Vince Cable has raised doubts over the future of BAE Systems' historic shipyard at Portsmouth after the business secretary questioned the viability of a £150m project that would guarantee production at the site, and secure 1,300 jobs, beyond 2014.
The long-term existence of the south coast facility is under threat amid a review by BAE of its marine operations, with the 500-year-old yard thought by union and Whitehall sources to be most at risk. The dockyard has no orders beyond 2014, when it finishes work on the aircraft carriers HMS Queen Elizabeth and HMS Prince of Wales, which has led to support for a £150m proposal to build two offshore patrol vessels, filling any construction gap.
Cable told the Guardian that the project, backed by the Conservative MP for Portsmouth North, Penny Mordaunt, is "not a runner". He said: "I don't think it's a runner. It would only be a runner if there was a demand from the armed services."
Referring to speculation about the yard's future, he said: "An announcement has not been made by BAE but most people are assuming that there is a difficult period ahead." The Ministry of Defence said the Royal Navy's equipment plan "does not include any offshore patrol vessels". "We continue to work closely with the company, who are exploring how best to sustain their shipbuilding capability in the future," it said.
Cable's Department for Business, Innovation and Skills is involved in the development of the marine industry on the south coast after awarding £15m to two projects last month from the government's regional growth fund. The award includes grants for small and medium sized businesses in the Portsmouth area. "There is a lot of interest in developing Portsmouth's capabilities for the marine industry in general," said Cable. "The facilities currently used for shipbuilding could be utilised for a wider range of marine technologies."
Cable added that while there is still a possibility that shipbuilding will continue at the 500-year-old yard, the local enterprise partnership – a group of local authorities and businesses – is looking at new uses for the site. "It is possible that they may have other boats that they want to build there and that may be extremely good news, but the LEP and the county council are thinking hard about developing alternatives and we are supporting them in that."
BAE, which supported the regional growth fund bids, said it was still in discussions with the Ministry of Defence over the Royal Navy's warship programme. The next major project is the Type 26 global combat ship, which is for the Royal Navy but will also target export markets. There has been speculation that the work will go to two BAE yards on the river Clyde in Glasgow, leaving BAE's Portsmouth facility with no work beyond 2014 and the prospect of closure. However, a further 1,500 BAE staff would still be employed at the Royal Navy base in Portsmouth to work on services, maintenance and upgrades of the Royal Navy ships based there. BAE leases the manufacturing site, which sits on the naval base, from the Royal Navy.
A forthcoming referendum on Scottish independence in 2014 is also viewed as a complicating factor because the MoD has indicated that the Type 26 will be built in the UK. In August the shadow defence secretary and MP for East Renfrewshire in Scotland, Jim Murphy, warned that a vote for independence would cost thousands of jobs at the BAE yards in Govan and Scotstoun. "If we leave the UK, we leave the Royal Navy and lose its order book," he said.
BAE said: "We continue to work closely with the Ministry of Defence to explore all possible options to determine how best to sustain the capability to deliver complex warships in the UK in the future. This work is ongoing and we are committed to keeping our employees and trade unions informed as it progresses."
Under the terms of a 2009 agreement with the MoD, BAE is guaranteed shipbuilding and naval support work over a 15-year period, although the agreement also sets cost savings targets that must be achieved by the UK's largest defence contractor. BAE is drawing up a construction strategy for the Type 26, which will include the locations where the ship will be built. BAE is scaling back its UK operations as the £37bn UK defence budget is reduced by 8% by 2014.
It has announced plans to cut 2,000 jobs at its aerospace division and in May said it was cutting a further 620 jobs at various sites including the Armstrong factory in Newcastle upon Tyne, which has been a defence industry site since 1847.
However, such is the scale of the carrier programme, observers say BAE would have struggled to maintain its shipbuilding operations at the same level once the multibillion-pound project is completed.