Scott Lithgow Shipyard
House of Commons debates, 22 December 1983, 12:05 pm
Dr Norman Godman (Greenock and Port Glasgow)
It will be clear to all those present in this sparsely occupied Chamber that the subject of the debate is the cancellation of the Britoil contract at the Scott Lithgow yard and the effect of the cancellation of the contract on the community of Inverclyde, on the Scottish community and on the United Kingdom offshore engineering industry. I am pleased to announce that the Prime Minister has agreed to see me on this vital issue very early in the new year.
I represent a community that is much more heavily dependent on shipbuilding and marine engineering than any other community on the mainland of Britain. That community and its industry are now both fighting for survival and the Government must not wash their hands of their responsibility towards them. My thesis is pretty straightforward: in human costs and in financial costs, it will be better for Scott Lithgow to complete the semi-submersible drilling rig than for Britoil to cancel the order.
The cancellation of the Britoil order for the semi-submersible rig that is being built in the yard spells economic and social disaster for the entire community of Inverclyde. The prospects of further orders after cancellation would be extremely bleak. The company's customer image in what is a tough market place would be extremely low.
The short-term outlook for the offshore industry is poor, with the supply of floating offshore drilling structures far exceeding present demand. There is no doubt that closure would be inevitable following the cancellation of the Britoil order, despite the false optimism that was expressed by the Minister of State on Tuesday.
Despite the hiatus in orders, the management of Scott Lithgow firmly believes that further development of deep-water oil reserves using increasingly sophisticated technology and floating platforms will represent a major market in the North sea and elsewhere for the next 20 years. Scott Lithgow is well placed to meet these future challenges. It has marvellous facilities and is rapidly gaining experience in this sector. It is gaining more experience than any other yard of its kind, and there are not many of them on mainland Britain. It is essential that the company be encouraged to continue in the sector, especially to give the United Kingdom an important and growing construction role when orders for offshore structures start to come in during 1985.
The Britoil rig—work is no longer being carried out on it--is extremely advanced technologically. It is no exaggeration to say that the future of the United Kingdom offshore engineering industry, especially the construction element, is largely dependent on the outcome of the dreadful crisis that faces us. The House should be reminded that the United Kingdom is a relative latecomer to the offshore engineering industry. For some years there was little or no involvement in the design, construction and operation of offshore structures. However, we have caught up to some extent with our competitors because of the efforts of Scott Lithgow, Cammell Laird and some of the companies in the private sector. However, the United Kingdom's involvement is still sparse and is in stark contrast to that of Norway and France, both of which have a major stake in the offshore drilling industry. It is a major industry in northern Europe, with an annual investment of about £4 billion, which will continue for several decades to come.
No one can deny that the United Kingdom offshore engineering enterprises have an important contribution to make. Moreover, it is widely believed that as the offshore fields become smaller and the profit margins less wide and certain, more and more companies will switch to floating production systems, and Scott Lithgow has a major role to play in those developments.
How can the company survive the humiliation of losing the contract in this tough market place? How can Scotland and the rest of Britain survive such a dreadful humiliation? Such a cancellation will lead to closure within the next few months. The closure will cost the United Kingdom dear. The costs will be severe, and the damage will not be confined to the Scottish economy, but will extend to the future prospects of the United Kingdom offshore engineering industry which, as I said, is an industry of the greatest importance. In Inverclyde we possess the skills, knowledge and physical facilities. That is a valuable national asset in the area. I remind the House that we are an oil-producing nation, and the Government should not deny the country a stake in the construction technology that is required by the industry.
It cannot be denied that the shipbuilding industry in general, and Scott Lithgow in particular, has suffered managerial problems in the past. There were woeful inadequacies in project management. No one is blameless, and I readily acknowledge that there have been failures on both sides in industrial relations. To suggest otherwise would be false. However, I assure the House that there have been significant improvements in the recent past, both in productivity and the quality of the work produced by the work force. It would appear that the Government are willing— indeed eager--to ignore those improvements and to disregard the positive response that was made by the shop stewards committee at the yard to get together with management to hammer out an agreement on job flexibility and interchangeability. What I find deeply disturbing — a feeling that is shared by many of my constituents and by many other people in Scotland--is the indifference — indeed, the hostility — of some Ministers to both management and work force at Scott Lithgow.
That hostility has been demonstrated by some of the gratuitously offensive references to management and work force by Ministers, including the Secretary of State for Trade and Industry. Similarly disturbing, to my mind, was the slighting comment made by the Minister of State, Department of Trade and Industry, to the telegram that was sent by Cardinal Gray to the Secretary of State for Scotland. The Minister said that he was not sure what special qualifications the leaders of the Roman Catholic church had for making a judgment on the future of the yard.
I assure the House and the Minister that Cardinal Gray, who is highly respected as a church leader among people of all denominations in Scotland and, indeed, among people of no denomination. was expressing his deep concern at the social consequences of the cancellation of this contract. This is what he said: We urgently implore you to continue your fight to save not only the yard, but the thousands of jobs that are now in jeopardy. The survival of Scott Lithgows must not be assessed simply in commercial terms but must be emphasised as a human disaster which will lead to the death of a community. The Secretary of State for Scotland should make no distinction between what is happening at Scott Lithgow and recent developments at Ravenscraig. Any distinction in terms of resignation would be spurious. If he cannot persuade his ministerial colleagues to change their views, their refusal to intervene, he should resign, and I said so in an early-day motion yesterday.
I am convinced that it would be much less costly, both socially and financially, to continue with the contract. For example, the anticipated redundancy payments that will result from the closure of Scott Lithgow, based on the present work force of 4,200, would be about £36 million. Approximately £20 million per annum would be required to provide the unemployed workers from Scott Lithgow with social security benefits, which I hope would decrease naturally with time as some people found work. If the contract is cancelled, £40 million will have to be paid to Britoil. So the approximate total cost of cancellation and the inevitable closure would be in the region of £96 million. In addition, there are the cancellation penalties and costs vis-a-vis suppliers and subcontractors. Those costs would surely take the figure to more than £100 million. I cannot believe that the cost of renegotiation, of completion of the rig, would be more than that very high figure.
So those are the financial costs. The social costs would be dreadful. The community already suffers from an unemployment rate of about 20 per cent. among adult males. That figure would double if Scott Lithgow were to close. It is up to the Government, not the Opposition, to show that the financial costs of cancellation and closure does not exceed that of renegotiation and completion.
When I see the human, social, economic and physical devastation in west central Scotland I am reminded of Saul Bellow's Dean Caude in his book "The Dean's December". The dean, who is the head of a faculty at Chicago university, situated in the heart of the black community there, forms the belief that he is surrounded by an "under-class" made up of people who are superfluous to the requirements of the labour market. Similarly what we are seeing in Scotland, as a result of the Government's indifference, is the creation of a Scottish under-class, made up of ex-miners and their children, ex-textile workers and their children, ex-smelter workers and their children and ex-shipyard workers and their children. That is what is happening in Scotland. The Government's indifference is encouraging the development of a class of people with no hope. It is a bleak state of affairs for Scotland. Moreover, it is a bleak state of affairs for mainland Britain also if we lose this valuable national asset, Scott Lithgow.
I say to Ministers, "For God's sake, put aside your metropolitan indifference, your lack of concern, and intervene directly in the negotiations between Britoil and British Shipbuilders on behalf of the offshore engineering industry, the people of Inverclyde, and Scotland as a whole."
Mr John Butcher (Coventry South West)
I congratulate the hon.
Member for Greenock and Port Glasgow (Dr. Godman) on securing the debate. I fully understand the concern that he has expressed on behalf of his constituents and why he has pressed this issue in the period immediately before Christmas.
The hon. Gentleman spoke of a dreadful crisis, and it is just that. It is distressing and depressing. We are not indifferent to the huge social implications of the Scott Lithgow crisis. However, I hope that he will also understand that our opposition has been to bad working practices and to anything that has got in the way of increasing productivity in British shipbuilding generally, and at Scott Lithgow. We are anxious to see a shipbuilding industry in the United Kingdom that can compete with our international competitors.
It is customary on these occasions to say that one is grateful to an hon. Member for raising a particular issue. Although I recognise the hon. Gentleman's concern on a matter that is of great importance for his constituency, I must say that I believe that the statement of my hon. Friend the Minister of State on Tuesday of this week, and the questions that followed have covered much of the ground that we in this House can cover.
Moreover, the hon. Gentleman will know that legal proceedings have now been instituted between British Shipbuilders and Britoil's agents. It is, therefore, not open to me to discuss in any detail the merits or demerits of what is now a contractual dispute. The issue between BS and Britoil is sub judice. I hope that the hon. Gentleman will appreciate that that limits what I would have liked, in other circumstances, to have said.
I should, however, like to get the facts straight.
Dr Norman Godman (Greenock and Port Glasgow)
Is it really the case that the matter is now sub judice? I do not want to make too many interventions, but I speak as an ex-shipyard worker with a fairly deep knowledge of the industry. Will not the Minister accept that there have been marked improvements in industrial relations and productivity at Scott Lithgow?
Mr John Butcher (Coventry South West)
I do not dispute that there have been improvements in productivity. Of course, we should like to see that continue throughout the industry. However, in this contractual dispute—the cause of the immediate crisis at Scott Lithgow—proceedings are taking place between two parties and it would be most unwise for any hon. Member to judge the outcome of that dispute.
Britoil's agent, Lloyds Leasing, is acting on behalf of a company partly owned by Britoil. It signed a contract in December 1981 with Scott Lithgow for the construction of this very advanced rig. It is a dynamically positioned heavy duty semi-submersible exploration rig, of a kind never before built in the United Kingdom.
Construction began in February 1982. As my hon. Friend told the House on 20 December, by March 1983 —that is, only a year after it had started— BS had already had to provide for losses of the staggering total of £44 million. That is roughly half the value of the contract. I underline that point because I do not think that some hon. Members have fully appreciated precisely how much BS has already lost on this contract.
The hon. Gentleman spoke about indifference, but we subsidised that yard to the tune of about £15,000 per employee last year alone. Since nationalisation, we have subsidised each individual job at Scott Lithgow to the tune of about £25,000. That is not indifference, but a level of funding that my right hon. Friend the Secretary of State and my hon. Friend the Under-Secretary of State have justified in the past. We now find that that justification is becoming thinner by the day.
Dr Norman Godman (Greenock and Port Glasgow)
The hon. Gentleman has readily acknowledged how important the whole issue is to those whom I have the honour to represent. However, how does that investment per worker compare with the investment made per employee over the past few years at British Leyland?
Mr John Butcher (Coventry South West)
It should be borne in mind that the dramatic increases that have been made in productivity at British Leyland and British Steel in order to match such increases in western Europe— and soon, we hope, to match those in the far east—are the very things that we want to see in British Shipbuilders as a whole. Therefore, there is no inconsistency in the Government's line. We have put in public funding and made very strict demands on the nationalised industry bosses that they should see to it that we match the productivity rates of international competition. I hope that the whole House will join me in endorsing that objective for those three industries and, indeed, for all our major nationalised industries.
In October 1983. Britoil demanded—as it has the right to do under its contract — that Scott Lithgow should demonstrate the ability to complete the rig within 300 days of the contractual delivery date of April 1984. Scott Lithgow did indeed offer a demonstration of its ability to complete under the terms of the contract. However, on 19 December, Britoil's agents issued a notice of cancellation. As the hon. Gentleman knows, BS has now issued a writ contesting the validity of that notice.
The hon. Gentleman has spoken today about the implications of this cancellation—if it takes place—for the future of Scott Lithgow. The first point I should like to emphasise is that we are not here talking about the closure of Scott Lithgow. To talk in these terms is premature. If the cancellation takes place, the jobs of up to 2,000 Scott Lithgow employees will be immediately at risk, but I want hon. Members to be clear that there are in addition two other vessels being built in the yard. They are due for completion next year. It is the intention of BS to continue to work on these contracts and to complete them according to plan.
However, even as these other contracts are being completed, it is undoubtedly true that cancellation of the Britoil contract would lead to large-scale job losses. The hon. Member has spoken about the scale of those job losses and their impact on the local economy. I fully share the concern that he has expressed at the effects of a cancellation on his constituents. Although I cannot endorse his estimate of the total impact on the economy of the west of Scotland, the Government accept that the consequences for the families of those who might lose their jobs, and for businesses supplying Scott Lithgow could be devastating.
My right hon. Friend the Secretary of State for Scotland has said that he stands ready to alleviate, as far as he can, the immediate impact on the local community of large-scale redundancies, should they occur. We recognise, of course, that the impact could be deeper and wider than the immediate financial loss to those affected. Scott Lithgow has, since its move into offshore work, developed some particular skills which we would be very sorry to see lost to the Scottish economy. As some hon. Members pointed out recently, advanced offshore construction is one of the "new industries" that we would like to encourage to develop.
It is therefore particularly ironic that the work force in that threatened yard has shown no signs of resisting the call for national industrial action that has been made by the shipbuilding union leadership. I find it extraordinary that many hon. Members have not seen fit to issue a public call to their hard-pressed constituents to avoid what I can only describe as a self-inflicted wound that might well prove fatal. Given the crisis at Scott Lithgow and the problems facing the British shipbuilding industry generally, the call for a strike on 6 January is an act of mindless folly. It will be heard with disbelief by shipbuilding trade unionists in Germany, Sweden, Japan and Korea. That disbelief may be replaced by a realisation that a strike in the United Kingdom will serve the interests of foreign shipbuilders. It may well be that the strike call will be cheered to the echo from Hamburg to Hyundai.
The Government have over the past few days, been pressed from many quarters to take steps to intervene in this situation. As my hon. Friend told the House on Tuesday, it would be quite wrong for us to do so. This is a commercial dispute. Quite apart from the question of legal proceedings, it would be wrong for the Government to seek to influence either party.
The hon. Gentleman has said that the sheer scale of the jobs at risk makes it essential for the Government to intervene. I say in reply that the time for intervention is past. We have intervened in the affairs of Scott Lithgow for far too long. Since nationalisation, it has made losses of £165 million.
In addition, subsidies to the extent of £17 million have been made availabe to the company. The bill for all this has been footed by the taxpayer and the poor performance of Scott Lithgow over a long period has been massively subsidised. It is nonsense for hon. Members to accuse us of failing to support Scott Lithgow. Scott Lithgow has had fair warning of the consequences of its failure to complete.
Mr Dick Douglas (Dunfermline West)
Surely the Under-Secretary of State should note the long history of successful completion of orders by the yard and the work force. I have had over the years direct relationships with the yard. It built two drill ships of world class dimensions and capability, which are performing well. It graduated into the offshore market over a long period. The skills are there. If I did not think that this rig could be completed by the work force under proper management control and supervision, I would not go in to bat for them. The work force has a good record, and it is wrong for the Under-Secretary of State to say that the Government should not intervene. If the Government will not intervene they will be reneging 6n their responsibilities.
Mr John Butcher (Coventry South West)
Reneging on our responsibilities is not an appropriate accusation to make in the context of Scott Lithgow. We have put in tens of millions of pounds to this yard and, indeed, to the British shipbuilding industry generally. We have seen our responsiblities through. It is nonsense for hon. Members to accuse us of failing to support the company.
Finally, I must emphasise once again that, even as we speak, the threat of industrial action hangs over the whole industry, and Scott Lithgow is included. It places a huge responsibility on us all to watch the guidance we give to those who are involved in shipbuilding in Scotland today. I hope that hon. Members on both sides of the House will be aware of that awful responsibility in the interests of a future shipbuilding industry in the United Kingdom