HC Deb 11 July 1956 vol 556 cc552-60

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Oakshott.]

11.0 p.m.

Mr. R. E. Winterbottom (Sheffield, Brightside)

I am glad to see the Minister of State for the Board of Trade present. I had a note from the Ministry of Supply saying that this was now a matter for the Board of Trade. I am glad that the representative of the Board of Trade is the one who originally dealt with the problem of steel scrap prices when it was first raised.

On 4th May this year steel scrap prices went up. I understand from a reply reported in HANSARD that the increase was 24 per cent. I also understand that the effect will be to increase the cost of manufacturing steel by 14s. per ton. I wrote to the Minister of Supply and received an answer from the Minister who, I presume, will reply that the increase from 4th May was by an average of £2 per ton.

I want to raise two matters. The first is that the decision to raise steel scrap prices was taken, I understand, at Cabinet level. The intimation that prices would rise was given to the trade about a week before 4th May. That was a most injudicious thing to do. This trade is not without people who take advantage of the market. There are some who can only be described as "spivs."

The result of this revelation to the associations dealing with scrap steel was that scrap steel was withheld from the furnaces, in the expectancy of the rise announced for 4th May. It has been calculated that through this leak—in a letter I have received from him the right hon. Gentleman agrees that there was a leak—about £100,000 extra profit went to the steel scrap merchants. Very few benefited in that respect. In the main, the people in the scrap steel trade of this country have a sense of responsibility towards the part they play in the nsational economy.

In spite of the fact that the Minister of State indicated in his letter to me on 14th May that the associations connected with the steel scrap industry had been consulted. I have in my possession now statements by responsible leaders of the National Federation of Scrap Iron, Steel and Metal Merchants which say that they were completely opposed to this increase. The only request they had made was for a matter of a few shillings a ton to meet rising transport charges. Instead, they were given this 24 per cent. increase, whatever its effect may be on the national economy.

The letter from the Minister of State said: A number of trade organisations were consulted in strict confidence. These included the British Iron and Steel Federation, the Joint Iron Council and the National Federation of Scrap Iron, Steel and Metal Merchants. I ask the Minister: does the word. "consulted" mean a declaration of an arbitrary decision by the Government to increase the price against the wishes of every responsible official in the organisations he mentioned? Every one of the scrap steel merchants who has a sense of responsibility in the Federation is most angry at the way in which the Government have increased these prices unnecessarily.

I want to know why the increase was made. According to one reply by the Minister, the indication is that there is a black market in scrap steel, so he is going to raise the official price of scrap steel to the level of the black market price. By raising that price he has raised the price of scrap steel in the black market. What kind of a confession is that for a responsible Minister of the Government, who says, "We will countenance, encourage and abet those who are getting more than they should through the black market"?

What about the cost of steel? If this country is to survive it can only be by keeping down its prices as much as possible, especially in the export trade. Everyone who reads the declarations of the Government in respect of the export trade will know that the Government are constantly urging that prices should be kept as low as possible. Is it not hypocritical for the Government arbitrarily, against the wishes of the associations concerned—which say that they can sell scrap at the prices at which they were previously—to drive the prices up whilst declaring they should be kept as low as possible?

Since this question arose I have been to many important scrap steel merchants and learned of their experience since the rise took place. I would agree with the Minister if he says that our prices are still the lowest in the world, but that is no reason why the Government should arbitrarily increase them. According to these merchants this increase has not resulted in one ounce more scrap steel being fed to the furnaces. They say that the probability is that it will not increase the supply. What is the effect of this price increase? At least 14s. a ton will go on the price of British manufactured steel. That, surely, will have effect on those steel manufacturers who are entering the export trade. The Government are pricing our exports out of the market. Responsible men in the industry, knowing the seriousness of our economic position, heartily condemn the Government for their arbitrary action.

The Government have approached the Federation of British Industries and the trade unions, begging the former to use its influence to prevent wage increases, despite constantly rising prices; and asking the unions to restrain wage increase applications. They have also pressed upon the nationalised industries the need for stabilisation of prices. At the same time, in a matter vital to a raw material which affects almost every industry in the complicated British economy, the Government have voluntarily, gratuitously, and for no reason, given this increase in prices, which has been condemned by everyone in the trade, and particularly by the associations.

I quote this from a responsible statement made by a leader of the Federation: … a step which I feel is entirely contrary to the national interest and, quite apart from the anti-inflationary endeavours they are vitally concerned with, our general welfare, and it is here that is, in the association, that we should place on record that there was no desire on the part of the National Federation of Scrap Iron, Steel, and Metal Merchants for such an increase, and I am sure that such a step will be deplored by a vast majority of our members I could continue with quotations in the same strain from responsible officials of all the organisations concerned.

I think I have made out a case which justifies my asking why this increase was given against the wishes of the trade. Is this another act which shows clearly that this Government are partisan in almost everything they do? They will refuse to give anything to the worst-off sections of the community, but to others give far too liberally. We have had an example in this Chamber tonight, namely, liberal giving to Governors of British Colonies, though there is withholding from old-age pensioners. They are giving to financiers, to brewers and to a whole list of others, but to those who are in need they give nothing. Therefore, because of this attitude, which has been described in this House tonight as appalling, I suggest that we are entitled to hear why the Government have taken this course.

11.15 p.m.

Mr. Cyril Bence (Dunbartonshire, East)

It has been said before, and my hon. Friend the Member for Brightside (Mr. R. E. Winterbottom) said it again this evening, that the object of increasing the price of scrap was to eliminate the black market. I do not know whether or not that is true, but I should be one of the first to admit that this has been a most difficult problem in the engineering industry for many years, even before the war. In a scarcity market it is difficult to get a flow of raw products to the different processes in the industry. There have been tendencies for raw materials to be hived off, with underhand means of payment.

I want to know whether the motive behind the increase of 25 per cent. was to swallow the black market. I assure the right hon. Gentleman that such a method will never succeed on an increasing scarcity market. As a result of the expansion we have had since 1939, we have had a progressively rising demand for raw material for blast furnaces and a falling supply. The potential black market is always there, whatever the price.

Another important point is that, with technological development in steel and engineering processes, everybody from the directorate down to the office boy, tries to claim an increased reward for raw material, for labour and for services. When we improve the technological processes in the steel and engineering industry admittedly we create higher conversion values, but we must not assume that we can, therefore, afford to pay more for the raw material because many other people want more for the services they render. This is causing a drag within the industry. I hope that the Minister will consider what I have said.

11.18 p.m.

The Minister of State, Board of Trade (Mr. A. R. W. Low)

I have no quarrel with the hon. Member for Brightside (Mr. R. E. Winterbottom) for raising this matter. He has been in correspondence with me about the increase in the average price of scrap which took place recently. The increase was one of £2, from the average price of £8 10s. to an average price of £10 10s. per ton. He was concerned with the leak, and with the subject of consultations which I will come to at the end of my reply.

The hon. Member posed a number of questions, and I am sure that he is right to ask us how this increase in the price of scrap fits into what might be called the price stability campaign, and why, in fact, it was made. I will try, very shortly, to explain why we decided to make an increase in the price of scrap.

The House will know that scrap and pig iron are substantially interchangeable as raw materials both for steel making and for foundry work. That is clearly set out in the Iron and Steel Board's Report, 1954, at paragraph 102. If the price of scrap is kept artificially too cheap, then steel furnaces and foundries prefer to use scrap rather than pig iron. That would reduce the demand for pig iron and thus discourage the expansion of blast furnaces, which is essential to the proper expansion of iron and steel production in Great Britain, which ought not to be based on imported scrap. I do not think that there will be any issue between us on that point.

The steel industry has for seventeen years secured a balanced relationship between the effective price of pig iron and scrap by means of their scrap levy, but the foundry industry has no such scheme. The inevitable result of keeping scrap at too low a price would be to increase the demand for it from the founders and to discourage the use of pig iron by founders. This would reduce the amount of scrap available to steel furnaces.

In fact, in 1955 when pig iron prices increased and the scrap price did not, the foundries used more scrap than before. Moreover, though inside the steel industry the costs of using scrap and pig iron are equalised whatever the relationship of prices, it is true that, taking the industry as a whole, artificially too cheap scrap must encourage the use of scrap and discourage the use of pig iron. But we are short of scrap in the United Kingdom, and if we wish to use more scrap we have to import it, at a very considerable cost, at about £26 10s. per ton. The total bill last year for imported scrap was £22 million.

Our balance of payments gains if, instead, we make more pig iron, which means higher imports of iron ore, and the import costs of iron ore is about £5 10s. per ton of steel produced. I think that the House will pay attention to those comparative figures.

The House will also be glad to know that since pre-war pig iron production has grown from 6.8 million tons a year in 1938 to 9.7 million tons a year in 1951, and now to 13½ million tons a year, which is the annual rate at which pig iron production is running this year—a very sizeable and welcome increase. For that reason, it seemed to us right that we should maintain a proper relationship between the two prices.

Whatever may be said about the effect upon the supplies of home scrap of increasing the price of scrap, no one will quarrel with me when I say that an increase in the price of scrap will not reduce the supplies of home scrap for the steel and foundry industries.

What should be the price of scrap in order to get this balanced relationship? We could argue about that. It has been said that the economic price of scrap should be 85 per cent. of the price of pig iron. At today's pig iron price, £18, scrap should be about £15 15s. per ton, on that basis. But for some time now, since the beginning of the war, the Government have maintained control on the price of scrap, and the Iron and Steel Board advised in its 1954 Report that that should continue.

In settling the price at which it should be controlled recently we have had regard particularly in our latest increase to the relationship which the prices of scrap and pig iron have had during this period. In the middle of 1955 the difference between the two—the price of scrap and the price of pig iron—was £7 5s. a ton. The difference was then increased to £8 11s. a ton because the price of pig iron increased. This year that difference would have risen to £9 13s. a ton but for the increase in the price of scrap which we made. The difference is now £7 10s., and it really seemed to us wise to restore the earlier relationship in this way.

Quite properly, the hon. Gentleman raised the question of what is the effect of this upon the price of steel, and he said, quite accurately, that the £2 per ton increase in the price of scrap has resulted in a 14s. per ton increase in the average price of steel. That is 14s. out of the increase in the average price of steel of about 5 per cent. in May. But that does not add the same amount to the costs of the steel user who gains from the increase in the price of scrap which he sells. In fact, some parts of the engineering industry may gain more by the increase in the price of scrap than they will lose by this 14s, element in the increase in the price of steel that they buy.

No one, certainly not I, who has some responsibility for overseas trade, will quarrel with what the hon. Gentleman said about the importance of the cost of steel to exports. Of course they are important, and of course every element in our prices is important to our exports, particularly at this time, but we cannot overlook the importance of steel production in our home economy. The hon. Gentleman said, righty, that British steel is still cheaper than other steel in the world, and the more we can have of that cheaper steel the better for our exporting industries.

I come to the question about consultation. Why, it may be asked, did we do this against the advice of the merchants and the steel industry? Let me make clear our position about consultation in this matter. Our statutory duty is to consult the Iron and Steel Board on the policy question whether there should be an increase or not. We did consult the Board. It is not, of course, the practice to disclose the advice which we receive. We take responsibility for the decision. We carried out our obligation to consult.

After settling the policy we consulted the merchants, the National Federation of Scrap Iron, Steel and Metal Merchants, which the hon. Member mentioned, the British Iron and Steel Federation and the Joint Iron Council on the detailed method of carrying out our policy decision. This is the normal practice which has been adopted consistently since the war.

I regret very much that there is some evidence that the proposal to make an increase was known before the Order was made—known outside the actual individuals we consulted. It has not been found possible to trace the source of the leak. I strongly deprecate such breaches of confidence, and we have made it clear to all concerned that in future, where increases in the price of scrap are contemplated, we shall have to ensure that there is no leak, if need be by limiting consultation.

I would make clear, too, in response to some doubts that have been expressed in the scrap trade, that we have no further increase in contemplation at present. I should also like to make clear, in response to something which the hon. Gentleman said, that despite this alleged leak of information, deliveries of scrap to steel works and foundries in April, which is the month with which we are concerned, the month before the Order was made, were at the average rate of 128,000 tons per week.

Mr. R. E. Winterbottom

I took only the week before 4th May.

Mr. Low

Let me give the figures to show what happened.

The average rate was 128,000 tons per week, 8,000 tons above the rate in February and 6,000 tons below the rate in May.

I know that the hon. Gentleman is particularly concerned about what happened in his constituency. I should like to say to him, if I may, and without appearing to be patronising, that I think it is right and proper that he should be concerned, and I congratulate him on having taken this matter so seriously, and I thank him for the way in which he has brought this to our notice. I hope very much that he and the House are now satisfied that it was right and proper for us to make the increase.

I hope that they are satisfied, too, that we went through the proper consultation procedures. There are many details—if the hon. Gentleman will look at the Order he will see how detailed the matter is—and they can be properly settled only by consultation with people well versed in the trade. I trust that the hon. Gentleman will feel that I have expressed a proper reaction to the events as they took place.

Adjourned accordingly at twenty-nine minutes past Eleven o'clock.