Written evidence submitted by Society of Maritime Industries (DIS0027)

SCOTTISH AFFAIRS COMMITTEE INQUIRY: DEFENCE IN SCOTLAND: MILITARY SHIPBUILDING

A RESPONSE FROM THE SOCIETY OF MARITIME INDUSTRIES

The Society of Maritime Industries is the voice of the UK’s maritime engineering and marine science and technology sector. With over 150 members from primes to small and medium size enterprises (SMEs), we represent more than 90% of the sector by value. The Maritime Defence and Security Group Council[1] is the council for one of the six constituent interest groups of the Society of Maritime Industries and takes the lead in representing and discussing the maritime defence and security issues that concern the Society’s membership. The MDSG Council is made up of 26 elected members drawn from a spectrum of member companies from the largest prime contractor to the smallest SME.

The key themes from our response and points we would like to highlight to the committee include:

• The industry response to the National Shipbuilding Strategy Refresh and establishment of the National Shipbuilding Office has been overwhelmingly positive and we look forward to working closely with the Government through the National Shipbuilding Office to deliver on its objectives.
• Whilst it is still early in the delivery of these objectives we believe that if fully implemented, the refreshed National Shipbuilding Strategy is likely to have a substantially positive effect on the shipbuilding industry in Scotland and across the UK.
• There are a number of areas of risk to the delivery of the strategy that we believe require further consideration and focus including fully empowering the National Shipbuilding Office, creating the necessary certainty to enable industry investment in infrastructure, facilities, innovation and skills for the long term and delivering the Home Shipbuilding Credit Guarantee Scheme.
• The steady supply of skilled workers both now and into the future is vital to the success of the shipbuilding enterprise.

Our answers to the committee’s questions in full are as follows:

Q1. What impacts are the Government’s Shipbuilding Strategy and National Shipbuilding Office having on the shipbuilding industry in Scotland?

Based on an overwhelmingly positive response from our members, the Society of Maritime Industries has warmly welcomed the refresh to the National Shipbuilding Strategy (NSbS) and the establishment of the National Shipbuilding Office, albeit with some reservations, especially around procurement policy and scope. The NSbS Refresh is closely based on extensive industry engagement facilitated by the Society of Maritime Industries and contains many initiatives which were identified during this engagement. Whilst it is still early in the delivery of these initiatives, we believe that if properly implemented, they are likely to have a substantially positive effect on the shipbuilding industry in Scotland and across the UK. Most importantly, we look forward to working closely with Government to take it forward.

The establishment of a National Shipbuilding Office, aligning strategic activity across Government, will help to ensure that Government policies are coherent and mutually supporting. The plan to have an NSO presence in Edinburgh will help to ensure alignment with the Scottish Government. The engagement of the NSO with industry will enable Government to much better understand the challenges and opportunities facing the industry and help to create the right conditions for success. To enable this to succeed it is vital that the NSO is truly empowered to enable it to effectively influence departmental behaviour (for example in vessel procurement approaches).

The 30-year cross Government Shipbuilding Pipeline is a useful indication to industry of the Government’s vessel requirements. Feedback from our members suggests that, on its own, it will not create the necessary surety to have the desired effect of encouraging industry to invest in infrastructure, facilities, innovation and skills for the long term, but it will help industry to plan and compete more effectively for these programmes. It is vital that the policy objectives underpinning the Government procurement programmes are effectively pursued to achieve the desired effect.

The re-introduction of a Home Shipbuilding Credit Guarantee Scheme will help UK companies to be able to compete on a level playing field with foreign rivals when competing for domestic orders. The Home Shipbuilding Credit Guarantee Scheme is seen as an important element of the strategy by our members, including those based in Scotland, who are keen to see its introduction as soon as possible.

The £206M of matched funding to be made available through the new UK Shipping Office for Reducing Emissions (UK SHORE) will help fund R&D in zero emission vessels and infrastructure. Many Scottish based members of the shipbuilding enterprise will benefit from this funding which will help them to become leaders in green technology.

The joint Government, industry and academia Shipbuilding Enterprise for Growth is focused on identifying opportunities to improve productivity and competitiveness through technology, supply chain and skills development. It has already established two early initiatives; to develop a reference model for the Shipyard of the Future and to identify opportunities to establish Centres of Excellence. Scottish based members of the shipbuilding enterprise are participating in and will benefit from both of these early initiatives.

Vital to the success of the shipbuilding enterprise, including in Scotland, is the steady supply of skilled workers into the future. Individual companies are doing much to satisfy their own skills requirements, including working with local academic institutions, but it is piecemeal and fragmented. The establishment of the UK Shipbuilding Skills Taskforce, operating across industry, Government and the devolved administrations, will bring much needed focus and coordination to the demand and supply of skills.

Q2. How many and what types of Royal Navy ships will likely be built in Scotland in the years ahead? Will the sector grow?

Scotland is the centre of Naval shipbuilding in the UK. The Ministry of Defence has committed to building 8 Type 26 frigates at the BAES yards on the Clyde and 5 Type 31 frigates at the Babcock International Group yard in Rosyth. Both BAES and Babcock are part of the UK only consortium bidding to build 3 Fleet Solid Support ships for the Royal Navy. Whilst the details of the build strategy for this programme are subject to a Non-Disclosure Agreement, if the bid is successful, it is likely that a substantial amount of the work will be conducted in Scotland[2]. Beyond these immediate programmes the Ministry of Defence has committed to grow the numbers of frigates in the Royal Navy. As part of the Integrated Review released in 2021, a new class of up to 5 Type 32 frigates was announced. At the same time the Ministry of Defence also announced up to 6 Multi-Role Support Ships (MRSS), to provide the platforms to deliver Littoral Strike, including Maritime Special Operations, in the early 2030s and a new class Type 83 destroyer which will begin to replace the 6 Type 45 destroyers in the late 2030s. Whilst the procurement approaches and detailed capability requirements for these future programmes are not yet clear, it is likely that a substantial amount of the work will be conducted in Scotland, possibly with some modest growth of the sector required.

Q3. 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?

The revised procurement approach, announced alongside the Integrated Review in the Defence and Security Industrial Strategy (DSIS) should be considered alongside the statement ‘for national security reasons, the UK needs to maintain a maritime enterprise with the industrial capabilities to design, manufacture, integrate, modify and support current and future naval ships (both Royal Navy and Royal Fleet Auxiliary)’, also contained in the DSIS.

The change in policy broadens the scope of vessel types that could potentially be restricted to UK design, build and/or integration (e.g. to include support ships) and gives the Ministry of Defence flexibility in approach, including whether or not to include domestic or international competition in their procurement approach. We believe that this change in policy is a positive step, but it does not necessarily provide the surety required to encourage investment in infrastructure, facilities, innovation and skills for the long term. Further dialogue is necessary on how best to encourage investment for the long term.

We believe that it would be better to adopt a design, build and integrate in the UK by default policy, with the UK’s capacity/capability tested through early market engagement. Collaborative approaches, such as that adopted through the Aircraft Carrier Alliance should also be considered vice competition as this is likely to deliver better long-term value for money in the constrained naval shipbuilding market.

Q4. 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?

The export of military ships (or parts of them) and/or their design licences would significantly boost the shipbuilding enterprise across the UK, including in Scotland. It is likely that most countries would require some or all of the build work to be completed in their own country (recognising the strategic nature of shipbuilding to a country’s political and economic security) and would require a number of design changes, but given that more than 70% by value of a shipbuilding programme (more for complex warships) exists in the equipment and systems fitted into the platform, significant benefit would be derived from the retention of the majority of  equipment and systems and the through life support that goes with them. The Scottish shipbuilding enterprise consists of a number important manufacturers of naval equipment and systems including Kongsberg Maritime in Dunfermline, and MacTaggart Scott in Loanhead.

Maximising these export opportunities can best be achieved through a coordinated Government to Government campaign in support of an industry led campaign. The success of this approach can be seen in the successful export of the Type 26 design to both Australia and Canada and the replication of that approach for the successful export of the Arrowhead 140 (Type 31) design to Indonesia and Poland. The Government resources necessary to support this approach are not insignificant, however the establishment of the Maritime Capability Campaign Office within the Department for International Trade will help to ensure that the necessary resource in a well-coordinated campaign can be brought to bear. Consideration should also be given to increasing the resource within the Royal Navy to support these Government to Government export campaigns. Export opportunities can also be maximised by designing for export from the outset of a programme as was the case for Type 31. Ultimately, having the Royal Navy as an end user is arguably the most important factor. The Royal Navy brand and excellence is recognised and respected throughout the world, boosting the exportability of the UK designs, equipment and services that it uses.

Q5. What more could the UK Government do to maintain and foster military shipbuilding in Scotland?

Many nations around the world recognise naval shipbuilding as a critical sovereign capability and most of those have decided to secure that capability through a state owned or supported entity which is selected to build their naval units through multiple yards if necessary. The US is able to sustain a level of domestic competition due to the scale of its naval programmes. The UK is unusual in its approach by attempting to balance achieving VfM through competition on a case by case basis with creating a sustainable, sovereign capability. As previously stated, we believe that alternative approaches, including greater collaboration could better foster more a sustainable sovereign capability in the UK.

Within the current policy however, greater confidence in the approach could be generated by being much clearer on how the 20% weighting on Social Value for warships will be judged, increasing an emphasis on UK content, and encouraging the adoption of a more collaborative block build approach where appropriate. Whilst the competition for the Fleet Solid Support ships pre-dates the NSbS Refresh, the pending contract award will be crucial to demonstrating the efficacy of the strategy’s approach and enabling industry investment.

May 2022