HC Deb 28 June 1968 vol 767 cc1053-62

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

4.0 p.m.

Mr. Donald Anderson (Monmouth)

Unless the Government modify their present regional policies, there is a strong danger that the British Steel Corporation may be forced to make major investment decisions on grounds harmful to the competitive position of our steel industry and, because of that industry's position in the economy, to our overall economic interest.

I should like to illustrate this by reference to the problems of the Spencer Works at Llanwern, in my constituency. The works is an integrated iron and steel works with an annual production of over 1¾ million tons of steel delivered in the form of sheets and coils to the manufacturers of motor cars and consumer durables in this country and abroad. About 50 per cent. of its production goes for exports.

The works is a basic supplier of some of our major industries. It was commissioned in 1962 and employs over 8,000 people. Sadly—this is the nub of my case—the works is sited just outside the Welsh development area and thus gains none of the normal regional incentives given to firms within those areas. This, for the Spencer works, is a very costly exclusion and means, for example, a financial difference of about £750,000 per annum on labour costs and, given the Regional Employment Premium and the 45 per cent.—25 per cent. differential on investment, this means that there is an investment disincentive, at the current level of expenditure of about £600,000 per annum. With the expected substantial increase in steel investment, this disincentive is likely to be much more important.

To put the problem in its regional context, there are two giant producers of steel and sheet in the South Wales Group —the Abbey works at Port Talbot, formerly of the Steel Corporation of Wales, which is in the development area, and the Spencer works, formerly of Richard Thomas and Baldwins. Therefore, the former gains the full gamut of regional incentives while the Spencer Works, which is outside the development area, is denied them. Both these works are obvious candidates for major new investment and it is clearly desirable that the decisions about major steel investments should be based on operating efficiency, technical considerations and lower real costs.

Given these financial disincentives, it is likely that the decisions which will be taken will not be in the overall interests of our steel industry. I contend that the two works at Port Talbot and at Llanwern should be put on an equal footing. Either both should be within the development area, gaining the full benefits, or both should be outside and denied them.

When the Conservative Government, yielding to regional pressures, by compromise, split the major steel investment which was necessary in the late 1950s, in 1959, between Colvilles, Ravenscraig and Llanwern it was envisaged that the Llanwern Works would move from an initial 1.4 million ingot tons capacity to about 3 million tons. The site was laid out and the machinery installed to facilitate that aim of reaching the higher figure. The output at Llanwern can be considerably increased by a relatively small capital cost, but to gain full advantage of these new investment should be made quickly at Spencer. Yet the present subsidy structure militates against that.

Looking at the local employment picture, it is clear to anyone who knows the topography of Monmouthshire that no site of sufficient size to accommodate a major steel works could be found within the present development area. Spencer Works covers over 1,350 acres and are over 3½ miles in length. No area within the development area on the West side of the county could possibly provide a site for such a vast industry.

As it is, Spencer provides both a direct and an indirect solution to the employment problems of the coal valleys of the West and the old-type steel works, the declining small-scale steel industries. About 50 per cent. of its employees come from within the development area, from the old coal valleys on the West side of the county. That 50 per cent. commute daily to work. The bulk of the remainder of the work force at Spencer have moved from the development area into the greenery of my own constituency or in a drift to the coastal belt.

But there is not only this direct contribution to employment in Monmouthshire. As a result of the very size of the works, a considerable indirect contribution has been made to the local employment position, which has played a major part in offsetting the loss of employment caused by the rundown of the old Royal Naval Ordnance factory.

I contend that the above considerations merit a Governmental re-look at the problem of the Spencer works, and that that re-look should be done urgently, whether within the context of the Hunt Committee on the problems of the intermediate areas or not. I say that it should be done urgently because the plan of the future shape of the British steel industry will largely be mapped out within the next 12 months. Already, a working group of the British Steel Corporation is working urgently on this task.

As the industrial editor of The Times recently argued—I understand on authoritative grounds—given a 3 per cent. national economic growth rate, the British Steel Corporation must have about 35 million tons of crude steel capacity by 1975, of which perhaps 20 million tons will be new investment. Therefore, some very harsh decisions will have to be made about the older plant.

At £60 per annual ton of steel and finishing capacity, over the five years 1970–75 it means that there will be a need of about £240 million of new steel investment per annum, which compares with only £100 million of new steel investment in the current year. These coming investment decisions are vital for the long term viability of our steel industry, given the very ominous competition to which our industry is subjected particularly from the Japanese with their remarkable productivity rate.

Is it not ludicrous to ask the British Steel Corporation to make firm decisions on the geography of iron and steel production in this country on a consistent basis when different plants receive such varied public assistance? Because of the existing Government subsidies, will not the investment decisions be divorced from the true arguments of steel efficiency— access to ports, size of site, capacity for expansion and true capital cost per ton of new capacity? Major decisions are imminent. I contend that they should be on a realistic basis if we care for the future viability of our steel industry.

4.11 p.m.

The Parliamentary Secretary to the Board of Trade (Mrs. Gwyneth Dunwoody)

I am most grateful to my hon. Friend the Member for Monmouth (Mr. Anderson) for giving me this opportunity to speak about the industrial prospects of Newport and the surrounding area, and about the vitai contribution which the Spencer steelworks makes, and will continue to make, to employment there. I am already familiar with the thoughtful and well-informed interest taken by my hon. Friend the Member for Monmouth and my hon. Friend the Member for Newport (Mr. Roy Hughes) in the economy of this southeast corner of Wales, and I can assure them that their views, and the recommendations which they put forward, are always received with interest and given the most careful attention both by myself and my Department.

Before replying specifically to the arguments advanced for the inclusion of the Spencer works in the Welsh development area, I should like to refer briefly to the current industrial and employment situation in Newport. I am sure that hon. Members will agree that Newport is one of the most prosperous areas in Wales and Monmouthshire, with a well-diversified industrial structure. Apart from steel, leading firms in the chemical, electrical and telecommunications industries are represented in the town.

Newport has good rail links to the East, North and West; the M4 motorway runs nearby and acts as a bypass for the town centre; and the Severn bridge provides easy contact with Bristol and the South and South-East of England.

I am glad to say that the Board of Trade will itself be making a significant contribution to office employment in Newport when the Business Statistics Office moves there in the early 1970s. We expect initially to provide between 1200 and 1300 jobs, of which some 900 will be recruited locally.

Mr. Anderson

Does my hon. Friend not think it a little unfair to restrict it entirely to the Newport catchment area when the Spencer works covers a much larger area, including areas of high unemployment?

Mrs. Dunwoody

If my hon. Friend gives me time to develop the argument, I will try to satisfy him on that issue.

May I return to the Business Statistics Office? The Business Statistics Office will build on the work currently undertaken by the Board of Trade Census Office at Pinner on the censuses of production and distribution. It will be responsible for redesigning methods of collecting industrial statistics to provide as prompt a service as possible of the information required to run a modern industrial economy. I am happy to have this opportunity to acknowledge the full support which the Board of Trade has enjoyed at all stages from the local authorities in Newport.

At the May count, the level of unemployment in Newport was 29 per cent. of the insured population. This compares with the current national average of 2.4 per cent. and an average of 4.2 per cent. for the Welsh development area as a whole. In Pontypool, for example, some ten miles to the North of Newport and just inside the development area, the figure is 4.4 per cent. I shall certainly keep a careful watch on employment trends in Newport, but I do not think that its problems compare in severity with those of parts of the Welsh development area, notably the mining valleys worst hit by colliery closures.

While the Board of Trade is certainly ready to consider sympathetically requests for industrial development certi- ficates for expansions of local firms or for other modest new investment at Newport which cannot be steered to the development area—and we will do the same for Chepstow, Abergavenny and Monmouth—we must continue to ensure that support for industrial development at Newport is not given at the expense of the areas of really high unemployment to the West.

The Spencer steelworks is the largest employer of labour in the Newport area. It currently provides over 8,400 jobs— more than at any time since it was opened in 1962. It is one of the largest integrated steelworks in Europe, and exports about half its output. It is a modern, technologically advanced plant, of which Newport has every reason to be proud.

I should now like to turn to the arguments which have been put forward for giving development area status to the Spencer works. Let me say first of all that the development areas are designated on the basis of employment exchange areas, since these areas, or groups of areas, generally reflect patterns of work and travel to work. Under the Industrial Development Act, 1966, the Board of Trade, in selecting areas for designation as development areas, is required to have regard to all the circumstances actual and expected, including the state of employment and unemployment, population changes, migration and the objectives of regional policies. I do not think that we could in practice apply these criteria to areas smaller than the employment exchange areas, and even though the Spencer works is by far the biggest employer of labour in the Newport area, it would not be possible to give development area status to the Spencer words and not to other local firms without a degree of discrimination which could not, in my view, be justified, and which could only run counter to the principles of the 1966 Act.

It has, however, been argued that some account should be taken of the large number of men and women who live in the development area and work at Spencer. It is true that under the Local Employment Acts firms outside the old development districts could get assistance in proportion to the employment they provided for workers from those districts. But these provisions were removed in the Industrial Development Act and we now have no powers to give this kind of assistance. They were removed because experience had shown that they were extremely difficult to administer, and caused misunderstanding and resentment among industrialists. There was no clear-cut basis for assessing the proportion of employees drawn from the development districts which could make a firm eligible for assistance, and the inevitable tendency of firms to recruit employees from these districts rather than from their immediate locality tended to distort the normal sources of labour supply. Moreover, the necessity for these provisions was lessened with the introduction of wider development area, since most of the places which had hitherto benefited from assistance on a travel-to-work basis were included in the wider areas.

If, therefore, the Spencer works were to be eligible for development area incentives this would have to be done by extending the present development area boundaries to include Newport. But as I have already pointed out, the economy of Newport is in much better shape than the economy of much of the rest of Wales and Monmouthshire. The unemployment level is lower than that of the Welsh development area, and it enjoys excellent land and sea communications. If we were to put Newport on a level with the Welsh development area as far as incentives for industrial development are concerned, its attractions would, I think, be irresistable to incoming firms. We should then have a hard, if not impossible, task in persuading industrialists to expand in other parts of South Wales— the mining valleys, for example or South Pembrokeshire—whose industrial future is much less firmly assured than that of Newport. At a time when the number of new projects coming forward is not unlimited, I am sure that it is right on social and economic grounds to concentrate assistance on those areas where the most serious and intractable problems of unemployment are to be found.

As my hon. Friend has pointed out, the South Wales Group of the British Steel Corporation includes two major plants—Spencer and Port Talbot. Port Talbot is in a development area and Spencer is not. I can understand that the British Steel Corporation might prefer to take decisions on capital investment in the two plants solely on the basis of technical efficiency and relative production costs, without having to take into account the discriminatory element on Government incentives to industry which favours the development areas. But the private and social costs of investment decisions, by the B.S.C. as by any other commercial organisations, are not necessarily the same. The Government have a responsibility, which I am quite sure the hon. Member would be the first to acknowledge, for ensuring a more even spread of employment throughout the country and for helping areas most in need of new jobs. If the development area incentives are sufficient to persuade industry, whether in the public or in the private section, to locate new investment in the development areas which would not otherwise have gone there, then they are doing the job for which they were created. We believe that the national interest requires there to be a bias in investment decisions in favour of the development areas.

I am not, of course, arguing that no new investment in steel production in South Wales should take place at Newport. This is primarily a matter for the commercial judgment of the British Steel Corporation, taking into account both the facilities available at Newport and the development area incentives available elsewhere. It is, however, perhaps worth noting that in 1959, when the steel industry decided to set up the Spencer works, they chose a site near Newport even though higher rates of Government assistance were available at locations further to the West.

For these reasons I do not believe that the Government would be justified in present circumstances in extending the Welsh development area to include the Newport area and the Spencer works. But, as the hon. Member well knows, a committee under the chairmanship of Sir Joseph Hunt is currently looking into the problems of areas other than the development areas where the rate of economic growth may give cause for concern. Members of the committee visited South Wales on Monday and Tuesday of this week. I understand that they had discussions with local authority representatives and with the British Steel Corporation; and although the evidence submitted is confidential to the committee I should be extremely surprised if some of the points mentioned by the hon. Member for Monmouth were not also raised on this occasion.

The Government hope to receive the report of the Hunt Committee by the late autumn. They will then give urgent consideration to whatever proposals it may put forward. I cannot, of course, say what the outcome will be, but I can assure the hon. Member for Monmouth that in the course of these studies, both by the Hunt Committee and by the Government, the views which he has expressed, and the proposals put forward by industry and local authorities in the Newport area, will be taken very fully into account.

Question put and agreed to.

Adjourned accordingly at twenty-one minutes past Four o'clock.