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Catalogue Reference:CAB/129/187/24
Image Reference:0001
C(76) 24
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SI
1 M a r c h 1976
CABINET
T H E SHIPBUILDING INDUSTRY
M e m o r a n d u m by t h e S e c r e t a r y of S t a t e f o r I n d u s t r y
1.
At
Economic
desperate
industrial
2.
t h e i r m e e t i n g on 26 F e b r u a r y t h e M i n i s t e r i a l C o m m i t t e e o n
a n d I n d u s t r i a l P o l i c y a s k e d m e t o i n f o r m t h e C a b i n e t of t h e
outlook for the shipbuilding i n d u s t r y - p e r h a p s the m o s t difficult
i s s u e we face with intractable p r o b l e m s both s h o r t and long t e r m ,
T h e m a i n f e a t u r e s of t h e s i t u a t i o n a r e : ­
New
a.
The world m a r k e t for ships i s exceptionally difficult.
o r d e r s o v e r t h e n e x t f i v e y e a r s m a y r u n a t o n l y 2 5 p e r c e n t of w o r l d
capacity,,
b.
United Kingdom s h i p y a r d s a r e u n c c m p e t i t i v e in p r i c e - t h e
J a p a n e s e a r e u n d e r c u t t i n g u s by u p t o 50 p e r c e n t a n d E u r o p e a n
y a r d s b y u p t o 20 p e r c e n t - a n d a r e t a k i n g v e r y f e w o r d e r s i n d e e d ,
(See t a b l e a t A n n e x A . )
c.
U n l e s s s u b s t a n t i a l n e w or&eTB are p l a c e d s o o n - a n d w i t h o u t
urgent special Government action this i s unlikely - the n u m b e r s
e m p l o y e d i n t h e i n d u s t r y w i l l by t h e e n d of 1977 b e r e d u c e d b y 3 5 , 0 0 0
o r half t h e p r e s e n t l e v e l of 7 0 , 0 0 0 .
C o n t r a c t i o n of t h e i n d u s t r y
w o u l d a l s o h a v e a s e r i o u s effect o n t h o s e i n d i r e c t l y e m p l o y e d i n
supplying i n d u s t r i e s .
d.
I n t h e l o n g t e r m t h e p r o s p e c t s of t h e i n d u s t r y w i l l d e p e n d on
t h e s u c c e s s of B r i t i s h S h i p b u i l d e r s (BS) i n i n c r e a s i n g p r o d u c t i v i t y
a n d c u t t i n g cOBts. B u t m a n p o w e r i s l i k e l y t o b e s u b s t a n t i a l l y l e s s
than now e i t h e r b e c a u s e BS succeed and p r o d u c e the s a m e output with
f e w e r m e n o r b e c a u s e they fail and a r e unable t o obtain any o r d e r s .
e.
Without u r g e n t and significant m e a s u r e s , a g r e a t m a n y s h i p ­
y a r d w o r k e r s w i l l b e o u t of e m p l o y m e n t f o r a l o n g t i m e on
Tyxveeide, W e a r s i d e , M e r s e y s i d e a n d t h e U p p e r a n d L o w e r C l y d e .
Local male unemployment r a t e s in some shipyard a r e a s (eg Bideford,
G r e e n o c k , a n d W e a r s i d e ) w i l l e x c e e d 20 p e r c e n t a n d p e r s i s t i n t o t h e
1980s.
1
3
To ease this situation we need to take steps a. to secure additional
orders particularly within the next few months and b. to *aso the social
consequences of the contraction which in any circumstances seems
unavoidable. Following the Ministerial Committee's discussion and
earlier discussions of the Ministerial Committee on Industrial
Development the following action is in hand:­
fl
a.
I shall be discussing with the Organising Committee for B S
both the development of a long-term strategy for the industry and an
interim strategy for the next 18 months until B S can prepare their
first corporate plan, I will bring forward the latter by 1 M a y .
b.
W e have agreed in principle to extend the cost escalation
guarantee scheme to h o m e shipbuilding orders and to Introduce a
scheme of performance bonds against the possible failure of those
shipbuilding companies which are to be nationalised. The second of
these proposals has been cleared by the European Commission but
the first iB still being discussed with them,
c.
The Secretary of State for Trade and I will jointly see the
General Council of British Shipping and then leading individual
shipowners to bring the strongest possible pressure to bear on them
to place what orders are going in United Kingdom yards. If this
approach is unsuccessful we shall need to consider legislation,
possibly in relation to tax benefits (see further below).
d
Officials are undertaking a cost/benefit analysis of the
consequences of inducing the United Kingdom shipping industry to
bear the additional costs which might result from placing m o r e
orders in United Kingdom shipyards at a time when United Kingdom
prices are uncompetitive and also of the effects of Government
assistance for this purpose.
e
W e are exploring with our Community partners the possibility
of joint pressure on the Japanese Government to ease the pressure of
the Japanese industry on the world shipbuilding market, perhaps
leading to an international agreement to limit over-capacity. ' But
this is unlikely to yield early results.
0
f.
The Ministerial Committee on Economic andfcidnstrialPolicy
have agreed in principle on a number of specific measures to ease
the consequences of contraction - selective financial assistance to be
m a d e available for shipbuilding areas on m o r e flexible terms than
under the normal administrative guidelines; further building of
advance factories; consideration by the National Enterprise Board
and the Scottish Development Agency of the scope for joint ventures
or projects of their own in the shipbuilding areas; B S to redeploy
workers within the industry to the extent possible; the Manpower
Services Commission to consider whtit help they can give. But if
further substantial orders are not forthcoming, these measures can
only have a limited effect,
also agreed that there should be :
g.,
The Ministerial Committee
special scheme of redundancy compensation for shipyard workers
and that this should be financed by the Government separately from
their general funding of B S . I a m working out details and a m
considering further whether to take the necessary legislative powers
h.
The Secretary of State for Northern Ireland will be bringing
forward proposals on Harland and Wolff.,
4.
I ask the Cabinet to note the extremely serious situation facing the
shipbuilding industry and the steps being taken to ease it. However, as the
above notes m a k e clear, this action m a y have no m o r e than a limited
impact. I believe that if the Secretary of State for Trade and I are
unsuccessful in our approach to United Kingdom shipowners we should be
ready to consider even more drastic, and perhaps unprecedented, action.
I believe, for example, we should examine carefully the position in relation
to 100 per cent first year depreciation allowances. At present, as I
understand it, shipping companies qualify for these allowances whether
they place orders at h o m e or abroad. I believe w e should seriously
examine the possibility of withdrawing first year allowances in cases where
orders are placed abroad. I also believe we m a y need to consider further
improvements in the export credit terms we offer in relation to orders
placed at h o m e . I a m not making specific proposals on these points in this
paper. But I ask m y colleagues for general support in principle for taking
drastic measures to save the shipbuilding industry, against the background
of which I can pursue specific proposals with those colleagues directly
concerned.
5.
I regard this as the industrial problem facing the Government which
should be given top priority. Falling urgent action Britain could face the
paradox of becoming a leading maritime nation without a substantial ship­
building capability - a permanent importer and prisoner of overseas
shipbuilding countries.
E G V
Department of Industry
1 March 1976
3
ANNEX A
ORDERS PLACED BY UK SHIPPING INDUSTRY
Million tons
Year
Vorldwide Orders f o r
JK r e g i s t e r e d s n i p s
1970-75
gross
O r d e r s f o r UK r e g i s t e r e d
ships placed i n : Foreign
Yards
Total orders
oy UK Y a r d s
UK
Yards
1970
8.24
6.77
1.47
1.75
1971
2,8?
2,04
0.83
1.03
1972
3-03
2.1+3
0.60
0.84
1973
6.23
2.^9
3.74
4.36
1974
1.53
1.20
0.33
0.86
21.90
14.93
6.97
8.84
Averagi s
4.38
2.99
1.39
1.77
1975
0.77
0.73
0.04
0.07
Total
taken