The hon. Member for Belfast, East (Mr. Robinson) has expressed his concern about the future of Harland and Wolff, which has been a major employer in Northern Ireland since the last century and has played a significant part in the local economy. I am, of course, aware of the concern felt by all about the future of the company and I shall address the extent of commitment that has been shown by the Government in supporting it.
I agree with the hon. Gentleman that the level of debate on the proposed Ultimate Dream ship has not been high. Criticism has been levelled at the possibility of Harland and Wolff building it. I further agree with the hon. Gentleman that the yard and the customer, Mr. Tikkoo, deserve better than the criticism that has sometimes been levelled at the suggestion. I exempt from that criticism the way in which the hon. Gentleman presented his case. It was a model of the manner in which an hon. Member should submit a case on behalf of his constituents. I am happy that he had the good fortune to win a place in the Adjournment debate, which gives me an opportunity to respond.
I acknowledge the rich history of Harland and Wolff and the part that it has played in the Northern Ireland community over the past 126 years. More than 1,700 ships have been built by the company, including many famous passenger ships such as the Olympic, the Southern Cross, and the Canberra.
During the second world war, Harland and Wolff played an important role in the war effort and built over 250 naval and merchant ships. In addition to those new builds, the company repaired or converted over 22,000 ships in Belfast and its other locations. Employment at Belfast rose to over 30,000 during the war years, with over 20,000 employed at other locations throughout the United Kingdom.
In the immediate post-war years, Harland and Wolff produced a greater tonnage of ships than any other British company and, in the three years 1946 to 1948, the company headed the world league of shipyard output. In the 1960s, it built Britain's first supertanker and achieved further success in launching the oil platform, Sea Quest.
The 1970s were a traumatic time for shipbuilders worldwide, including Harland and Wolff, and orders became increasingly difficult to obtain. The facilities were best suited to building the types of ship that were no longer required in such numbers, and where competition from the far east was most severe.
These sophisticated ships required new skills and approaches to work. With Government support, the company continued to rationalise its facilities and implemented sophisticated computer aided design and manufacture facilities. New systems of ship production, including the greater use of pre-outfitting, were introduced in an attempt to improve productivity.
Despite the undoubted successes of the past, Harland and Wolff has not been immune from the more recent crisis facing the shipbuilding industry worldwide and particularly in western Europe. I recognise the efforts that have been made by the management and work force over the years to deal with the situation. Employment in the yard has fallen from 10,000 in the early 1970s to under 4,000. Some of that fall has been the result of declining orders, but part has been the result of efforts to cut operating costs. The company has also altered its marketing strategy to seek to obtain orders for more sophisticated ships where the competition from the far east is currently less intense.
As a consequence of the global changes in the industry, which I have described, Harland and Wolff has suffered severe financial difficulties over the past 20 years. Between 1966 and 1975, when Harland and Wolff was taken into public ownership, the company received some £60 million of public funds. Since 1975 it has received a further £450 million, of which approximately £240 million has been provided by the Government in the past five years alone.
Every merchant order which the company has won recently has required significant support and there have been other losses due partly to overcapacity at the yard. In the year to 31 March 1988, the Government paid £58 million to Harland and Wolff and in the previous year the amount was £64 million. Those are very large sums of money, equating to almost £15,000 per employee per year, and they demonstrate the commitment which the Government have shown to the company.
I should like to take this opportunity to stress the extent to which the Government have been supportive of Harland and Wolff. The company has been provided with the finance to acquire new facilities and every assistance to win orders. Ministers have been supportive in the effort to win orders for the shipyard. The problems which it is facing are linked to changes in the industry worldwide and are not attributable to any lack of support by the Government.
As regards the present order book, Harland and Wolff recently completed the RFA Argus—a conversion of a standard container ship to an aviation training ship. That was the first major contract won by the company from the Ministry of Defence for many years and provided the opportunity to enter this sector of the market. The finished ship is, I believe, a very significant addition to the auxiliary fleet. It is the largest ship serving with the Royal Navy. The conversion proved to be more difficult than Harland and Wolff expected and, unfortunately, the ship was delivered much later than had been expected and there were cost overruns. Those extra costs are now the subject of negotiations with the Ministry of Defence.
Work is now progressing on the single well oil production ship for British Petroleum, commonly known as SWOPS, which is one of the most technologically advanced ships ever planned. Construction is largely complete and the ship is now entering its complex commissioning phase in which the mass of sophisticated equipment which has been installed will be tested.
Production delays and difficulties have been caused to a considerable extent by the failure of sub-contractors to provide the complex equipment on time. Sometimes it has been necessary to change the phasing of the production of the ship so that, instead of equipping the ship, as originally intended, with sophisticated computer and other equipment which was ready to be installed as the ship was being completed, it became necessary to cut holes in the ship to put in the computer and other equipment later. That obviously caused difficulties for the shipyard, but it is doing its best to overcome them and has been largely successful.
In April 1986 Harland and Wolff, after intense competition, won a contract to design and build the first of class auxiliary oiler replenishment vessel for the Ministry of Defence. The design of the ship has been largely completed and construction has commenced. This is the first whole ship procurement to be placed by the Ministry of Defence where the contractor is responsible for providing the whole ship, complete with weapons, for a fixed price. As it is the first such ship ordered in this manner, and as it is the first of class, both Harland and Wolff and the Ministry of Defence are having to deal with many new aspects. It is an exciting project, and Harland's progress is being closely monitored.
The hon. Member referred to the major potential cruise liner order with Mr. Ravi Tikkoo. The design produced for Harland and Wolff was ambitious and imaginative. It was a substantial achievement to be selected by Mr. Tikkoo to carry the project forward. I concur with the hon. Member on this subject. I accept the importance of such a large project to Harland and Wolff and to Belfast. It will be a massive ship, the largest cruise liner ever constructed. I assure the hon. Member that the potential order has been given the serious response that he would wish and expect of the Government.
My Department maintains close links with Harland and Wolff. Officials and my right hon. Friend the Secretary of State for Northern Ireland have met Mr. Tikkoo. I cannot say, however, how the Government will respond to any approach relating to this ship. Harland and Wolff has still not yet completed its costings and has not made any formal application to my Department for contract support, nor to the Export Credits Guarantee Department for guarantees for credit facilities. I understand that the yard has asked sub-contractors to tender and give prices for certain components making up the ship. When those are amalgamated by Harland and Woff, the company will be able to produce its final detailed costings. As and when those costings are produced, they will be scrutinised by specialists on behalf of my Department. It will then be possible for us to appraise the ship. At this point, it is too early to say much more. I assure the hon. Member that the application will be thoroughly and carefully reviewed to determine whether the provision of any additional financial resources needed to win the order would represent good value for money in terms of Northern Ireland expenditure priorities.
We are, of course, all anxious to develop projects that have the potential to create and sustain employment. I note from a recent Northern Ireland Economic Council survey that the total of direct and indirect employment generated by Harland and Wolff in Northern Ireland is between 5,300 and 5,800 staff. My Department's estimate of the indirect labour is rather lower, but I gave that figure because the hon. Member mentioned the number of people dependent on the Harland and Wolff yard. Although the record of the Government's commitment to the yard cannot be challenged, we have the obligation to ensure that the public funds required for such projects as the Ultimate Dream represent real value for money. The taxpayer would expect nothing less from us.
As regards the future, we have to be realistic. Productivity in shipbuilding in the far east is at a very high level. Although the situation is changing, Korea also still has the advantage of a low labour-cost economy. Although productivity in United Kingdom industry has increased recently, this will need to continue to improve if we are to retain the opportunity to compete with shipbuilding companies there. The management and the work force at Harland and Wolff have been making strenuous attempts to cut costs and improve productivity through such measures as labour flexibility and by attacking overheads. It is crucial that this progress should continue, and I am encouraged to know that all parts of Harland and Wolff seem to recognise the importance of this and to be determined to make their efforts successful. There should be no doubt about the nature of the challenge: there is a major objective for shipbuilders in Britain in closing the gap in productivity compared to our competitors in Japan and Korea.
Harland and Wolff has, I believe rightly, set out to attract orders for more specialised and sophisticated ships. The strategy is correct—it takes advantage of the strong engineering base in the company and in Northern Ireland generally. It does, as I have already alluded, present new problems for the company in switching its strategy away from building the large tankers around which its facilities were built and in coping with the demands of making new engineering technologies perform within the difficult working environment of a ship.
However, the ability to build sophisticated ships is not a safeguard against worldwide competition. As an example, at the end of 1987, a Spanish yard won a contract for a floating oil production system, which will not be restricted to one well, similar to SWOPS. That order was won in competition with four other European yards, and is an illustration of the type of competition that Harland and Wolff will have to face, if it is to capitalise on the expertise that it has gained on the SWOPS vessel.
That said, the overall outlook for world shipping at the start of 1988 shows at least some promising signs of improvement. The volume of goods carried by sea in 1987 increased, and there was a significant growth during the second half of the year, particularly in the carriage of grain. The size of the world fleet continued to reduce, and, with falling efficiency as the existing ships aged, the balance between the demand and supply for shipping came closer to equilibrium.
The overall reduction in the size of the fleet, together with the increasing age of many ships, suggests the possibility of a certain upturn in demand for replacement of obsolete ships. Such a development would ultimately offer some prospect of better conditions as regards the shipbuilding market. Despite those encouraging signs, it is extremely difficult, especially when looking at future trends in world trade, to estimate shipbuilding requirements over the medium and longer term.
Throughout the 1980s there has been a number of long-term forecasts of shipbuilding demand produced by shipbuilding trade organisations including the Association of Western European Shipbuilders. Each of those has predicted an upturn in demand before 1990, but that has not yet occurred. Consequently forecasts of an early upturn need to be treated with caution. To add to that, the offshore oil and gas market has not made any substantial recovery since the last fall in oil prices; and there is now more than adequate shipbuilding capacity to meet the United Kingdom's naval defence requirements.
Even when there is an upturn in the market, the competition for new orders will be intense, especially from the far east and some new shipbuilding countries such as Brazil and Yugoslavia.
The hon. Gentleman did not mention privatisation. My right hon. and learned Friend the Chancellor of the Duchy of Lancaster has made a number of statements to the House recently regarding the position of the publicly owned British Shipbuilders, which faces similar problems to Harland and Wolff. He highlighted the large amounts of subsidy that have flowed into British shipbuilding, and correctly concluded that there can be no long-term future in continuing to pour in such amounts.
The most interesting development in British Shipbuilders is the interest now being shown by the private sector in many of the facilities. I understand that negotiations with Kvaerner regarding a takeover at Govan are proceeding, and considerable interest has been shown in Appledore and some of the smaller subsidiaries. We welcome the prospect of returning some of the shipbuilding yards to the private sector if they have a future there.
If those sales are achieved, new management and forms of business will have been introduced. There are people who are prepared to try to turn round loss-making yards into businesses that have a real future. If successful, that approach is bound to be advantageous for the work force in the yards and the local communities. I should make it clear that, were there to be a n expression of interest in the privatisation of Harland and Wolff, the Government would take any such proposals very seriously.
We remain concerned at the high level of support required to keep Harland and Wolff in business, and Ministers keep its performance under regular review. I can assure hon. Members that no recent decisions about the future of the company have been taken, but equally there can be no absolute guarantee of lasting support from public funds regardless of the company's ability to compete effectively. I have already referred to the commitment that Government have shown to the company. The Government are not indifferent to the problems facing the industry but the main challenges relate to the winning of new orders at competitive prices.
In Northern Ireland, we need to look at the best ways of sustaining economic activity and employment. A healthy profit-making manufacturing sector has a vital role to play in creating wealth in the economy. I hope that the shipyard will be part of that but I can give no guarantees. I congratulate the hon. Gentleman on raising the issue and giving me the opportunity to make the Government's position clear.