House of Commons Scottish Affairs Committee Employment and Skills for the Defence Industry in Scotland Sixth Report of Session 2007–08 Report, together with formal minutes, oral and written evidence Ordered by The House of Commons to be printed 11 June 2008 HC 305 Published on 23 June 2008 by authority of the House of Commons London: The Stationery Office Limited £0.00 The Scottish Affairs Committee The Scottish Affairs Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Scotland Office (including (i) relations with the Scottish Parliament and (ii) administration and expenditure of the office of the Advocate General for Scotland (but excluding individual cases and advice given within government by the Advocate General)). Current membership Mr Mohammad Sarwar MP (Labour, Glasgow Central) (Chairman) Mr Alistair Carmichael MP (Liberal Democrat, Orkney and Shetland) Ms Katy Clark MP (Labour, North Ayrshire & Arran) Mr Ian Davidson MP (Labour, Glasgow South West) Mr Jim Devine MP (Labour, Livingston) Mr John MacDougall MP (Labour, Glenrothes) Mr Angus MacNeil MP (SNP, Na h-Eileanan An Iar) Mr Jim McGovern MP (Labour, Dundee West) David Mundell MP (Conservative, Dumfriesshire, Clydesdale and Tweeddale) Mr Charles Walker MP (Conservative, Broxbourne) Mr Ben Wallace MP (Conservative, Lancaster & Wyre) The following were also members of the Committee during the inquiry: Danny Alexander MP (Liberal Democrat, Inverness, Nairn, Badenoch & Strathspey) Mr David Hamilton MP (Labour, Midlothian) Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk. Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/scotaffcom A list of Reports of the Committee in the present Parliament is at the back of this volume. Committee staff The current staff of the Committee are Dr Sue Griffiths (Clerk), Jyoti Chandola (Second Clerk), Duma Langton (Committee Assistant), Karen Watling (Secretary), Becky Crew (Secretary), James Bowman (Chief Office Clerk). Contacts All correspondence should be addressed to the Clerk of the Scottish Affairs Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 6123; the Committee’s email address is [email protected]. Employment and Skills for the Defence Industry in Scotland 1 Contents Report Page Summary 3 1 Introduction 5 2 Contribution of the Defence Industry to the Scottish Economy 6 3 Current Defence Programmes 7 Future Carrier Programme (CVF) 8 Delays to the CVF Programme 9 Military Afloat Reach and Sustainability (MARS) 12 Non-naval defence programmes 14 4 Skills for Defence in Scotland 15 Defence Industrial Strategy 15 Skills base in Scotland 16 School Leavers 16 Apprentices 17 Research and Development 18 Promoting Employment and Skills for Defence in Scotland 19 5 The Future of Defence in Scotland 21 Constitutional Change 21 The Joint Venture 22 Future Workload 23 6 Conclusion 24 Conclusions and recommendations 25 Formal Minutes 28 Witnesses 31 List of written evidence 32 List of Reports from the Committee during the current Parliament 33 Employment and Skills for the Defence Industry in Scotland 3 Summary The defence industry is vital to Scotland. Defence and aerospace industries generate nearly £2.31 billion in sales and together with the MoD support almost 50,000 jobs and a record number of apprentices. This is comprised of 16,000 people directly employed by the defence and aerospace industries and 18,500 people in Scotland directly employed by the MoD which also supports 12,500 jobs indirectly. As well as a recognised expertise in naval ship building, Scotland also has a strong defence electronics industry and a strong aerospace industry based around Prestwick. On 25 July 2007 the Secretary of State for Defence announced that the MoD would place an order for two 65,000 tonne aircraft carriers to replace the current Invincible class carriers. Work on the carriers is expected to support 10,000 jobs across the UK. A significant amount of the work on the Future Carrier (CVF) programme will be carried out in Scotland. Babcock Marine and BAE Surface Fleet Solutions will each build one of the four lower blocks for both ships and the ships will be assembled at Babcock Marine. On 20 May the MoD restated their commitment to the Future Carrier. However, there has been a lengthy delay between the announcement that the programme would go ahead and the signing of the contract. We are concerned that similar delays could occur during the construction phase of the programme. We have been told that the CVF programme is vital to maintaining employment in Scotland and the skills necessary for naval ship building. A delay in the construction of CVF and a gap in workload could lead to job losses and damage the ship-building skills base the UK needs to support if it wishes to retain sovereign capability in key areas. The major naval programme currently in the build stage in Scotland is the Type 45 programme. HMS Daring, the first of class, is expected to come into service in December 2009. The Military Afloat Reach and Sustainability (MARS) vessels are the other major MoD naval ship building programme. There are three classes of MARS ship, fleet tankers, fleet solid-support and joint sea-based logistics. These ships have been dealt with by the Government as commercial rather than naval vessels and so are not exempt from EU competition law. We are concerned that there appears to be a significant amount of confusion over the status of the MARS tankers. The decision to classify the tankers as commercial vessels had previously been explained with an emphasis on capacity issues. It now appears that the MoD does not believe the fleet tankers would have qualified as naval vessels even if there had been capacity in UK ship-yards to build them. The defence industry requires a supply of skilled, semi-skilled and graduate workers. The Modern Apprenticeship programme is a valuable alternative to higher education and provides young people with a chance to develop practical skills. However, funding for adult apprentices is lower than that for 16-19 year olds. It is vital for Scottish industry to look at upskilling throughout the workforce, including mature workers who were not able to access apprenticeships as school leavers. The issue of constitutional change also affects the future sustainability of the Scottish defence industry. Many defence companies currently operating in Scotland have invested 4 Employment and Skills for the Defence Industry in Scotland significantly in their facilities. This makes relocation south of the border unlikely in the short to medium term. However, in the long term it is unclear what naval requirement an independent Scotland would have and whether this would make up for the potential loss of UK MoD orders. A further challenge for the Scottish defence industry is the future workload. The Joint Venture between BAE Systems and VT Group could mean less work is carried out at BAE yards on the Clyde and more is undertaken at the VT Portsmouth base. There is also likely to be a reduction in the amount of MoD naval work across the UK once the CVF and MARS programmes are completed. The UK ship building industry has only had limited success in winning export contacts in the past. The defence industry, particularly the ship building industry, is in a more stable position than it has been for some time, largely due to the CVF programme. Scottish engineering and manufacturing is supported by a highly skilled workforce. However, in order to meet the challenges that the industry will face, all stakeholders including the Ministry of Defence, the Scottish Executive, Scottish Enterprise, Skills Development Scotland, the Scotland Office and industry, need to work effectively together to ensure that Scotland’s engineering and manufacturing base continues to be world class. Employment and Skills for the Defence Industry in Scotland 5 1 Introduction 1. On 25 July 2007 the Secretary of State for Defence announced that the Ministry of Defence had agreed its comprehensive spending review settlement for 2008–2011 with the Treasury. At the same time he confirmed the Future Carrier programme, saying: This settlement gives the MoD the financial certainty required to continue delivering […] success. […] At the same time as ensuring success on current operations, and support for our people, this settlement enables us to invest in the capabilities that we will need for the future. I am pleased to be able to confirm today that we will place orders for two 65,000 tonne aircraft carriers to provide our front-line forces with the modern, world-class capabilities that they will need over the coming decades. These will be named HMS Queen Elizabeth and HMS Prince of Wales. They are expected to enter service in 2014 and 2016, respectively.1 The contract for the carriers is expected to support 10,000 jobs across the UK, including those in the BAE Surface Fleet Solutions shipyards at Govan and Scotstoun, jobs at the Babcock Marine yard at Rosyth and those at the large number of sub-contractors who will be involved. 2. The Future Carrier programme (CVF) follows the Strategic Defence Review in 1998 which proposed that the current 22,000 tonne Invincible aircraft carriers would be replaced with two larger carriers from which a more powerful air group could operate. Up to 36 Joint Strike Fighters and four Airborne Early Warning aircraft could be embarked on each carrier.