-driven economy was as much about manufacturing as about mobile telephones: there is no difference in its effect on industry. He also recognised the problems that were outside the Government's remit.
Perhaps I can quickly answer the points made by the hon. Members for Twickenham and for South-West Hertfordshire about the strong currency. In 1997–98, even before there was any reason to consider the strong pound as a factor in these matters, UK yards won just two contracts of a total of 342 won in the rest of the European Union. The shipbuilders and ship repairers do not constantly refer to the strong pound as a problem, but recognise that there are many things that they must do to be more competitive. For the past 50 years, Germany has prospered with a strong currency. Strong currencies do not lead to failure, they are a symptom of long-term economic improvement, as the right hon. Member for Kensington and Chelsea (Mr. Portillo) said on 23rd March 2000 in The Birmingham Post.
The crucial points that were made by my hon. Friend the Member for Tynemouth and others were about the Ministry of Defence contracts. It does not need me to say this, because my right hon. Friend the Secretary of State for Defence, who is bigger and uglier than I am—certainly big enough and ugly enough to look after himself—has made it clear that nobody from the Government said that we did not have the skills in the UK. Not only do we have the skills, but we have skills, talent and commitment in abundance. Therefore, I am happy to set the record straight.
My hon. Friend the Member for Tynemouth also made the important point about the DTI working closely with the MOD and other Departments on these issues. We do that exhaustively, not just on shipbuilding but on aerospace, where the DTI needs to feed in industry's views. Smart procurement means that the contracts will be awarded fairly and on a competitive basis, although the ALSL order will definitely go to a UK yard because it involves a warship. As far as I am aware, although it is a matter for the MOD, invitations to tender for the ALSL went out in March and close in mid-May. It is difficult to see how we can bring that time scale forward, but I shall raise the matter with the MOD.
177WH As regards the SIF and the suggestion that a forum should be set up on Tyneside to bring all the industry players together, that is an interesting idea. I am attending a meeting of the industry forum tomorrow and I shall float that idea—"float" being the operative word—to obtain its view on whether it thinks that that might dilute or detract from the national industry forum.
My right hon. Friend the Member for South Shields (Dr. Clark) made a number of important points. I agree that the skills and abilities undoubtedly exist in the UK, and his point about Aker McNulty will be carefully considered.
This has been an important debate. I have not mentioned other enterprises on Tyneside. Youth unemployment has fallen by 60 per cent.; tourism in Newcastle has now taken off, and is among a number of developments happening in the city. Shipbuilding may not be the life blood of the Tyne, but it is certainly still the heart beat, and the Government very much appreciate the need to support the industry.