“The Tories just refused to support 6500 jobs and £1 billion for our economy by not guaranteeing that 3 new Royal Navy ships will be built in Britain.”
Labour Party, 12 July 2018.
The Government recently confirmed that a contract for new support ships would be put out to international tender, prompting criticism from organisations lobbying to keep the contract in the UK.
The Labour Party said the decision means the Conservatives “refused to support 6500 British jobs” and £1 billion for our economy.
Trying to work out the economic impacts of things that are yet to happen is difficult and never precise. But we found that these figures refer to the potential total impact of the contract, not the net benefit to the UK—and so could be overstating the value of this project.
Honesty in public debate matters
You can help us take action – and get our regular free email
What ships are we buying?
The claim refers to the Ministry of Defence’s (MOD’s) tender for two ships (with an option of a third ship) that will support the Royal Navy. The Government has recently put the tender out internationally, meaning foreign firms can bid to construct the ships, although that doesn’t prevent UK firms from bidding.
These ships store supplies for Royal Navy ships at sea and are operated by the civilian-manned Royal Fleet Auxillary, not the Royal Navy itself.
The MOD told us: “All our warships are built in the UK. Our fleet solid support ships are being procured through international competition, because there is no demonstrable national security reason why procurement needs to be restricted.
“British shipbuilding yards are encouraged to bid for our fleet solid support ships.”
The £1 billion figure is a gross estimate for the whole contract—it’s not been confirmed
The MOD told us that because the tendering was at an early stage, they couldn’t confirm the value of the contract. Media outlets estimated a value of £1 billion, though that was when it was assumed that three ships would be built. The MOD says it definitely wants two ships, with the option of a third.
Putting aside the exact figure for the moment, the claim assumes that if a British shipyard won the contract, all the money would remain in the UK. That is uncertain.
One expert, Dr Paul Stott—the EU’s former technical adviser on shipbuilding – says that on average around 30% of a shipbuilding contract stays with the shipyard and the remaining 70% goes into the supply chain (e.g. buying raw materials and parts to assemble a ship).
British shipyards have previously used foreign firms in their supply chain, meaning that some of the value of shipbuilding contracts leaves the UK.
For example, take steel—a key raw material in building ships. Currently UK-based BAE Systems are building new frigates for the Royal Navy. About half the steel (by value) comes from the UK and the rest is sourced from abroad.
The scale of outsourcing can be much lower—just 6% of the steel by weight used building the HMS Queen Elizabeth aircraft carrier came from abroad.
Nevertheless, it’s evidently possible that some of the total contract of these Fleet Solid Support ships could leave the UK, even if awarded to a British shipbuilder. And vice-versa, if the contract was won by a foreign firm, that doesn’t stop them using British firms in their supply chain.
The Government argue that competition delivers value for taxpayers
The flipside of the £1 billion figure is that the cost will ultimately be borne by the taxpayer.
Keeping the contract in the UK could contribute more to our economy. But it could also lead to the Government accepting a relatively high bid that ultimately costs taxpayers.
The Government says it encourages international competition where possible to deliver value for taxpayers.
When defending their choice to put the contract tender out internationally, the Government referred to a previous contract for support vessels won by South Korean firm, Daewoo.
Defence Minister, Tobias Ellwood said the winning bid was half the cost of the best bid from a UK firm.
However critics such as the GMB union argue that when comparing bids between UK firms and international firms, the Government must not just look at price, but consider that:
- When British firms win contracts, some of the value goes back to the Exchequer through taxes.
- Bids from foreign countries are sometimes unfairly bankrolled by respective governments (e.g. Daewoo had to be bailed out by the South Korean government in 2017).
- There is wider socioeconomic benefit for contracts staying in the UK.
The GMB union say that socioeconomic benefit includes the fact that shipbuilders are happier, better paid and more likely to spend money in their local communities than if they were forced to seek alternative employment.
They also say that when shipyards close they have a damaging effect on local communities as the jobs are very geographically concentrated.
And a key socioeconomic impact is simply the effect of keeping the contract domestically on employment. The claim mentions the fact that doing so would support 6500 jobs. But that estimate is also open to debate.
6,500 jobs assumes all are based within the UK
The claim says the contract could support 6,500 jobs in the UK. This estimate comes from the GMB union. It used economic models originally produced by research firm Ipsos MORI and consultancy Oxford Economics that estimatea a contract worth £800m would support around 6,700 jobs—6,500 in the shipyard and supply chain, and a further 200 local jobs supported by shipyard spend.
The GMB used £800m rather than £1 billion to make their estimate more conservative, as the value of the contract has not been confirmed.
As with £1 billion estimate, this estimate for jobs assumes that all jobs in the supply chain (as well as the shipyard) are kept within the UK. The model estimates a contract of this size would support 1,800 jobs at the shipyard and around 4,700 in the supply chain.
Also, the 6,500 figure is a gross figure. That means that if the contract was awarded abroad, it wouldn’t mean a loss of 6,500 shipbuilding jobs.
The Ipsos MORI model says that if a shipbuilding contract is not awarded in the UK, most of those workers would be re-employed, although possibly in a different sector such as services and potentially at a lower wage.
For this support ship contract, the model estimates that not awarding the contract in the UK would increase unemployment by about 300 people.
The legal argument
The House of Commons Library say EU law requires most government contracts to be procured via an open, competitive process. However, Article 346 of the Treaty on the Functioning of the European Union (TFEU) makes an exception for national security reasons.
Article 346 refers to a list of products written in 1958 by the Council of Ministers which includes “warships of all kinds”.
The MOD officially say fleet support ships are not warships. The MOD say that the fitting of these ships with weapons will be subject to a separate contract and limited to UK companies.
The CSEU union argue that these ships should be considered warships because they are armed and take part in counter-narcotics and counter-piracy operations; and that other EU countries builds similar ships domestically.
So there’s disagreement about whether the Government’s decision to tender the contracts internationally is purely a policy decision or whether it’s, to some degree, a result of EU law.