Written evidence submitted by the Confederation of Shipbuilding and Engineering Unions (CSEU) (DIS0025)
This response is submitted by The Confederation of Shipbuilding and Engineering Unions (CSEU), which is a confederation of the four unions Unite, GMB, Prospect and Community, representing tens of thousands of highly skilled workers in the UK’s / Scotland’s shipbuilding and ship repair sectors.
1 Introductory comments
1.1 The CSEU and its affiliated unions welcome this inquiry as an opportunity to provide evidence building on its ‘Keep Britain Afloat’ campaign, ensuring the Navy’s ships are built in the United Kingdom using UK steel, in addition to our concerns already raised around the FMSP.
1.2 Not only is it important that naval procurement and support plans deliver required capabilities and freedom of operation, but it is also important to note that such procurement directly impacts on companies, our members as employees and the communities involved in the safety, security and defence of the UK. It is vital therefore that their voices are heard, such that policy not only ensures the UK remains secure, but also safeguards its critical defence sector, so that its highly skilled workers and the communities in which they live are sustained.
1.3 This submission focusses on the effects of Government policy on employment, terms and conditions, and investment in the shipbuilding sector.
2 What impacts are the Government’s Shipbuilding Strategy and National Shipbuilding Office having on the shipbuilding industry in Scotland?
2.1 The refreshed National Shipbuilding Strategy covers the whole UK shipbuilding enterprise, including businesses in Scotland. The CSEU welcomes the publication of a thirty-year pipeline of work, but we have been publicly critical of the lack of funding to match the ambition. The much vaunted £4bn investment in the industry will not stretch far when the cost of vessels is taken into account. For example, and in comparison, the contract awarded to BAE Systems for the first three Type 26 frigates was £3.7bn. The CSEU has also been critical of the government’s announcement that procurement decisions on future platforms will be made on a “case-by-case” basis, with a range of options available from single-source procurement at one end of the spectrum and full international competition at the other. It is our view that in order to invest in facilities, machinery and skills companies need certainty for the long-term, especially in an industry like shipbuilding where projects can be carried out over decades. The fact that the tap could be turned on or off with each procurement breeds uncertainty and acts as a disincentive to risk and investment.
2.2 Uncertainty is corrosive in shipbuilding and other capital and skills intensive industries. Abrupt changes in procurement policy are not compatible with thirty-year investment cycles. As a case in point, the effects of the cancellation of the planned £200 million ‘Frigate Factory’ at Scotstoun in 2015 – following the downgrading of the Type 26 order – will be felt on the Clyde for decades. The spectre of ‘feast and famine’ order books is never far away, and significant job losses have been incurred over the last decade at all Scottish yards. If implemented, the ‘case-by-case’ approach outlined in the Defence and Security Industrial Strategy will result in a constant state of uncertainty across the sector.
2.3 Shipbuilding makes an important contribution to the Scottish economy. Multiplier estimates produced by the Scottish Government suggest that each shipbuilding job supports a further 1.51 jobs in the wider Scottish economy: implying that the 6,000 direct jobs in the sector support a further 9,055 jobs in Scotland. Each £250 million of shipbuilding expenditure in Scotland – the nominal average cost of a Type 31 frigate – will support an estimated 2,223 jobs. It should be noted that defence manufacturers are more likely to place orders with local suppliers than non-defence firms, magnifying the benefit of shipbuilding orders to local and regional economies.
2.4 There may be good opportunities for Scottish shipbuilding under a long-term pipeline of work. Our members delivered the successful Carrier programme. Workers at BAE Systems on the Clyde have designed and are building the Type 26 frigates, while workers at Babcock at Rosyth are building Type 31 frigates, adapted from a Danish design.
2.5 If the UK MoD awards the competition for the three Fleet Solid Support Ships to Team UK then the ships would be integrated in Rosyth. There is further potential for large vessels of this class as other ships such as landing platforms and casualty receiving ships are replaced. Babcock workers at Rosyth were also poised to build Fast Missile Boats for the Ukrainian navy prior to the February 2022 Russian invasion. A collaborative, modular approach to fulfilling large orders could also secure work for Ferguson Marine on the Lower Clyde.
2.6 The National Shipbuilding Office has recently set up the Shipbuilding Enterprise for Growth (SEG), which will oversee industrial strategy for the sector. Scotland has a strong influence on this group, with John Howie of Babcock as co-Chair. It is early days for the SEG, with only one meeting having taken place at the time of writing, but it is a positive step in bringing the key industry players together with senior defence and other government department officials. Workers also have a voice as the General Secretary of the CSEU has a seat on the SEG.
2.7 Alongside the SEG a new UK Shipbuilding Skills Taskforce (UKSST) has also been set up under the auspices of the UK Department for Education. Members are currently being recruited for the taskforce. The UKSST will work closely with SEG as skills are a critical part of any industrial strategy. We would encourage strong representation from Scotland given the importance of shipbuilding in Scotland and of Scottish shipbuilders to the UK industry.
2.8 These bodies face significant workforce challenges that would be best addressed through certainty in the order book and long-term planning around the sector’s skills requirement. CSEU unions have long raised concerns over the problems posed by high levels of agency working and an aging workforce. Not enough apprentices are being brought through, and apprenticeships are becoming increasingly difficult to access for people from shipbuilding communities who do not have a degree. Stable career paths and an increase in placements is needed if Scottish yards are to fulfil the increase in orders that the House of Commons Defence Committee has said is required.
3 How many and what types of Royal Navy ships will likely be built in Scotland in the years ahead? Will the sector grow?
3.1 @UKDefJournal tweeted the following plan for Scottish shipyards 29/04/22 at 15:10. We would anticipate sector growth if suggestions by us herein are adopted.
4 How does the procurement approach for each class of Royal Navy ship being determined on a case-by-case basis (including whether or not there should be international competition) affect Scottish shipbuilding?
4.1 A case-by-case approach to procurement does not provide the clarity needed to secure investment in the Scottish shipbuilding industry. There have been great strides forward in Scottish shipyards since the publication of the National Shipbuilding Strategy in 2017. The Type 26 and Type 31 are both in production, demonstrating the world class skills of Scottish workers, and successful export orders have been secured for versions of both ships. However, the pipeline of work has been subject to delays which means that the number of warships in service will fall below 19 by the middle of the decade. An important aspect of the policy that continues to cause concern is the decision to open up Fleet Solid Support procurement to international competition. Although contract criteria include a commitment to integrate the ships in the UK there is no certainty that this will provide the drumbeat of work required to secure the industrial base. This places a question mark over the sustainability of the shipbuilding industry as work on existing contracts matures in the second half of the decade.
4.2 The government’s refresh of the national shipbuilding strategy reiterates the procurement policy outlined in the Defence and Security Industrial Strategy. The National Shipbuilding Strategy differentiated between Royal Navy warships and all other naval vessels, which would be open to international competition, the DSIS gives greater emphasis to the maintenance of a maritime enterprise across all classes of ship. Although the government has explained that the intention of the policy is to extend the class of ships that would be built in the UK beyond warships, the language used does not provide the clarity needed to secure future investment in Scottish yards. Adopting a case-by-case approach across all builds robs yards of the certainty about future procurement decisions. When procurement decisions are made using the Defence and Security Public Contracts Regulations (DSPCR) the selection criteria used are either “lowest price” or the “most economically advantageous tender.” These decisions are considered within the context of a tight financial envelope for defence spending, which means that other considerations will be less important than price when contract decisions are made. Shipyards outside the UK often benefit from government financial support or local procurement rules which guarantee future work creating an artificial market weighted against UK contractors. There is no prospect of Scottish yards benefiting from orders placed by these nations. In addition, the UK Government does not appear to have progressed the recommendation of the 2018 Dunne Review to assess the benefits of taxation paid when orders are placed domestically, which CSEU unions have long argued should be factored in to procurement decisions.
4.3 Future government contracts in the maritime sector will be subject to a social value test; for naval contracts social value criteria will be set at 20%. However, it is not clear how the social value test will be applied in the defence sector. In local government the early experience of using the test was mixed. Both clients and suppliers had little understanding of the concept and as a result far fewer contracts applied social value criteria than were expected. Similar problems have been found in the infrastructure sector. A roundtable of contractors convened by the Institute of Civil Engineers found that price was still the key driver in contract decisions and that there is a gap between social value policies and the incorporation of these objectives into the procurement processes. To deliver the government’s prosperity agenda the social value test will need to be clearly defined with outcomes that can be measured in a transparent way.
4.4 Although the government’s command paper, published alongside the Integrated Review, indicates that, “Scottish yards will likely benefit from the new Type 32, Multi Role Ocean Surveillance Ship (MROSS) and Multi Role Support Ship (MRSS), and Landing Ship Dock Auxiliary (LSDA) vessel conversion”, there have been no further details provided in the refreshed shipbuilding strategy. This causes concern that taking procurement decisions on a case-by-case basis will lead to further delays and uncertainty. Both the Type 31 and Fleet Solid Support contracts have been subject to delays in the early stages of the bidding process. Although the government has provided a funding settlement in the Integrated Review that increased the capital budget it is unlikely that this will be sufficient to complete the schedule of work in the equipment plan. The government’s Spring Statement provides no increase in funding even though the Institute for Fiscal Studies estimates that rising inflation will create a funding gap of between £0.4 and £1.7 billion in planned real growth. Uncertainty about funding can cause programme delays which create gaps in work which can lead to shipyard redundancies.
4.5 Instead of a case-by-case approach, the CSEU supports a policy that promotes a collaborative approach between UK contractors based on modular builds and the development of specialisms in each yard. A more confident approach to using the single source procurement regulations for future contacts, such as the Type 32, will secure advanced engineering jobs at Scottish yards and build upon the success of the Type 26 and Type 31 contracts.
5 To what extent does Scotland benefit from exporting military ships (or parts of them) and/or their design licences? How can these opportunities be maximised?
5.1 The Type 26 and Type 31 frigates are both in production proving the world class skills of Scottish workers, with successful export orders being secured for versions of both ships.
5.2 The Type 26 has been successful in the export market with the design being adopted by the Australian and Canadian navies. Type 31 is also being competed by Babcock in the international market – and an order was recently placed by the Polish navy to build three ships to the Type 31 design.
5.3 Both ships have good order book prospects with the UK MoD and there is further potential with the announcement of the new Type 32 frigate. Endorsement by the MoD via such orders helps with maximising export potential.
5.4 However, the successful export of the Type 26 and Type 31 designs is not yet translating into additional build work in the UK. The status of the reported build of two Fast Missile Boats for the Ukrainian Navy under the November 2021 framework agreement is also unclear. The CSEU believes that a successful exports policy would encompass both design and build; without both, exports cannot be a substitute for the certainty that a steady and predictable drumbeat of orders would provide.
6 What more could the UK Government do to maintain and foster military shipbuilding in Scotland?
6.1 The single most important step that the UK Government should take is to end the policy of selective (and uncertain) international competition. No other shipbuilding state procures its vessels in this way, and comparator nations (such as Canada) have implemented long-term strategies for domestic builds.
6.2 A regular and predictable drumbeat of orders would allow the UK to maintain (and, potentially, expand) its sovereign defence manufacturing capabilities in line with its strategic assessment of threats. Such an approach would allow greater specialisations to develop at each yard, as part of a collaborate approach – in contrast to the combative approach favoured by the Government. The combative approach is incurring significant bidding costs and leading to duplicated capacity across yards. Most worryingly, it raises the spectre of a return to the ‘feast and famine’ years that historically characterised the industry, when the loss of a single large order could lead to a yard’s closure. This capacity, once lost, can only be reclaimed at enormous financial and social cost.
6.3 Predictability and volume are two of the most important drivers of efficiency in shipbuilding orders. Sir John Parker – who the Government commissioned in 2016 to make independent recommendations on a National Shipbuilding Strategy – has said that ‘collaborative rather than combative contracting will be essential… in most developed economies … all defence-funded vessels are built in home yards and utilising their national supply chain … I recommend that UK-only competition should be considered for future defence-funded vessels.’ The CSEU believes that utilisation of domestic shipyards, coupled with a more confident use of the Single Source regulations, represents the best option for securing investment in jobs, skills, and infrastructure.
6.4 An aging workforce and skills shortages represent significant challenges to the UK Government and employers. The Government has accepted that the ‘maritime sector faces a skills shortage’ and the Department for Education’s Shipbuilding Skills Taskforce is undertaking a review of future requirements. This work should be urgently concluded. Our members report that, while apprentices are being brought in, the numbers are not adequate, and raised formal qualification entry requirements are closing this route for many from traditional shipbuilding communities. Stronger requirements for apprentice creation should be made a condition of contract awards as part of a domestic build policy.
6.5 The shipbuilding employment model has been fragmented in recent years, as reflected in an increase in agency working and temporary contracts. There is a significant gap between the pay and conditions of permanent workers and contractors (who are much more likely to be women workers). CSEU unions have responded and won at least Foundation Living Wage status for BAE contractors, but a stronger focus on good employment weightings under a social value in procurement approach is also needed to raise standards across Tier Two and Three contractors and the wider supply chain.
7.1 Up and down Scotland, communities depend on the defence industry and a steady drumbeat of work for their jobs, for a future for young people, for economic security and in some cases, their economic survival.
7.2 We hope that this inquiry will identify the critical need for greater clarity of plans, enhanced / certainty of funding and capability requirements for the Royal Navy and the Royal Fleet Auxiliary and to expand further into export markets. Additionally, we hope to see greater government and industry commitment to the Scottish sovereign industrial base to deliver and support that capability and a recognition that a steady and sustained drumbeat of work is the best way to secure further investment from industry, leading to greater prosperity and raised employment standards, alongside greater efficiency, productivity and cost-effectiveness.
 CSEU analysis based on ONS, Business Register and Employment Survey (BRES) data, accessed via nomis, and Scottish Government Type II multipliers for 2018 (from Supply, Use and Input-Output Tables, 17 November 2021)
 Tim Williams (2000) The defence industry supply chain: Linkage patterns in the South West of England, Defence and Peace Economics, 11:1, 313-328
 https://www.gov.uk/government/news/defence-secretary-announces-launch-of-national-shipbuilding-office & https://www.gov.uk/government/groups/national-shipbuilding-office
 https://www.gov.uk/government/speeches/defence-procurement-minister-statement-on-national-shipbuilding (7th last Paragraph)
 https://hansard.parliament.uk/commons/2022-03-10/debates/F2551DBD-7206-47E9-88DB-CD8B3B5DD849/NationalShipbuildingStrategy Column 509
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/723679/20180709_MOD_Philip_Dunne_Review_FOR_WEB_PUB.pdf (recommendation 6.37)
 Reappraising the UK social value legislation, 2017, Boeger N https://research-information.bris.ac.uk/ws/portalfiles/portal/91354213/PMMrevised.pdf
Maximising social value from Infrastructure projects, 2020, ICE https://usefulprojects.co.uk/wp-content/uploads/2020/01/Maximising_social_value_from_infrastructure_projects_v1.1.pdf
 https://www.gov.uk/government/publications/defence-in-a-competitive-age p60