'Disappointing': Rachel Reeves criticises contract to build tug boats for Royal Navy

A disappointed Rachel Reeves has criticised an agreement to build tug boats that support Royal Navy logistical operation.

The chancellor of the exchequer was unhappy that the deal to construct a fleet of 24 vessels will not see work take place in Britain. A mammoth ten-year £850m afloat services contract was signed between the Ministry of Defence (MoD) and Serco Maritime was signed last year. This covers in-port services at HMNB Portsmouth, HMNB Devonport, and HMNB Clyde.

Vessels will be constructed by Damen Shipyards in The Netherlands to replace the current crop of aging workboats. This decision has irked Ms Reeves, who told Cabinet colleagues to award more government shipbuilding contracts to British companies, as well as deals in steel-making, energy infrastructure, and artificial intelligence.

Procurement in those four areas will be recognised as “critical for national security”, and under new guidance contracts for British industry will be prioritised “to protect our national security”, a Government spokesperson said.

Ms Reeves, in a letter to Cabinet ministers reported by The Guardian, said all of them should “want to see more businesses grow and prosper and create good, skilled jobs and apprenticeships here in Britain”. “Every secretary of state can and must lead this agenda within their departments if we are to deliver the change the public expect,” she wrote in the letter co-signed by the Cabinet Office minister Chris Ward.

“Therefore, it is disappointing that we are still seeing too many Government contract awards where this is not happening. We have instructed officials to take further steps to ensure your departments act in the wider national interest rather than solely focusing on narrow operational priorities.”

Treasury and Cabinet Office officials are to observe contracts in the four sectors and could intervene in procurement decisions taken by departments if necessary. The move comes amid rising concern about the UK’s vulnerability to international supply chains, with Iran’s blockade of the Strait of Hormuz providing the latest demonstration of other countries’ ability to disrupt global trade.

The Chancellor is frustrated by a number of major contracts being awarded to overseas bidders or put to open tender, The Guardian first reported. Other defence-related agreements she disagreement with include the £9m deal to refit the polar research vessel RRS Sir David Attenborough with the Danish shipyard Orskov. She’s also concerned about the potential for a contract to upgrade Faslane – home to the Trident missiles system – to go abroad as part of a competitive tender.

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In March, Cabinet Office minister Mr Ward said he would issue guidance under which contracts related to steel, shipbuilding, AI and energy infrastructure would be used to back British business, with departments also required to use British steel for their projects, or provide a justification if they choose to source steel from abroad. The measures included a new “public interest test” requiring Whitehall departments to consider whether outsourced contracts worth more than £1m could be better delivered in-house.

Other changes included using AI to “streamline the commercial process”, simplifying contracts and creating a central platform so small businesses do not have to keep submitting the same information when bidding on different contracts. Ms Reeves said in her letter that “each department will be held to account on the progress being made” on complying with the new Cabinet Office guidance “when it is issued later this summer”.

The afloat services contract will see azimuth stern drive (ASD) and reverse stern drive (RSD) tugs, pilot boats, barges and cranes barges built. Other activities covered by the agreement include bunkering and watering, tank cleaning, passenger services, trials work, munitions and nuclear safety activities. This ensures the continued operation of all shipping movements, while making sure major deployments from Portsmouth and elsewhere can be carried out.

Delivery of the boats, under the Defence Maritime Service Next Generation (DMS NG) Vessel Replacement Project (VRP), is due to start in 2027, and is scheduled to be completed during 2028. Ongoing support will then be given throughout the lifespan of the ships, which includes providing spare parts and maintenance.

A Royal Navy spokesperson said: “The new tugs were not procured for HMNB Portsmouth and, under the current programme are allocated to HMNB Clyde and HMNB Devonport. The tugs may be temporarily reassigned to Portsmouth when operationally necessary.”