TRANSMISSION LINE TOWERS (Hansard, 1 November 1976)

§ Mr. Colin Shepherd (Hereford)

I thank the Minister for coming to the House at this late hour to discuss the United Kingdom manufacturing capacity for transmission line towers. My purpose in raising the matter is to draw the Minister's attention to the possibility of a nonsense arising by the promotion of an over-subscription of manufacturing capacity for transmission line towers through the allocation of public funds administered by the Scottish Development Agency.

I am told by the British Constructional Steel Works Association that eight companies are currently involved in the fabrication of transmission towers in the United Kingdom, the largest being Painter Brothers Limited, located in my con- 1166 stituency of Hereford, with a capacity of 18,500 tonnes per annum. There are two other companies in Hereford—Hereford Welding, with a capacity of 300 tonnes per annum, and Urry Fabrications Limited, with a capacity of 500 tonnes per annum. Two further companies located in Scotland are Hadingtonshire Fabricators and Park Lea, with capacities of 1,000 and 3,000 tonnes respectively, the balance of the 29,300 tonnes per annum total capacity of the industry being made up of Braithwaite and Company of Newport, Clarke Chapman Limited of Tipton and CGS of Peterborough, with 2,000 tonnes, 3,000 tonnes and 1,000 tonnes respectively.

The Minister will note that the available capacity is spread fairly widely over the United Kingdom, although the greatest part is located in Hereford. With its location on mainline railways serving north, south, east and west, and its proximity to the motorway network, Hereford is well situated to supply contracts in any part of the United Kingdom.

I have said that the current capacity is approximately 30,000 tonnes per annum, but the current market volume is only about 10,000 tonnes per annum, although the peak demand in 1966 was 70.000 tonnes per annum. Since that time there has been a steadily falling demand, and this resulted in the liquidation two years ago of the other major fabricator, Lothian Structural Development. This company previously had 30 per cent. to 40 per cent. of the United Kingdom market, but was shut down due to the decline in orders. For similar reasons Painter Brothers of Hereford had to shut down a satellite factory in Cinder-ford in the Forest of Dean.

The future trends of demand are not encouraging. In 1977 the requirements of the four major customers, namely, the North of Scotland Hydro-Electric Board, the South of Scotland Electricity Board, the Northern Ireland Electricity Service and the Central Electricity Generating Board, and area boards will require a total of 9,350 tonnes, and in 1978 the requirement will drop to a mere 4,680 tonnes. It is expected that in 1979 there will be 6,540 tonnes capacity and in 1980–81 10,300 tones capacity. If this is shown as a percentage of the manufacturing capacity available, it comes 1167 out as being 31 per cent. in 1977, 16 per cent. in 1978, 22 per cent. in 1979 and 34 per cent. in 1980–81.

The dramatic fall in demand between 1966 and 1976 has forced companies to adjust their activities. Some, as I have indicated, ceased to trade altogether. Others have spread into other markets at home. Others have sought overseas work so as fully to exploit their technical expertise in transmission tower fabrication.

I emphasise the technical expertise aspect of this. Of all the companies I have referred to only Painter Brothers is involved in the export market to any degree and great credit is due to that firm as it has in the first nine months of 1976 increased its exports to 54 per cent. and gained the Queen's Award to Industry for its export performance.

The Minister can imagine the consternation felt in the transmission tower sector of the construction industry when it heard that a proposal had been put forward to create a company with a plant, possibly to be located in the North of Scotland, and with the objective of undertaking work for all the electricity boards in the United Kingdom. I understand that the investors or partners in this venture, if it were to be floated, would include private individuals. I have had identified to me a management consultant, an existing Scottish engineering company, and the Scottish Development Agency.

If this proposal were just one in which individual and commercial interests had come together to form a consortium and only the private sector was to be involved, I should not be here tonight, but it is the possible inclusion of taxpayers' money by means of the Scottish Development Agency which I think makes it matter of very considerable interest to the House.

If such a company were to come into existence, the effect on the existing companies already supplying the market could be substantial. I assume that it would have comparatively small beginnings, but it would have as one of its priorities the establishment of a firm home base. The effect on exports would not be very great by its own contribution, but it would have the effect of making it much more difficult for those companies already exporting. In saying 1168 this I have Painter Brothers in mind, as it would narrow the home base of these home companies. I mention Painter Brothers in this context because it is the only one to have developed significantly its export business.

As the Minister will appreciate, it is vital to have a proper base load in the home market to be able to compete effectively in the very keen overseas markets, and for the company to bid for contracts abroad it must be secure in the knowledge that should it obtain those contracts it can fill them profitably. Uncertainty in home markets must undermine that ability.

If as a result of the intrusion of a new company into the market, with Government backing, there is an adverse effect on the output of a company such as Painter Brothers, there must be a consequent reduction of the labour force employed. As Painter Brothers is located in Hereford, and as two-thirds of the existing capacity is located in Hereford, I find myself having a very strong interest, because in that event taxpayers' money would have been employed not only to create jobs in Scotland but to create unemployment in Hereford.

I should like at this moment to draw the Minister's attention to the fact that in Hereford, amongst the three companies involved in transmission tower fabrication and galvanising, there are substantially more than 600 people employed. What concerns me as well is that, because of the capital intensive nature of the industry, there would in all probability be fewer jobs created than those destroyed.

As I understand the position at this time, the proposal first saw the light of day earlier this year, and the Scottish Development Agency is now actively pressing the participants in this proposed venture to get something under way and to try to settle the matter.

In a letter to Balfour Beaty Ltd., the parent company of Painter Brothers, the Scottish Economic Planning Department says that individual cases cannot be discussed. The Secretary of State for Scotland, in a Written Answer to me, gave a similar reply. However, I understand that the letter from the Scottish Economic Planning Department sets out the criteria for assistance to industry. It says: The purpose of the assistance is the provision of jobs in the Development or Special 1169 Development Areas. This purpose will not be served if the project for which assistance is provided does not survive. It is therefore an objective of the extremely thorough examination of each application to assess the likelihood of the project being viable. Viability must depend on, amongst other things, the existence of an adequate market. The Department must therefore satisfy itself as far as possible that this condition is met and to do this it must enquire about the size of the market, expected trends and the number and capacity of other suppliers. It is for that reason that I am here tonight.

I trust that I have shown that in relation to the capacity already available to supply the anticipated market demand there is not adequate scope for a new company financed with public money not to have a deleterious effect on those already operating in the market. The figures show that the expected trends are not encouraging, bearing in mind the expected load of more than 34 per cent. capacity in 1981 and that there is today more than three times as much productive capacity available from the existing eight suppliers, two of which are located in Scotland and hold 13 per cent. of existing capacity. The project either will not survive or will inject an unacceptable imbalance into the present market structure.

As the Minister has responsibility for the construction industry, I ask him to make the strongest possible recommendations to his colleagues in the Department of Industry and to the Secretary of State for Scotland to prevent a nonsense. It would be folly in the extreme to use public money to help finance this project.

The motto of the Scottish Economic Planning Department is "in defens". If assistance provided by the use of taxpayers' money to create jobs in Scotland led to the loss of jobs in Hereford, I am sure that the Minister would agree that the motto should be revised to "indefensible", as that tag would adequately describe its actions.

§ The Under-Secretary of State for the Environment (Mr. Ernest Armstrong)

The hon. Member for Hereford (Mr. Armstrong) has made a strong case for his constituency and he has given us the opportunity to consider the problems of a part of the construction industry. I have carefully listened to his argument.

1170 The construction industry generally is going through a very difficult period. There has been a serious decline in work coming forward with subsequent high levels of unemployment throughout the industry. Both sides of the industry have properly expressed their concern not only about the human tragedy involved in laying men off but the anxiety that if the industry continues to decline, when the upturn in the economy comes, the capacity will not be there to meet the demands made upon it. We are paying particular attention to this aspect of the present difficulties.

In the present serious economic situation I can hold out no hope of increasing public expenditure on construction work. Only in July last we found it necessary to reduce public expenditure proposed for 1977–78 by £1,000 million, and of that sum nearly £300 million will fall on construction work. Nevertheless, the public sector programme is still substantial. Our continuing aim is to get value for money and to ensure that we make the very best use of the resources available. We are working closely with the industry to achieve these aims.

In an effort to regenerate manufacturing industry the construction side has an important rôle, and this, of course, has been recognised in the special industry schemes for which financial assistance has been made available under the Industry Act. Up to the end of September this year, projects approved under these schemes included over £30 million worth of construction expenditure, and this attracted grants of just under £10 million. The accelerated projects scheme also stimulated a considerable amount of new industrial building. I am pleased to note that there has been some evidence of a recent upturn in new orders for industrial building.

Constructional steelwork, like other steel manufacturing sectors, is a selected sector in the industrial strategy. In its first report in July the constructional steelwork sector group identified the problems facing the industry and made some suggestions for action. These include measures to ensure that steel supplies are available to meet future demand, consideration of changes in contractual procedures to improve cash flow in the 1171 industry, and efforts to increase the contribution which new industrial building makes to regeneration of manufacturing industry. All of these suggestions are being examined. The sector group has also identified areas for future study.

The immediate problem facing the constructional steelwork industry is the severe cutback in the United Kingdom orders from both the public and private sectors. This has created shortening order books, spare capacity, uneconomic margins, redundancies and some closures. The challenge to the industry currently lies in winning a larger share of a smaller United Kingdom construction market and in increasing the tonnage of structural steel exported.

The sector group is now turning its attention to ways of increasing exports. It will also look at some longer-term issues. These include an examination of the structure and investment needs of the industry, an investigation of the supply of designers and craftsmen and the need and scope for technological development.

We are concerned tonight with that part of the constructional steelwork industry which fabricates transmission line towers. Its output is relatively small compared with the total output of the constructional steelwork industry. The hon. Gentleman reminded the House that production of these towers reached a peak of some 70,000 tonnes per year in the 1960s. But demand fell off during the 1970s and at present amounts to about 8,000–10,000 tonnes per year. As a result of this reduction in demand, some of the firms which previously fabricated towers have now moved over to other structural fabrication work, and some, in common with constructional steelwork fabricators generally, are trying to expand their sales in overseas markets.

The hon. Member referred to the possible financing of a plant for fabrication of transmission line towers in Scotland and the possibility of Government assistance. Section 7 of the Industry Act 1972 enables selective financial assistance to be provided where this is likely to provide, maintain or safeguard employment in 1172 development and in intermediate areas. The hon. Gentleman fairly read to the House the conditions that apply.

The decision on applications for assistance under Section 7 of the Act in Scotland is a matter for my right hon Friend the Secretary of State for Scotland. He has already told the hon. Member that applicants for assistance are assured that details of their proposals will be treated in strict confidence. For this reason 1 am not able to discuss in detail the particular case to which he has referred.

On the general question of assistance under this section help may be given in order to promote development or modernisation of an industry. It can also be given to promote efficiency and to expand or sustain productive capacity in an industry or in particular undertakings within an industry. The Government published their criteria for dealing with such applications for assistance, and laid them before the House in January this year.

It is a basic requirement that any project which is assisted must be viable as the hon. Gentleman acknowledged. An appraisal is therefore made in each case of the market for the company's products at home and overseas. This includes the company's ability to sell in these markets at competitive prices. Other Departments concerned are also consulted. Moreover, before any offer of assistance is made, advice is obtained from the Industrial Development Advisory Board, which is drawn from those with experience in industry, trade unions and banking.

Though, as I have explained, I cannot comment on the particular case raised by the hon. Gentleman, I can assure him that any proposals for assistance for projects in the constructional steelwork sector would be carefully considered in the light of the criteria that I have described. I assure the hon. Gentleman that I shall draw to the attention of my right hon. Friend all the points which he has made tonight.