Written evidence submitted by Unite the Union

Introduction: Unite in Aerospace, Shipbuilding and Defence

This submission is made by Unite, the UK’s largest trade union with over 1.4 million members across all sectors of the economy including manufacturing, financial services, transport, food and agriculture, construction, energy and utilities, information technology, service industries, health, local government and the not for profit sector. Unite also organises in the community, enabling those who are not in employment to be part of our union.

Unite organises tens of thousands of members across the Aerospace and Shipbuilding defence sector and MoD. Unite also represents members throughout the sectors supply and distribution chain.

Scope of this Submission

1. This submission is guided by the Defence Select Committee’s suggestions for written evidence, which are as follows:

1.              The reasons behind BAE Systems’ restructuring decisions and the Government’s response, particularly that of the MoD, to the proposals

2.              The potential impact of BAE Systems’ restructuring on UK defence, including

a.              sovereign capabilities;

b.              maritime;

c.              land;

d.              air; and

e.              cyber

(this could include comment on Hawk, Typhoon, fleet support ships etc.)

3.              How the proposals might affect S&T and R&D, and apprenticeships and the skills base

4.              An assessment of the impact on exports, and consequences for the UK’s relationship with its allies (including interoperability)

The reasons behind BAE Systems’ restructuring decisions

2. For clarity, the reference to restructuring is actually a redundancy programme affecting nearly 2000 BAE Systems UK maritime and aerospace jobs. Job losses are proposed as follows: around 1,400 at BAE’s aerospace sites in Lancashire, where the Eurofighter Typhoon is assembled, and in Yorkshire; 375 in their maritime services; and 150 in their applied intelligence and cyber division, representing around 6 per cent of BAE’s 34,500 strong UK workforce.
3. Clearly BAE Systems will need to explain for itself the rationale for the decisions it has made, but Unite is aware of the following:
4. Within the air domain, it is clear the aerospace defence sector has several significant issues.

4.1              Firstly, there is the lack of new orders for the Typhoon and work is running out.  Whilst it is the case that there is a statement of intent between the UK Government and the State of Qatar for the purchase of Typhoon aircraft, this is not yet an order and whilst any order for such aircraft is welcome, the quantities will not sustain the production line within BAE Systems for an appreciable amount of time.

4.2              Much discussion has taken place about a potential order for further Typhoons from the Kingdom of Saudi Arabia, but this is yet to be realised.  If such an order is received, and clearly Unite recognises the importance the Kingdom has played for many years in sustaining and creating employment within BAE Systems and its supply chain, it is known that the Kingdom will require final assembly to be undertaken in territory. We believe this order is, however, in the Company’s business plan and is accounted for in the redundancy announcement.

4.3              Secondly, Hawk production will end very soon with no new orders.  Whilst the Qatar statement of intent referred to six Hawks, this is also yet to be realised as an order.

4.4              Thirdly, as the Tornado reaches the end of its life, the need for support will reduce, including at airbases where BAE Systems’ workers are employed.  However, would it not be the case that these workers would be deployed onto F­35?

4.5              Within the maritime domain, or specifically BAE Systems Maritime Services, the business failed to win any of the four lots associated with the Marine Systems Support Partner package, impacting workload at Portsmouth Naval Base.

4.6              The recent withdrawal from service of two minesweepers, HMS Quorn and HMS Atherstone, which were due to have major refits, will also have impacted workload.

5. The Government’s response was led by the Department for Business, Energy and Industrial Strategy, effectively trying to absolve the MoD of any responsibility.  It was disappointing the MoD stayed away from the Commons debate on the 10th October 2017.  The Government’s response places responsibility with BAE Systems, whilst ignoring the impact of MoD actions and inaction.  For example:

• The withdrawal from service of two minehunters
• The failure to supply the Red Arrows with up to date Hawk aircraft, noting their role as ambassadors for UK industry
• The failure to pump prime Hawk production in expectation of the Hawk orders the government is working towards, to ensure capability and the ability to export is not lost

The potential impact of BAE Systems’ restructuring on UK defence

6. Sovereign capability is the ability for the Government to have full control over its defence equipment without interference from other states.  It includes the ability to deploy equipment wherever it wants, whenever it wants.  It includes having full ownership of data, in whatever format, produced by that equipment, without having to supply it to others, or to be directed as to what data to obtain.  It means not being overly reliant upon foreign nations or foreign suppliers for the support of such equipment.
7. For example, the UK will not have full sovereign capability for the Poseidon P-8A maritime patrol aircraft as deployment to areas further afield (e.g. the Falklands) will mean the UK is dependent upon other countries to provide in-flight refuelling as the P­8A is not compatible with UK tankers.  The UK will also be dependent upon Boeing as the foreign supplier of the P-8A.
8. In addition, a dispute with a foreign nation supplying defence equipment has the potential to lead to issues in respect of ongoing support.  The Boeing intervention in respect of Bombardier sales in the US is an example of how a dispute could arise.  Boeing is a major supplier to the UK government.
9. Whilst the current redundancy announcement does not affect the land domain (though a recent previous redundancy announcement is impacting this area), this is a good example as to how sovereign capability can be lost.  Over the last decade the UK has seen a decline in capability in this area, with many sites being shut.
10. This decline has meant it is probably unlikely UK industry has the capability to design a new main battle tank within a reasonable timeframe.  With the MoD having put the Challenger II life extension to foreign competition, a contract award to Rheinmetall, one of the competitors, would inevitably result in further decline in UK capability.
11. Within the air domain, the Brough redundancy announcement, if fully realised, will see the loss of the entire manufacturing capability at the site.  With this Unite understands the UK will lose the ability to build any more Hawks and hence the training platform for Typhoon and any future fighter.  It is possible future orders could be built in India, but this does little for manufacturing in the UK and the UK will lose sovereign capability in this area.  Unite would be interested to understand whether the Indian capability to manufacture Hawk was a factor in BAE Systems’ proposal to end manufacturing at Brough.
12. Typhoon final assembly, undertaken at the Warton site, in the absence of further orders, will finish next year.  However, even if the Kingdom of Saudi Arabia order is received, this will not alleviate the situation in respect of final assembly as the customer will require this work to be undertaken in territory.  It must be further noted that the Warton Unit also undertakes final assembly for the Hawk, so is suffering as a consequence of the lack of orders for this aircraft as well. Hence, the risk to sovereign capability in the area of aircraft final assembly is very real.
13. There are options that would assist, though they require government support.  An order for 12 Hawk T2s to replace the older T1s flown by the Red Arrows would sustain production in anticipation of further orders. Government funding to assist in the development of the advanced Hawk (for which work has already been funded by BAE Systems in respect of design and development to test of a new cockpit and slatted wing), with further limited funding now required to test and bring to market. This would improve the ability for BAE Systems to win leading edge export work. Government funding to build T1 Hawks in anticipation of orders currently under discussion would also sustain the production line. The Government, on a wider basis than just the MoD, if it is sincere about supporting British industry, must seriously look at these options.
14. In respect of Typhoon, there are other potential customers, e.g. Belgium, Kuwiat and Finland, who will not have a stipulation in respect of final assembly, but clearly time is running out and the Government needs to pull out all the stops to secure these urther Typhoon orders.
15. Whilst it is not associated with ship design and build, it must be noted that ship support is hugely important.  Ships are in service for far longer than the period it takes to build them and ships undergo several refits during their lifetime, including capability enhancements.  The Type 23 frigates, for example, have recently been upgraded with new radar and missile systems.
16. The MoD approach to ship support is to move to more and more competition and it looks as though this will involve breaking down contracts into smaller components.  Unite is concerned that such an approach, most likely a race to the bottom in terms of cost, could have adverse consequences, impacting fleet readiness and may lead to a contraction within the supply base, ultimately reducing capability within the sector.
17. The current BAE Systems redundancy programme does not affect the Naval Ships business within BAE Systems, but nonetheless concerns regarding this business exist and are covered later.
18. The impacts to radars and torpedoes from this particular announcement are not substantial, but UK radar sovereign capability is at risk and should the MoD’s current approach to buying off the shelf from abroad continue, could jeopardise its survival.  In addition, the recent commitment by the Minister for Defence Procurement, Harriett Baldwin MP, to look at the feasibility of fitting an Australian radar on future British warships[1] is worrying if for no other reason than it sees the UK government effectively promoting the radars of a foreign competitor.
19. It must also be noted that the decrease in work within BAE Systems will have implications for its supply base and beyond, including the civil sector.  If suppliers are dependent upon defence work to sustain operations which include civil work, the loss of defence work could make a business unviable, removing capability within the civil sector.  There is also the knock on impact of losses at BAE Systems within the wider community, noting that for every 10 full time equivalent jobs at BAE Systems, a further 37 jobs are supported across the broader economy[2].
20. Unite does not have sufficient understanding in respect of the cyber domain to comment.

S&T and R&D, apprenticeships and the skills base

21. Within the Military Aircraft & Information business in BAE Systems, there are no engineering roles affected.  In Maritime Services, those working within engineering are affected, but details have not been forthcoming.
22. A lot of the work undertaken in engineering relates to the support of existing products, but clearly, without new products, this will reduce over time.
23. Whilst, for example, Typhoon still has many years of service ahead of it, this must not be read as meaning all is well.  Supporting existing products is not the same as undertaking research and development into new products, nor into capability enhancements for existing products, for which particular capabilities are required.
24. Without R&D work, the UK will lose the capability to design and develop the next generation of products, whether this be aircraft, radars, torpedoes and so on.  As such, sovereign capability is lost.
25. For this to be sustained, industry requires certainty, certainty which at present does not exist.  Even the Shipbuilding Strategy has failed in this regard, with its invitation to foreign suppliers to be involved not just in the fleet support ships but also the Type 31e frigate.
26. Without certainty, companies will be reticent to invest, not just in R&D, but also in new staff.  For instance, apprenticeships at Brough have been reducing year by year with intake down from 12 in this year to 9 for next year, with no craft apprentices at all.
27. In the ship support sector (and now the shipbuilding sector), the relentless move to more and more competition also creates uncertainty.  The Royal United Services Institute (RUSI) reported that within the US, research suggests ‘…open competition tends to disincentivise firms…’, with many businesses no bidding owing to the high cost of generating proposals, this being ‘…one reason why the US DoD seems to prefer single-source tenders or limited competitions.’ [3]
28. RUSI also found, within the UK, ‘in fields where orders are few and far between and entry costs for would-be suppliers are very high, the effect of competition has been to destroy the supply base.  The firms that lost a competition could not afford to maintain the relevant capability until the next opportunity so left the defence sector …’ (ibid).
29. The UK, therefore, requires a long term, comprehensive defence industrial strategy, creating certainty for the UK defence industry, supporting R&D, facilitating the recruitment of apprentices and graduates.
30. Within the air domain, an aerospace strategy would be expected to commit to Typhoon capability enhancement and to the development of the advanced Hawk.  It would commit to a Future Fighter, so essential if the UK is to maintain its position as a significant defence exporter, not reliant upon foreign suppliers for the defence of the realm.
31. In the area of electronics, a strategy should include, for example, ballistic missile defence (BMD) upgrades for the Sampson radar on the Type 45 destroyers, so necessary to protect the new carriers, the new BMD land radar identified in the 2015 SDSR and a new generation of torpedoes.

Impact on exports and consequences for the UK’s relationship with its allies

32. Without products to sell, there can be no export.  It is as simple as that.  The UK is a successful exporter of defence equipment, creating significant benefits for the UK economy, but without Government support to develop new products, this is set to decline.
33. For example, as other countries develop a Future Fighter, including Germany and France in partnership, and the UK Government continues to prevaricate, so it will become harder and harder for the UK to position itself as a credible partner (noting such a development will be expensive), able to contribute leading edge technology.
34. Without an advanced Hawk, the UK, having sold over 1000 Hawks to 18 Air Forces, will not be able to keep up with the competition.
35. If the MoD were to purchase a land based ballistic missile defence radar from BAE Systems, this will facilitate the development of technologies for incorporation into other radars required by the MoD and subsequently for export.  Without this, there will be no export.
36. On the matter of interoperability, Unite has no evidence based knowledge on this matter.
37. In respect of its relationship with allies, a paper by Kings College London[4] concluded:

Defence exports deliver national security benefits as well as export revenue and the development of leading edge technology. UK defence exports help to achieve national security and defence objectives by providing the UK with influence and leverage over other states which can be deployed in pursuit of foreign and security policy goals.

38. Hence, losing the ability to export, could have a negative impact upon the Government’s ability to influence on the wider stage.

The National Shipbuilding Strategy

39. It is important to raise this because it further demonstrates the concerns Unite has with the Government’s policy towards the defence industry.
40. Unite welcomed the decision by the Government to create a shipbuilding industry, but it has proven to be an opportunity lost.
41. The 2015 SDSR introduced National Security Objective 3 and a commitment to ‘promote our prosperity’. Yet, the shipbuilding strategy, far from backing UK industry in respect of the future solid support ships, will put this out to international competition.
42. In respect of the Type 31e, Sir Michael Fallon, responding to a Commons question from Gavin Robinson MP, stated he was open to a consortium “working with international yards as well on some elements of the ships”.
43. This creates the potential for a Type 31e whose electronic systems and weapons are all foreign.  Hence, when it comes to export, noting that many customers will wish to undertake the build themselves, the UK content could be extremely minimal.
44. Unite, therefore, does not consider the government’s approach to the procurement of the Type 31e nor future solid support ships to be commensurate with ‘promoting our prosperity’.
45. Unite further notes that the Government, in response to several Parliamentary Questions from Kevan Jones MP[5], has been unable to demonstrate that any of its contracts placed since the 2015 SDSR have taken prosperity into account as award criteria in its decision making process.

The economic impact

46. In terms of defence, it is noteworthy that UK Defence industry turnover as a percentage of UK manufacturing turnover was 6.7% in 2015. UK Defence industry turnover was £24 billion[6] with the value of UK manufacturers’ product sales in that year totalling £357.8 billion[7]. Therefore its value to the UK economy is significant.
47. In terms of economic impact and multipliers, according to an Oxford Economics 2015 study, BAE Systems has an employment multiplier of 3.7 and a tax multiplier of 2.5. Its direct employment contribution of 33,300 (2015) jobs increases to an economy-wide contribution of 122,700 jobs.
48. In 2013, BAE Systems made a total tax contribution of £1.3 billion to the Treasury. Its tax multiplier is 2.5: for every £10 paid directly by BAE Systems in taxes, a total of £25 is generated for the Treasury across the UK economy. [8] Additionally, the Royal United Services Institute (The Destinations of the Defence Pound, 2012) found that 36% by value of government orders in the UK defence sector is returned to the government via taxation.
49. In addition to the tax and employment benefits, UK defence manufacturing supports highly skilled and well-paid UK defence workers jobs, and the communities in which they are based, whilst keeping UK tax payers procurement monies here, rather than spending it abroad. The government needs to reinvigorate our defence industries by investing Britain's defence budget, which is taxpayers’ money, here in UK defence jobs, skills and the communities that support them.
50. With UK Defence industry turnover as a percentage of UK manufacturing turnover being significant at 6.7% (2015), we call on the government to maximise UK spend / procurement here and heed warnings that nearly 25% of the UK’s defence spend will be benefiting American factories by 2020.

Conclusion

51. The development of a long-term strategy needs to be honest about future threats. The hollowing out of defence spend since end of Cold War is not only effecting the UK’s ability to independently manufacture the defence equipment needed to defend our nation, but it’s also harming communities that rely on defence jobs and taking money out of the British economy. In order to optimise future defence R&D we need to form alliances with European partners as such development would be extremely expensive to undertake on our own.
52. Whilst the lack of orders is clearly a problem for industry, and noting BAE Systems does have questions to answer in regard to its proposal to make nearly 2000 jobs redundant, (for example, in respect of placement of future Hawk production and the transfer of Tornado support roles to F-35), Government cannot absolve itself of any responsibility.
53. Government can assist, as outlined earlier, in respect of Hawk, but action must be taken now to preserve the defence industry into the future.  If the Government continues down the road of increasing procurement from abroad (expected to reach 25% of defence spending within the US alone by 2020), without a credible defence industrial strategy, these job losses will be just the tip of the iceberg.
54. If the Shipbuilding Strategy (with the exception of Type 26, noting this was not dependent upon this strategy) is an indicator of UK Government policy towards the UK defence industry, the future for this industry must look extremely uncertain.
55. The UK Government must put the UK’s defence industry first, otherwise this will be a success story that turns into a tragedy, just as the UK faces even more uncertainty with Brexit.
56. Unite calls for a holistic approach to defence procurement, looking at the overall advantages to the economy and employment as opposed to the isolationist short term approach currently taken by the MoD.
57. Unite also calls for a comprehensive, long term defence industrial strategy, covering all sectors, putting the UK first, creating certainty for industry, enabling prosperity and securing jobs. As part of this strategy consideration should be given to the financing of our nuclear deterrent programme returning to the Treasury and out of the MoD budget. Costs associated with the programme are being constantly offset against spend elsewhere within the MoD, undermining necessary spend on more conventional defence requirements.
58. Unite calls on the government to support Hawk, Typhoon and defence manufacturing more generally in the UK by calling on government to do the following:

• Order and if necessary control the development (partnering in R&D and market development) of new advanced Hawk trainer jets for the Red Arrows to replace the existing fleet made in the 1970s;
• The recent announcement regarding the Red Arrows remaining in service to 2030 is not realistic. Aircraft life is measured by Fatigue Index (FI), therefore reference to an out of service date of 2030 is misleading. The Red Arrows age in terms of FI is approximately 2 to 4 times the rate of the rest of the fleet.
• Commit now to the design, development and manufacture of a future (manned) fighter programme as part of a European alliance such was the case with the Eurofighter Typhoon.
• Assist with cross ministerial support all possible progress on export orders of both Hawk and Typhoon and commit to the UK build of the three Fleet Solid Support (FSS) ships, currently proposed to go out to international tender.

Steve Turner, Unite Assistant General Secretary

November 2017