I beg to move,
That this House has considered the diversification of the defence industry in Scotland.
It is a pleasure to serve under your chairship, Mr Hollobone. I am glad that this debate was selected because it is an opportunity to raise the important and seldom discussed topic of the defence industry in Scotland.
We are rightly proud of our history of shipbuilding. I represent a constituency just south of the River Clyde, and I do not need to tell anyone in this chamber that the legacy of shipbuilding and the remaining cranes dotted along the Clyde are a great symbol of national identity and pride, not just for those who live near to or in Glasgow, but across Scotland. That pride is not limited to those of us north of the border, either. The industry holds significance for the entire UK. Shipbuilding rightly continues to be an important part of the defence industry in Scotland, but as the demand and requirements of national defence change and future threats emerge, we must look at areas of future growth for Scottish industry, to ensure that, alongside shipbuilding, Scotland has a diverse pool of defence industries that will be sustainable in future.
In 1981, 68% of the workers in defence-related industries worked in shipbuilding, while 26% worked in the aerospace industry and about 6% worked in the armaments industry. In 2017, the picture was similar: shipbuilding accounted for about the same proportion of 68%, while the aerospace industry in Scotland had gained a slightly greater share of 28% and the armaments industry had about 4% of the workforce. Of the £1.6 billion that the Ministry of Defence spent with industry in 2016-17, 57% was spent on shipbuilding and repair, with the nearest spending block making up just 11.8%, which was spent on computer services.
The defence sector in Scotland is significantly reliant on shipbuilding, and although shipbuilding is a major benefit to our economy, high reliance on a single sector exposes the wider industry to risk from changes in the market and the evolving nature of the threats that we face, and to the risk of mismanagement by the UK Government.
I thank my hon. Friend for securing this important debate. We need a strong domestic defence industry, as well as the sovereign capability to build defence equipment in Scotland and across the UK, to ensure that we are not overly reliant on orders from overseas. Does he agree that, unfortunately, this Government have chosen to neglect our home-grown industries in favour of buying off-the-shelf from abroad?
The hon. Gentleman is making an excellent speech. Does he agree that one of the UK Government’s strangest decisions is to tender internationally for fleet support ships? If it were decided that they should be built in the UK, that could benefit shipbuilding not just in Scotland, but across the UK.
I absolutely agree with the hon. Gentleman. I will touch on that point later in my remarks.
Although we must continue to support shipbuilding, the UK and Scottish Governments must focus on diversifying and deepening the defence industry in Scotland to ensure that there will always be a base for the high-skill and high-value roles associated with the industry—that is eminently achievable. Scotland is well placed to be a home for a variety of new industries. With strong universities and a history of manufacturing and design excellence, we are ideally placed to take advantage of the large demands of the UK’s defence. This debate gives Members the opportunity to discuss future high-growth areas and draw attention to the advantages of increasing diversity in the defence industry. For my part, I will touch on two high-growth areas: space and land vehicles.
Glasgow in particular has become a pioneering centre for the deployment of microsatellites, producing more satellites than any other city outside the United States. As future defence concerns rely increasingly on the gathering and analysis of information, significant space assets will be vital to the day-to-day operations of the armed forces in both military and non-military operations.
The space sector has huge potential for future growth. Year-on-year growth in the sector has been five times greater than in the wider economy since 1999, and the sector has tripled in value since 2000. Each new job in the space sector adds £140,000 of added value per employee, and the overall sector receives 36% of turnover from exports.
The high-quality satellites that are built in Glasgow are superb, and will be launched from my part of the world. Does the hon. Gentleman agree that Britain has a great business opportunity to build a lot of satellites for allied countries for their own defence, and that if we get going now, we can steal on a march on the world?
The hon. Gentleman is absolutely right. As a satellite hub, companies in Glasgow have produced huge volumes of satellites. Two companies, Alba Orbital and Spire Global, have between them put around 100 satellites in orbit, and Spire Global makes one new satellite per week. The recent go-ahead for the spaceport in Sutherland, as well as Glasgow’s growing microsatellite industry, perfectly places Scotland to take advantage of new investment and infrastructure.
Investment from the MOD will be a major factor in the successful development of space and satellite technologies. Any investment will naturally lead to a build-up of skills and will spill over into the civilian sector. I would therefore be grateful if the Minister indicated the role that the upcoming strategic defence and security review will have in supporting the development and expansion of the space industry in Scotland, and what representations he will make to ensure that that vital high-growth sector is not overlooked. The industry is highly competitive and, as the hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone) said, it is vital that the UK takes a lead.
I thank my hon. Friend for the speech that he is making, which is very helpful. The British space industry has not only been successful here, but has played a huge part in the European project Galileo. Does he share my regret that the European Commission, in a fit of pique, has decided to kick us out of the project, to which we have made not only a financial contribution, but an enormous industrial contribution? Europe should really be holding that up as an example of competing in the world.
My right hon. Friend will not be surprised to know that we have different views on Britain’s membership of the European Union. I largely consider that we are kicking ourselves out of the EU and should accept the consequences of that, although I regret the impact that it will have on projects such as Galileo.
Further to the space sector, the construction of advanced land vehicles offers an excellent opportunity for the expansion of the defence industry in Scotland. Glasgow now hosts an armoured vehicle centre of excellence, which was set up by defence company Thales. The centre aims to provide the MOD with an excellent new resource for the development of armoured vehicles.
Thales is currently bidding for the MOD’s multi role vehicle-protected programme which, if successful, would see 50 highly skilled engineering design and manufacturing jobs brought to the Glasgow site, and the possibility of 30 additional jobs created over the programme’s lifetime. Thales has said that if it is selected for the MRV-P and as the UK design authority and integrator for the Boxer and its variants, 100 new jobs could be created directly, while 180 jobs could be created through supply chains and around 200 further jobs could be supported indirectly.
Such programmes are vital for expanding the diversity of the defence industry in Scotland and introducing new skills, as well as deepening the existing skills base. A great example is my constituent Stewart Macpherson, an employee at Thales Glasgow who has been chosen as one of the top 30 electronics engineers under 30 in the UK.
Encouraging and supporting new skills and professionals is a great benefit of defence investment, so I should be grateful for an update from the Minister on the progress towards reaching a decision on the MRV-P programme. I appreciate, however, that he may only be able to reveal certain information as some might be commercially sensitive.
I again thank the hon. Gentleman for mentioning Thales, which is based in my constituency. Does he agree that if Thales is successful in obtaining the contract, the economic benefits for the whole Glasgow area—including for my constituents and his—would be considerable?
I absolutely agree. Recently, when I visited the site, I was pleased to see how many of my constituents are employed there.
I am disappointed about the previous actions of both the UK Government and, to a certain extent, the Scottish Government. The recent failure by the UK Government to support the construction of the fleet solid support vessels, as mentioned in this debate and many other times in this place, shows completely misplaced priorities. Ill thought-out changes to Government tendering rules redefined the vessels, meaning that the ships will not fall under article 346 of the treaty on the functioning of the European Union. That opens UK shipyards to subsidised international competition and puts jobs and the potential investment in shipyards such as Rosyth at risk.
What is more, that situation was wholly avoidable, with the decision being made completely unilaterally, yet possibly writing off highly skilled, highly paid jobs that could return £2.3 billion in revenue to the Treasury while providing sustainable employment and an increasing skills base. I therefore urge the Government to think again about that, and to follow the Labour party’s lead by advocating that such ships are built in the UK. The case of the fleet solid support ships signals a Government who are far more interested in achieving in-year cost reductions than in looking at the whole picture.
The hon. Gentleman is making a powerful speech about the British defence industry. Does he agree that we built two world-class aircraft carriers in Rosyth, employing a lot of my constituents and I am sure some of his, and that the Government should offer some of our expertise and the build facility to our allies around the world who have expressed interest in aircraft carrier technology, so that we can continue to build our expertise and keep the engineering specialities developed in Rosyth and in Scotland?
Is it not the case that the solid support ships would be ideal for the Rosyth site to maintain its workforce until aircraft carrier refits are necessary? Does that not show that the Government have not learned the lesson of the gap in work at Barrow, which then required a reconstruction of the workforce at huge cost? Surely the Government are saving pennies now but costing pounds later.
My right hon. Friend is absolutely right. To be frank, I find it amazing that the red, white and blue Conservative party of Great Britain does not see the merit of building such ships in Britain, creating so much benefit for years to come.
In the context of this debate, we must also look at the Scottish Government’s role. Recently, the First Minister set out her plans for a new independence referendum. We must therefore consider the impact of that policy on long-term investment. Scotland’s shipyards rely on the pipeline of complex warships to be constructed for the Ministry of Defence—at least one remaining aircraft carrier, five offshore patrol vehicles and eight frigates—but if Scotland were to become independent before the next Holyrood election, as the SNP plans, the MOD has indicated that Scotland could be excluded from producing UK warships under article 346, or a similar rule if the UK has left the EU. Without those contracts, the shipyards would need to find alternative sources of demand in order to remain open, and I hope that the SNP will elaborate on that in any contribution today.
The MOD spends about £1.6 billion a year directly on Scottish industry, with £900 million spent directly on shipbuilding. The Growth Commission report stated that the entire defence budget for an independent Scotland would be £3 billion, plus £450 million to be used over five years to set up the apparatus of an entire independent state, of which a defence force is just one part. From that combined pool, therefore, the SNP proposes to find at least £900 million a year just to keep the shipyards open, while also setting up a new defence force, equipping it, and ensuring that its IT and support systems work properly. That is before we get on to the implications of importing the necessary components required for advanced manufacturing under a new currency.
That is £450 million to set up a new state in five years, including a defence force, but in less than five years it has cost the Scottish Government £200 million to set up a Scottish social security system and £178 million to set up an IT system to allocate payments to farmers. When we consider the complexity required to set up a new modern military force with all the support and complex IT architecture necessary, we realise that the figures do not add up. Scotland is being let down by both its Governments.
There are so many different layers to this. Going into the day-to-day costs in pounds sterling is bad enough, but adding the uncertainty of trying to set up a whole new currency from scratch takes us into the realm of fantasy.
We have a good opportunity, through smart industrial policy, to build a healthy, thriving and contributory defence industry in Scotland. The Labour party has put smart industrial policy at the heart of our policy proposals for the next election, whenever it comes. However, it is disappointing that both the UK and Scottish Governments cannot do the same.
The debate can last until 5.30 pm. I am obliged to call the Front-Bench spokesmen no later than 5.7 pm. The guideline limits are five minutes for the SNP, five minutes for Her Majesty’s Opposition and 10 minutes for the Minister. If the Minister closes no later than 5.27 pm, that would allow the mover of the motion three minutes to sum up the debate. Until 5.7 pm, however, we have time for Back-Bench contributions, the first of which will be from Stephen Kerr. One other Member was standing, so I hope that we can split the time equally.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate the hon. Member for Rutherglen and Hamilton West (Ged Killen). He spoke very well, with passion and conviction, and thoughtfully. I was delighted with the tone that he set for the debate.
I wish to take us in a slightly different direction with public policy in the defence industry and on diversification, because I wish to refer specifically to the Scottish Trades Union Congress campaign to set up—or to encourage the SNP Scottish Government to set up—a defence diversification agency. That approach to defence diversification, rather than the one in the hon. Gentleman’s thoughtful speech, is simplistic and frankly regrettable. Not only is the point of view that the Government are best placed to tell business how to operate mistaken and misguided, but the ideologically blinkered way in which the left approaches this vital area of public policy is lacking.
I would not often choose to quote from the Morning Star—frankly, I have not often even perused a copy of it—[Interruption.] I know that Opposition Members are disappointed to hear that I am not a regular subscriber. On 15 May, it ran a story on the vote at the STUC annual congress calling on the SNP Government
“to establish a Defence Diversification Agency to promote a ‘fair and sustainable shift’ away from nuclear weapons.”
Continuing to quote the Morning Star—the first and perhaps only occasion on which I will do so—the report went on:
“But professionals’ union Prospect and general union GMB opposed the motion, saying it sent the wrong message to defence workers.
GMB Scotland delegate John Dolan, a Scotstoun shipyard convener, said: ‘This motion is not in the real world of work.
‘These people have worked in these industries for years, keeping you, your children and your grandchildren safe.
‘How many jobs have been created by defence diversification?
‘This is a con. Where is the Saudi Arabia of renewables we were promised 10 years ago by Alex Salmond and the SNP government?’”
I do not know John Dolan—perhaps other Members present do—but I want to repeat a line of his, because it is important:
“These people have worked in these industries for years, keeping you, your children and your grandchildren safe.”
I agree with the statement made by the hon. Member for Rutherglen and Hamilton West in his opening speech that we should be proud of the defence sector in Scotland. As he mentioned, UK defence spends £1.6 billion with Scottish industry each year, supporting at least 10,000 high-value jobs in the Scottish economy.
The hon. Gentleman may be interested to know that if he buys the Morning Star today, he will find a column in the name of my good self on blacklisting, which I recommend to him. I suggest that if he is, as he claims, so concerned for the views of shipyard workers on the Clyde and what they are saying at the Scottish Trades Union Congress, he listen to them and support their argument that the fleet’s solid support ships should be built in the UK and not be put out to international competition.
I am not at all surprised that the hon. Gentleman writes a column in the Morning Star. I would have been disappointed if he had said anything other than that. Of course I wish that all the defence contract work available should remain in the UK, support high-value UK jobs and advance our technical expertise in shipbuilding. I have no doubt that the Minister will address that issue when he responds.
I pay tribute to the people who work for businesses that have invested in Scotland such as Babcock, BAE Systems, Leonardo, Thales, Raytheon, Rolls-Royce and others. All those major contractors and others are operating in Scotland. I have heard Members of this House speak of those businesses in disparaging terms. I want to make it clear that if any Member of this House does not want those businesses and their workers in their constituency, I will be absolutely delighted to have them come to Stirling. Stirling has a long association with our armed forces, and a proud connection with our servicemen and women and those who support them in the supply chain that those industries represent. That connection is symbolised by Stirling castle.
I do not know John Dolan but he captured some of the pride of the people who work in those industries. I am proud of that workforce, such as those at Her Majesty’s Naval Base Clyde at Faslane, many of whom are my constituents. If I could, I would say to each of them, in the words of Mr Dolan, “Thank you for keeping me, my children and my grandchildren safe. Thank you for defending our country and our freedoms. Scotland is proud of you.” In my constituency, defence contracts support many jobs, especially at FES, which is a principal electrical contractor and works on the new Navy ships that are being built on the Clyde. Emerson also has significant defence contracts. FES has made a huge investment in its apprenticeship programmes and runs its own academy. Hundreds of skilled electricians have benefited from FES’s commitment to them and the Ministry of Defence’s commitment to Scotland.
Some on the left approach this issue from a pacifist viewpoint built on deeply held beliefs. I respect that. Others on the left, such as the hon. Member for Rutherglen and Hamilton West, are more pragmatic and see the high-value jobs that are done as a vital strategic part of the Scottish economy. The position of the SNP is far more craven. It knows that the defence sector would be destroyed in the event of independence, as the hon. Gentleman outlined. SNP Members use defence diversification as a way of distracting people, because the truth is that they do not care much about jobs or about defence; they just care about independence, as was seen in their conference in Edinburgh at the weekend. According to that separatist vision, Scotland’s workers, savers and pensioners would give up the pound for a valueless currency yet to be named, and no frigates would be built on the Clyde if they ever got their way.
I find it extraordinary that the hon. Gentleman accuses me and others in the SNP of not caring about defence jobs, given that I meet the shop stewards in the Clyde shipyards on a regular basis and they know my views. Would he care to withdraw or clarify what he suggests? He was pointing at me when he made those outrageous remarks.
I am not sure I was specifically pointing at the hon. Gentleman. Let me be absolutely clear: those who espouse separatism in Scotland know that the consequences would be the loss of those jobs and the technology, know-how and added value that goes with them. They know only too well that Scotland would not have a Royal Navy.
My hon. Friend is making a valid point. It would not just be the hard power of the military’s physical ships and tanks that would be taken away; it would also be MI5, MI6 and the myriad security services that are embedded and supported by the United Kingdom. I wish the SNP could see that valid point, too.
Does my hon. Friend agree that it is not just a question of defending the United Kingdom’s territorial waters and our contribution to NATO, but goes much further afield? We forget that the maintenance of a blue-water Navy is vital to trade. One only has to look at the Red sea. I used to ship coffee from the Port of Tanga through the Suez canal to Europe and around the world. Piracy around the Red sea was rife; ships were hijacked until the European Union force and others, led until recently by the United Kingdom, were there with ships built in Scotland.
I would sign up to beating swords in ploughshares every day of the week, but the lesson of history is that we defend the peace by being strong. I am proud of the United Kingdom’s 2% defence spending commitment. We have obligations in the alliance, which we meet.
I recently had the privilege of attending the naming ceremony of HMS Taymar, the latest second-generation River-class ship, on the Clyde. It is a magnificent ship built in the best traditions of Scottish shipbuilding for the Royal Navy, by Scottish engineers, fitters, designers, programmers—a host of highly skilled professionals. The workforce spoke with such pride about their work, and they are fully justified in that pride, because they are making a massive contribution to the security of our country and our servicemen and women who sail in those ships. My hon. Friend the Member for Stafford (Jeremy Lefroy) outlined some of the other things that they do.
Scotland’s contribution to the defence sector and our Scottish servicemen and women are a matter of national pride for all of us. The men and women who serve alongside our service personnel are to be saluted. I will long remember the visit I made in my constituency to people who work for Babcock—mechanics and engineers who had gone to Afghanistan and Iraq to be there with our service people to service their armoured vehicles and to keep them on the road. They must not have their sacrifice traduced by an ideologically driven attack on a proud and vital industry.
It is good to serve with you in the chair, Mr Hollobone. It is always good to speak in this place about the valuable contribution made to Scotland and across the UK by the people who work in the defence industry. Their skills and diligence make their contribution to our economy invaluable—let us not forget that Scotland has record-low unemployment—and that is felt well beyond the sector in which they work. I am glad there is agreement across the Chamber on that point. I am thankful to the hon. Member for Rutherglen and Hamilton West (Ged Killen) for giving us the opportunity to demonstrate that point of agreement.
From the perspective of the Scottish National party, as we consider the starting point for the Scottish defence industry to move towards an economically and otherwise sustainable future after Scotland’s independence, there is much cause for optimism. I am no pacifist; my brother served in Iraq and in Afghanistan twice, and my nephew is a Royal Engineer. Our Benches are not filled with pacifists, although I cast no aspersions on the voting intentions of those who are.
In my role on the Select Committee on Defence, I have been lucky to visit many defence manufacturing sites in Scotland. I am glad to say that they are all historically rooted in their local communities, but nonetheless are well integrated into the wider European and global economies, with export profiles to match. For me, an independent Scotland operating in the strong framework of the European family of nations, with the broad shoulders of a global, capable trading bloc that already has trade agreements and over half a billion people, should be well placed to build on that position.
The most important aspect of ensuring that we have a sustainable and diverse Scottish defence industry—this is where we might find some agreement—will be the establishment of multi-year defence agreements, or MYDAs. I have yet to hear a single other member of the Defence Committee mention those at that Committee. Used commonly by our allies, MYDAs create a framework agreement among political parties for a common approach to defence procurement that gives security to industry and removes complex and long-term decisions from capricious politicians wedded to short-termism.
With MYDAs of five years or longer, an independent Scotland, which of course is my preference, or indeed the UK, would no longer have to face Governments halving the size of the Type 45 destroyer programme—I will leave it to others to find out which Government did that—or chopping up maritime patrol capability. That capability was discussed at the Defence Committee this morning; we are having to try to get an even older programme from the United States to replace it. Defence Secretaries who seek to sign blank cheques for programmes in the hope of being catapulted into No. 10 would no longer be able to saddle the procurement budget with £15 billion black holes.
The consensus about the excellence and skills of our defence industry employees should be reflected in an ability to work together to ensure their long-term future. Quite simply, the MOD has been used for far too long as a political football. We already know that a steady and reliable pipeline of orders can form the basis of a diversified and sustainable industry.
Earlier this year, I was lucky enough to join my hon. Friend the Member for Glasgow South West (Chris Stephens) on a visit to Thales electronics in his constituency. I was fascinated to see the outstanding tradition of periscope manufacturing being transformed to produce a new generation of optical sensors for the Royal Navy and other customers, including the navy of Japan. Technology designed and developed in Glasgow, with a broad economic reach across the whole of central and western Scotland and with the expertise of a lot of people from West Dunbartonshire, whose shipbuilding heritage is profound—of course, we do not have any shipyards left, but we will leave that for another debate—is used on a whole range of optical sensors for use across the military and civilian fields, not only in the UK but by our allies.
Similarly, SNP Members were delighted by the welcome news that Raytheon, recognising the strength of the skill base in central Scotland, has decided to invest in a new facility in Livingston, primarily to design and manufacture power systems for military and defence radars. Building on a history of excellence in manufacturing in the military domain to provide civilian applications is precisely what this debate is about, as I am sure the hon. Member for Rutherglen and Hamilton West intended.
Those are examples of multinational companies that have chosen to locate in Scotland because of the skills, quality and work ethic of those who come through our schools and universities. Very few other small states have such a plethora of world-class higher education departments, and we can only hope that the end point of the Brexit process does not dislocate them from common European funding mechanisms. That points to the fact that the common assumption that the strength of Scotland’s defence industry is mainly in the maritime sector may change in the future. These are encouraging developments, and I only hope that the potential development of cyber and electromagnetic capabilities in Scotland leads to much growth and diversification. Again, that was discussed at the Defence Committee this morning.
Let me draw my remarks to a close by reiterating my agreement with most of what was said by other Members, who spoke about the abilities of those who work in the defence sector in Scotland. We are grateful for the contribution they have made and will continue to make to the health of our economy and to our neighbours and allies. Let me reassure them that, as least from my perspective, independence continues to be the best way forward for a sustainable future away from the historical underinvestment by successive UK Governments in defence in Scotland. Finally, we hear much about the 2% of GDP that the UK spends on defence, but Scotland does not get its fair share of that. Perhaps the Minister can tell us why not.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I pay tribute to the hon. Member for Rutherglen and Hamilton West (Ged Killen) for bringing this important and timely debate to Westminster Hall. We on the Scottish National party Benches really appreciate his timing; only last weekend, our party decided to develop a policy of setting in stone a road map for taking nuclear weapons out of Scotland forever.
Critical to developing that road map is establishing how we can have conventional forces in places such as Faslane, Glen Douglas and Coulport. Importantly, we need to use the skills and talents of engineers, scientists, inventors and entrepreneurs to diversify into conventional deterrents, and to put those people’s undoubted abilities to more peaceable uses that help our economy.
Despite promises, troop numbers in Scotland are down and naval shipbuilding contracts have gone unannounced, with consequent job losses in the likes of Rosyth in my constituency and on the Clyde. We have long made the case that the fleet auxiliary ships should be built in Scotland, and that the north Atlantic and the High North should be the bread-and-butter areas of activity for our Navy and Air Force, yet not a single ship of any significant size is based north of the English channel, and the people of Scotland feel exposed to potential threats from the north and the east. In the air, following the demise of Nimrod, we beg and borrow any maritime aircraft we can find from the USA, Canada and Norway until the new P-8s come into service in 2021.
We would like more support for our defence industries, not just to meet the defence needs of today but to help them create the new technologies that will be at the cutting edge of our future defence posture. If we put more money and time into the technology, jobs and skills we have, perhaps we will find better solutions that we can apply as a society.
I was really taken by some of the ideas I picked up on a NATO visit to Nova Scotia earlier this year. The Canadian Space Agency is a leader in technology, and its use of satellites and different information-gathering devices would sit exceptionally well with the scientific reputation of Scotland’s space industry. Canada organised a huge competition to identify the country’s first astronaut, which involved kids in schools, with the aim of boosting their science, technology, engineering and maths activity, and allowing more children to become involved in science and technology. All the provinces involved got behind their local candidate to be the first Canadian astronaut, and that really upped the ante with respect to people’s interest in science and technology. Canada even put a picture of its first astronaut on its $20 bill; every time someone spends one, they are reminded that their country is associated with science and innovation. It is quite amazing what you can do when you have your own currency.
I thought I was going to get an intervention there. Here in the UK, we are going to lose out on £1.2 billion of investment through the Galileo programme as we drop out of the EU. That cannot be good news for anyone. That is the kind of investment we need to take us forward, to enable us to use the skillsets of our graduates and to support our defence industries to diversify into more peaceable activity.
The other area I would like to talk about is cyber-security. There was recently a meeting of cyber-experts at Edinburgh Napier University. Small nations, such as Estonia, have shown the way forward, as they have picked up prizes and accolades for the expertise and innovation they have shown in finding solutions to security problems. Again, leaving the EU puts us in quite a difficult—and weaker—position. Money must be found to retain that research and development to encourage new cyber-products and services to come to market.
I have come hot foot from a meeting in Committee Room 6 at which we were talking about the costs associated with nuclear submarines. I have no doubt that we could use the range of skills and talents involved in building submarines, maintaining the warheads, and so on, to provide us with a better chance of developing economic activity rather than spending it on a weapons system that will never be used.
That is the line pointed out every time we have this discussion, but it really is time for an adult conversation. The figures in the “Trouble Ahead” report show that £3.5 billion is spent every year on the nuclear deterrent. There are conventional deterrents that we can use, and we must also look at how else we could utilise that money if we were not spending it on nuclear weapons.
My hon. Friend has hit the nail on the head. There are huge pressures on the defence budget overall, but the Minister knows that if he had another £3.5 billion to spend every year on conventional weapons and the approach and posture suggested by my hon. Friend, that would put a big smile on his face. Perhaps then we could get some RAF contracts back into Scotland.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Rutherglen and Hamilton West (Ged Killen) on securing this debate on such an important topic to Scotland. He made a number of important points and spoke with great passion about the opportunity for companies such as Thales with its multi-role vehicle programme. I recently visited Thales, which, as the hon. Member for Glasgow South West (Chris Stephens) mentioned, is located in his constituency. There is the potential to create 180 new jobs in Glasgow. Of course, opportunity is centred not just on that site, because of the importance of the supply chain. For example, Allied Vehicles, which is one of the largest automotive companies in Scotland and is located in my constituency, stands to benefit from participation in that programme if we drive forward the opportunity for automotive development in the defence sector in Scotland. That is just one of the many examples of how we can grow the supply chain in Scotland.
In preparing for the debate, I could not help looking back at the previous few years both in my life and career and in politics. Having worked at BAE Systems on the Clyde and at Scottish Enterprise, where I was part of the team that developed the aerospace, defence, marine and shipbuilding strategy with the industry leadership group, I know the role that a thriving defence sector can play when it is given not only resources but political backing. The importance of that was spelled out by the work of the ADMS strategy, which identified that 38,408 people are employed across 825 companies in the sector, and that there are £5.5 billion of sales a year, generating £1.7 billion in gross value added, from which there is an annual tax revenue of £540 million to the Scottish economy. That is a huge benefit to the Scottish economy. Sadly, the resources and political backing are not fully met by the Government. Political ideology seems to have blighted the clear economic opportunities provided by the defence sector.
I apologise for being late. Does my hon. Friend agree that the process for giving out defence contracts is fundamentally flawed?
I thank my hon. Friend for making that point. As we are discussing the defence industry in Scotland, we must express the Opposition’s frustration that no one from the Scotland Office is present to answer for the Government. That crystallises the Opposition’s belief that the Secretary of State for Scotland is not providing the political backing that Scotland needs. I cast no aspersions on the resilient efforts of the Minister, with whom I often enjoy batting back and forth across the Dispatch Box, but it is a pity that the Secretary of State for Scotland could not be here. I will discuss that later in my contribution.
As my hon. Friend the Member for Rutherglen and Hamilton West outlined, the defence sector in Scotland takes many shapes and forms, from shipbuilding to the aerospace industry, with exceptional talents. Unfortunately, they are not being enabled to flourish as they should. There is a clear absence of an industrial strategy, and given the engineering expertise that can be found across the whole defence sector, it should be at the heart of any industrial strategy. The Government do not seem to appreciate that, and they will undermine the integrity of the defence sector in the near future if they do not rapidly get to grips with it.
If we take the obvious example of shipbuilding, which is easy for me as I worked in the industry, we see that the Government’s approach to the fleet solid support ships contract is nothing short of absurd. The decision not to factor the socioeconomic value of defence contracts into the procurement process is economically illiterate and flies in the face of common sense. The Minister and I have batted this back and forth, as I mentioned, and I am sure that in a few minutes he will tell me that it is all about value for money for the taxpayer. However, that argument falls apart because the contract’s socioeconomic value is not factored in at the procurement stage. The reported cost of the contract is £1 billion, but as studies such as those by the GMB union estimate, keeping the contract in the UK would secure up to 6,500 high-paid, high-skilled jobs, including almost 2,000 shipbuilding jobs that pay about 45% more than the average UK salary. Just think of the difference those jobs could make to the UK economy and to communities across Scotland.
The GMB has estimated that the contract would return about £285 million to the Exchequer in the form of taxes, national insurance contributions, lower social security payments and so on. If we built FSS ships in the UK, it would contribute to the nation’s prosperity. In fact, there would be a direct tax and national insurance return to the Treasury of up to £415 million—20% of the contract cost, which represents a bargain.
Data from other countries indicates that naval shipbuilding has a multiplier effect of 1.35, with £1.35 generated in long-term economic benefits for every £1 spent. Therefore, the UK benefit from a programme cost of £1 billion would be £1.35 billion. Having those ships built overseas would simply hand the benefit to someone else—that is probably why they are so eager to bid. Perhaps we should take a leaf out of their book and, at the Government’s discretion, ensure that those ships are built in the United Kingdom without competition—or, at the very least, ensure that the UK consortium wins the contract. That would secure jobs for the future.
At Rosyth, there is a gap between the completion of HMS Prince of Wales later this year and the expected refit of HMS Queen Elizabeth in 2030. The contract for the fleet solid support ships could ensure that the shipyard runs at smoother capacity during that timeframe. However, as I have said, the Government’s economic illiteracy could well prevent that from happening, leading to much greater inefficiency and costs down the line. I am sure the people of Fife will not let them get away with that. The Government are keen to celebrate the continuous at-sea deterrent, but I would much rather see continuous in-shipyard building across the country. We would far rather celebrate that.
That brings me to the fact that there is clearly no wider industrial strategy not only for the defence sector but for manufacturing as a whole. To use Fife as an example, the Government are refusing to keep the FSS contract in the UK. At the same time, not even 10 miles away, the BiFab yards in Burntisland are sitting there idle because of a lack of contracts. That is another example of the Government’s complete and utter short-sightedness.
I shall steer it into port forthwith, Mr Hollobone.
The Government have spent the past few months saying how wonderful it is that this offshore wind deal has been signed, but we are not seeing the benefits spin off. Other countries are clearly benefiting from that, through state aid deals. Many references have been made to opportunities in the space sector, but yet again the Government have not convinced us about what they are doing.
I thank my hon. Friend the Member for Rutherglen and Hamilton West again for securing the debate. I have shown what a Labour Government would do with a coherent strategy. I look forward to hearing the Minister address the key points raised, including the need for a more robust defence industrial strategy to maximise the economic opportunities.
It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate the hon. Member for Rutherglen and Hamilton West (Ged Killen) on securing the debate and for the tone of it. My hon. Friend the Member for Stirling (Stephen Kerr) is right that it has been a considered debate about how we might diversify the defence industry in Scotland.
Before I address some of the specific points that have been raised, I want to emphasise the importance of the UK’s defence industry, both in delivering world-class military capabilities to our armed forces and in contributing to the UK economy. Last year’s report into the contribution of defence to UK prosperity by my right hon. Friend the Member for Ludlow (Mr Dunne) showed that defence benefits every single part of the United Kingdom. It is a sector with an annual turnover of £22 billion supporting some 115,000 jobs. Scotland shares in that national success by benefiting directly from every pound spent on our defence, which is in itself the biggest defence budget in Europe. The report highlighted the range and diversity of the defence industry across the whole of the UK, including in Scotland, and the UK Government’s support for the defence industry in Scotland.
Last year, defence spend with industry in Scotland amounted to £1.65 billion, supporting some 10,000 jobs and equivalent to £300 per capita, which is above the UK average. The hon. Member for West Dunbartonshire (Martin Docherty-Hughes) said that Scotland wants its fair share, but as a Yorkshire MP I would say that £300 per head in Scotland compares very favourably with the £60 per head that we get in Yorkshire and the Humber. I think it is we who want our fair share.
There are many Yorkshire people who would argue very differently.
We invest in shipbuilding in Scotland to maintain world-class capabilities for our Royal Navy, recognising the incredible expertise of the Scottish shipbuilding sector. With a history that dates back more than 150 years, it has long been the envy of the world and today remains a global leader. As we have heard, in the past few years Scotland has played a major part in the building, assembly and successful delivery of HMS Queen Elizabeth, the most powerful surface vessel in British history. The MOD has also placed a £3.7 billion contract to build the first three state-of-the-art Type 26 global combat ships on the Clyde, where all eight will eventually built. The first of these City-class frigates has been named HMS Glasgow and the last will be HMS Edinburgh. Coupled with our order for five offshore patrol vessels, this work will sustain some 4,000 jobs in Scottish shipyards and throughout the supply chain until the 2030s. No other industry in the UK can boast such a pipeline of future work.
Many other businesses are investing in Scotland, and I have heard many people congratulate and praise them. They include Babcock, BAE Systems, Rolls-Royce, Leonardo, Thales, Raytheon and QinetiQ. Denchi Power is an innovative smaller company, based in the far northern coastal town of Thurso in Caithness, which from its factory overlooking the beautiful islands of Orkney provides much of the essential advanced battery and charging technology and subsystems for the UK’s combat radio systems. These companies demonstrate the diversity of size and geography of the Scottish defence supply chain.
In the air, Leonardo manufactures state-of-the-art radar systems in Edinburgh. I had the great privilege of seeing some of the fantastic work it is doing there, and it is world beating. We want to see more of that as part of the combat air strategy. At RAF Lossiemouth, work has commenced on a new £132 million strategic facility co-funded by the MOD and Boeing. Up to 200 local jobs will be created at the peak of construction and we expect over 400 new jobs in the operation, once the P-8A fleet is based there permanently.
On land, companies across Scotland have provided and continue to logistically support high-technology subsystems on the Army’s critical warfighting platforms. These include Challenger 2 main battle tanks, Warrior infantry fighting vehicles, Foxhound patrol vehicles and the new AJAX reconnaissance fleet. The hon. Member for Glasgow North East (Mr Sweeney) asked for an update, and I can tell him that there is an ongoing competition on package 2 between the two contenders, and we are waiting for their revised bids, which we expect to have soon. The winner will be announced later this year. As it is a live competition, there is not much more I can say at this stage, but it is ongoing.
It is right that there is more that we can do, and I am absolutely determined that we do it. Scotland also benefits from the defence innovation initiative. The Defence and Security Accelerator finds and funds exploitable innovation to support UK defence and security quickly and effectively. It brings together the private sector, academia and Government organisations to find innovative solutions to some of the challenging problems facing defence. In the last year, DASA has launched 14 new themed competitions and run five cycles to open call. It has received nearly 800 proposals from over 480 organisations; some 228 proposals have been funded, of which over half are from small and medium-sized enterprises, with over £36 million of funding allocated. DASA’s competition events and outreach work are supported by a team of regionally focused innovation partners. This year DASA has been building relationships in Scotland and liaising with Scottish Enterprise, Textiles Scotland and the Universities of Glasgow, Strathclyde and St Andrews, to name but a few.
We also heard about space; Scotland has a great opportunity in that sector. Scotland is developing innovative defence technologies in that area, which is one reason that the Government’s flagship cyber-security event was hosted by the National Cyber Security Centre in Glasgow last week. Raytheon, which I met this morning and which specialises in the development of cyber-technologies, has recently announced new investment in a hi-tech manufacturing facility in Livingston, as we heard in the debate, as part of the diversification of its portfolio and its investment in British jobs. That is exciting news that will build on the support that it already gives.
More broadly, the hon. Member for Rutherglen and Hamilton West is right that space funding is an area that we need to develop carefully and take every possible opportunity from. That is why our space strategy, setting the direction for the defence space sector, will be published shortly. I regularly meet companies across the country, including many in Scotland, to talk about the space sector. I can assure hon. Members that it is something we are taking very seriously, because we know it will provide a great deal of opportunity in the future.
On 14 March this year the Defence Secretary reaffirmed his commitment to increasing defence’s contribution to UK economic growth, setting out a new package of measures to drive productivity and innovation in the sector. We held prosperity conferences and SME workshops, and we want to engage with as many people as possible. Many Members who have an interest in defence have arranged for me to meet businesses. I am happy to do that because we want to engage with as many of them as possible, so that we can take advantage of what they offer for the security of our nation, and so that every part, including Scotland, benefits from the wider prosperity that defence spending can bring.
It is a pity that the Minister’s response was cut short, not least because I was on the edge of my seat waiting to hear what he had to say about the FSS issue that has been raised several times by Members in the debate.
As the Minister says, this has been a considered debate. I am not sure what progress we have made, but we have at least been able to give some of the issues an airing. I am pleased that the Minister acknowledges the need for more to be done and recognises the opportunities, particularly in the space sector. I thank hon. Members for their attendance and participation, and you, Mr Hollobone, for chairing the proceedings.
I passionately want shipbuilding to remain a mainstay of the defence industry in Scotland, but I want it to be one of many mainstays as we move towards a defence environment that is increasingly dominated by information gathering technologies and intangible assets. There is much for us to be proud of when it comes to Scotland’s defence industry, but if we are to future-proof it and realise its untapped potential, we need smart investment decisions, long-term thinking and a focused mission-oriented approach to diversifying it.
Question put and agreed to.
That this House has considered diversification of the defence industry in Scotland.