§ 2.53 p.m
§ The Minister of State, Department of Industry (Mr. Gerald Kaufman)
I beg to move,That the draft Iron and Steel (Borrowing Powers) Order 1977, which was laid before this House on 7th July, be approved.The maximum amount of money which the British Steel Corporation may raise by way of borrowing and advances of public dividend capital was last revised just a year ago by the Iron and Steel (Amendment) Act 1976. The limit was then set at £3,000 million, but the Secretary of State was given power to make increases by order, subject to affirmative resolution by this House, up to a maximum of £4,000 million. The order, which I now invite the House to approve, makes full use of this power.
Last April, when he opened the debate on the Second Reading of the Bill which became the 1976 Act, my right hon. Friend indicated that the full amount of the increases proposed in the Bill should last the Corporation up to three years. So hon. Members might then have expected that we would be considering an order under the Act towards the end of this financial year rather than before the Summer Recess. However, the signs of an upturn in world steel markets, which appeared briefly in the early part of last year. were not sustained; steel remains in the grip of the longest and most severe depression that any of those currently engaged in the industry have had to face.
The Corporation's annual report and accounts were published on 19th July. We deliberately delayed this debate so that hon. Members might have that document in their hands. The report and accounts show that the Corporation's hopes of breaking even in 1976–77 after a loss of £225 million in 1975–76, were disappointed. But in the circumstances the loss could well have been appreciably worse than the £95 million actually incurred last year, had not the Corporation taken energetic action in response to a very difficult situation. It required external finance counting against the limit of £894 million. After making the necessary adjustments this exactly matched the £950 million cash limit.
2136 The total amount charged against the borrowing limit at the end of the year was £2,285 million. When estimated requirements for 1977–78 are added to this figure, it seems probable that the Corporation will effectively run up against the present limit towards the end of 1977. Latest estimates of future financing requirements are contained in the statement published by the Corporation with its report and accounts, fulfilling the undertaking by my noble Friend Lord Melchett in another place on 28th July last year. These estimates suggest that £4,000 million will last until the spring of 1979, some months earlier than the Corporation originally expected.
The Corporation expects demand to improve in 1978–79, with a consequent effect on trading results, leading progressively to the elimination of the revenue deficit, shown at £247 million on the 2nd April balance sheet, and then to a return to dividends on PDC.
§ Mr. Tim Renton (Mid-Sussex)
Has the BSC any finite reasons for expecting demand to improve in 1978, in the period that the hon. Gentleman has just mentioned, or is it rather that it cannot see any improvement during the current year, which I understand, and is therefore optimistically hoping for an improvement next year?
§ Mr. Kaufman
Clearly, there is no utterly definable reason that one can provide for such an expectation. The hope is that the upturn that is taking place will assist the Corporation. As the hon. Gentleman will appreciate, the reason why we now face a £95 million loss compared with the break-even that we expected when the Bill was going through last year, is that the recession has been much more severe and long-lasting than was expected. Therefore, I do not think that the Corporation could commit itself to a firm promise that that would happen, but it is its serious indication. As the Chairman in his public statement this week has not sought to put a gloss on the current very serious situation, I do not think that he is indulging in over-optimism.
In any case, it would be misleading to suggest that the return to an adequate level of profitability will be other than slow. In these circumstances, and also taking account of the capital expenditure 2137 needed to secure the Corporation's viability in the longer term, the real return on resources invested in the BSC over the next five years looks like being small. Over this period it will have an average of about £1,000 million of assets tied up in projects under construction earning no revenue, but giving rise to interest charges.
In current circumstances it is difficult now to set a meaningful financial target for the Corporation to replace the one which expired at the beginning of April. Clearly the BSC's first objective must be a return to profitability, and I look to it to make substantial progress towards this in the light of the higher levels of demand which are expected by the end of this financial year. During the course of this year, the Government will be discussing with the Corporation a positive target to run from the beginning of the 1978–79 financial year which will be both realistic and challenging.
Because of present and prospective demand levels it has become necessary to slow up the overall development programme compared with that envisaged in the 1973 White Paper.
§ Mr. Michael Marshall (Arundel)
Before the hon. Gentleman leaves the question of the rate of return, may I say that he has announced, in effect, that, pending the discussions, he will not set a new target? However, will he confirm that, taking one year with another, as a minimum target he will expect the Corporation to break even, in accordance with the pressure from the Government?
§ Mr. Kaufman
I should not like to anticipate the outcome of our discussions with the Corporation, but I make it clear to the hon. Gentleman that we expect it to return to profitability. We expect a return on the public investment. I should not like to lay down the basis of it, but the fact that we are imposing, and are continuing to impose, very stringent cash limits shows that we want a regimen of discipline. Sir Charles Villiers has never made any secret of his acceptance of that.
Sir Charles has indicated that development must now be related to a 15-year-plus rather than a 10-year strategy. To make adequate use of the capacity already available and to which the Corporation is firmly committed to bring on stream 2138 over the next five years, the Corporation will have to export between one-quarter and one-third of its production.
In all, the BSC now expects to invest some £3,600 million at current prices over the next five years, of which about £600 million will be spent this year. Even so, it represents a cutback in capital expenditure of some £225 million at out-turn prices in 1977–78 over the amount that the BSC planned when making last year's borrowing forecast. A reduction of a similar order is being made in 1978–79. The Corporation has explained that the reductions are being made by deferring starts on new projects rather than by slowing down those already under way.
It would perhaps be helpful to the House if I were to refer to a particular new project about which I can provide hon. Members with some information. Last year the Corporation proposed a 2 million tonnes plate mill. It has reviewed this in the light of developing demand prospects and has drawn up plans for a new plate mill in the North-East of England with a capacity of just under 1 million tonnes per annum and a cost of approximately £250 million at current prices. This will eventually replace other obsolescent plant. There have been extensive consultations between the BSC and the unions on this matter. The location remains under discussion.
The Corporation is now satisfied that a new mill represents the best and most economical way of establishing the basic capability to meet likely demand for high-quality plate, much of it with larger dimensions than are now available, until well into the 1990s. It will strengthen its international competitiveness in this important product area. We have given our agreement in principle to this development, which is fully consistent with the European Commission's proposals for restructuring the Community steel industry.
Although new investment accounts for a substantial part of the BSC's financing requirement in the current year, working capital items are also important. The Corporation intends to hold on to the counter-cyclical stocks accumulated last year and the year before, but is giving the closest attention to holding working stocks at a level appropriate to the forecast of sales for the remainder of this financial year. Even after taking account 2139 of economies in investment and working capital, it has been necessary to fix the BSC's cash limit for 1977–78 at £950 million. This is the same as last year, and takes account of the need to finance the plant closure programme. Both we and the Corporation regard the £950 million as an absolute limit within which it must operate, even if the trading outturn proves worse. The limit means that by next April there should be approximately £3,200 million charged against the borrowing limit.
It is against this background and very real discipline that the Government are prepared to meet the BSC's essential financial needs. Subject to further review of the BSC's financial position and prospects, and to Parliament voting the necessary money, our intention is to continue making public dividend capital available in the proportion of 55 per cent. of the Corporation's additional financial requirements other than short term, and also to provide loans as necessary from the National Loans Fund towards the balance of those requirements.
In order that we may continue with our policy, I ask the House to approve the order and so allow the Corporation to continue its progress towards becoming the well equipped, technologically advanced, and highly competitive steel producer that the country needs.
§ 3.5 p.m.
§ Mr. Norman Lamont (Kingston upon Thames)
It is the custom either on a Friday afternoon or late at night to observe what a pity it is that a vital and important subject is being debated at a time that is not of maximum peak viewing and listening. That cliché matches today's reality.
It would be difficult to over-emphasise the importance of the order either to the Steel Corporation or to our national economy. The demands of the Corporation in terms of borrowings from the Exchequer and of commitments on our national resources represent a large and important issue.
The debate is taking place against a bleak background. We have just had the announcement by Sir Charles Villiers of the £95 million loss by the Corporation this year. He has indicated that the loss 2140 in the current financial year could be about £250 million.
Today and in the Press, we have heard a fairly well rehearsed litany of the special factors involved. There are market conditions: over-supply in the world and a falling off in demand. There is also the imposition of an incomes policy which has made it more difficult for the Corporation to implement its productivity schemes. One might add a third factor which has been important—political interference. Decisions have been imposed upon the Corporation to keep open out-of-date Beswick plants at a cost of £65 million a year. Added to that we have had vacillation over Shotton and Port Talbot which imposed further losses on the Corporation.
Even making allowances for those factors, the results are extremely disquieting. I do not deny that the industry is facing a difficult situation internationally. Perhaps the grimmest statistic is Sir Charles's warning that the Corporation has no chance of breaking even unless it can sell 24 million tons of steel a year. I do not think that it has much chance in the foreseeable future of selling that amount. It sold 20 million tons last year, and the outlook for reaching 24 million tons is bleak.
Of course, there are special factors and the international outlook is grim. That is no reason for uncritically saying that we can avoid hard decisions or, without asking questions, uncritically saying that the investment programme must go ahead as originally envisaged. Nor is it an argument for saying that the Corporation should not have imposed upon it stern financial disciplines.
The money about which we are talking in order to modernise the Corporation represents a large proportion of our resources. In the past year the capital requirement of the Corporation was 8 per cent. of the public sector borrowing requirement. That type of demand on national resources can be justified only if there is a real prospect of a positive return on the money involved. There is no other way of looking at the Corporation's results.
It is alarming that the Government should have to come to the House today asking for a further increase in the borrowing powers of the Corporation. This 2141 increase comes almost 12 months ahead of the date that we were told the existing powers would run out. Soon we shall have had requests for £1 billion in 1975, 1976 and 1977. We are now told that the present limit for borrowing will last until the spring of 1979. However, in view of the way in which previous estimates have turned out to be so inaccurate and have been so quickly overturned by events, what real confidence can anyone have that the estimate of the present borrowing requirement will be any more reliable?
I am afraid that the uncertainty has been increased by the fact that the Minister of State has not today really been able to give any assurance about action that the Government or the Corporation intend to take. For a Government addicted to initiatives, strategies and plans, it is amazing that nothing has been announced today.
In spite of the mitigating factors for the performance of the Corporation, the way in which the performance has turned out in the past two years is deeply disappointing. There is no other way of looking at it. Its share of the market has now dropped to just over 56 per cent. That is 4½ per cent. up on the share two years ago, but it is very far below the market share that the Corporation had at the start and what the Corporation ought to have now, and it is very far below the level about which Sir Charles has been talking.
Of course, we understand that in an international recession export markets will be lost and that it will be much more difficult to compete in export markets. But what is more difficult to take is the fact that the Corporation has performed so badly in its own domestic markets. There is no way of avoiding the conclusion that a large part of the responsibility for that lies with the Corporation, in its poor performance and poor delivery. This has happened through "a failure to deliver reliably and regularly to customers". If anyone thinks that I am being hard on the Corporation, those are not my words but the words of the chief executive of the Corporation. Therefore, the performance of the Corporation to its customers must be considerably improved.
The timing of this debate would have been a little unfortunate if it had occurred when originally planned. I am grateful to 2142 the Minister of State for at least postponing the debate so that we could have the background and the accounts and results. I should like to question him on a number of points in the accounts. One is a point that has been raised with the Minister by my hon. Friend the Member for Arundel (Mr. Marshall). Indeed, I had a copy of the letter that my hon. Friend sent to the Minister. I must say that I did not really notice that the Minister answered a great many of my hon. Friend's queries.
§ Mr. Kaufman
I deliberately refrained from doing so. I thought that it would be discourteous to the hon. Gentleman to reply to his questions before he had put them.
§ Mr. Lamont
I thought that the questions had been put in the letter. Also, I should have thought that the questions were on matters of fairly significant public interest and importance. For example, one would have thought that the Minister might have said something about the foreign currency borrowings to which my hon. Friend referred in his letter.
§ Mr. Kaufman
I should not like there to be any misunderstanding about this. I have come to the House today prepared to answer those questions. I intend to answer them. It had been my understanding—perhaps I have been mistaken—that the hon. Member for Arundel (Mr. Marshall) intended to pose his questions during the debate. That being so, it would have seemed a little strange if I had answered them before he had actually risen today to put them. But I shall certainly supply answers to all the questions about which he has written to me. I am very grateful to him for having written to me in advance.
§ Mr. Lamont
I am grateful for that assurance. We look forward to hearing what the Minister has to say about the Corporation's foreign currency borrowings. He will understand that this is a matter of strong public concern in view of the depreciation of sterling since those borrowings were taken out, and, notwithstanding the recent relative strength of sterling, I think that the repayment obligations of the Corporation have been somewhat understated in the accounts. We should like to know how much the depreciation of sterling has added to the repayment obligations and 2143 whether the losses caused by the depreciation of sterling outweigh the gains to the Corporation of having access to the lower interest rates in other markets at that time.
Lastly, we should like to know what is likely to be the Government's future policy towards other prospective foreign currency borrowings by the Corporation. This is a matter of great importance and concern. In many ways it seems as though the way in which the Government have treated the foreign currency borrowings amounts to almost a direct subsidy to the Corporation, underwriting the exchange losses in order that it can have access to lower interest rates without actually taking the losses. I look forward to hearing what the Minister has to say about that important matter.
I now turn to the general matters raised in the accounts. One is appalled at the level of the prospective loss next year. One wonders for how long a commanding height of the economy can remain a commanding height if it makes losses on this scale. All divisions of the Corporation, except Sheffield, made losses last year. The Scottish and Welsh divisions together made losses exceeding £100 million.
One thing that the accounts do, unfortunately, is to put a final nail in the idea that on the basis of the existing investment programme—and the programme to which the Government are sticking—the Corporation will be able to find half the money for its investment from internal financing. I hope that the Minister will tell us something about what proportion of the investment programme he now thinks can be met internally from the Corporation. The past record is not good. The total capital generated internally by the Corporation in 10 years of existence amounts to little more than £600 million, and in the last two years losses have exceeded depreciation by more than £100 million.
The Minister today answered a point raised by my hon. Friend the Member for Arundel by saying that the Government were not really thinking in terms of setting another target return on capital in quite the same way as in the last four years, and one can see why. In 1972, the target set for earnings was a return of 8 per cent. on capital in the following 2144 four years. It turned out that the Corporation achieved just over 4 per cent. That discipline turned out to be fairly meaningless.
It seems to us that the Corporation is in need of some further disciplines and that some further targets should be set. The Minister referred to the debt equity ratio and the prospective 55–45 relationship. We do not think that this problem can be met by the injection of so-called equity capital—the public sector equivalent of equity capital. We do not think that the injection of this kind of money, on which there is little prospect of earning any dividend, will get to grips with the problem.
We want to be assured that the Government will be able to stand by their IMF-imposed policy—that is, the cash limit. We are told that the cash limit for the Corporation is to be £950 million, of which, I understand—the only basis for saying this is what I have read in the newspapers, and it is not taken from anything said in the House or from any official document£600 million is intended for capital, £250 million is intended to absorb losses and the rest is intended for working capital.
Is it envisaged that within the overall cash limit there will be a division between capital and revenue account? I do not want to take up a firm position on this. I am not wholly opposed to the idea that in certain instances there might be a trade-off with the investment programme if economies have to be made, but at the moment the cash limit appears to be so loose that one wonders whether there should be a division between capital and revenue. We do not want capital money to be used to pay higher wages.
I imagine, too, that the Minister has a profile of the way in which the cash limit will operate quarter by quarter. Is he confident that on the present figures it will be possible for the Corporation to remain within that overall limit? The real difficulty is that the Government carry little credibility on their professed determination to stand by the cash limits. Sir Charles Villiers said that £950 million was the ultimate limit. The Minister of State also said that when the Corporation was up against £lion that would be the ultimate limit. But, as the Minister of State's favourite columnist, Mr. Bernard Levin, has 2145 asked, is the Minister of State sure? Is there not the teeniest, weeniest possibility, the smallest smidgen of a possibility, that if we actually get to £950 million the Government will not cough up?
It is difficult to take the Government seriously. We heard it all before with Briitsh Leyland. We heard threats uttered by the Chancellor at the time of the Budget that, if the trade unions did not co-operate in a pay norm, tax reliefs would not be forthcoming. In the light of the decision that the Government have made on Drax B, it is difficult to believe that in this pre-election period this Government of all Governments will stand by what they said whatever the circumstances, if it means that some of the surplus labour in the British Steel Corporation has to be released, it will be difficult to believe that the Government will stand by the limit.
I wish to turn briefly to the strategy for the future, and particularly the development plan. It was no news when Sir Charles Villiers told the Select Committee that the plan had been changed because the whole market situation of steel had changed worldwide. The question is whether the development plan and its vision of the future has changed enough. We know that it has been overtaken by events, by world capacity and by the failure of demand to grow. Above all—this is the biggest question mark over the British Steel Corporation—there is the growth of the new Third world producers, such as the Koreans and the Brazilians, who by their competition could place our steel industry in the same precarious position as industries such as shipbuilding find themselves.
We have to ask ourselves the difficult question: how far do the assumptions on which the original development plan was based remain? Of course, we appreciate that it was not just a rigid plan that was there for all time. One implements a plan year by year in response to world markets and world developments. The Steel Corporation now says that it has abandoned the idea of 35 million tonnes a year and is now talking of 30 million tonnes in 1982, but are we confident that we shall be able to sell that amount of steel in a world in which everyone is trying to export to everybody else and there is so much surplus capacity? The demands of the development programme 2146 on the Exchequer grow all the time. It was £3,000 million in 1972 and it was revised to £6,000 million in 1976. Now the Minister of State gives us the latest figure of £3,600 million to be spent in the next five years. It is vital that a critical look should be taken at that.
I would like to ask the Minister of State a particular point which has been mentioned in the Press. Mr. Scholey has been quoted as saying that because of the world situation more work will be diverted to the low-cost plants of the Corporation. Will the Minister of State give details of what is involved? How much work is to be diverted in this way? If that is to happen, it puts a question mark against the point of the Government's other strategy of maintaining in existence the old, inefficient plants that should have been closed some time ago.
Another crucial matter about which the Minister of State said very little today concerns industrial relations, productivity and overmanning. I regret that the Minister did not say much about that matter. I hope that when he replies he will say something more.
We remember that last year, when the Secretary of State—we welcome him to the debate—introduced the Bill, he told us how the Corporation would maintain open the old, inefficient plants that he admitted ought to have been closed in order to usher in a new era of understanding and co-operation to make the way easier for increases and improvements in productivity.
The turn-out has not been so good. I do not want to dwell on the events at Llanwern or Port Talbot and the £25 million that the electricians' strike cost the Corporation. We note that Sir Charles Villiers mentioned that strikes were less of a problem, though his satisfaction was somewhat modified by other events that he chose to refer to as "embargoes". Absenteeism at 24 to 25 days per man year is still far too high for the Corporation.
The heart of the problem is overmanning. I should have been interested to remind Labour Members, if there were some present, that they often choose to blame the situation in the steel industry and in the United Kingdom's motor car industry on the lack of investment in the past under private ownership. The pity 2147 is that they never pause to ask themselves why that investment did not take place. It is worth asking. After all the management of any company knows perfectly well that in the long term, if it does not invest, modernise its plant and produce up-to-date products that customers will buy, its long run of competitiveness will be undermined.
Investment by private industry has not taken place in the past because of overmanning. That is true of many sectors of British industry. It is all very well for the Government to say to a public corporation "Despite the fact that overmanning is not competitive and that we are not making profits, we shall still go ahead and invest". It is questionable to make such investment decisions in advance of satisfactory manning levels being achieved and of the corporation returning to profitability. That is the way to distort the economy so that no industrial strategy can ever succeed. In that way we end up milking the profitable, self-sustaining parts of the economy to keep going overmanned, unprofitable white elephants that cannot sell their products.
It is vital that overmanning in the steel industry should be reduced. We know that the same output could be produced with 60,000 fewer men. We are a long way behind manning levels not only in Japan but in many European countries. It would be a tragedy if, the incomes policy restraints having been removed, the opportunity were not taken by the Steel Corporation to reduce overmanning. We know that it is the most difficult thing imaginable to persuade people that it is not only in the national interest but in their own interest that overmanning should be reduced. But it is. Unless there are reductions in overmanning, the British steel industry will not survive on anything like its present scale.
The Opposition do not at this late hour on a Friday afternoon intend to divide the House on this matter. But I should not want the Minister, the House or the country to be in any doubt that we have studied the accounts and listened to what has been said with considerable disquiet and dismay. We are most concerned at the lack of action that is proposed and at the prospects ahead. No one can look with any confidence at the Government's 2148 attempts to impose new financial disciplines on such a poor situation.
We want to place on record our dismay too at the poor performance of the Corporation. Of course, we want to have a competitive industry in this country. We should like the industry to continue to modernise, but if the Corporation is to modernise with public money and to be backed by the taxpayer it must be clearly understood that there is no divine right to incompetence and low productivity. The results that we have just received from BSC illustrate an appalling situation, and it cannot be allowed to continue.
§ 2.31 p.m.
§ Mr. Stan Crowther (Rotherham)
The hon. Member for Kingston upon Thames (Mr. Lamont) said at the beginning of his speech that it would be difficult to overestimate the importance of this order, and I am sure that he is right. It would also be difficult to overestimate the seriousness of the difficulties now facing the industry in Britain. The hon. Gentleman rightly said that there is a continuing slump in demand. I do not think that he mentioned that there is also an excess of steel-making capacity in the whole EEC. In those circumstances there is an incentive for the Community to start fixing national production quotas, and if that exercise took place I doubt that we could expect our industry to come out too favourably. Indeed, the figure of 24 million tons that the hon. Gentleman mentioned could be in excess of any quota that might be fixed.
The current level of imports is desperately serious. People are entitled to ask why steel can be brought half way across the world and compete successfully with steel made in Britain. That question is being asked, and I have not yet heard a satisfactory answer. This country must make up its mind whether it wants a steel industry at all. If the answer is "Yes", we must go all out for more investment, modernisation, productivity and, not least, a much more vigorous selling policy.
Morale in the industry is not high, and who can be surprised? Hon. Members may recall the outstanding achievement of the new bar mill at Rotherham when, within about 10 months, the men hit the production target that they had not been 2149 expected to reach for two years. Everyone was saying how marvellous it was, and the achievement was acclaimed, but within a few weeks the mill was cutting back because of the lack of orders. It is no wonder that the men become bitter. They could see that they were in danger of working themselves out of jobs because the BSC had not managed to obtain sufficient orders to sustain a record level of production. There is disillusionment, and we must stop this trend before that disillusionment becomes absolute despair.
The most difficult problems for the future will be in trying to reconcile the differences of opinion between the Corporation and the trade unions about manning levels. There is no question that that will be the most difficult matter. We must look at this in a social context. In Rotherham we have already lost 7,000 jobs in the steel industry in the process of making the Rotherham works efficient, productive and—I emphasise this—extremely profitable. The BSC has said that there must be even further reductions in the labour force in my constituency. Nobody wants to see the industry employing more people than it needs—that way lies economic disaster—but there is a limit to the social sacrifices that an area must make to bring about future industrial progress, and I believe that Rotherham has now reached that limit.
If communities which depend very largely on the steel industry for their job opportunities are to be asked to accept even further reductions in the employment available, it has to be done as part of a very much more refined and sophisticated regional policy than we have had so far.
I have said many times, and repeat, that we can accept further reductions in the jobs available in the steel industry provided that we have a regional policy that ensures the replacement of those jobs in other industries, so that there is no overall reduction in employment opportunities. As I have said also, the National Enterprise Board could be used in this kind of operation, and it should be so used. I would like to see it given the responsibility of taking over the advance factories which the Department hopefully provides through the English industrial estates. It should do so directly itself or through subsidiary companies— 2150 I do not mind which—and operate in manufacturing so that we do not suffer a total loss of job opportunities as a result of the further reductions in the BSC, which all of us expect if the British steel industry is to become internationally competitive.
There is here a genuine dilemma for people who want to see our industry flourishing, productive and profitable but who, at the same time, cannot accept further reductions in the level of employment opportunities available in our area. I believe that the National Enterprise Board could provide a way out of this dilemma—I said as much in my maiden speech last year. I hope that, sooner or later, someone is going to start taking notice.
§ 3.37 p.m.
§ Mr. Michael Marshall (Arundel)
I shall follow the remarks of the hon. Member for Rotherham (Mr. Crowther) because he has touched on a point that I had intended to work into my speech. In trying to follow a constructive line, I suggest that there is a good deal in what he says, particularly in the context of the fact that, according to the operating results just published, the Sheffield division of the BSC, which includes his area, is the profit-making division within the Corporation. Therefore, the dilemma that he highlighted emphasises the strong case, even in profitable divisions, for the BSC to bring a much more capital-claim approach to the divisions in sharing out a reduced cake. I hope that the Minister of State will add that to the list of queries.
I share the concern expressed by my hon. Friend the Member for Kingston upon Thames (Mr. Lamont) about the Government's failure to put forward a detailed case. The Minister of State has beguiling ways. He says that he will answer a number of questions that I have written to him about. I appreciate his courtesy. He is always helpful. But—and I hope that I am not being unkind to him—I have a sinking feeling that once more I am facing "Kaufman's law", the situation where he undertakes to answer as many questions as are put to him. I think that his own term is that he has a compulsive provision-of-information streak. He suggests, however, that he will do it at a later stage. That means that eventually we simply run out of time. 2151 What he has done today is prevent me from having two bites at the cherry. I shall listen to the answers that he has promised, and I shall not take up time unnecessarily in categorising the questions that I have raised. He can take them as read. I look forward with interest to his comments.
It does not give anyone with a longstanding connection with it any pleasure to see the problems faced by the British steel industry. The grizzly awfulness of the financial position, as The Guardian called It this week, is evident to all. As my hon. Friend spoke at some length about the corporation, I want to concentrate on two particular aspects of the way ahead—the work of the Department of Industry and the role of Parliament in these matters.
Like my hon. Friend the Member for Mid-Sussex (Mr. Renton), who I know wishes to speak in this debate, I have had the privilege of visiting many parts of the British Steel Corporation in the course of our work on the study by the Select Committee on Nationalised Industries into the future of the Corporation. I pay tribute to the efforts that are going on in all parts of the Corporation among management and unions to tackle those problems.
The hon. Member for Rotherham described his visit to the Thryberghbar mill, which many of us have had the pleasure of visiting. The manning level established there when the mill was opened was 600, and this compared favourably with any plant anywhere in the world, including Japan. So it can be done, and that is the task that faces the Corporation in many other areas.
I shall not take simply a critical line to what is going on. I pay tribute to the way in which Sir Charles Villiers, in his Press statement this week, put forward very plainly many of the grave problems that the Corporation faces. The Corporation's annual report and accounts give a better picture and reflect suggestions that many of us put forward in the debate last year on the Bill from which this order springs.
Those are the aspects upon which the Corporation is to be complimented, but I cannot overlook some of the problems and failings within the Corporation—the 2152 decline in the share of the home market from 70 per cent. in 1970 to a little over half now is a disastrous statistic and one that needs to be looked at urgently.
It is worrying to read in the Press today that Metal Box, which takes£135 million of tinplate every year from the BSC, has said that it has just heard of a price increase without consultation. I hope that the Corporation will be coming up with some answers on that. These arc the sort of problems that we shall want to bear very much in mind.
At the same time, however, we must have some sympathy and understanding for the Corporation, as it faces a very hard winter, in trying to resolve problems of overmanning, the pay explosion, the retention of old plant and, perhaps above all, an increase in raw material prices, notably of coal.
I turn now to the problem of the accountability of the Corporation, through the Department of Industry and the Minister, to this House. It is hard for us to accept the kind of arguments that the Minister advances because he must now accept that he has been coming back to the House on an annual basis, and this means, in effect, that the whole tenor of the assurances and the whole of his arguments about forecasting have been disproved in events time and time again. We have a worrying position in which vastly accelerated borrowings are being matched by little prospect of profit. We are still far from clear about the Government's basic thinking in that direction.
The Minister bears considerable personal responsibility here. He was very much involved in leading the Bill through the House last year, and he rejected then, on numerous occasions, suggestions from both sides about how we should formalise the presentation of information both when this order came before the House and in the future. There has been concern from all quarters about the way in which we are expected to judge these matters. One simple example concerns the report and accounts.
The Minister was kind enough to co-operate with the Opposition in ensuring that this debate took place a few days after the report and accounts were published. Last year, when we argued that it should be possible for the report and accounts to be published within three 2153 months of the end of the financial year, the Minister rejected our approach. Once again, however, we find that we are examining the subject on the basis of a report and accounts that we have barely had time properly to study and to which we should have been able to give more thought.
A pattern is emerging whereby, towards the end of each Session, just before we rise for the Summer Recess, we find ourselves examining the Corporation. It is crucial that we should tie the report and accounts into this timescale which we can see looming up so clearly.
From what we have heard so far, the Minister of State has not given us anything like the kind of basic information that justifies the increased borrowing that we have heard about today.
We recognise—we are realistic—that we have little option today. The option open to us, in effect, is to help the BSC to go bust by preventing the implementation of this order. No one wants to do that. What are the implications of the progressive increase in borrowing, which has gone up at such an alarming rate—from £300 million in 1972, by £1 billion tranches in 1975, 1976 and 1977? If the order is agreed to the first thing that we have to conclude is that the forecasts produced to this House have been shown to be hopelessly wide of the mark, as Peter Hill said in The Times earlier this week.
It is a question not just of the time scale but of the fact that the need for the borrowing is occurring at an ever-increasing rate at a time when profit is declining at an ever-increasing rate. There is also the fact that when a matter such as this is brought before the House we do not have sufficient opportunity to get into the guts of it. Last year, when we tried to make this argument about the need to look more regularly at the subject and to have a White Paper and some formalised procedure, the Minister of State was absolutely categoric, and said thatit is unnecessary and unduly cumbersome to consider the borrowing limit at intervals as frequent as one year."—[Official Report,12th July 1976; Vol. 915, c. 294.]I know that it is one of the great hazards of this place, when one goes on record, to have one's words quoted later when things have not turned out as forecast. 2154 Here is the Minister of State again, after a year, asking us to increase the limit, and I regret to say that he will be back again in another year from now, provided he holds the same job, although I am not confident about that.
This is the kind of problem that we face. The Minister's remarks reflect the judgment of his Department that things are evening-out and getting better, and that there is no need to trouble the House quite so often. Those of us who have predicted these problems have tried to create a better system. This has been rejected, on the basis that what we are dealing with is some way into the future. Then the Government's forecasts are shown to be inaccurate.
We have asked the Minister of State how long the new limit will last. So far he has not given any detailed reply, other than to quote Sir Charles Villiers' reference to the spring of 1979. If we take that as a hopeful and reasonably accurate estimate, and frankly in view of past events I believe that it is optimistic, it means that by the end of next summer we shall once again have to look at the matter, because clearly, with the time lag required to carry legislation through the House, new legislation towards the end of next year would be too late to prevent the borrowing powers being exceeded yet again.
One of the basic questions that must underlie any consideration of what is involved when increasing borrowing powers must turn very much upon what we take to be the ability of the BSC to contribute in reducing the rate of borrowing. This is an area of special concern at present. There is little doubt that the Corporation's ability to generate finance for its capital investment programme has virtually disappeared. This first happened in 1976. In the April 1976 figures the loss plus the depreciation plus the regional development grants yielded a minus cash flow of £135 million.
This year my worry has been heightened by the Government's inability to measure this kind of cash flow situation even within a matter of weeks. For example, we find that in the March expenditure White Paper generated funds were shown as £250 million plus. Yet, within a month, the Red Book put before us showed an estimated minus cash flow of £50 million. 2155 When we get variations of £300 million, within a matter of weeks, in the Government's own forecast we must have grave worries about the reliance that we can place upon such information.
What the Minister has had to say on both these two major failures of forecasting gives us little assurance. I hope that when he replies he will try to give us an assurance that on the time scale for borrowing and on the decline of the self-generated finance he and his Department have some thoughts and, if necessary, reservations. Frankly, we would rather hear the reservations than simply have bland assurances before measures are passed through this House.
I put to the Minister of State one or two queries that I have raised with him in the letter that I have written in order to give him some notice of points of detail. Foreign borrowing has already been referred to by my hon. Friend the Member for Kingston upon Thames. There is another facet which is very important and which we should consider at present. I have asked the Minister of State whether the estimate last year of £40 million loss by variations in the rate of sterling is now to be amended, as I believe, to nearer the £60 million mark. Perhaps he can comment on that.
Will the Minister of State confirm whether there are other steel companies, apart from the British Steel Corporation, which are borrowing funds from the Commission and DG18 in the form of sterling? I believe they are not doing so, because they prefer to repay in foreign currency rather than run the risk of sterling fluctuations. But surely that is an important development, which the Govern-must have some attitude upon. We shall be interested to hear whether the Minister has had discussions with the Corporation.
It seems that the way in which the Corporation might well consider getting away from some of the problems of the drain on profits is in part to underwrite, with the Corporation standing the balance of foreign exchange repayments.
I come secondly to the rate of return. The Minister of State has made an important announcement in telling us that no immediate target figure is to be set up and that this will follow discussions later this year. He was not able to 2156 give us an assurance that the level of return which the Government would at least start out to put on the table, as it were, would be one which would protect funds. If the Minister cannot in all honesty put this forward he is causing even greater concern to the House than perhaps would otherwise be the case.
Surely this is a crucial matter which the Corporation should take into account when moving into profitability and it can only assist our hopes of putting forward the £1 billion a year at an accelerating rate.
What view does the Minister and his Department take on the relationship between total debt and turnover? The relationship is interesting because it is one that European steel makers are noticeably setting great store on. When I speak of total debt, I am thinking in terms of the total cost of development programmes. In the 1973 White Paper it was £3,000 million, but it may now be £6,000 million.
If the Minister gave an up-to-date estimate I would welcome it. Taking that figure of £3,000 million, it is quite clear that we are moving into an era in which turnover is vastly exceeded by the level of capital investment which is planned for the Corporation over a five-year period. That is a reasonable period to consider, because that is the minimum period before we can expect to get any proper return on that investment.
An interesting contrast is, for example, France. The French have recently been getting extremely worried and have been quoting their total development programme at 120 per cent. of turnover. That is something which clearly M. Jacques Ferry and others have been getting anxious about and it is something that must immediately trigger off certain alarms.
Only today in The Times,Italsider says exactly the same thing about the relationship of turnover and capital investment being 130 per cent. It appears that this will go into a 200 per cent. relationship, which the Department should regard as a critical measurement.
We all understand and appreciate the cash limit approach which has been brought to bear in recent months. We 2157 recognise the determination of Sir Charles Villiers and the constructive thinking that is going on between trade union leaders and the Corporation, resulting in its being freely stated by both that the present level of losses is unacceptable and poses a serious threat to the Corporation's future.
What are the Government doing to match that determination? There are various ways in which they could at least show their good intent. My hon. Friend the Minister for Kingston upon Thames referred to the £65 million a year cost of keeping the Beswick plants open. Why should that amount not appear as a payment from within the Department to try to get the Corporation back on a more commercial footing?
There is also the matter of the cost of the two-year delay in reaching a decision on Port Talbot before the £835 million investment was announced in March this year. It is difficult to assess precisely, but my recollection is that £550 million was the original estimate at 1975 prices and I do not think that the Minister can deny that the additional cost is likely to be at least £100 million. Where a cost results from ministerial delay, consideration should be given to reimbursing the Corporation.
The significance of those figures is that the Government's decisions about Beswick have caused two-thirds of the current BSC deficit, and their delay over Port Talbot and Shotton caused 100 per cent. of that deficit. If we add the two together we see that the Corporation would be showing a profit if it were receiving payments through the Treasury to reimburse the costs of Government decisions. This is a very important matter, to which we can return in a future debate.
We all understand the social implications and cost of the changes about which I have been talking at Port Talbot, Shot-ton and Beswick, but the social costs are beginning to be dwarfed by the sort of figures that I have just given. We need to have an understanding of the balance of cost between redundancy payments, social security payments and investment at present levels, and above all the loss of morale in those parts of the Corpora 2158 tion that are profitable and feel that they are carrying the burden of those parts that are not similarly successful.
All we want is an honest recognition of what is a political equation. Nineteen Ministers in the present Government come from steel constituencies. It is hard to kid anybody in the steel industry, let alone the public at large, that these are not basically political decisions, which should accordingly be paid for by the Government.
I conclude with a brief word about parliamentary scrutiny. What we heard from the Minister this afternoon justifies everything we have said before about the need for a White Paper, about the need for information to be presented formally for us to consider a prospectus before we agree to very large increases in borrowings. Last year, during the passage of the Act. the Minister of State was not even willing to accept our suggestion that he should obtain from the BSCsuch information as may be necessary for the House to consider an order under this Act".We could not have put the matter more generally in offering the hon. Gentleman the opportunity to provide information. He assured us that there would be ample opportunity to consider the matter in this way.
The hon. Member for Motherwell and Wishaw (Dr. Bray) was then equally pressing on the matter of rate of return, which has been pressed from both sides of the House.
I should like to think that some of my suggestions will assist. One which might be added to the list is the need for a cash flow forecast over five years. This practice is adopted by major American steel companies. It is not good enough for the Minister to fall back on the sources of funds—
§ It being Four o'clock, the debate stood adjourned.