Royal Dockyards (Hansard, 3 July 1995)

§ Mr. Freeman

My right hon. and learned Friend the Secretary of State for Defence announced the Government's policy towards the future management of the royal dockyards at Devonport and Rosyth on 18 October 1993 at columns39–41. Since then, I, my predecessor and my officials have had numerous meeting with the national officers of trade unions with members employed by the Ministry of Defence and the dockyard companies—Devonport Royal Dockyard plc and Rosyth Royal Dockyard plc—which, I should stress, have been private sector companies since 1987, to discuss the proposed privatisation of the dockyards. I have found these meetings a valuable opportunity to clarify the concerns felt by the dockyard company employees who may be affected by the proposed privatisation. At my most recent such meeting, on 20 June, I undertook to give a full and considered statement, in the light of detailed legal and other advice, of my Department's position on the issues raised with me.

My officials have also discussed these issues with the tenderers for the dockyards—Devonport Management Ltd. at Devonport and Babcock International Group plc at Rosyth—and, where appropriate, this statement takes account of my understanding of those discussions. Each tenderer, of course, remains fully responsible for any statements that it has made or may make in the future.

85W

The Government's preferred option for the future of the dockyards is that each should be moved wholly into the private sector as a separate and independent entity, provided the terms are right and meet the needs of the taxpayer and the Royal Navy. The Government believe that this would offer the dockyards the best opportunity to become more competitive in seeking work from my Department and other customers. As elsewhere in industry, maintaining competitiveness is crucial to employment levels; it is essential to a secure long-term future for the dockyards and their employees.

My Department is now holding detailed discussions with each tenderer with a view to agreeing satisfactory sale terms. No decisions have, however, yet been taken on whether to proceed with the sale of either dockyard. As I made clear in answer to my hon. Friend the Member for Plymouth, Sutton (Mr. Streeter) on 23 November 1994 at column 146, I do not rule out other options for the future management of either dockyard; the detailed implications for dockyard company employees are, however, hypothetical in view of the Government's preferred option.

I appreciate the concerns, as expressed by the trade unions, of the dockyard company employees about the effect that the proposed sale may have on them. I understand the stance of the trade unions, but I believe that their concerns, as they have articulated them, are misplaced. They take less than full account either of the opportunities for the employees and all others concerned that would be opened up by privatisation of the existing protections available under employment law.

It is important to be clear about what is proposed. Under the proposed arrangements for the sale of each dockyard, the employer of the existing dockyard company employees would remain the same. Terms and conditions of employment for existing employees, including redundancy and pension entitlements and collective bargaining agreements, would continue unless or until specifically changed. Both tenderers are aware that contracts of employment can be varied only by means allowed for under employment law—that is to say, only, in normal circumstances, by the agreement of the parties; unilateral variation may be a breach of contract and the law prescribes remedies in such circumstances. The law does not, however, provide for employees or trade unions to have an absolute veto over changes to terms and conditions of employment.

Each dockyard company is responsible for the terms and conditions of employment of its employees and for any changes to them, subject of course to the provisions of the term contracts, due to expire no later than April 1996, between my Department and the dockyard contractors—Devonport Management Ltd. and Babcock Rosyth Defence Ltd.—under which each dockyard is currently managed. As the trade unions have frequently referred to provisions of the term contracts, I should stress that neither term contract was intended to impede the conduct of bargaining between employer and employee, nor did either affect the legal position that contracts of employment may be terminated on notice. During the course of the term contracts, changes to terms and conditions have been negotiated between the contractors and the trade unions representing dockyard company employees. The responsibility for the management of the dockyards is now a matter for the contractors and would, 86W after any sale, be a matter for the new owners. Although both tenderers have assured my Department that they will in all cases comply with all provisions of statute, statutory instruments, regulations and codes of practice relating in any way to employment, the provision of services or the conduct of collective bargaining, I do not intend to impose any constraints on the right of any new owners to manage the businesses as they see fit in order to secure future success—success which will be in the interest of the employees.

I understand that discussions have begun between each tenderer, the dockyard company employees and their duly authorised representatives about the tenderers' approach to employment issues which may arise after any sale. I welcome this fact. It is not the Government's intention to intervene in these discussions or to seek to determine their outcome.

I understand the trade unions to be seeking four principal guarantees:

(i) that the redundancy entitlements of Dockyard company employees should be protected in all circumstances;
(ii) that the pensions of Dockyard company employees should be protected, with no change after any sale except by agreement;
(iii) that there should be no change to terms and conditions of employment of Dockyard company employees except by negotiation and agreement; and
(iv) that there should be contractual guarantees relating to the future workload at each Dockyard.

Redundancy liabilities and entitlements

Although the term "redundancy entitlement" is widely used, it is important to be clear what is meant. The redundancy scheme at each dockyard, which is part of dockyard company employees' terms and conditions of employment, includes rules for calculating the payment that a dockyard company employee would be entitled to receive at any given point in time if made redundant in a redundancy situation as defined in the scheme. A dockyard company employee's terms and conditions therefore entitle him to receive a contingent payment on redundancy which is calculated in accordance with the rules of the scheme. As part of his terms and conditions of employment, those rules may be changed only by means allowed for under employment law or any provisions of the redundancy scheme itself. Any failure to make a redundancy payment in accordance with the redundancy scheme may be a basis for an employee to pursue a legal remedy against the employer.

Both tenderers have made clear their view that if the long-term future of each dockyard is to be secured, the issue of the redundancy entitlements of the dockyard company employees must be addressed. At the same time, both tenderers recognise the importance to the dockyard company employees of their service up to the time of any sale of the dockyards in the determination of their redundancy payments. Each tenderer has assured my Department that, in the commercial circumstances currently envisaged, which will where appropriate be the subject of negotiation between my Department and each tenderer, it does not intend to seek to impose changes in the redundancy payments due for past service under the existing redundancy scheme.

87W

Although the Government can give no guarantees on the way in which redundancy payments are calculated, I consider, as indicated in my supplementary answer to the hon. Member for Plymouth, Devonport (Mr. Jamieson) on 6 June at column 8, that the redundancy entitlements of the existing dockyard company employees, enshrined as they are in their contracts of employment, are already properly protected in law and that the proposed privatisation would not impair this protection.

It may be helpful to set out clearly my Department's continuing policy with regard to the future recovery of redundancy costs by the dockyard operators from the Ministry of Defence. Under current arrangements and subject to certain conditions, my Department reimburses the dockyard contractors for the costs of any redundancies properly incurred. These arrangements are co-terminous with the term contracts and will therefore lapse at their expiry within the next nine months. Future provisions for any recovery of redundancy costs from my Department will be a commercial matter for negotiation between it and the tenderers. My Department's position is that the normal arrangements between it and private sector companies for recovering such costs should apply in the case of the dockyards. As it is, and will remain for some years, the major customer for each dockyard, my Department, will, recognising the particular circumstances at the dockyards, consider making a commercialy appropriate contribution to any redundancy costs at the dockyards after any sale, where these are directly attributable to special or unusual factors for which my Department is responsible, either as a direct payment to the company or through inclusion in its overheads. The detailed arrangements for any such reimbursement—not, I stress, the details of the way in which an individual's redundancy payment is calculated—are for negotiation between my Department and each tenderer as part of the overall arrangements for any sale. Any such arrangement would, as now, be a contractual matter between the company concerned and my Department alone.

In the light of the protection afforded by the law to employees' terms and conditions and of my Department's policy on cost recovery as set out above, I do not think it appropriate to consider making further provision in relation to the payment of redundancy entitlements or liabilities.

Pensions

On the subject of pensions, I have already made clear to the House in my supplementary answer to the hon. Member for Devonport on 6 June at column 8 that accrued benefits as at the point of sale will be given protection. Under the arrangements envisaged for the proposed sale, the existing pension scheme at each dockyard would continue after sale, subject to certain amendments being discussed with the tenderers and the trustees, including, in accordance with received good pensions practice, the appointment of an independent trustee. Each tenderer has indicated that it is willing to take on the current scheme, with any agreed amendments, at the point of any sale; both tenderers have indicated that they see scope for making changes to the schemes to improve the competitiveness of the business from which the employees derive their livelihoods, but each has declared that it would seek to make such changes after consultation, negotiation and agreement wherever possible.

88W

The ways in which pension arrangements may be changed are governed by relevant legislation and the terms of the trust deed and rules applicable to each pension scheme. Looking beyond the proposed sale, the relevant points in relation to each scheme are, in broad outline, as follows:

(i) The actuary to the scheme would generally determine the overall required contribution rate and any changes to it.
(ii) changes proposed by the employer to benefits under the scheme would, as now, require the consent of the trustees, who would include member representatives and an independent trustee;
(iii) the employees' contribution rate would primarily be for the employer to determine but this, and any change, would in the normal course of events be the subject of consultation and negotiation between the employer, the employees and their duly authorised representatives, with a view to reaching agreement wherever possible.

Any employer may bring about more fundamental changes to a scheme by terminating it and replacing it by alternative arrangements; in that event, accrued benefits relating to service up to the point of termination would be provided in accordance with the trust deed and rules. The law does not normally require the consent of the trustees or the members of the scheme to such action. It may, however, be open in certain circumstances to the members of the scheme to seek legal redress against the employer.

Although the Government can give no guarantees about the provision of pension benefits of dockyard company employees relating to service after the date of any sale, I believe that the law and the trust deed and rules of each scheme provide satisfactory protection for the pensions of existing dockyard company employees. The Government therefore see no need to make further provision in this respect.

Other changes to terms and conditions

With regard to other changes to terms and conditions of employment, both tenderers know that employment law governs the ways in which these may be made and provides protection against unlawful dismissal. Changes must, wherever possible, be achieved after consultation, negotiation and agreement between the employer, the employees concerned and their duly authorised representatives where applicable; only if it proves impracticable to reach agreement may the question of unilateral change arise.

While each tenderer has made clear that it is reviewing terms and conditions of employment, both have indicated that no decisions have been taken in relation to possible changes to these. Each, moreover, has expressed its determination, where it may wish to seek changes, to continue to do so through established local procedures for dealing with such matters after consultation, negotiation and agreement wherever possible. Although the Government can provide no guarantees about the means by which such changes may be sought, we believe that employment law provides sufficient protection for dockyard company employees, in the same way as for all other comparable groups of employees, and that no further provisions would be appropriate.

89W

Future work load

Finally, on the question of future work load, the Government's overall policy of concentrating nuclear refitting at Devonport and providing Rosyth with an allocated programme of surface refitting work was set out to the House on 24 June 1993 at columns 447–450 and there has, as I made clear in answer to the hon. Member for South Shields (Dr. Clark) on 25 May 1995 at column 658, been no change to that policy. We have indicated that contractual provisions relating to the future work load at each dockyard could be a matter for negotiation with tenderers and this is a subject of discussion with them. Any contractual arrangements will need to take account of the many operational and other factors that lead to regular changes in the refit programme, and the award of individual refit contracts will continue to be subject to negotiations about price on the basis of my Department's requirements.

Information and consultation

The Government and both tenderers are aware of their obligations under the law and relevant agreements; each has stated that it intends to honour these. For its part, my Department remains committed to inform and consult, insofar as it has obligations to do so, those who are, or may be, affected by the proposed privatisation of the royal dockyards throughout the process of moving towards any sale transactions. At this stage, and until such time as any firm decision is taken to proceed with any sale, my Department's responsibilities with regard to the provision of information to, and consultation of, dockyard company employees relate only to the following matters:

(i) matters of general principle relating to the proposed sale;
(ii) the conduct of the sale process and its associated time scale; and
(iii) the general arrangements that would apply to the future management and ownership of each dockyard, insofar as only my Department can comment on these: aspects within the remit of the prospective future private sector owner are for that company.

The provision of information and consultation in relation to redundancy entitlements, pensions and other terms and conditions of employment is for the tenderer or, as appropriate, dockyard company in question.

My Department is separately obliged to consult its own employees and their representatives in respect of the implications of the proposed sale transactions and connected arrangements for Ministry of Defence staff. This process will be taken forward as and when appropriate.

In the spirit of my answer to the hon. Member for Dunfermline, West (Ms Squire) on 6 June at column 148, I and my officials are very willing to meet the trade unions as and when appropriate over the next months about matters that are the responsibility of my Department. As I have already made clear to the trade unions, my Department's commitment, within the parameters listed above, to inform and consult at the appropriate time with dockyard company employees does not extend to standing in the way of, or influencing, discussions between each tenderer, the relevant dockyard company, its employees and their duly authorised representatives, about how the tenderers might each wish to approach employment issues after any sale. The emphasis should henceforth shift to those discussions. The tenderers, employees and their trade unions should now 90W make use of all appropriate local and other channels for the provision of information and consultation to take the process forward with a view to securing the long-term future of both dockyards and their employees.