Commission factions fire their last salvoes

BY PETER RODGERS and RUSSELL HOTTEN

The split on the Monopolies Commission over the impact of a GEC takeover of VSEL hinged on whether rationalisation of Britain's three warship builders was inevitable. If the industry did contract, could the Ministry of Defence get value for money from fewer suppliers?

The minority, backed by Michael Heseltine, President of the Board of Trade, believed either VSEL or Yarrow would eventually close, and it accepted the MoD's claim that it was a tough enough buyer to keep prices down.

In complete contrast, the commission majority rejected the MoD view that further concentration among warship builders was "largely a matter of time". It was sceptical of the MoD's assertion about achieving value for money in a more concentrated warship industry.

According to the majority, closure of any of the three remaining yards was unlikely in the next couple of years - whether or not GEC, which already owns Yarrow Shipbuilders Ltd, took over VSEL. The third yard, Vosper Thornycroft, is independent.

To 2000, there were orders in prospect that could provide work for all three yards and in that case, maintenance of competition would provide "valuable benefits".

There might be yard closures beyond 2000 but they were not inevitable because the evidence did not support the view that demand was bound to fall sharply.

The four-strong majority attacked figures put forward by the two dissenting members for possible savings at that stage as "highly speculative". If there were savings to come, they did not in any case depend on the GEC takeover of VSEL being allowed to proceed.

The majority report said: "We think it would be wrong to sacrifice the immediate benefits of competition for the hope that if and when closure of a yard became necessary, the MoD and the industry might gain extra financial benefits if the VSEL and YSL yards were already in common ownership."

The majority believed lack of competition for forthcoming warship orders - three Trafalgar class submarines to be followed by orders for the Common New Generation Frigate - would result in the MoD paying higher prices and would also lead to fewer design and technical production improvements for these vessels.

The note of dissent, by Sir Archibald Forster and Professor Patrick Minford, flatly contradicted the view that three yards could survive.

It said there was already large-scale excess capacity in UK warship building, gauged by predictions of falling manpower needs from 9,000 to 6,000 by the end of the century. Excess capacity would worsen in the following decade.

Either VSEL or Yarrow would close and the question was whether it would be by internal rationalisation - if GEC, which owns Yarrow had already taken over VSEL - or through one of the yards succumbing to lack of work.

Therefore, the result would be the same either way and a GEC takeover of VSEL would make no difference to competition. At the same time, the dissenters calculated rationalisation gains of pounds 34m in 1995 money.

The minority expected that if GEC did take over VSEL, it would close one of its yards, probably Yarrow, in 2003, which would save pounds 176m in 1995 money. Total gain could be pounds 210m.

The conclusive argument for the minority was that, given the inevitability of rationalisation and contraction, the MoD could still achieve value for money from its suppliers.

The MoD had firmly rejected the idea that the proposed merger would undermine its ability to strike a good deal, arguing throughout the inquiry that it had "the tools to achieve value for the taxpayer's money despite the warship-building industry's contraction".

These fierce arguments between the exponents of competition and the believers in the benefits of rationalisation among the warship yards are doubly significant, because they could crop up again on a vastly greater scale if GEC bids for British Aerospace.

Lord Weinstock, managing director of GEC, has dreamed for years of creating a single large British defence company. Mr Heseltine's siding with rationalisation is ominous for BAe.

Cuts in governments' defence budgets have forced a string of companies to merge or form joint ventures to survive. These alliances have not only been along national lines, but increasingly international.

Lord Weinstock has courted BAe for 15 years, and came close to agreeing a friendly deal on a couple of occasions. The hotline between the two companies buzzed last year as he intensified overtures towards Dick Evans, BAe's chief executive.

The two companies discussed a joint bid for VSEL, and exchanged sensitive information. This resulted in a one-year voluntary agreement that GEC would not bid for BAe - an agreement that expires in June.

The two men are said to get on well, but relations were strained when Mr Evans told Lord Weinstock that BAe would bid alone for VSEL. It indicated BAe was intent on remaining independent.

BAe is at its strongest for several years, having disposed of its Rover cars subsidiary and virtually sorted out its loss-making regional jets business. If Mr Evans succeeds in a bid for VSEL, it would make Lord Weinstock's task more difficult should he make a play for BAe.

BAe believes European-wide co-operation is the way forward, spreading resources across national boundaries to meet competitive needs.

Lord Weinstock, however, favours a restructuring across national lines with GEC's Marconi division at the centre of a UK defence conglomerate.

News
people
News
people And here is why...
News
peopleStella McCartney apologises over controversial Instagram picture
Life and Style
Laid bare: the Good2Go app ensures people have a chance to make their intentions clear about having sex
techCould Good2Go end disputes about sexual consent - without being a passion-killer?
PROMOTED VIDEO
Arts and Entertainment
Richard Burr remains the baker to beat on the Great British Bake Off
tvRichard remains the baker to beat as Chetna begins to flake
News
i100
Sport
footballArsenal 4 Galatasaray 1: Wenger celebrates 18th anniversary in style
Arts and Entertainment
Amazon has added a cautionary warning to Tom and Jerry cartoons on its streaming service
tv
News
people
News
The village was originally named Llansanffraid-ym-Mechain after the Celtic female Saint Brigit, but the name was changed 150 years ago to Llansantffraid – a decision which suggests the incorrect gender of the saint
newsWelsh town changes its name, but can you spot the difference?
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Kristen Scott Thomas in Electra at the Old Vic
theatreReview: Kristin Scott Thomas is magnificent in a five-star performance of ‘Electra’
News
Destructive discourse: Jewish boys look at anti-Semitic graffiti sprayed on to the walls of the synagogue in March 2006, near Tel Aviv
peopleAt the start of Yom Kippur and with anti-Semitism flourishing, one Jew can no longer ignore his identity
Life and Style
Couples who boast about their relationship have been condemned as the most annoying Facebook users
tech
Arts and Entertainment
Hayley Williams performs with Paramore in New York
musicParamore singer says 'Steal Your Girl' is itself stolen from a New Found Glory hit
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Italian couples fake UK divorce scam on an ‘industrial scale’

Welcome to Maidenhead, the divorce capital of... Italy

A look at the the legal tourists who exploited our liberal dissolution rules
Time to stop running: At the start of Yom Kippur and with anti-Semitism flourishing, one Jew can no longer ignore his identity

Time to stop running

At the start of Yom Kippur and with anti-Semitism flourishing, one Jew can no longer ignore his identity
Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

The vintage series has often been criticised for racial stereotyping
An app for the amorous: Could Good2Go end disputes about sexual consent - without being a passion-killer?

An app for the amorous

Could Good2Go end disputes about sexual consent - without being a passion-killer?
Llansanffraid is now Llansantffraid. Welsh town changes its name, but can you spot the difference?

Llansanffraid is now Llansantffraid

Welsh town changes its name, but can you spot the difference?
Charlotte Riley: At the peak of her powers

Charlotte Riley: At the peak of her powers

After a few early missteps with Chekhov, her acting career has taken her to Hollywood. Next up is a role in the BBC’s gangster drama ‘Peaky Blinders’
She's having a laugh: Britain's female comedians have never had it so good

She's having a laugh

Britain's female comedians have never had it so good, says stand-up Natalie Haynes
Sistine Chapel to ‘sing’ with new LED lights designed to bring Michelangelo’s masterpiece out of the shadows

Let there be light

Sistine Chapel to ‘sing’ with new LEDs designed to bring Michelangelo’s masterpiece out of the shadows
Great British Bake Off, semi-final, review: Richard remains the baker to beat

Tensions rise in Bake Off's pastry week

Richard remains the baker to beat as Chetna begins to flake
Paris Fashion Week, spring/summer 2015: Time travel fashion at Louis Vuitton in Paris

A look to the future

It's time travel fashion at Louis Vuitton in Paris
The 10 best bedspreads

The 10 best bedspreads

Before you up the tog count on your duvet, add an extra layer and a room-changing piece to your bed this autumn
Arsenal vs Galatasaray: Five things we learnt from the Emirates

Arsenal vs Galatasaray

Five things we learnt from the Gunners' Champions League victory at the Emirates
Stuart Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

This deal gives England a head-start to prepare for 2019 World Cup, says Chris Hewett
Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence