IRON AND STEEL (BORROWING POWERS) ORDER

HC Deb 30 June 1971 vol 820 cc527-42

Motion made, and Question proposed, That the Iron and Steel (Borrowing Powers) Order, 1971, a draft of which was laid before this House on 23rd June, be approved.—[Sir J. Eden.]

10.13 p.m.

Mr. Michael Foot (Ebbw Vale)

One of the reasons why we did not want this Order taken with the previous debate is that I thought it possible that some of my hon. Friends from steel constituencies who were not able to speak in the debate which has just finished might wish to take advantage of this opportunity. I believe that every hon. Member from a steel constituency who wishes to do so should be entitled to speak on these matters if he wishes.

I shall confine myself to only a few sentences. We approve the Order. We think it right that these borrowing powers should be given to the British Steel Corporation. Perhaps we reached that conclusion by a different form of argument from that which the Government would accept. We do not accept the figures which the Government put to us on some of these matters. We think that over the past 12 months many of the actions of the Government have piled up to an extent of tens of millions or hundreds of millions of pounds the extra burdens which are imposed upon the Corporation.

I do not propose to go through them in detail, but I can itemise simply. First, there is the question of the delay in the investment programme, which the Under-Secretary of State has just dismissed as a matter of no consequence. Yet anyone who sits for a steel constituency can see what has occurred by the postponement of the introduction of development plans which could have gone ahead. We think that this is an extremely costly business. Part of the extra £40 million which is being added to the investment programme is due to the hold-up, part to general inflation, part to delay and part to the fact that these projects have now become more expensive for a variety of reasons. But the hon. Gentleman says—and it is in the right hon. Gentleman's statement—that every item in the investment programme put forward by the B.S.C. has now been approved by the Government, after it has been studied, but the programme will cost more money

The Minister for Industry (Sir John Eden)

In case there is a wider misunderstanding of the position, perhaps the hon. Gentleman will allow me to say that the programme aproved towards the end of last year was £185 million. The programme now approved is £225 million. That is at 1970–71 prices. At current prices that would be as much as £258 million. It is not right to say, as the hon. Gentleman said, that the reason for the increase is inflation.

Mr. Foot

Whether the investment programme is £225 million or £258 million, there the different reasons why the cost of the Corporation's investment programme has gone up. Inflation is one reason. Another reason is that the physical development may be greater. There has also been delay. It is obvious that if an investment programme is delayed, particularly in a period of extreme inflation, the cost will be affected. The cost of the project in my constituency has been increased because of the long delay. Everyone knows that if a development programme is held up for any length of time it will cost more, and that is an addition to the burden of the Steel Corporation.

Then there is an addition to the burden on the Steel Corporation caused directly by the Government because of their delay in giving the Corporation the freedom of price selection which they now propose to give it. They now think it right that the Corporation should decide whether or not it will put up its prices. A few months ago the Government did not think this was right, but they have now come round to thinking that it is right. The Government have come to the view that it is wrong for them to discriminate against the Steel Corporation by fixing prices in that industry and not in any other industry. That interim has cost the Corporation a figure which can easily be calculated, which I suppose is about £20 million. Taking the whole year the difference of the 7 per cent. is about £70 million. That is another £20 million added to the previous burdens.

Then there are investment grants which in a full year would cost the Corporation about £300 million, although that figure is open to argument. We have never been able to extract from the Government how they estimated that figure. To suggest that the abolition of investment grants does not affect the B.S.C. is an absurdity.

Going through the list, there are five extra burdens which have been put on the Steel Corporation by direct action of the Government, leaving aside the injury to morale, all the uncertainties and ambiguities, the hivings off and all the rest. Of course that affects the amount that the Steel Corporation requires to borrow in the period we are envisaging under this Order. All I am saying is that we were not prepared to accept from the Government the conventional excuses which they put forward in steel debates for the necessity of raising the figure which the Steel Corporation is to borrow.

We believe that the figure has to be raised partly because of general inflation, partly because of direct Government policy which has injured the position of the Corporation, and partly because the general operations of the steel industry have been enlarged. Since we want these operations to be enlarged, we wish to see the situation covered by these borrowing powers. Therefore, although we are in favour of the Order, we are not prepared to stand for any attempt by the Government to present false reasons why this is necessary. I say this partly because of the disputes we have had over these matters with the Minister for Industry on other occasions.

As my hon. Friend the Member for Chesterfield (Mr. Varley) said a little earlier, in steel debates there is inevitably an extremely lopsided situation in which there are large numbers of hon. Members on this side of the House who are extremely interested in the subject of the steel industry, whereas very few hon. Members opposite are interested in this matter. One way in which this situation can be adjusted is to ensure that those of my hon. Friends who were unable to catch Mr. Speaker's eye in the earlier debate will have an opportunity to do so now. Although we do not propose to vote against the Order—which would be an absurd situation in view of our attitude on this matter—we wish to protect the rights of back-bench Members from the steel constituencies to put their case to the Government, particularly when we believe that the Government have misrepresented the position of the Corporation and when they are engaged in many actions which we believe must be the subject of the severest scrutiny.

10.23 p.m.

Mr. James Tinn (Cleveland)

I shall not detain the House long, but I should like to say a few words about the future investment policy of the industry, which is relevant to this Order. I should like to ask the Minister for an early assurance about the proposed development of the large plant on the Tees, since we had every right to expect an announcement on this matter had it not been for the Government's intervention and their survey of the long-term investment policy of the Corporation.

The Tees, with its deep-water facilities, its readily available labour force, its good internal communications and much flat land available, is an ideal site, and the area should be put out of suspense by being told what is to happen about the new plant.

If I make only one or two observations, I hope that their significance will not be judged in proportion to the time I take to put them forward since they are worthy of attention in considering the long-term investment programme. The trade unions and workers in the industry have accepted the need for modernisation. However, all this is now dogged by uncertainty and possible redundancies.

I would like to put one or two queries about the case for a large plant on the Japanese model. We have heard all the arguments in favour of such a project, but I would draw attention to certain hidden costs. The first and most obvious is the capital cost of such a large-scale development. We hear a great deal in industry of the wage cost per unit of product, but we hear very little about capital costs. Yet it has been the experience in the steel industry that more than one firm has driven itself into bankruptcy by not getting its capital cost situation and the servicing of its debts quite right. I hope that this matter will not be disregarded when looking at the aspect of labour costs.

Then there are disadvantages inherent in very large plants, in their rigidity, for instance, in terms of time, and the fact that in laying down such a plant one is committed for a very long period to the state of technology available at the time when the plant is designed and laid down. In an industry and at a time of rapidly developing techniques this can be a very real danger. I am not at all certain that the flexibility which is inherent in a smaller plant with a shorter working life may not be a considerable countervailing attraction.

Large-scale plants can be inflexible in terms of production. Their profitability is realised only when they are working at or close to their maxima, at their fullest utilisation. Such works are usually at a state of under-capacity or overcapacity. It would be dangerous to base the industry too heavily on plants which are of a scale at which they depend on 90 per cent. of capacity utilisation. We have, for instance, seen the odd spectacle of a so-called modern, efficient plant running at a heavy loss of 60 per cent. or 70 per cent. in my own constituency when an older plant has been able to ride through recession after recession maintaining its production, maintaining its export market, and even taking on labour.

This flexibility of production, and also ability to cater for specialist customer needs, are tremendous advantages which small plants have and which I hope will not be forgotten. To take an analogy, in the clothing industry there is large-scale mass production of clothing, but it has never driven out the bespoke tailor, who meets customers' special needs. On the finishing side, the Skinningrove Works, for instance, fulfil specialist needs for certain sections of shortrun orders, and I hope that this kind of specialist need and flexible response will not be forgotten.

I would draw attention, too, to the absolutely imperative importance of developement in the basic oxygen and steel-making process not being frustrated by the failure to develop these plants in attempting to lay down attractive, new, highly productive steel-making products. If that development is not matched by an equally ambitious programme of development on the finishing sides it will make for production difficulties which will frustrate them.

I promised to be brief and I will conclude on that. I have summarised points which I hope the Minister and the Corporation will bear in mind during the long-term survey.

10.29 p.m.

Mr. George Lawson (Motherwell)

There are two points which I should like to put. I did not attempt to catch the eye of the Chair during the previous debate because it seemed to me that there were urgent matters which ought to be aired in this debate, and I am happy to utilise this occasion. Perhaps the Minister may be happy, too, because my first point relates to what he was saying when he was, as it were, closured by the clock. I should like to hear that point more fully developed.

I bring up this matter in no spirit of hostility. I am sure my hon. Friends know my attitude on this matter, which is an important matter, and, in all friendliness, I would say that I should like to have as much reinforcement as I can from my own side of the House.

At a time when we are moving towards joining the E.E.C., it occurs to me to wonder whether this kind of Order will be possible in the future. Will it be possible for public money on this scale to be made available to an industry? Certainly I can see arguments against it. If, for example, a big motor car factory in France was re-equipped out of public money in order that it might be able to sell more motor cars in this country, a great many of my hon. Friends would object strongly. I can see European steel makers objecting if the British steel industry regularly is subsidised out of public money in order to re-equip itself and put itself in a position where it can sell more cheaply than its European competitors. A nationalised industry which is financed in that way can go on for years without paying interest, and, from that point of view alone, there could be legitimate complaints.

I hope that the Minister will tell us that he does not see this being necessary. I support the Order. I have taken the view for a long time that our steel industry cannot put itself into the position that it requires to be in out of its own resources. It has not even maintained itself, quite apart from reinvesting. It has not spent anything like enough money on wear and tear and maintenance. It is in a state where hundreds if not thousands of millions of £s have to be spent if it is to compete successfully. I hope that we shall get away with a very heavy expenditure out of public funds to bring the industry to an efficient state so that, when eventually we enter the Community, it will not be necessary for the industry to continue drawing large sums from the public purse in order to maintain itself.

I should like an explanation from the Minister of how he sees the future. His Department must be aware of the situation. It is not new. It has not been sprung upon us recently. The industry was in much the same state when, in 1967, the then Government declared that they were in favour of getting into the European Community. I hope that the Minister will tell us in a little more detail how he sees the steel industry being brought to the state of efficiency that we all want to see. I hope, too, that he will say that it will not be necessary to continue putting in public money in order to keep the industry efficient.

My right hon. and hon. Friends are happy about the pricing arrangement. We objected strongly to the Government's intervention which manifested itself in terms of price control for the industry. We are not objecting to the kind of freedom now proposed. This is very much a matter of harmonisation. I am a good enough Socialist to believe in harmonisation in terms of economic interests and in terms, for example, of bringing about higher standards in our not so well-off regions. This is all part and parcel of things. I am not 100 per cent. confirmed. I am able to listen to arguments, but these are arguments that I want to hear reinforced, and, if I am wrong, fair enough.

In one respect I am a little ashamed to put forward my second point. It is not a big thing. It will not cost more than about £15 million, but it is necessary to the steel industry in Scotland. I am not talking about a green field site, or about spending millions of pounds. What I have in mind is the ore terminal that is necessary for the maintenance of the existing industry. Such a terminal would double the capacity of Ravenscraig, and it would do it cheaply.

I am sure that I have the support of my hon. Friend the Member for Sheffield. Brightside (Mr. Eddie Griffiths) when I say that an ore terminal would enable us to double the amount of steel produced. At one time I had some doubt about Ravenscraig being accepted, and I appreciate the help that has been given by my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot) and others to this project. At one time things got to such a pitch that one of my hon. Friends said, "This damned place Ravenscraig. It is like King Charles's head. We cannot get rid of it".

The provision of the ore terminal is complementary to the development of Ravenscraig. In spite of what has been said, I feel very friendly towards the Minister tonight, and I hope that he will say that this terminal is necessary and that its development should go ahead.

10.37 p.m.

Mr. James Hamilton (Bothwell)

I, too, am a Lanarkshire Member, and from a constituency point of view my hon. Friend the Member for Motherwell (Mr. Lawson) is my next-door neighbour.

I start where my hon. Friend ended, by talking about the Hunterston ore terminal. On many occasions my hon. Friend the Member for Motherwell, I, and others of my hon. Friends who represent steel constituencies have met the Secretary of State and the Minister for Trade. We have also met Lord Melchett and representatives of the Corporation. It has been made indelibly clear to us by Lord Melchett and his colleagues that the Hunterston ore terminal is complementary to the Ravenscraig project. It may seem that we are being patronising to the Government, but we are putting forward a serious case, and I hope that we shall receive some assurances about this project.

It may seem that we are being parochial, but it must be realised, as I am sure the Government realise, that we come from an area in which about 8 per cent. of the insurable population are unemployed and that we are, therefore, deeply concerned about our traditional industries.

Only a few months ago the Clydesdale Works, at Moss End, with open hearth furnaces, achieved a record production, so much so that the Corporation took the trouble to send a complimentary letter to the factory. The relationship between management and workers is of the best. I often visit the works. In fact, I am going there on Saturday to meet trade union representatives at Scottish level, and also shop stewards.

Last night, I met top-level representatives of the firm in the House. They are also concerned about the Corporation's policy of putting electric furnaces into this works at a capital cost of £15 million. This might sound a small figure beside the £285 million at current prices in the Order, but it is vitally important, because otherwise the works could close, adding to unemployment. With the Hunterston ore terminal, all these things will be complementary. Steel is inseparable from Lanarkshire, particularly Motherwell.

After our meeting with Lord Melchett and his colleagues, we were left in no doubt that a price increase of 14 per cent. was vital for the industry's well-being. After Government intervention, it was reduced to 7 per cent. Our information from the Press is that the Minister was in favour of 12 per cent. but was overruled by the Cabinet. Lord Melchett did not agree to 7 per cent.: he simply received a direct Government instruction which had a serious effect on investment.

I am very much in line with my party's policy on entry of the E.E.C., that we should do and say nothing until we know what the package deal is. I am not like my hon. Friend the Member for Mother well, who is a convinced European. I am prepared to examine the terms when they are presented to us——

Mr. Lawson

I do not have a closed mind; I am prepared to listen to a good argument.

Mr. Hamilton

Yes, I know that my hon. Friend is most receptive to other points of view, particularly mine. When he hears my view on Europe, I am sure that we will both go into the same lobby. My hon. Friend's analogy about the unfairness of competition is worth consideration.

I should like an assurance about the Clydesdale works, since I could then give the workers some hope that the Government and the Corporation will do something for the works.

10.45 p.m.

Mr. Eddie Griffiths (Sheffield, Brightside)

The advantage of discussing matters of this kind at this late hour is that one can have a sober exchange of views across the Floor of the House and hope, by asking the Minister some straight questions, to get some straight answers. There are a few straight answers that I should like from him tonight.

According to the Secretary of State, the figure of £225 million capital investment is £40 million more than the Corporation wanted. This, I gather, means that a number of extra schemes will be started during this financial year. We know of some of them, but may we have information about the rest? May we also have a breakdown of the figures by being told where the money will be spent? For example, will the Ebbw Vale scheme be started? Will the capital investment at Shotton continue, and how much will be spent in the Sheffield area?

On the question of hiving-off or exchanging the assets in respect of B.S.C. and Firth Brown, if the amount of money that will be exchanged is considered by the Corporation to be insufficient, will the deal still go through?

I will not, in discussing briefly the question of prices, be as unkind as some of my hon. Friends and suggest that G.K.N, will take Brymbo as a sort of gift for political services rendered. I accept the Minister's defence of G.K.N.—that it was formerly the owner of Brymbo, and that it has taken 80 per cent. of Brymbo's products. That is a valid argument.

However, the same applies to East Moors. Is the Minister aware that it will be more creditable if, for example, the deal that eventually goes through results in G.K.N, taking on its former ownership, that is, taking in Brymbo and East Moors? There would be the possibility of a deal on that basis.

I regard the appointment of two additional part-time directors as completely unnecessary. To cover the whole country, there is only one worker-director. If the Minister insists on increasing the number of non-executive part-time directors, he should increase the number of worker-directors on the main Board.

I am particularly alarmed about the fact that within the Corporation there are two directors, Tom Craig and Tom Cartwright, who have special responsibility for Scottish and Welsh interests respectively. Is it really thought that one can stick a sporran over a furnace in Scotland, or stoke the flames with a haggis, to cater for Scottish interests in this matter, or suggest that the special problems of Wales are being catered for by considering what happens at, say, Port Talbot, and appointing a director to do that?

Is it a coincidence that the vast majority of closures within the B.S.C. in the last nine to 12 months have taken place at English steel plants? It could be a coincidence and have nothing to do with the special priority that Scotland and Wales have been given by the Corporation. There have been closures at Irlam, Cargofleet, Rotherham, Sheffield and Manchester, and apart from one small redundancy in South Wales, that area has hardly been touched.

This is annoying to those who represent English steel constituencies. For instance, my only opportunity for asking questions of the hon. Gentleman is at Question Time, but our Scots friends can seek information in their Grand Committee or from the Secretary of State for Scotland or the Secretary of State for Trade and Industry at Question Time. The same sort of thing applies to our Welsh colleagues. This preferential treatment has nothing to do with language or culture but with the steel industry, which is the same throughout the land. I ask the Minister to give very serious consideration to this great bias.

10.50 p.m.

The Minister for Industry (Sir John Eden)

I can reassure the hon. Member for Ebbw Vale (Mr. Michael Foot) that the main reason for the increase in the total capital sum approved for investment is the nature of the programme. The £40 million increase reflects higher rates of expenditure on existing projects, especially at the Anchor No. 1 project at Scunthorpe. This has been accelerated quite considerably and is the main element in the extra cost. That project will greatly assist the profitability of the Corporation.

The hon. Gentleman rather implied that there was a substantial additional burden of cost on the Corporation as a result of delays imposed by the Government. I assure him that that is not so. I know that he has never accepted this assurance, but all I can do is to repeat it. The only scheme which was delayed was Llanwern C, the start of which was delayed for a very short time only. Approval was announced by my right hon. Friend the Secretary of State for Wales, curiously enough, in the Welsh Grand Committee on 28th April.

But other projects, such as that at Scunthorpe which I have already mentioned, were not in any way held up by the review. Existing projects such as Shotton and Ravenscraig are going ahead, as well as the Ebbw Vale pickle line and the Aldwarke 4,000 lb. coil project, all of which have been approved within the total sum of £225 million.

The hon. Gentleman asked about investment grants. It is of the very nature of the transitional scheme that investment grants are continuing to be paid. The Corporation will continue to receive investment grant in arrears on its existing contracts. The cash benefit will progressively decline in the years ahead—that I accept; it is in the nature of the change over from the investment grant system—but this gradual phasing out will last for a considerable number of years before it completely disappears.

I have every confidence that the Corporation will move towards profitability and in due course, like any other industry, become eligible for the whole range of investment incentives provided by the Government. The hon Member for Motherwell (Mr. Lawson) asked whether Hunterston was affected. He knows that the ore terminal there has been the subject of discussion between the Corporation and Clyde Port Authority. This followed the decision of my right hon. Friend the Secretary of State for Scotland to allow that development. It is early days yet for me to spell this out in any greater detail and give the full extent of the information that has been asked for, because it is a matter of the Corporation persisting in the negotiations and then later the approval of my right hon. Friend the Secretary of State for Environment under Section 9 of the Harbours Act, 1964, would be needed if it is decided to proceed.

Ravenscraig is an extremely important project designed to double the output of hot-rolled coil, enabling the existing plant to operate at full capacity. This is likely to cost £58 million and it is due to start in 1971–72.

The hon. Member for Cleveland (Mr. Tinn) asked a number of questions about Tees-side which is one of the key steel-making areas. I am sure it will continue to play a prominent part in the industry. The Lackenby development is well under way and involves a £40 million investment in basic oxygen plant and associated continuous casting work. The first stage is nearing completion and the first two B.O.S. vessels were commissioned on 10th March. There is also the work on the ore terminal at Redcar which is a £16 million investment.

The hon. Gentleman asked me about a green field or brown field site. As he fairly recognises, that falls within the general purview of stage two of the review. It would be a major new investment project. I fully accept that it has significant regional implications. These matters will be fully taken into account during the review. Proposals of this kind are in any event for the Corporation to put forward. It is for it to decide in the first instance on location and things like that and we have had no proposals from it as yet. We are well aware of the claims of the region, as is the Corporation.

Mr. Ted Leadbitter (The Hartlepools)

I am grateful to the hon. Gentleman for making special reference to Tees-side which is a major steel-production area. South of the Tees production is at the rate of 5 million tons. The Hartlepools and Consett part of that area's steel production is of the order of 2 million tons. There are great question marks over the future of Consett and the Hartlepools. Has the hon. Gentleman anything to say about the share of capital investment in the whole of Tees-side which is not detrimental either to Consett or the Hartlepools?

Sir J. Eden

I cannot give any figures to the hon. Gentleman, but I recognise the importance of these matters. If I can give him any further information, perhaps I may write to him. If he then wishes to take the matter further with me, I should be very happy for him to do so.

The hon. Member will be aware that the British Steel Corporation is making every effort to mitigate the effects of the tremendous redeployment which has taken place in the area generally. Some of it is directly attributable to the new investment, a point which was made by the hon. Member for Sheffield, Brightside (Mr. Eddie Griffiths). When it affects a certain locality or plant, it is not only extremely difficult for everyone in the industry to accept, but it is understandable that voices will be raised concerning it. I think, however, that all of us, certainly those in the industry as a whole, fully recognise the process of development and new investment which must take place and the consequential effect which it will have on the closure programme relating to the older plant.

In the area around Lakenby, the Corporation is trying to pursue a number of measures to attract new jobs by the development of industrial estates on surplus land owned by the Corporation. It is doing this in co-operation with a firm of industrial developers. I gather that about £5.5 million will be spent on 2 million sq. ft. of new buildings on the area adjoining the Corporation's 84-in. pipe mill at its Stockton works. If I am able to add anything further to what I have said, I will do so in writing to the hon. Member.

The hon. Member for Motherwell asked about the situation that might arise were we to become members of an enlarged European Community and whether we would still be in a position to bring forward an order of this nature. Perhaps I may try to re-emphasise the position as I see it. The internal measures of reconstruction or expansion do not require approval under the E.C.S.C. Treaty. Indeed, the Community policy expressed in that treaty is to promote the regular expansion and modernisation of production, subject only to avoiding special forms of protection or discrimination.

The major producers should not, of course, use their size to stifle competition or engage in practices which are discriminatory in nature. If they were to do so, the Commission would become involved in their affairs. As I think the hon. Member is very well aware, there are a number of major public sector industries within the Community countries. Some of these are funded from State funds, and I see no reason why this should not continue in the case of the British Steel Corporation.

I hope that I have been able to answer some of the points which have been raised, but before finally resuming my seat perhaps I may deal with the matters raised by the hon. Member for Brightside. I think that his points concerning the directors were outside the scope of the Order. I have noted what he said, however, and I will look at the matter again, but I do not see that it is raised directly by the Order.

The hon. Member asked about the Firth Brown-B.S.C. deal. Perhaps the easiest thing for me to do by way of answer is to refer the hon. Member to the joint statement made by the Corporation and Firth Brown, in which they stated that Discussions have now reached the stage at which the general objectives have been defined and agreed and form a basis for further discussion and detailed negotiation ". In other words, what I was saying earlier is now about to begin, and it could only begin when approval in principle had been given by the Government to permit the Corporation to proceed on these lines. I hope that these detailed discussions and negotiations will be successful and, as a result, come to a satisfactory conclusion. It is not without precedent that, when an announcement to negotiate a merger in principle has been made, subsequent detailed arrangements do not work out to the satisfaction of both parties. I hope that that will not arise in this case.

Mr. James Hamilton

Can the Minister enlighten me on the point I made about the Clydesdale works? I thought that it was in the 1971–72 programme.

Sir J. Eden

All the proposals which were in the Corporation's programme are now subject to the approval of the £225 million. It is now a matter for the Corporation to decide how, and over what period of time, it should proceed with the plans it had in mind when those proposals were drawn up.

Mr. Eddie Griffiths

Is the Minister saying that to the best of his knowledge a price has not been agreed at this stage for the Firth Brown-River Don complex?

Sir J. Eden

That is a matter for the parties to the negotiation. This involves, not only a public sector corporation, but a publicly quoted company. In these circumstances, it is right that matters of that kind should be dealt with by them. I have no doubt that when they have taken these detailed negotiations considerably further there will be the opportunity for them to be disclosed and details made publicly available.

Question put and agreed to.

Resolved, That the Iron and Steel (Borrowing Powers) Order, 1971, a draft of which was laid before this House on 23rd June, be approved.