§ 1.11 p.m.
§ The Parliamentary Secretary to the Ministry of Power (Mr. Reginald Freeson)
I beg to move,That section 19(4) of the Iron and Steel Act 1967 shall have effect with the substitution for the reference therein to £300,000,000 of a reference to £400,000,000.I must first give the apologies of my right hon. Friend the Minister for not being able to be present at the opening of the debate. I trust that hon. Members will understand the reason for his not being here. He will be here as soon as he can return to the Chamber.
Although the Motion is purely financial, it is customary and right for the Minister who is asking Parliament to authorise a nationalised industry to increase its borrowings to give a general review of its progress and prospects. Since the last general debate on steel, in January, last year, we have seen the establishment of the British Steel Corporation, the act of vesting, the publication of the Corporation's first report on organisation and the first months of this new nationalised industry. Commendable progress has been made in difficult conditions, and I should like to pay tribute personally and on behalf of my right hon. Friend to all who have made it possible. Notably, I should like to emphasise the part played by the Chairman, the noble Lord, Lord Melchett, now happily recovered from his recent illness and again leading the industry forward, and his Deputy Chairman, Mr. Michael Milne-Watson, and their colleagues.
In moving the Third Reading of the Iron and Steel Bill, my right hon. Friend who is now the Minister of Transport gave a warning that the world surplus of capacity created deep difficulties for the steel industry not only in this country, but throughout the world. This warning has been amply justified by the events which have followed since. In the United Kingdom last year, output and capacity utilisation fell while imports rose. Financial results were correspondingly depressed. In the year ending September, 1967, the companies forming the Corporation made a loss after deprecia- 940 tion of £10 million and achieved a return on capital of under 2½ per cent.
§ Mr. Deputy Speaker (Mr. Sydney Irving)
The hon. Gentleman is getting very wide of the Order. He ought to confine his remarks to the £100 million with which the Order is concerned.
§ Mr. Patrick Jenkin (Wanstead and Woodford)
On a point of order. I believe that it has been accepted for many years that an Order increasing the borrowing limits of nationalised industry should provide the House with an opportunity to examine the results of the policy of the industry. I hope, Mr. Deputy Speaker, that in your Ruling to the Parliamentary Secretary you were not seeking to impose any unreasonable restrictions on our right to discuss matters of general interest affecting the British Steel Corporation.
§ Mr. Deputy Speaker
It is true that on coal there has been a widening of the rule about discussion of the industry, wider than that concerned with the Order itself, but the precedent is not clearly established and it would be better if the Minister and other hon. Members endeavoured to relate their remarks to the Motion. With a little skill hon. Members ought to be able to say most of the things they want to say by relating them to the Order.
§ Mr. Freeson
Thank you for that helpful advice, Mr. Deputy Speaker. I have one or two more general background observations to make by way of introduction and I hope that you will agree that, however wide ranging the rest of my remarks may be, they will be put in such a way as to explain the background to the Order.
I was about to say that there are now signs, fortunately, of improvement. Steel production this year should be much higher than in 1967, and capacity utilisation has risen sharply. As the House knows, output is now at a near record level, about 8 per cent. up on last year. In the six months ending 31st March, 1968, the Corporation approximately broke even after interest on borrowings and depreciation, but before interest on commencing capital debt, on which I shall have something to say later.
The Corporation faced an immensely difficult task. It is well known that the 941 merging of even two companies is a formidable operation. The Corporation has had to bring about a merger of 14 large companies with some 200 subsidiaries at home and abroad, creating one of the largest industrial concerns in the world. It has had to create from scratch a headquarters organisation to manage this large concern, and it has had to do all this against a tremendously difficult background.
There has been rapid progress in organisation. The first stage was to prepare for vesting and this took place only four months after Royal Assent, the shortest period for any major nationalised industry. The second stage was the submission of the Corporation's first report on organisation. This was required within a year of vesting; in fact, it was submitted within three days, and has since started to be implemented progressively.
The building up of the necessary headquarters staff has gone ahead and new offices and specialised planning staff are included in the headquarters organisation. The full-time directors of the group boards were appointed by the Corporation at the end of September last year, and the part-time members in April, this year. It is of noteworthy interest that the latter appointments include the employee directors, an imaginative experiment initiated by the Corporation itself which we will all watch with interest, including industrial management and the trade unions. I am very glad to see my hon. Friend the Member for Sheffield, Brightside (Mr. Eddie Griffiths), who was an employee director, in his place here today.
The British Iron and Steel Federation was dissolved on 31st October, so quietly that its passing went almost unnoticed, and the central trading companies were transferred to the Corporation. The speedy success of these complicated negotiations is a tribute to the good sense of the leaders of the Federation in realising that nationalisation had now come to stay, and, above all, to the skill and drive of the Corporation's negotiating team.
This is a record of solid achievement, but the success of nationalisation will depend not just on organisational changes, but rather on the Corporation's 942 success in evolving policies necessary to meet the problems of the 1970s.
There is no easy way out of the difficulties facing the Corporation. World steel prices remain low and the world surplus of capacity will remain large for a long time. Steel industries overseas are continuing to reorganise themselves so as to cope more effectively with these conditions. For example, within the last few weeks there has been a proposal for the merger of the two largest Japanese companies, which would create a new giant as big as the Corporation.
All this emphasises the need for the reorganisation of our industry, so that it can face the tasks ahead. This is the task on which the Corporation is now starting and I would like to review the position briefly under three main heads.
First, planning. The Corporation expects to have by the end of this year a second report on organisation, which will be concerned among other things with the question whether the companies should be retained or abolished; and with the further arrangements which should be made to ensure that the resources of the Corporation as a whole are utilised to the best advantage. Successful long term planning will be one of the keys to the success of nationalisation. The Corporation will therefore also be working continuously on planning the future development of the industry, on which it will keep in close touch with the interests involved including consumer industries, trade unions, regional authorities, and of course the Government, who will keep Parliament informed. We hope that the Corporation will have a broad brush picture of the future development of the industry within about a year from now.
If the industry is to be lean and efficient—as it must eventually be to compete in today's international steel market—a substantial reduction in manpower is inevitable. But that reduction must be carried through humanely— and the Corporation intends to have full regard for the social consequences, and to act in full consultation with the unions and with the Government who are of course concerned with the overall regional implications.
Last summer the Corporation put proposals to the unions for changes in the 943 industry's negotiating and joint consultative machinery and in May it put proposals for a national agreement on wages and productivity which would clear the way for local bargains to increase productivity and secure a substantial share of the benefit for the workers. This is a difficult area and we must expect some tough negotiations. But with goodwill on both sides I am sure that any difficulties can be overcome and a big increase in productivity obtained.
A correct price policy is fundamental to the Corporation's success and to the health of the national economy. This is an area where a basic review is of prime importance. That review is now taking place. It is not just concerned with levels of prices, or the detailed structure of the steel industry's complex price schedules, but with the most fundamental questions. The Corporation hopes that the result of this wide-ranging review will be available for discussion with the Government by the end of this year.
There are short-term improvements, because the Corporation is, of course, not concentrating on long-term policy at the expense of short-term policies which can improve its efficiency, and financial position. It has, for example, made arrangements for central financial control which will result in valuable savings—control of capital expenditure, banking and credit arrangements and investment in working capital.
Detailed technical and cost comparisons are now being organised between the different works in the nationalised industry, and will help to bring all to the standard of the best, with large prospective cost savings. Competition in export markets between the nationalised companies—the only result of which was to reduce the prices the British industry earned—is being controlled and in some cases eliminated. Weak points in the industry's management structure are being strengthened.
I turn now to the case for increasing the borrowing powers of the Corporation from £300 million to £400 million as proposed in the Motion.
At the end of March the Corporation had already borrowed £252 million. My right hon. Friend has given authority for further bank borrowings of £45 million. 944 It has now effectively reached the £300 million limit.
As one of the largest commercial organisations in the world, the Corporation necessarily has a large requirement for temporary finance, and in order to provide adequate short-term finance and to enable it to meet its obligations to repay certain outstanding loans about a further £70 million is now needed. The Corporation has already negotiated, with my right hon. Friend's permission, a further short-term facility of £30 million with the Banks. The extension of the borrowing powers will enable it to take up facilities such as these.
I should emphasise that on current estimates the Corporation is generating the funds it needs for the operation of the industry, except for the repayment of borrowings and any interest on the commencing capital debt.
The House will wish to know why the present limit of £300 million has been reached so quickly after vesting date when the Government had stated earlier in Committee that it should last for about three years. It was of course made clear at the time that this could be no more than a rough estimate on account of uncertainties both as to the future trading situation of the steel industry and as to the timing of vesting. This was a point particularly made by my predecessor, the present Joint Parliamentary Secretary to the Ministry of Technology.
§ Mr. Patrick Jenkin
Can the hon. Gentleman refer the House to the passage where the Joint Parliamentary Secretary said that this was merely a rough estimate?
§ Mr. Freeson
I am not sure if I have a margin note of the column number. It was 6th December, 1966. Perhaps the hon. Member could look up the column.
§ Mr. Jenkin
Perhaps it would help if I indicated that what the Parliamentary Secretary said on 6th December at c. 1927 was:First of all, the total borrowing powers relate to a five-year period and the lower sum of £300 million would, we hope, be adequate for a three-year period."—[OFFICIAL REPORT, Standing Committee D 6th December, 1966; c. 1927.]
§ Mr. Freeson
Without having the actual text in front of me, I think that 945 the hon. Gentleman will find that if he reads the passage more fully it is in the context of the words "a rough estimate" which I have used a little earlier.
The main elements of this extra £100 million are:
The House will therefore see that the bulk of the additional commitments represents the funding of the companies' existing debts, which of course does not represent a new capital inflow, but only a change in the method of financing the existing debt of the industry, which is an inheritance from the privately-owned companies.
- (a) Funding of companies' bank overdrafts, trade bills and acceptance credits—£94 million extra; and
- (b) The fact that the companies made a net loss in 1966–67 and could not, therefore, finance the terminal dividends of £33 million; offset by
- (c) a saving of £23 million by which we had over-estimated the amount of Finance Corporation for Industry loans outstanding at vesting date.
I want now to say a word about the terms of the commencing capital debt. As I have said, the Corporation took over the industry at a time of falling demand and of weakness in the international steel market. It was known that the early period of the Corporation would be a difficult one financially, and this was confirmed by the results for the publicly-owned companies for the year ended September, 1967, representing largely the position which the Corporation inherited. Ten months of that year represents ten months of pre-nationalisation.
Because of these factors, the Corporation is not at present earning the revenue needed to pay the normal interest charges on the commencing capital debt and my right hon. Friend has therefore had to consider how he should discharge his responsibilities under Section 18(2) of the Iron and Steel Act, 1967, which requires him to determine, with the approval of the Treasury, the rate of interest and other conditions which should attach to the debt.
The House will probably recall that the Corporation has announced its intention to put forward proposals for a substantial part of its capital to be con- 946 verted into equity in the form of public dividend capital. Anything on these lines would, of course, involve specific legislation, but, so that my right hon. Friend may consider its proposals, he has asked the Corporation, entirely without commitment, to present him with a statement of its long term plans and a forecast of its revenues. In these circumstances, it seems to him only sensible to await the Corporation's long term plans and revenue forecast before proceeding to a determination of the terms of its debt.
The Corporation, at his request, is pressing forward with its plans and submissions and it is his intention to make his determination as soon as possible after they are received, but this can hardly be before the beginning of 1969. Meantime, as the House knows, the Corporation has paid £20 million generally on account.
Inevitably, this has been something of an interim report. Great progress has been made, but a great deal more remains to be done. But one thing I think is clear beyond all reasonable argument: The British steel industry now has an organisation with the potential to face and overcome the problems of the 1970s, and to compete successfully in this tough international market. It is in the knowledge that this is so that I confidently ask the House to pass the Motion.
§ 1.31 p.m.
§ Mr. David Lane (Cambridge)
In the normal Parliamentary sense I have no interest to declare, because it is some years since I ceased to work for the British Iron and Steel Federation. In another sense, I have a continuing interest in the industry, because anyone who has ever worked in it in any capacity must remain sympathetically concerned with the fortunes of the industry and of the men who work in it.
In addition to the tribute which the Parliamentary Secretary rightly paid to the leaders of the Corporation for all they have done in the last few months, I think that it is right that we should pay tribute to the men at all levels in the industry who, for the past 20 years, have never been free from political controversy and have managed to stick to their job and, in my view, have achieved 947 something of an economic miracle in what the industry has done since the war.
In effect, we are considering an amendment to Section 19 of the 1967 Act. I still believe that it is a thousand pities that the Government were determined on a second nationalisation and the abandonment of the previous structure under the 1953 Act.
It seems that we have no alternative but to agree with the increase which the Government are proposing, although, as the Parliamentary Secretary admitted, the information on which we are asked to do so is necessarily thin. The advances have been used up much more quickly than forecast and, to my mind, that simply means that we must decide, or others must decide, even more quickly than was the case the major questions which need decision before the Corporation is properly on course. That is what we are debating, and I wish to touch on some of the fields in which these major decisions lie.
It makes me very sad to read in comments of steel being included with other older-established industries—for example, coal and the railways—as industries due for contraction. On the contrary, this is an industry with a future of growth and, I hope, of prosperity if its problems are tackled properly. I remain sceptical about whether they can be tackled properly under nationalisation. I am glad that we are committed as a party to reorganise the industry as may be necessary in the light of experience and that we are also remaining open-minded about the precise form of that reorganisation. For the time being, we must suspend judgment.
But, in the immediate future, major adjustments will have to be made by the industry, and surely the objective must be to reduce to the minimum any obstacles which will make this adjustment harder, whether they be in the form of delays in reaching decisions or of Government policies in various fields directly effecting the industry.
Turning to the fields in which problems lie, I deal first with the financial problem. I am sure that we all welcome the clear statement of the Corporation's basic objective in paragraph 47 of its Report on Organisation last year: 948The Corporation regards its basic objective as being the achievement of the maximum long-term return on its capital investment consistentwith various important considerations which must be borne in mind. According to the latest results announced, the return on capital is, if anything, negative if we take account of the interest which should be paid on the commencing capital debt. I am glad that the Parliamentary Secretary said that some decision should be reached by the beginning of 1969 about this capital debt, because I do not think that any problem facing the industry is more important.
I would not necessarily oppose some measure of equity in the capital structure, because I hope that every hon. Member would agree that it would be very helpful to the industry to avoid the great millstone of fixed interest debt which has plagued other industries in the past. But this will be a Government decision, and I hope an urgently taken Government decision, so that the industry can be clear about the capital structure and its financial objectives.
Turning to the question of manpower, morale and productivity, this is an industry with a proud record of labour relations. It is unfortunate that we should be having this debate in the shadow of the dispute between the Corporation and two of the white collar unions. One can only hope that it will soon be settled in consequence of the court of inquiry which has been set up. There is a brighter side—the recent announcement about an important productivity bargain at Port Talbot, which I hope will be the forerunner of other such bargains in this industry and other industries.
If there is to be, as I am sure there must be, some streamlining of the labour force in the works, it is imperative to prevent the growth of bureaucracy at the centre. There are a few disturbing indications of the growth or size of the central body, and this is something which should be watched very carefully because we all know the bad effects on morale of growth at the centre while there is pressure for contraction in numbers of men on the job. I hope that we shall hear more about this in the next report of the Corporation.
I should like to say a few words about market prospects on which the Parliamentary Secretary touched. The current 949 world surplus is estimated at about three times the annual capacity of the British steel industry. I am sorry that we have not heard more about this problem; perhaps the Minister will say something about it. The Government can help in two important ways: first, in the promptness of the anti-dumping measures which may be necessary, and, secondly, in trying to get more progress in the very crucial international discussions which have been going on for far too long with far too little result. Plainly, if there can be negotiated internationally some soil of self-denying ordinance for the world's steel markets, this will make the task of the British industry's adjustment very much easier. I was sorry that only on Tuesday the Parliamentary Secretary, at Question Time, was still not able to announce any progress in these international talks.
Meanwhile, on the price structure in the home market, as we have been told, a review is in progress, and I am glad to hear that the results of it may be available by the end of the year. I hope that in making the review the Corporation will bear in mind the need to reassure the private sector of the fairness of the future price arrangements in the public sector, because although the private sector represents only about 10 per cent. of the volume of output, it accounts for nearly 30 per cent. of the value. I hope that the Corporation will also bear in mind the need for whatever new price arrangements are made to be as nearly as possible consistent with arrangements in the Common Market, in the hope that eventually this country will join the Common Market. I am sorry that, as it seems, two or three years ago an opportunity to move in this direction was lost. I trust that this new opportunity will be taken.
In turning to modernisation, costs and efficiency, I will deal first with capital investment and capital cost. The Times this morning has a bold front-page headline,Steel industry to be rebuilt".That is fine, but one is bound to look at this with a certain amount of caution in view of some of the figures given in the article. The mention of 20 million tons of new capacity by 1975, which I calculate to be an average of 2½ million tons capacity each year until then, repre- 950 sents an enormous figure in terms of finance.
I hope that the experience of other nationalised industries will be remembered when they have embarked on enormous capital-expensive programmes and have sometimes found that these have turned into too big a burden of capital cost in the light of later market experience, quite apart from the major problem of finding the money against the competing claims of other industries.
§ Mr. Frank Hooley (Sheffield Healey)
Would not the hon. Member agree that the key consideration is to provide this country with a capacity that will meet all its needs and that that must be the overriding factor?
§ Mr. Lane
I agree, but we are in a dilemma when to do that ideally on paper involves astronomical sums of money. I only hope that the country can afford it. Let the Corporation bear in mind, as I am sure it will, the admirable sentiment expressed in paragraph 52(d) of its Report that one of the long-term objectives isTo move towards the development of larger production units but with full recognition of the part that efficient small works can play and of all the social implications of any changes.I hope that we do not go so fast with these vast investments that insufficient use is made of the highly efficient smaller plants which may still be able to play an important part.
My next point concerns the speed of exploiting new developments. According to The Times this morning, the Corporation has been very impressed by the speed with which new developments have been brought into production in Japan. In comparison with that, I have been somewhat disappointed from recent reports about how many years it will yet be before the spray steelmaking process, for example, can be brought into use in this country. I hope that the Minister may be able to say something about this as an example of a new technical process.
On the subject of operating costs, nothing is more important to the steel industry than fuel costs, which represent more than one-fifth of the average cost of steelmaking, leaving aside capital costs. I hope that the Government will 951 stick to their guns of a cheap fuel policy. In comparison with its competitors, the British steel industry carries heavy burdens—for example, its inability to import cheap coal and the tax on fuel oil—but these things are within the Government's power to put right as soon as may be.
There is scope, too, for more use of natural gas. I hope that in the Government's enthusiasm for a new aluminium smelting industry the steelmakers will not find themselves at an unfair disadvantage in terms of electricity costs as against their competitors in aluminium.
The last field of problems with which I propose to deal concerns what I call the shape of the Corporation and the balance of power within it. I hope that in the next Report we shall hear more about the non-steel activities in which the Corporation engages. Serious thought should be given to the disposal of at least some of these activities, when they are not inherent in the main stream of steelmaking, to enable the Corporation the better to concentrate on its main task and, in some way at least, to ease the big problem of financing future development.
As to the four groups into which the Corporation has organised the industry, I am sure that we all welcome the statement in paragraph 64 of its Report thatThe spur of competition, other than in price, between the Groups and between the units below them is in our view highly desirable.That is fine, but how is this competition to be made a reality? What financial tests will the Corporation apply?
That brings us to the whole question of centralisation versus decentralisation. I believe that in this industry overcentralisation, particularly in selling, would be disastrous. Steel is an industry in which producer-customer relations must be close and, as far as possible, works-orientated. If the Corporation is in doubt, let it err on the side of decentralisation and remember its excellent words in the final paragraph—paragraph 101—of its Report last year:By means of these systems"—that is, systems of control—under which it will encourage initiative at ail levels, the Corporation believes that the 952 total management effort of its organisation can be harnessed to achieve the objectives set out earlier in this report.It is the words:encourage initiative at all levelswhich, I hope, will be particularly remembered.
We all acknowledge that the Corporation has got off to a good start and I trust that the momentum will be maintained. I hope that we shall see the next Report, as the Minister also hoped, at latest by about the end of this year. The right hon. Gentleman the Minister can help greatly in getting these problems quickly resolved and the decisions made. He has brought to his new office a briskness of manner, and I hope that we will also have a briskness of decision-making. In other sectors of the Ministry's activities, I have been somewhat disappointed at slowness of decision-making in some recent cases. The steel industry must make important adjustments to the situation which faces it, and to do this it will need the maximum help and encouragement from the Government.
If major decisions are unduly delayed, there is a risk of the industry sliding into the state of depression which is too often characteristic of nationalised industry. The men in steel deserve better than that, and I hope that the Government will do all in their power to help them to achieve the sort of growth and prosperity which we all wish for them.
§ 1.47 p.m.
§ Mr. Eddie Griffiths (Sheffield, Brightside)
I would like to crave the indulgence of the House for this my maiden speech. For the past three weeks I have been inundated with well-meaning advice about when I should make my maiden speech and how I should deliver it. Some advised me to leave it until after the Recess and others told me to get it done before then. Having listened to all that advice, however, I thought it only fitting that I should pay my humble tribute to the greatest steel city in the world— namely, Sheffield—and also to the works of John Summers and Sons, near Chester, where I spent 16 very happy years. I decided that as a tribute to those two, I would make my modest contribution on the important subject of steel, which I love very much.
One of the things which I have been trying to do in the last few days is to 953 take stock and wondering how I came to be in the House of Commons. I believe that no man is self-made and that we are all subject to the influences of our colleagues, the way of our upbringing and the localities in which we have been brought up. One of the greatest assets which I have had was to be blessed with a fine Socialist father. He was one of the few truly practising Socialists that it has been my privilege to meet.
When he passed away 12 years ago, I spent the following 12 months trying to examine his life and his philosophy. I realised that he was one of the happiest men I had ever known. The reason for this was that he believed that the philosophy and purpose of life were to give whatever talents we have in the service of our fellow men. That is the main reason why I stood for election and have come to this House, to give whatever talents and abilities I have in the service of my constituency and of my fellow men.
I can do no better than to quote from the Bible a very famous verse which, I would suggest, every Member of Parliament should use as his yardstick to measure the motive of his contribution to any topic:Though I speak with the tongues of men and of angels, and though I have the gift of prophecy, so that I could remove mountains, and have not love, I am become as sounding brass, or a tinkling cymbal.I believe that if our actions and our observations are based on respect and love for our fellow men our contributions will be worth while.
I am probably one of the luckiest Members of Parliament in having a constituency known as Brightside. I found this a great comfort to me; for when we have our political ups and downs, and as we talk of swings against or for us, I can always say, "I look on the Brightside". I think that this name typifies the people of the constituency. One of the things I found when I was going round during my election campaign was that the elder people not only saw the difficulties and the problems but they appreciated that, in any human balance sheet there are blessings and advantages.
One of the things I appreciate about this Sheffield constituency is the great warmth of character of the people. In- 954 deed, I should like as a Welshman to pay tribute to them. I am sorry that there are no Welsh Members now in the Chamber. I think that there is a lesson to be learned here. As a Welshman, I know I have been taken to the heart of the people of Brightside. My experience of life is that people in Brightside, in Caerphilly, in Scotland, are basically the same under the skin: they have the same hopes and fears wherever they may be throughout the length and breadth of this country.
I would like to pay tribute to my predecessor, Dick Winterbottom, who passed away rather prematurely at the age of 68. Dick Winterbottom, I found during my campaign, was a name that was known very well on every doorstep in Brightside. He represented the constituency for 18 years. He moved his home from Oldham and went to live right in the middle of the constituency and he shared the joys and sorrows of his constituents. His door was always open to them so that they could take their problems to him. I was very touched at the great tokens of affection which were shown to him whenever people talked about him. Indeed, more than one said to me, "If you are half the man Dick Winterbottom was you will do all right". I hope to prove more than half the man in due course, but I should like to pay that tribute. Also, when I came here and talked to my hon. Friends I found that they spoke with great affection of him and of his contribution to the work of this Chamber.
I should like to touch on the position in the steel industry prior to nationalisation. The hon. Member for Cambridge (Mr. Lane) suggested that there had been a very high degree of success in private enterprise in the steel industry. I would remind the House that, in those years when the steel bosses were taking considerable profits out of the industry, if one stuck a stamp on anything and called it steel one could sell it—up to about five years ago. I believe the hon. Member is misleading the House and misleading himself in feeling that private enterprise in the steel industry could cope with the present situation in the world market. Indeed, if we look at the position from the middle 1950s to date, we shall find that because of the negligence of the private steel companies the 955 price advantage which we had over our European competitors in the middle 1950s has disappeared. If we look at the production per man at work we shall find that we have been outpaced and outstripped by Japan and also our European competitors.
It was highly significant that, just prior to nationalisation, the Steel Board instigated a report, known as the Benson Report, which is basically what the British Steel Corporation is advocating for the 1970s. I am convinced that if its views had been implemented much sooner the position of the steel industry in this country would not be as bad as it is today. Therefore, when the Steel Corporation took over some 12 months ago it did so in a period of great difficulty, and also, as my hon. Friend says, in the wake of a difficult political conception. But I am glad to say that the offspring, the British Steel Corporation, 12 months later is a really thriving, bouncing organisation. I would endorse what has been said about the welcome to Lord Melchett, who is back in harness, and I sincerely trust that he will soon be fully recovered. I believe that the British Steel Corporation has laid the foundations for a highly efficient, a highly profitable, a highly productive and a highly remunerative industry and that in the next few years we shall see the fruits of this initial careful planning.
I should like to mention one or two points to which I believe the Government and the British Steel Corporation should address their minds. We have heard that production in the first half of this year is 5 per cent. up on what it was in the first half of last year, and indeed, in the second quarter it is up by 8.7 per cent.
I believe that the conservative attitude of the private companies to the export market is one of the reasons why our export performance is not anything like as good as our import performance has been. In ten years the export increase has been something like 30 per cent. whereas our import performance alas has been something like 63 per cent., which is not a good reflection on the private industry. I believe we must use all the machinery available to us now and that we must be ruthless in our attitude to, 956 selling abroad. One of the attitudes of the private companies was, "To remain profitable, to give our shareholders the dividends they want, we can only afford to carry 10, 15, 20 per cent. in the export market." I believe that this philosophy should go now, and that the British Steel Corporation should use every means within its power to push its export performance to its full potential.
On the question of long-term planning, I believe there is a great acceptance now in the steel industry, in the British Steel Corporation and the trade union movement, that if we are to remain competitive it is absolutely essential that we have low-cost production units and that we produce not less steel but more steel, and I believe that the plan which will be announced in the next nine months or so, when implemented, will give us the production growth we so badly need.
However, unfortunately, due to technological change and reorganisation, one thing we must be prepared for is a reduction in manpower. The British Steel Corporation must be made responsible for the people whom it will not require in the main steel production units, and should not be satisfied on giving a redundancy payment and saying, "There is the dole queue". The Government and the British Steel Corporation must accept responsibility for the deployment of manpower not required in the technological steel industry. To this end I suggest.that the British Steel Corporation should diversify its activities and consider going into the manufacture of durable consumer goods. If they do this, as contractions in a particular locality occur, then they can with Government help implement suitable alternative industries for those workers who will be made redundant.
I would mention worker participation in the industry. I was privileged to be one of the twelve part-time directors appointed to the British Steel Corporation. Reluctantly, as I was looking forward to this new challenge, I had to resign, even before I sat on my first board meeting. I have great faith in this experiment in the steel industry, which I am sure will gather momentum and become established in all nationalised industries and, I hope, in private industry. I am greatly impressed by the 11 people who have been appointed; they have a 957 wonderful contribution to make. I am glad to say that the more established directors in the British Steel Corporation have been very patient and kind to the worker directors. The worker directors have received five weeks' training in economics and allied subjects, and I have every faith that this will prove a successful experiment.
With dynamic and imaginative management; with the co-operation of the quarter of a million workers, one of whom it was my privilege to be for 16 years: with the moral, verbal support and economic understanding of the Government and of this House, then I believe that the Steel Corporation and the steel industry have a bright future.
I take this opportunity of wishing the British Steel Corporation as it comes to celebrate its first birthday many happy returns, and I know that its future will be prosperous. Those sentiments will I am sure be endorsed by the House.
§ 2.2 p.m.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
It is always a great privilege: to follow a maiden speaker in this House. The right hon. Gentleman the Member for Sowerby (Mr. Houghton) first congratulated me after my maiden speech and for that reason I have always had an affection for the right hon. Gentleman, an affection which transcends his strictures of large families, since I feel that mine is perhaps on the large side. On one occasion I had to congratulate no fewer than three maiden speakers who followed each other and whom I followed, and this gave me the difficulty of maintaining three such relationships at one time.
However, I will have no difficulty whatever, I hope, in maintaining a respect and admiration for the hon. Gentleman who has just made his maiden speech. It was, as I think all hon. Members will agree, a speech of great knowledge, great interest and great authority. A new Socialist Member of Parliament is a rare bird these days, so it is to the credit of the electors of Brightside that they have chosen to represent them someone possessing the high premium which is placed upon new Socialist Members of the House.
The hon. Gentleman referred to the famous passage from the Bible: 958as sounding brass or a tinkling cymbal.We, I am sure, regard his speech as sounding brass rather than tinkling cymbal. He will be very welcome to steel debates and other matters and the whole House will look forward to hearing from him again on many important occasions.
I echo his tribute to his predecessor, Mr. Winterbottom, who was much loved by hon. Members both on these benches and on the opposite benches. We remember how he sat through the long nights of the Steel Bill in Committee, always with a smile and bearing with fortitude the trials of that Committee. I hope that the physical strain which the act of nationalisation brought upon him did not in any way contribute to his illness and much-regretted demise.
One matter on the hon. Gentleman's speech which I would like to take up is that we have to have a nationalised industry to combat the competitive pressures faced by the steel industry. One is a little rueful when one considers that the American, Japanese and the vast bulk of the European industries are still in private enterprise hands. The argument that we cannot do this through private enterprise is one that we could not accept.
I would like to address myself particularly to the financing of the Steel Corporation. There is a little confusion about this. We are told that the Corporation drew £252 million worth of capital last year. We are now told that another £45 million has been incurred and another £30 million is immediately needed, so that there is £330 million immediately required for new capital.
The last Minister, the right hon. Gentleman the Member for Southwark (Mr. Gunter), whose departure we regret, told us at Question Time on 23rd April that £57 million of this was to pay off old dividends, and that £195 million was to pay off loans and overdrafts already incurred. This meant that the anticipated total was exceeded last year by £175 million. It is a little odd to be told that the estimates were £175 million out, when the main operation that was carried out was refinancing. If there were such loans, overdrafts and borrowings of various types, the refinancing of which the Government were to support, we would expect 959 to have been warned about it and for this amount to have been provided in the estimates. Will the Parliamentary Secretary give an explanation as to how it has come about that as much as £195 million of loans and overdrafts, which nobody expected, and of which no one had notice, has been refinanced? It could have been foreseen.
It is a little cavalier to bring forward after one year the date of the extension of the borrowing powers to £400 million without explaining where the money has gone and why it was not anticipated. I do not entirely accept what the Parliamentary Secretary said, that this is a pure book-keeping transaction which will have no effect on matters of substance. By substituting State borrowing for private loans and private overdrafts we increase the indebtedness of the State, and the State has either to tax us more or obtain more money from some other source, and the process is one which the people have had to pay for through taxation. There is no doubt that, of the £900 million of extra taxation raised, some part at least is attributable to having to find this extra £195 million, so it is not quite as simple as the hon. Gentleman seems to suggest.
Not only do we need more information about the spending of the vast sum of capital of £330 million in the past, but we also need it about the intentions for the future. The Opposition bitterly opposed the nationalisation of steel and have the strongest reservations about the wisdom of this action. Nevertheless, they have been extremely tolerant and reticent about pressing the Government or the British Steel Corporation for information about the future. However, the time is coming when we must have the plans. I would remind the Government that this is now a public industry. The plans have to be made public, and public accountability to the full must be followed. In no other sense can public control be exercised.
My hon. Friend the Member for Cambridge (Mr. Lane) referred to the article in The Times this morning. I thought that there was a requirement of 10 million tons more capacity, but it may have been 20 million tons read equivocally. Whatever it is, if there is to be a vast amount of new building, we want to know about 960 it, to know what the plans are, and what the future holds. I want to discuss it, because I believe that this is the right time to make a few observations about the whole problem of modernisation before anything is decided in relation to the capital aspects of the borrowing powers Order.
On what basis is the steel industry to be rebuilt? Quite clearly, new machinery and plant is invented every year which is better than the previous year's machinery and plant. If capital were worthless and cost nothing, it would pay us to pull down all our factories and plant every year and rebuild with the latest equipment. At the other end of the scale, obviously after a certain period of time, new machinery has to be installed because old machinery becomes so out of date and inefficient that it can no longer be competitive. Somewhere between the two extremes comes the right moment at which to replace plant and equipment.
The difficulty with nationalisation is that there is no market test to determine when it should be done. In many public industries, we are getting a situation which can only be called public affluence and amid private squalor, and the degree of investment in State industries is giving great concern to many on this side of the House and others outside it.
What we have to do is to invent a system whereby we can tell more accurately whether the replacement of assets is being done at the right rate and at the right time. The present rules of the Treasury are a great improvement. New investment in plant must pass a discounted cash flow rate test which has been put at 8 per cent. I want to know whether the projected rebuilding of the steel industry has passed that test. It is so hedged about with qualifications and difficulties that it is clearly impossible to get a straight answer to that question, but the answering of the question will depend on the level of taxation which is attributable to steel financing in the future.
It is not good enough to say that we must write down the capital of the British Steel Corporation from something over £1,000 million to something much less and then perhaps invest another £1,000 million or more in new plant. It is something which is peculiarly and unfortunately very difficult to do in nationalised industry.
961 The reason why writing off capital is difficult and why making new investment is difficult is that the money has to come from the taxpayer. The idea that it is in some way borrowed has ceased to be true, and both the write-off of old capital and the provision of new capital is now almost in full measure borne out of taxes. We who have to go to the poor, the widows, the pensioners and others who complain even about paying small sums of taxation must justify the putting of further loads on them for writing-off steel plants and building more steel plants.
The difficulty is that one of the joys of ownership in industry, for which hon. Gentlemen opposite have clamoured, is that one; is faced with enormous bills for the replacement of assets and there does not seem to be any way of inventing a reasonable and reliable discipline to know at what rate and at what time the assets should be replaced. The Treasury replies on a D.C.F. rate of 8 per cent., and now it is moving to marginal cost pricing. I would emphasise that an element in the costs within marginal cost pricing must be depreciation, and depreciation at replacement cost. There should be no loss in the process. There should never be any need to write off dead capital if the capital has been depreciated at the correct price.
§ Mr. J. J. Mendelson (Penistone)
The hon. Gentleman has referred to those hon. Members on this side who have clamoured for public ownership, and then he made the point about writing-off certain capital. Surely he would agree that the write-offs in the coal industry were the result of keeping down the price of coal over a period of 12 years and thereby partly financing our export efforts. It was not simply to make coal cheaper that it would have been otherwise. It was a national debt in the truest sense of the term.
§ Mr. Ridley
I do not deny that. But the wisdom of keeping the price of coal down at that time was questionable. It might have been better to have made coal achieve what it could raise financially in order to finance its own decline. There is a great deal of nonsense talked about the need to hold down prices. In many cases, it is preferable to keep prices up so that a greater amount of self-financing can be generated.
962 Originally, there was a discipline, and there should be a discipline in the raising of nationalised industry capital for investing in steel by means of the Government having to borrow what they invest. That is what we all think happens, but it does not. I have some figures before me which show that, during the last eight years, public investment has totalled £7,453 million, against which the Government have borrowed net from all sources £870 million. That means that 85 per cent. of public investment has either come from taxation or from the printing presses.
In those circumstances, the D.C.F. rate does not change, and what we have to do is to find a way whereby the increasing pressure on resources is reflected in increasing difficulty in raising money for public industry.
I suggest that the Government should return to financing all public investment by means of borrowing on the market. That would force the Government to pay the going rate for capital, and that, in turn, would force them to pass on to institutions like the British Steel Corporation the cost rate of the capital that they borrowed and force the D.C.F. rate to a level at which it reflected the real cost of borrowing the money that was invested.
I have never understood why there should be a difference between the D.C.F. rate and the interest rate at which the Government lend money to the Corporation. It is in that context that I view the present application by the British Steel Corporation for Exchequer dividend capital. If, as I have said, the right speed of write-off has been adopted, if the commencing capital debt is correct, if all the correct policies are adopted, and if the correct investments are made, there should not be any need to dodge a dividend and have flexible capital in the structure of the Corporation's capital debt. We know that Exchequer dividend capital is a pseudonym for not having to pay interest on what is admittedly a very heavy capital commencing debt.
If we think that the assets represented by the nationalised Corporation are not worth what they are said to be worth, it would probably be preferable to start off with a realistic assessment of the worth of the assets and force the Corporation to 963 pay a proper going rate of interest on that amount. Otherwise, we lose, in a mist of obscurity, the veracity of what we are trying to do.
I say to the hon. Gentleman who expressed such passionate conviction in nationalisation that these huge debts which are piling up, perhaps in respect of the over-valuation of the assets of steel at the time of nationalisation and the unworthily quick writing down of existing assets and the terrifying inability to determine what is the right rate of expansion, will fall on the taxpayer. Whatever the outcome may be, the resulting increases in taxation are the ultimate reason why the Conservative Party believe that nationalisation was a severe mistake in this context.
Be that as it may, we must have proper accountability. We must be told about the plans in the same sort of detail as we had for gas. We must be told what the issues are, because these are not purely commercial matters. We will have to go to our constituents and justify these increases in tax. That is never done in a private company. A private company raises its money on the market and ordinary people are not concerned one way or another about the future in the matter. But, once the taxpayers and their representatives become the owners of an industry, they have to be told what the plans are. Therefore, I hope that, long before the time this borrowing provision runs out, we will be given a complete and accurate statement about the plans of the Corporation, the new capital structure, the way of financing it, and all the matters upon which I have touched.
§ 2.23 p.m.
§ Sir Geoffrey de Freitas (Kettering)
My hon. Friend the Member for Sheffield, Brightside (Mr. Eddie Griffiths), in his interesting maiden speech, referred to the consequences of the technical improvements in the manufacture of steel. One of the consequences of the technical improvements in the manufacture in steel in my constituency is not redundancy, but the failure of the industry to need more men. Corby is a new town which has been built at public expense with the infrastructure to support a population of 80,000—a swimming bath, a civic centre, a theatre, roads and services—but 964 the population, as a result of technical developments in this industry, shows no sign of getting anywhere near that figure. Therefore, public money is in danger of being wasted. We are in danger of wasting these public buildings and services because employment in steel is not expanding and new industries are not coming, principally because it is not a development area.
I do not expect my hon. Friend to deal with this point at great length, but, as a member of the Government, I ask him to note this unexpected consequence of technical improvements in the manufacture of steel when he and his colleagues discuss allocation of industry.
Like my hon. Friend the Member for Brightside, I support the Motion and I wish the Steel Corporation well on its first birthday.
§ 2.25 p.m.
§ Mr. Patrick Jenkin (Wanstead and Woodford)
I am sure that the House would wish me to echo the words of welcome of my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) on the quite admirable maiden speech which we had from the hon. Member for Sheffield, Brightside (Mr. Eddie Griffiths). The hon. Gentleman started by claiming the indulgence of the House, in which we on this side, albeit under some provocation, felt it right to acquiesce.
Although the hon. Gentleman ventured into controversy, my view is that this is entirely proper in a maiden speech. I have always felt that the convention which seems to have grown up that maiden speeches should be uncontroversial is a mistaken one. Those who, in their maiden speeches, venture too far down the paths of controversy may suddenly find their heads being bitten off in full stream, and they would have no right to complain.
But I think that the hon. Gentleman's speech, which was delivered with great confidence and obviously with great experience of the industry pleased the House. I hope, as my hon. Friend the Member for Cirencester and Tewkesbury said, that we shall have the benefit of the hon. Gentleman's words in future debates on this and on other subjects.
We remember the hon. Gentleman's predecessor with great affection, both 965 as a man and as a politician. If I may end this introduction to my speech with one mild word of advice to the hon. Gentleman, it is that if he gets an embarrassing letter from a Minister he should not publish it in the Sheffield Telegraph. The hon. Gentleman's predecessor, Mr. Dick Winterbottom, delighted this side of the House, at any rate, and gave us much ammunition for what proved to be one of the most controversial passages of the Iron and Steel Bill.
A debate on a Borrowing Powers Order —and I bear in mind what you, Mr. Deputy Speaker, said at the beginning of the debate—has tended to become the opportunity which the House has—in many cases the only opportunity—to examine from time to time the workings of the industry under review. As a general rule, we do not debate the annual reports of the nationalised industries. The Select Committee on Nationalised Industries can examine an individual industry perhaps only once in every six or seven years. Therefore, we tend to rely or: Borrowing Powers Order debates as a means of appraising the activities of the industry as well as looking to the future and to the investment for which the money to be borrowed is needed.
I appreciate and understand the reason why the Parliamentary Secretary and not his right hon. Friend moved the Motion. I make no complaint about that. However, the information which he gave to the House as a justification for this increase in the borrowing powers of the British Steel Corporation can rarely have been so thin. I believe, therefore, that we have every right to probe and to question the case which the hon. Gentleman made and the plans for the industry for which the money is needed.
I recognise the limitations and difficulties in doing this. It is less than a year since vesting day, less than a year since the members of the Corporation have been able to grapple with the problems facing them, and there has been the added difficulty, with which we all have the utmost sympathy, of the illness suffered by the noble Lord, Lord Melchett, and the recurrent illness which again took him from his office and the great tasks facing him. We are delighted 966 to see his return. We hope that he has fully recovered. A man who holds the great responsibility of that high office requires a tough constitution, and I hope very much that the noble Lord is now fully recovered and will be able to take up his duties again.
The background to this debate is somewhat disturbing. I think it right to emphasise that we are here dealing with an industry, a single entity, which has net assets, excluding its long-term borrowing, of more than £1,000 million. This is a huge sum by any test. In the first two months of its operations it made a loss of about £319,000, before charging any interest on its long-term capital, and though it may be doing better, it is no more than breaking even in the first six months, without making any deduction for interest on its long-term capital, that is to say, on its commencing capital debt.
As the hon. Gentleman said, since vesting day the Corporation has borrowed £252 million, with a further £45,000 authorised since March, 1968. One has to look at this against the estimate of the figure which appeared in the Financial Statement last year at the time of the Budget, when provision was made for £75 million to be borrowed by the Corporation. It is true that the relevant paragraph of the Financial Statement said that that was subject to a "wide margin of error", but when one finds that the figure up to March this year is £252 million, against an estimate of only £75 milion, one is bound to ask how wide is a wide margin of error? This represents a massive miscalculation. We are told in the White Paper Cmnd. 3565 that the estimated requirement for 1968–1969 is £175 million. We hope that this will not be subject to the same massive error.
The error was not only in the Budget. It went back further than that, to the time when the Bill was being considered in Committee. The hon. Member for Penistone (Mr. Mendelson) is the only Member on the benches opposite at the moment who was a member of that famous Standing Committee.
§ Mr. Ridley
I think that the figure in Command 3565 is £100 million for the coming year. It was £175 million last year.
§ Mr. Jenkin
I am grateful to be corrected.
967 It is true that the net amount to be borrowed from the Government is £100 million, but the total amount of borrowing—and the borrowing power covers the total amount of borrowing—is, as I understand, and no doubt the hon. Gentleman will correct me if I am wrong, £175 million.
I return to what was said in Committee when the Clause which we are now discussing was under debate. The Parliamentary Secretary referred to the debate which took place on 6th December, 1966, and quoted his predecessor the present Parliamentary Secretary to the Ministry of Technology and indicated that what was said then was "a rough estimate." Those words appear at column 1930. I am glad that the Minister of Transport is here, because I am sure that he remembers those debates with nostalgia.
I think it right to say that those words referred to a point which had been raised by my hon. Friend the Member for Cirencester and Tewkesbury about the extent of self-financing which could be used for capital expenditure. The question arose of the 65–35 per cent. split being right, and that was what the hon. Gentleman referred to as a rough estimate.
When the hon. Gentleman talked about the total borrowing requirements and the time scale for which the Clause would operate, he did not qualify his words with anything like that sort of language. I have already quoted what he said, and I have no hesitation in quoting it again. He told the Committee:First of all, the total borrowing powers relate to a five-year period and the lower sum of £300 million would, we hope, be adequate for a three-year period."—[OFFICIAL REPORT, Standing Committee D; 6th December, 1966. c. 1927.]The hon. Gentleman referred again to the three-year requirement for borrowing. That was said firmly and qualified only by the words "we hope". It is not three years, it is one year, and instead of coming back after two and a half years just before the period ran out, he has come back after about eleven and a half months. By any standards that forecast must be regarded as deplorable, and particularly is it so when we are told that this is not due 968 to sudden, unforeseen capital expenditure.
This is a question of funding debts which were owed by the companies taken over at vesting day. Surely to goodness this could have been foreseen! Why was the then Parliamentary Secretary able to make an estimate which proved to be so wildly out? This was not a random figure. The constituent figures which gave this requirement of £300 million over three years were spelled out in the debate. Why has the then Parliamentary Secretary been proved so wrong? This was no wild guess, and yet it has turned out to be wholly denied by events.
The impression created during the debate on 6th December was that the details were all to be spelled out in the first report of the Corporation to the Minister under Clause 4. As we know, the Report was issued in August of last year, and I am sure the Parliamentary Secretary will concede that it contains no financial information at all. All it deals with are the organisation of the Corporation and the structure of the management.
Subsequently, we saw the 1967 accounts of the 14 major companies, and it was made clear that we were not to regard this document as in any sense an annual report. The Press handout which accompanied the issuing of that document said:The accounts should in no sense be regarded as the first annual report of the Corporation. This will be published in the early months of 1969 …Apart from the gross mis-estimate by the hon. Gentleman's predecessor during the passage of the Steel Bill, and by the Chancellor of the Exchequer, or presumably by the then Minister of Power, we have had virtually no information about what this money has been required for, or why the estimates have been so wildly inaccurate. What we have been told is what the Corporation hopes may happen to its finances in future. This we have had to learn almost entirely from the Press, until the Parliamentary Secretary gave us a little information this afternoon.
We are told that the Corporation is hoping to write down its assets by £150 million. This is a very big sum indeed. We are also told that it hopes to put part of its capital into Exchequer dividend capital. No doubt the Parliamentary Secretary will be able to confirm that both 969 those steps will require further legislation. Can he say when that further legislation is likely to be presented to Parliament? Will it be done next year? In other words, is the reconstruction of the Corporation's finances regarded by this Ministry as a matter of great urgency?
We now have the extra £100 million borrowing which, if the Motion is accepted, will tide the Corporation over. For how long will it do so? We were given no indication by the Parliamentary Secretary of how long this sum of £100 million was intended to last. We were told that £30 million of it is already earmarked for facilities which have been negotiated and which the Corporation will be empowered to accept if the Motion is approved. How long will it go on for? When will legislation be introduced further to increase the Corporation's borrowing powers? We have had no information about this.
We have been presented with the most woefully scanty information, on the basis of which we are being asked to approve the Motion. Until the hon. Gentleman spoke, all we had to rely on were gleanings from the Press, which has clearly been talking, perfectly properly, with officials of the Corporation. I must protest. I do not believe that a request for increased borrowing powers can ever have been brought before the House with the Government having done so little to provide the necessary information to enable a proper decision to be made.
When my hon. Friend the Member for Barkston Ash (Mr. Alison) opened the first debate on the Clause that is now Section 19, he referred to borrowing as "the lifeblood of the industry". So it is. It is where the money comes from. Apart from internal financing, it is the only source of investment and expansion. It is a basic element in the whole philosophy of right hon. and hon. Gentlemen opposite when they push through nationalisation Measures that it is intended that the industry should become answerable to, and responsive to control by, the democratic assembly of the nation. Here we have the very first Borrowing Powers Motion with virtually no information on which to base our decision. We are almost wholly in the dark as to what the money is required 970 for, or why it should be required so much sooner than was originally thought.
My hon. Friend the Member for Cambridge (Mr. Lane) referred to the article in The Times this morning. I cannot believe that it was intended to be a prospectus for today's debate. From such inquiries as I have been able to make it appears that it was wholly fortuitous that it appeared today, and it is doubtful whether the science correspondent of The Times was even aware that this debate was taking place today. The sort of sums of money which the article indicates will be spent between now and 1975, if we are to have a 20 million-ton replacement in the capacity of the industry are staggering. One is talking in terms of £700 million or £800 million of new investment. Can the hon. Gentleman give us more information about future legislation for further increases in the borrowing powers?
Parliament has every right to expect that before the Government ask for more borrowing we should have, what is badly needed, a sober, realistic, factual report on where the money has gone and what any further money is required for. That would be in marked distinction to the trickle of Press articles we have had, flying kites as to the various forms of rationalisation investment which the Corporation might wish to undertake. We must have a sober, factual report, because it is only on that that we can be expected to judge these matters.
The recent articles in the Press seem to me to have evinced a heady optimism which appears to run the risk of ignoring some of the hard, uncomfortable commercial facts which the Corporation is likely to face not only now but for some years ahead. As they are all we have to go on at present I hope that I shall not be blamed for placing some reliance on these articles. If we are to judge from them, all the signs seem to be that the Corporation is running the danger, run by a number of major science-based industries, of being too production-orientated, with a management and business philosophy guided too much by the objectives of those concerned with production, development and research and not enough by those concerned with the commercial side, notably sales, marketing and finance.
§ Mr. Mendelson
The hon. Gentleman, who also served on the Standing Committee, will recall that the need for a large amount of new capital expenditure, both for expansion and replacement, was common ground among both sides of the Committee. Therefore, I find it very strange that he should now express surprise that replacement and expansion will require a considerable amount of new financial investment.
§ Mr. Jenkin
Of course it was common ground. But the sums we now expect to be asked to contemplate in any further borrowing powers bear no relation to the figures that were common ground then. We were relying on the tables in the Benson Report, which gave the sort of investment figures which the Benson Committee felt would be required to carry out the measures of rationalisation which it proposed in Stage 1 of the Report.
It said there that up to 1970 the total borrowing from outside sources would be only £125 million. But here we are up to £300 million borrowing from the Exchequer by 1968, and a further £100 million is now required. The hon. Gentleman is failing to take the point that we have here, two years earlier than we were told in Committee, a requirement for increased borrowing powers which goes beyond anything which was common ground between the two sides in Committee.
§ Mr. Mendelson
The hon. Gentleman must not quote the Benson Report as Holy Writ. He knows that both on the stocking of steel and the future of the industry many of us maintain that it is not at all reliable. We said that the expansion of the industry was suffering because of the reluctance of private owners, for whom the Report was speaking, to spend properly. The Government were charged with doing that. They will have to explain their policy, and will do it successfully.
§ Mr. Jenkin
The hon. Gentleman may well make his contribution later, if he catches the eye of the Chair. Perhaps I should not follow him too far down that road, or I should be in danger of being out of order.
If the Press articles to which I have referred are to be taken as in any way 972 an accurate guide, there are signs that the Corporation is in danger of becoming too production-orientated and simply hoping that turnover, sales and the return on the capital will follow automatically with an increased investment in productive capacity. These apprehensions are bound to be increased in the case of a State industry where the normal checks, the normal financial disciplines of the market, do not exist, and the only barrier between financial extravagance and the industry are the Ministers responsible for the industry. If they fail in their duty rigorously to scrutinise the industry's capital requirements, even that last check is removed.
The Motion is not a happy augury, because the Minister seemed to feel that all that is necessary is that the Government should give us an anodyne speech as to their hopes for the future, and that they form sufficient argument on which we should base our decision to approve the Motion. I believe that the Parliamentary Secretary has admitted that there was a gross miscalculation resulting in a much earlier demand on the Exchequer for money. The House and the country can reasonably expect that the right hon. Gentleman should accept his new responsibilities seriously and should aim swiftly to get a grip on the finances of this great new Corporation and inject that measure of financial discipline without which all the aims, hopes and aspirations which hon. Members on both sides have expressed will be as but dust.
I should like to put one or two detailed questions to the Parliamentary Secretary arising out of the debate and the points that he made.
There is the question of the reconstruction of the capital debt. I ask the Parliamentary Secretary to bear one point firmly in mind. Unlike almost every other nationalised industry, this industry is in direct competition with producers in the private sector. Will he be prepared now to give an undertaking that any reconstruction of the capital debt of the Corporation will not be such as to enable it by a mere device to have an unfair advantage over the private sector?
The private sector has built into the Act for its benefit many safeguards. No 973 doubt under Section 30 it would be entitled to go to the Minister and make its complaints if it felt that as a result of the reconstruction of the capital debt the pricing policy of the Corporation was unduly weighted to its disadvantage. If the Parliamentary Secretary can give an undertaking that that is a factor that he will bear closely in mind, it will go far to reassure those who are already expressing anxiety because of what has appeared in the Press.
Secondly, there is the question of rationalisation. I endorse what was said on page 11 of the first Report of the Corporation:there is everything to be said for avoiding delay in starting the rationalisation widely agreed to be necessary ".There is, as the Parliamentary Secretary is aware, considerable uncertainty in many fields in the industry. This is especially so in cases of complaint which are generally known to be, for whatever reason, in what are now uneconomic locations, such as Consett, Workington, Ebbw Vale and the Shotton Works of John Summers. I know that anxieties are being expressed, certainly to the Corporation, and, I believe, also to the Minister, from people in these areas.
To take one example, I have been privileged to visit the Ebbw Vale plant. The Parliamentary Secretary will know that there has been heavy investment in Ebbw Vale over the last decade with the full support and consent of the Conservative and subsequent Governments. Yet the continued talking about the need for rationalisation, the need to write off capital debt which is not represented by income-producing assets and the need to concentrate production in favourable locations is bound to call into question the continuance of operations on a site such as Ebbw Vale. The same can be said of Consett and similar plants.
All I ask—one cannot ask for more—is that the decisions on these matters should be taken with the greatest speed. It is of the utmost importance that uncertainty should be removed at the earliest opportunity.
This problem was faced in the Benson Report. It was recognised that the answer for many sites is that, although basic steelmaking probably will eventually cease to be carried on there, many of 974 the finishing processes, processes down the line, can with advantage continue to be carried on at these sites which have all the social capital—that is a phrase which occurs in the Benson Report again and again—available as well as all the skilled manpower to enable this to be done. If this is to happen, the decisions must be announced as soon as possible.
It simply does not lie in the mouths of those who demanded nationalisation, who argued that the main reason for it was the need to rationalise the industry and who are now calling for the writing off of uneconomic capital to refuse to say what the consequences of this will be. This is if I may say so particularly important for those who represent the constituencies that are likely to be affected.
I now want to say a word about centralised marketing. My hon. Friend the Member for Cambridge referred to this. This is a matter which has caused considerable anxiety, particularly among consumers of steel. In paragraph 64 on page 25 of the first Report the Corporation stated:The spur of competition, other than in price, between the Groups and between the units below is in our view highly desirable.Elsewhere in the Report there are references to "strong technical rivalry", and so on. I believe this to be as absolutely the right approach. However, what are we seeing at the moment?
When Lord Melchett and some of his colleagues visited America it was reported that they came back very much impressed by the arguments for much greater centralisation of marketing and selling. I believe that they have been misled by this and would do well to have regard to what they said in then-first Report published after vesting day.
I have already mentioned consumers. Any centralisation of marketing and allocation of orders between different producing centres is bound to limit choice; this will have an effect on quality, which is already affected by the loyalty rebate; any centralisation will be damaging to consumers.
I ask the Parliamentary Secretary to bear in mind that one of the factors on which one has to concentrate in any reorganisation of this sort is the problem of the injection into the management of the most effective stimulus to greater 975 efficiency and greater enterprise. If the managements of the constituent groups and the constituent units in the British Steel Corporation cease to be responsible for the winning of orders and the satisfying of their customers as to quality and merely take the orders that are farmed out to them from a central authority, a great deal of that stimulus will be removed.
There must be the spur of achievement in earning the return on capital ensuring the growth of the business and securing the results which the management seeks to achieve. That must be a vital factor in any management structure. I should be very much afraid, if there was too great centralisation of selling and marketing, that much of the stimulus would be removed. It would gravely impair the incentives which must operate on management.
The American example is not a wholly relevant one. Although the individual steel companies—Bethlehem, United States Steel and so on—operate centralised organisations, they do so in competition with each other and there is a wide measure of competition. Here, the British Steel Corporation, with 90 per cent. of the trade, would be the only major producer, and I believe that centralisation would eliminate a great deal of valuable competition which can exist even without there being price competition.
Finally, in the international sphere, my hon. Friend the Member for Cambridge expressed disappointment, as I felt, that the Parliamentary Secretary was unable the other day in reply to a supplementary question from myself to indicate that there had been any progress in the talks with a view to bringing order to an industry where what is going on is widespread mutual dumping. We can do something here by swift imposition of anti-dumping duties if dumping is proved. But the problem is much wider than that. There is great over-capacity in the world, and countries are now dumping on each other on an almost unprecedented scale. This results, inevitably, in very low returns on capital and, of course, in grave difficulties for individual nationalised industries.
What is the Government's attitude? Do they regard international action as being 976 an answer? If so, why do they not do more to press this ahead? Or is it thought that this would result in some form of undesirable international cartel and that they see the remedy in some other way? If so, I believe that the hon. Gentleman owes it to the House to explain the Government's attitude.
I agree that the Corporation will need more money, and not only this £100 million, when we have further extension of the borrowing powers. But could not part of it be found by hiving off those activities of the Corporation which are only indirectly, if at all, related to the basic production of iron and steel? We had long arguments in Committee about the wide diversification powers of the Corporation and the many non-steel activities which were being swept into the maw of the Corporation by the Act.
Does it help to concentrate the management's attention on the basic problems of achieving rationalisation in iron and steel production if it is, at the same time, also responsible for operating brick works and is engaging in the construction industry, engineering and many other forms of subsidiary activity? Could not more of the capital needed be found by selling off these activities to the public? I believe that this would do a great deal to concentrate the attention of the management on the vital problems facing the industry.
We do not propose to divide against the Motion. We are bitterly disappointed that the information given to enable us to consider it has been so inadequate and that the Motion should have been brought forward so much earlier than originally envisaged, but we recognise that the Corporation must have resources with which to carry out its task and the fact that the Government made such a miscalculation of this requirement 18 months ago should not prejudice the Corporation in its efforts to deal with the problems facing it.
We hope that the Corporation will succeed in achieving some of the objectives which the Government saw as the primary object of the Act. If we have our doubts, we shall continue to keep them for the time being muted. The most important thing is that the management of this great enterprise should be encouraged to give of its best with the 977 minimum of interference from the politicians. I hope that the contribution the House has made to that end today may have gone some way to helping the industry to face the problems with the confidence and determination which I am sure it wishes to have.
§ Mr. Speaker
I might have allowed the debate to proceed on narrow rules of order, but I broadened it. However, I am in some difficulty. If it were not for the strict rule of the House which necessitates a vote when an hon. Member calls attention to the presence of strangers, I would have informed the House that, in the Strangers' Gallery, listening to the debate, there is a very distinguished British citizen who has brought honour to his country—Sir Alec Rose.
§ Hon. Members: Hear, hear.
§ 3.3 p.m.
§ Mr. Freeson
I warmly welcome your intervention in the debate, Mr. Speaker, to give the welcome of the House to our distinguished visitor.
Before I deal with some of the points raised in the debate, I would like to add my congratulations to my hon. Friend the Member for Sheffield, Brightside (Mr. Eddie Griffiths). I am sure that, despite the implied remarks to the contrary by at least one hon. Member opposite, his arrival precedes the arrival of many more Socialist Members in due course. For the time being, I confine myself to congratulating him on the thoughtfulness of his speech, on the inside information and knowledge he brought with it, and to expressing the view that we welcome the kind of experience that he brings and look forward to hearing it in future debates and studies of the problems of the steel industry.
My hon. Friend raised several points about the industry which I am sure will be noted by the Corporation, as they will be by the Ministry itself. It may be that, to some extent, I will refer to them directly or indirectly in my remarks but I want to single out one of them for a brief comment now, although I commented on it in opening the debate. It concerns the question of worker directors. Before he came here my hon. Friend was one of the 12 workers in the industry chosen to become a worker- 978 director. I met the remaining 11 some two or three weeks ago in a most interesting series of exchanges and discussions in the House during the course of studies on which they embarked under the auspices of the Steel Corporation and the T.U.C. I found it a stimulating and interesting experience.
Most of the issues which were raised in the debate were covered again more extensively by the hon. Member for Wan-stead and Woodford (Mr. Patrick Jenkin). I shall deal with as many as I can and if I overlook any matters of substance, we shall study the OFFICIAL REPORT and do our best to answer in detail. The hon. Member for Wanstead and Woodford referred to dumping, a subject which was mentioned at Question time the other day, and asked what was our position and whether we expected any progress in the international discussions now going on, and what the Government's attitude would be if the present state of affairs continued.
It is not possible for me today to say what progress, if any, there has been in these international discussions. I do not have the details of times and dates, but I understand that we have made it clear that we would be prepared to take antidumping action if it were necessary. But we have not had representations from the B.S.C. on dumping to date, although there has been at least one case in which the Government have taken action, that of Canadian galvanised sheet steel some little time ago.
It must be remembered that the main issue of competition is primarily a matter for the B.S.C., and I am sure that it, as is the private sector, is quite capable of presenting a case to us if it is necessary for action to be taken. In the meantime, international studies of the world situation are taking place, with our full participation in O.E.C.D. and in the Council of Association of the E.C.S.C., and we must await their outcome. It is at least indicative evidence that a consequence of devaluation has been a drop in the rate of imports—more correctly, a check in the rising trend of imports— and I have figures which show that they are now about 2¾ million tons per annum, which is about 11 per cent. of demand. The Corporation expects that steel exports this year will be twice as large as imports. This is a subject on 979 which we await further information from the industry if it is necessary, but it is not a matter which we treat lightly. This is a serious situation which is being closely watched by the Department as well as by the industry.
The hon. Member for Wanstead and Woodford raised the issue of the company structure, as did the hon. Member for Cambridge (Mr. Lane). As I shall have to say on a number of issues, in this respect we will have to await the report, which we are expecting to have by the end of the year, about the future position of the Corporation and its organisation.
As to the structure of the industry, I can assure Members that the Minister has asked the B.S.C., when preparing this report, to make a very thorough evaluation of the case for or against the reshaping of its organisation. It is impossible for me to indicate the outcome of the report, but we have shown that we are interested in this and I am confident the B.S.C. will deal with this thoroughly.
§ Mr. Patrick Jenkin
Will the hon. Gentleman deal with an important point I raised about the impact that this would have upon fair competiton with the private sector? Will this factor be very much in his mind?
§ Mr. Freeson
I can give the assurance that in so far as there is any change it will not be a device to introduce an element of unfair competition with the private sector. If there are conclusions leading to the reshaping of the company structure, they will be based upon internal needs as the B.S.C. sees them, and will not be devices for unfair competition. There is adequate machinery for making submissions to the Minister about unfair trading practices.
The hon. Member for Wanstead and Woodford spoke about rationalisation, and urged that decisions be taken as quickly as possible to relieve anxieties felt in plants and among staffs in different parts of the country. This too will have to await the report, but the B.S.C. is well aware of the need for speed in getting the industry organised properly.
Another point that was stressed, perhaps a little unduly and repetitiously, was the reason for the early return of the Government to the House seeking leave for an extension for borrowing powers. It 980 was said that I had been remiss in providing so little information in my opening remarks. Another question was: How could there be such a serious underestimate of the requirements of the industry so soon after vesting date? The first point to remember is that the B.S.C. did not underestimate. No criticism can be levelled against it. Remarks of hon. Gentlemen implied that this was another way in which nationalised industries did not do their job properly.
§ Mr. Patrick Jenkin
I never said that. I would not wish to make any criticism of the Corporation. This is a responsibility and failure resting squarely upon right hon. Gentlemen opposite.
§ Mr. Freeson
Upon reading the OFFICIAL REPORT hon. Members will agree that the content and manner of the remarks gave the impression that this was a criticsm of the new set-up in the industry. If there is any responsibility it rests with this House and members of the Government.
I am advised that in Committee—I was not present; I was not then in this office—my predecessor made it clear that the estimates which could be made for internal financing could be only rough estimates. But we cannot separate the possible level of internal financing from the need for further borrowing powers. One is linked with the other. If one has miscalculated on the amount of internal financing, clearly one has to draw capital from elsewhere; one will require extended borrowing powers. My predecessor said that these were rough estimates. I will give further information about precisely where they went wrong.
§ Mr. Ridley
The hon. Gentleman is addressing himself to the wrong point. The point is this: why did not the Government know that £195 million worth of obligations, debts and overdrafts would have to be refinanced when they put the estimate in last year's Budget? This is nothing to do with self-financing. It is question of financing the existing debts and obligations of the companies. Why did not the Government know about them and tell the House about them?
§ Mr. Freeson
I do not know why the hon. Gentleman should assume that I 981 am dodging the question. I was coming to the point. It is nonsense to suggest that one can separate the level of internal financing from the need for borrowing.
It has been suggested that we should have known what the full extent would be. It would have been very difficult, in advance of vesting day for the Government or any other authority acting in this matter to have known fully the liabilities with which they would have to deal. The Corporation, in taking on its responsibilities, subsequent to the Measure becoming law, found that instead of an estimated bank overdraft fundable of £32 million, £79 million in liabilities of the companies which it inherited had to be funded. It found in connection with trade bills and acceptance credits in respect of the companies which it took over that a nil estimate turned out to be £47 million.
I could quote a number of other items. We are prepared—[An HON. MEMBER: "Astonishing."] There is nothing astonishing about it. I think that it is true to say that the people operating the Corporation are reasonably competent and to suggest that it is astonishing that they should have discovered this is a criticism of them and not of the House.
§ Mr. Ridley
I must press the hon. Gentleman on this matter. He is now saying that the Government proceeded to nationalise steel without realising that the industry was worth £195 million less than they expected. How could an Administration be so crassly incompetent as the one of which he is a member?
§ Mr. Freeson
The hon. Gentleman should not insist on making little dramatic speeches in interventions. If he has a point to make, we will seek to answer it. Never mind the dramatic interventions. If he is eager to learn of the state of the industry prior to vesting day, I suggest that he awaits the report that we shall get in due course from the industry. I am sure that it will give all the information required by hon. Members on both sides of the House.
I have sought to deal with the matters on which I was asked for information and with the question of the additional finance required which has given rise to our earlier return to the House for the 982 money necessary to enable the Corporation to fulfil its obligation. I should deal briefly with the question of the capital reconstruction which was referred to at great length by the hon. Member for Wanstead and Woodford and other hon. Members. Clearly, hon. Members opposite are being rather precipitate. I indicated in my opening speech that this must await the report that we shall get from the industry. It will involve our consideration of how the starting capital debt is to be treated. Similarly, we must await that report, and the requirements and recommendations which it indicates, before we can know whether there will be a need for legislation, let alone the timing of the legislation.
It will depend upon the kind of financial recommendations that are put to the Government and are finally approved. Then, it will be decided whether legislation is necessary. This afternoon, therefore, I cannot indicate a date or whether there will be need to bring forward legislation.
A number of points were put concerning the future running of the industry. These points arise under the general heading of the structure of the industry, for which, again, we must await the report.
I regret that by the nature of the situation, it being an interim point in time, one cannot go into detail beyond giving the kind of broad outline and summary progress report that I sought to do in my opening remarks. I can, however, assure the House that clearly it will not be long before the Corporation is able to submit a full report to the Government. There will be ample opportunity for Parliament to consider any submissions which are made and any legislative proposals that need to follow. Full information will be available to hon. Members about the proposals of the industry and of the Corporation for the future and the extent to which they are accepted by the Government and acted upon in conjunction with the Corporation.
It is unfortunate from a Parliamentary point of view that one must discuss the situation on such an outline basis instead of full information, but that is part of the facts of the situation. It is not the result of trying to hold back information or views which hon. Members want to 983 hear and discuss. There will be ample opportunity for this and we intend to keep in close touch with Parliament when we have received the recommendations of the Corporation and have any conclusions of our own to put forward on the future of the industry.
§ Question put and agreed to.