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BAE warned PM over carrier costs
Friday, November 05, 2010
BAE Systems warned government that cancelling one of the Queen Elizabeth aircraft carriers would cost more than building both,
as well as leading to thousands of job losses and the closure of some major shipyards, it has emerged.
The warning came in a letter from BAE Chief Executive Ian King to Prime Minister David Cameron effectively "held a gun to the head of government", according the chair of the Treasury Select Committee.
In it, King warned that 5,000 shipbuilding jobs would go and all of BAE's shipyards would have to close if the HMS Prince of Wales was cancelled.
The letter, released by The Treasury, was dated 5 October, and was written as speculation about the future of the carrier programme was growing.
By this point the government had already enquired about the cost of cancelling "one or both" of the carriers.
King wrote that the cost of completing both carriers would be £5.25bn, whereas the cost of building just one would be £4.8bn,
with the £690m 'rationalisation' costs dictated by a terms of business agreement bringing the total to £5.49bn.
King also wrote that: "The cancellation of Prince of Wales would mean that production in all BAE Systems shipyards would cease at the end of 2012.
"This means that the business would be unsustainable, and all three yards would have to close by early 2013, with the loss of more than 5,000 jobs in BAE Systems and many more across the UK in hundreds of companies in the supply chain.
"In practice that means the end of the UK's capability in complex warships."
The BAE boss said it might be possible to save jobs if the government commissioned new frigates, an icebreaker and fuel tankers to replace the lost carrier, but added that such fast defence acquisition had "never been achieved in defence acquisition before on a programme of this sort".
King finished the letter by saying that the company was prepared to help the government find savings in future.
"We have proposed to MoD how we might contribute to significant savings in the defence budget over the next ten years, and we stand ready to do more to help," he wrote.
Treasury Select Committee chairman Andrew Tyrie said: "This letter shows what an impossible position the government were put into by this contract. BAE effectively held a gun to the head of the government.
"This is an absolutely crazy situation. We need to know how to prevent this from ever happening again."
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