I thank the hon. Gentleman for that excellent contribution. What he says is absolutely critical. When we think of shipbuilding, we often just consider the hull of the ship. However, when we see a ship launch into the water for the first time, we are seeing perhaps only 8% of the value of the overall project, even though structurally it looks like much more. The real value is in the ship as a platform for multiple other high-value defence capabilities. A good example is the multi-function SAMPSON radar. It is manufactured on the Isle of Wight and constitutes a large share of the overall cost of the Type 45 programme. That is where we need the pipeline of capability: not just in the front-end shipbuilding capability, but in the second and third-tier supply chain.
Our RFA capability provides an opportunity to pump-prime our national shipbuilding capability. According to the latest figures compiled by the Fraser of Allander Institute at the University of Strathclyde, shipbuilding on the Clyde alone contributes £231 million a year to GDP in the UK and—critically—generates, in addition, a multiplier of £366 million a year across the wider defence supply chain. That includes the facility in the constituency of the hon. Member for Isle of Wight (Mr Seely). It is critical that we use the national shipbuilding strategy to involve that wider supply chain and so maximise the value to the UK economy.
The all-party group on shipbuilding and ship repair yesterday discussed how we gave the contract for the latest fleet support tankers to Daewoo Shipbuilding
and Marine Engineering in South Korea. The cost of building them there was equivalent to the cost of building them in the UK, but the price the South Koreans offered was considerably lower than any UK shipbuilder alone could have offered. In effect, the South Korean taxpayers are subsidising the British MOD to build its ships for it. Why on earth would they do that if they did not recognise that it is a major industrial opportunity for them? Surely there must be an opportunity for the South Koreans. They would not do it simply out of generosity or altruism; they are doing it because they recognise that it is a core part of their defence industrial capability and national industrial strategy. Perhaps we ought to take a leaf out of their book by having a more active industrial strategy when it comes to defence and including those RFA ships.
There is a further issue in the national shipbuilding strategy: the financing, particularly of complex warships. My hon. Friend the Member for Barrow and Furness mentioned that the previous Chancellor of the Exchequer described defence as no different from any other Government Department when it came to capital expenditure. I take issue with that, as I am sure do many other Members. Defence is unique when it is commissioning complex warships such as the Type 26 and the new deterrence submarines. These two vessels alone constitute two of the most complex engineering projects every built by mankind. They are huge national, generational programmes. The idea that they ought to be constrained by in-year spend profiles is absurd, because it militates against the efficiency of the programmes. They are not managed in the same way as, say, the Olympic games, the High Speed 2 programme, Crossrail or any other large-scale infrastructure project. They are arbitrarily constrained by Treasury limits on annual spending. It is critical that we change that—this is a cultural thing in the UK—if we are to achieve the best opportunity for defence. That has to be tackled on a cross-party basis.
When I worked at BAE Systems, innovations for the Type 26 programme, which included changing to spray-on insulation, using LEDs and replacing non-structural welding with adhesives, were constrained because the MOD was not willing to adapt and innovate and apply new standards to its shipbuilding programmes. That demonstrates that it is the customer that is sclerotic in its approach to innovation in new programmes. It drives costs into projects and militates against innovations that would save costs in the long term. Those short-term constraints cast a long shadow through the life of the programme and build in an overall cost.
That is the reason for the attrition we often see in programmes such as the Type 45—originally 12 ships were meant to be built; that was cut to eight; and finally six ships were built. There is an optimism bias at the start, followed by annual constraints on spend and a structural rigidity built into the programme that fails to adapt as it goes forward and innovate with new products as new technologies emerge. That approach also insists on arbitrary competition in the supply chain, when actually long-standing relationships can be established there—for example, with gear box manufacturers and engine builders—that can ensure a commonality of approach and adaptability and enable ships to be built more efficiently. A year-zero approach for every programme duplicates costs and adds complexity that could easily be avoided.
All that ought to change. We have a huge opportunity. We have seen the bigger picture. The root cause is the relentless decline in defence spending as a share of GDP. The Chair of the Defence Select Committee mentioned that it has halved as an overall percentage of national wealth in the last two decades or so since the end of the cold war. That is the root cause, but we could certainly provide mitigation in the meantime by more efficiently managing the remaining resources we do receive and managing our defence equipment programme in a more resilient and innovative way.
Hopefully I have presented some practical opportunities to improve the national shipbuilding strategy that can help us to achieve a future fleet of the scale and capability that we need to sustain British military power around the world in the coming decades. I look forward to the Minister offering his view on that.
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