IRON AND STEEL (BORROWING POWERS)

HC Deb 22 July 1977 vol 935 cc2159-74

Question again proposed.

Mr. Marshall

The sources of funds for the years 1975–76 and 1976–77 set out as an attachment to the Press release issued by the Corporation are helpful and I realise that they follow representations made in this House and in another place. However. I do not think that they give a reasonable enough time scale. A forecast of a five-year cash flow would be reasonable for us to consider when talking about an increase in borrowing of £1 billion.

It must be virtually unprecedented for a major corporation to have its report and accounts qualified by the auditors with the comment that they give a true and fair picture on the assumption that the corporation will obtain the necessary increase in its present borrowing limits to cover its future requirements. That means that unless we pass the order the Corporation is likely to go bust. We are not inclined to see that happen, but we believe that, in order to overcome this sort of stark brinkmanship, it is essential for us to improve our system.

Therefore, I hope that when the report of the Select Committee on Nationalised Industries comes before the House on its reasonably we shall have an early opportunity to debate these matters, because we need to get into the guts of the reporting systems, which worry us. The Minister has not put forward a prospectus on which any of us would vote or buy a share with any confidence I hope that he will have some better answers up his sleeve when he replies.

4.2 p.m

Mr. Tim Renton (Mid-Sussex)

My hon. Friend the Member for Arundel (Mr.Marshall) has given us a well-informed and detailed critique of the British Steel Corporation and of the Government, particularly in relation to the finances and future funding requirements of the corporation. I should like to deal with a different aspect of the Corporation's troubles, namely, the question of manning agreements, productivity and working agreements, following on some of the comments made in the speech of the hon. Member for Rotherham (Mr. Crowther), with which I had a lot of sympathy.

Before I do so, however, may I declare an interest—not a financial interest or an interest stemming from the fact that in 1970 I fought the Park Division, which is in the heart of the alloy steel-making area of Sheffield, against the Secretary of State for Defence, who, it must be said, won by a small margin, but an interest stemming from the fact that, like my hon. Friend the Member for Arundel, I am a member of the Sub-Committee of the Select Committee on Nationalised Industries which has been considering the question of the Corporation for the past 18 months.

Although nothing that I say will anticipate the recommendations and comments that we shall make in our report to be published in the autumn, it is only natural that some of my personal remarks will be influenced by the large amount of information that we have been given by the Corporation and by the unions representing the work force of the Corporation.

You, Mr. Deputy Speaker, might like to reflect that, if this debate runs what I thought was its allotted time of a further 90 minutes, at the end of it you will have invested another £18 in the Corporation—

Mr. Deputy Speaker (Sir Myer Galpern)

Order. I pay no income tax.

Mr. Renton

Whether you pay income tax or not, Mr. Deputy Speaker, you will still have invested £18 in the Corporation, and so will every hon. Member, all the Strangers' Gallery and every man, woman and child in the country. That is the measure of the further £1 billion of borrowing requirement for which the Corporation is asking. Over the next four or five years, decisions will be taken to invest approximately another £100 in the Corporation on behalf of every man, woman and child in this country.

It is only fair, therefore, that the public, through us, their representatives, should have an opportunity of asking whether their money is being spent correctly. They certainly do not have the opportunity of querying it in detail, but they should know whether the money is being used sensibly and to the best possible benefit.

For that reason I fully support the remarks of my hon. Friends the Member for Kingston upon Thames (Mr. Lamont) and for Arundel about the need for full parliamentary time to scrutinies the enormous funding requirements of the British Steel Corporation that we are called upon to approve this year and will be called upon to approve every year for the next five.

The impression of many who are having thus to invest in the Corporation whether they like it or not must be that the Corporation is now drifting to disaster. I asked the Minister of State about the upturn in sales next year upon which the Corporation has attached so much hope. He naturally said that the BSC could only hope but that it could not be certain. That was an honest answer. So much of the Corporation's chances of getting back into profitability depends upon the upturn in the market. No one knows when that upturn will come or can be certain that it will come within the five years ahead, by which time we shall have had to approve another £5 billion.

Drifting to disaster is a reasonable way in which to describe a situation where a company has lost £95 million last year, is expected to lose £250 million this year and will have to borrow £4 billion to £5 billion in the years immediately ahead.

Do the unions whose members work for the Corporation really appreciate the extent to which it is drifting towards disaster? I doubt it. My hon. Friend the Member for Kingston upon Thames talked about the rate of absenteeism. He said that it was now 24 or 25 days a year.

When our Select Committee visited Japan in November, we were conducted round the new Japanese Ogishima steel works. The hon. Member for Feltham and Heston (Mr. Kerr) asked what was the rate of absenteeism in that works. There was a pause and the works manager asked him "What is your definition of absenteeism?" For once, the hon. Member did not have a ready answer. In the end the works manager filled the gap by saying "In this works, no one goes absent without first either asking leave or informing the management". All three of the major Japanese steelworks made substantial profits in the last financial year.

There are 18 unions involved in the TUC Steel Committee. A total of 24 unions are involved in either the public or private steel-making industry. The 18 unions on the Steel Committee represent more than the number of unions in the whole of German industry.

A manning agreement was reached in January 1976 upon which the BSC management attached great hopes. Alas, the hopes originally attached to that agreement are not being fulfilled. In the last year we have seen the electricians' strike, which brought great additional burdens to the Corporation. Even now we have the failure to commission the new sinter plant at Redcar because of the disagreement over new working practices. The fact that the boilermakers' union does not agree on working conditions has meant that the new sinter plant cannot be commissioned. This has already involved delay of over three months.

Mr. Stan Crowther

I cannot speak for all the trade unions involved in the steel industry. However, from my experience in my area and of the people with whom I am in close contact. I assure the hon. Gentleman that there is a deep sense of responsibility for the future of the industry and a very considerable understanding of the problems. But there is also concern about the total employment level of the area, and there will certainly be resistance to further reductions in manning levels if there is no compensatory factor in the form of some other industry creating a similar number of new jobs

Mr. Renton

I appreciate that frank answer. I do not know of which union the hon. Gentleman is a member, or whether he is a member of a union, but I am pleased to hear of the sense of responsibility of which he spoke.

I come now to the point that the craft unions within the steel industry today—I think that the hon. Member for Rotherham will agree with this—have a capacity to hold to ransom the major investments in major new plants. They have a capacity to hold up the commissioning of new plant at the crucial stage when all the money has been spent, when the investment has been provided and when the Corporation is raring to go. Then the craft unions say "No, we have not yet agreed on working conditions."

Sadly, we have seen this capacity to hold up major new plant and to hold the Corporation to ransom used at Llanwern and Port Talbot, and now at Redcar. It is exactly like the Libyan Government confiescating the Libyan oilfields when all the money had been spent to bring those oilfields into production.

I believe that the public, who are having to invest in the Corporation, whether or not they like it, £100 each over the next five years, have the right to say that this ability of the craft unions, and the multiplicity of unions within the Corporation, to hold the Corporation to ransom and to delay the commissioning of major new plant in which £600 million, £700 million or £800 million of our money has been invested, is wrong. I therefore urge on the Government, on the Corporation and on the unions that they sit down and agree between themselves that not a penny more will be invested in new capital investment until there is a detailed agreement on manning levels, productivity and the full range of working conditions that will apply at new plants.

We simply cannot afford to have more Llanwern blast furnaces held up for a month, six months or a year while one small but vital craft union delays and keeps negotiations going because it knows that every day that the plant is not commissioned is costing the Corporation perhaps literally £1 million.

I should like to see coming out of this discussion a further rationalisation of the union structure which would lead ultimately to only one union per plant within the Corporation. I say that with much temerity because I know that Labour Members who know the industry well, such as the hon. Member for Rotherham, will say that it is impossible, that there arc too many vested interests involved and that there are too many ancient negotiating rights and too many entrenched positions. I believe, frankly, that there may be too many union officials striving to keep their jobs. However, these are unique times in which the Corporation is living, and they therefore demand unique solutions. The fact that this will be very difficult is no reason why the Government and the Corporation should not try to achieve it.

There is an example—Cockerill, the Belgian steel-maker. It is also by far the largest steel-maker in Belgium and has also lost a lot of money in the past year —£30 million—which in relation to its size was a very big loss indeed. It was under great pressure in one of the factories to bring in a new oxygen steel-making plant at Lorraine, near Rehon.

The management made it clear at the end of last year that it would bring in that plant only if, in advance of getting the finance, full agreement was reached with the unions on the working conditions, productivity and so on that would apply when the furnaces were blown in. What is more, the management added that there would be a bonus on wages of 2 per cent. at first, rising to 4 per cent. when a certain output at the works through the new furnaces was reached.

When those discussions started, everyone said that it was impossible and that the unions would never agree, but the management made it plain that unless it had that sort of agreement it would not be able to borrow the necessary money and the new works would not be built. Three months later the unions agreed. The money was borrowed, and the works are being built. It is only on those conditions that a private steel-maker can borrow the necessary money.

The hon. Member for Rotherham spoke about de-manning and the pain that the prospect of more redundancies brings in communities that are dependent upon the steel industry. I accept that. In my constituency, which is one of the luckiest in Britain, with a low level of unemployment, I know how painful it is to have redundancies even on a small scale in an engineering company, but I pose to the hon. Gentleman the question whether, in the long run, it is kind, right or humane to keep people in jobs in which they have no long-term future.

Does that really help them more than they would be helped by retraining when they are still young enough and flexible enough to move into other skills and other industries in other parts of the country? They have to be given this retraining prospect, but it is against that background that I query the decision at Shotton, because I do not believe that, on any commercial basis, there can be any long-term future for the hot end at Shotton, the open-hearth steel-making end.

Moreover, the cost of keeping 6,000 men in steel-making at Shotton is likely to be far less to the Corporation, and thus to the country as a whole, than the additional cost of making Port Talbot a less effective and efficient steel-maker as a result of Shotton being kept going. It is from a national point of view that the decision at Shotton seems to be wrong in overall cost terms. Just as important—perhaps arguably more important—is the question that here are 6,000 people who, in my judgment, are being encouraged to believe that there might be a long-term future for them there, and thus they are not looking around, and are not being helped to look around, for other jobs that there might be in new industries in South Wales.

The steel industry presents a classic case for not nationalising an industry. Political decisions that have been taken over the years have almost all proven to be bad, and that goes as much for the decision taken by Mr. Harold Macmillan's Government to split the new strip mill facilities in Scotland between Ravenscraig and Gartcosh and thus not to have an electric unit at either of those places, because too small a unit was built at both. as the decision taken by the Secretary of State and the Minister of State today to keep Shotton going at the same time as the first phase at Port Talbot is built up. These political decisions have often stemmed from a failure to face long-term reality.

Mr. Deputy Speaker

Order. I think that I ought to draw the hon. Member's attention to the matter under discussion. We are discussing the financing of a nationalised industry. To raise questions about whether it should or should not be nationalised is out of order.

Mr. Renton

I was not aware, Mr. Deputy Speaker, that I had raised that question, but in any case I am moving on from that subject and drawing to the end of my comments.

In saying that the political decisions on the steel industry have almost always tended to be bad, the point I wish to make is to ask where the future hopes of the Corporation come from. They must come from the fact that steel industries throughout the world do not have to be unprofitable.

I turn to a list of major steel companies whose results have been recently reported. I have already quoted the example of the major Japanese companies which, on their 1976 figures, all made profits. The same is true of the American companies Bethlehem Steel, Inland Steel and United States Steel, and some of the German companies. The steel industry does not have to be regarded in any way as a dying industry. At the moment it is in the depths of depression and none of us knows when it will come out of that depression, but we need to be totally certain that the organisation of our steel industry—its equipment, its manning levels, its work force—will all be right by the time the next upturn comes, whether in 1981 or any other time.

The Metal Bulletin had an article on the steel industry on Tuesday, headlined "When the money has to stop". I believe that the money has to stop now in order that the right decisions should be taken to put the BSC totally in the right shape for the 1980s. I urge on the Government the necessity to rationalise and simplify the union structure, with agreements on manning and productivity levels, before any new capital investment is undertaken.

4.21 p.m.

Mr. Kaufman

The House has every justification for wishing to inquire in detail into the matters which this order involves before it agrees to vote this very large sum of money to the British Steel Corporation. Therefore I in no way regret the scope of the debate, nor do I regret that hon. Members have asked questions. which I shall do my best to answer.

However, I hope that when the hon. Member for Mid-Sussex (Mr. Renton) has had a little time to reflect he will feel that he did the Corporation no service by talking about it "drifting to disaster". It is easy to win headlines that way, and he will probably win himself a headline or two by having said that, but as a responsible Member of Parliament he should appreciate that his statement affects morale in the Corporation but fails to put those problems in their international context.

The kind of remark made by the hon. Member seems to imply that the Corporation is unique in its problems and unique in not being entirely able to come to grips with those problems at present, but if one looks at the way in which the Corporation's competitors are having to face these problems, outside Japan one finds that they are facing problems at least as grave as, and possibly more grave than, those that the Corporation is facing.

The hon. Member for Mid-Sussex mentioned the problems of Cockerill, in Belgium, whose loss per ton is almost as great as the British Steel Corporation. The Sidmar plant, in Belgium, is losing much more per ton; Sacilor, in France, is losing nearly twice as much per ton; Usinor, in France, is losing nearly three times as much per ton. In Germany, Saltzgitter is losing almost exactly the same per ton, and, in Italy, Italsider is losing considerably more per ton. Even in the United States the massive Bethlehem Company is losing about two-thirds per ton of the BSC loss.

The fact is that the world steel industry is facing almost unprecedented problems. It does not assist the BSC to imply that these problems are ungovernable or uncontrollable. My right hon. Friend the Member for Rotherham (Mr. Crowther) pointed out that where it has modern plant, such as in the Rotherham area, the Corporation can match anyone in the world. At Scunthorpe the achievements are significant and encouraging.

The British Steel Corporation is facing a double problem. It is facing belatedly, for historic reasons, the problem of re-equipping itself against modern foreign competition. Last year when I was visiting the largest steel plant in Japan, I was horrified to find that Kawasaki, the oldest steel plant in Japan, was beginning the massive modernisation that now makes it so profitable at a time when we in Britain were still installing open hearth capacity. That is the contrast.

Again, we face not only an ill-equipped industry with a good deal of obsolescent plant but a major world recession. I hope that these matters will be taken into account when we consider the real, serious and profound problems of the BSC, which I should not seek to under-estimate.

It is inaccurate to say that the Government have made decisions about plant. The decision to keep steel making going at Shotton was a BSC, not a Government, decision. We accepted that deci- sion. It was not a decision that we imposed upon the Corporation.

Mr. Tim Renton

On the international comparisons made by the Minister, will he at least give me credit for also mentioning the losses at Cockerill? Does he know of any other major steel company in the world where, at this time of disaster for the steel industry throughout the world, major new plant, which would help to achieve lower output costs, is being substantially delayed by a relatively small union? The point that I was making was that, at a time of world difficulty, the new plant that is vital to the British Steel Corporation is not being commissioned because of labour troubles.

Secondly, is the Minister saying that the Government did not make it plain to the Corporation that the decision to keep steel making going at Shotton was a decision that they wished to see reached?

Mr. Kaufman

I assure the hon. Gentleman that that is so. We did not tell the BSC that we wished it to come to that decision. I give him that answer absolutely categorically. Sir Charles Villiers told me that was the solution that he wished to adopt and asked if we would agree. We considered it and agreed to it. We thought that it was a wise and sensible decision. Both Sir Charles and Sir Monty, who preceded him, would have had no truck with a situation in which we sought to make the decision for the Corporation. I can state categorically, clearly and plainly that we never sought to do that.

Mr. Michael Marshall

Surely the Minister concedes that two years is an exceptionally long period for a final decision. Looking at major investment decisions round the world, it is unique. Does he accept that there is clear evidence that referring back all the time by the Corporation of investment proposals is one of the basic problems and part of the argument that we have been advancing this afternoon? Something is clearly wrong when there is a two-year delay, and it has cost money.

Mr. Kaufman

The BSC would now probably be grateful that the delay took place, because, as the market has evolved, the revised decision is obviously the better one. In addition, because of the problems facing the Corporation, it has decided to defer somewhat the Port Talbot investment.

The hon. Member for Kingston upon Thames (Mr. Lamont), in a speech which I do not in any way criticise for being probing and asking searching questions, was somewhat severe with the Government when questioning whether we would remain firm on cash limits. I have been firm about that this afternoon as Sir Charles was in his statement earlier this week. We should look at the context. We were the first Government to have imposed such cash limits. It was under a Conservative Government that there was a price control; at a time of their counter-inflation policy and their intervention with the Corporation; at a time when they were printing money almost like detergent coupons. That was the situation that precipitated the Corporation into the extremely difficult financial problems with which we have had to cope.

I do not seek to make that as a party political point, because this is not a party debate, but the House must acknowledge that we have imposed these stringent cash limits on the Corporation and that the Corporation has worked and will continue to work within them. There has been great pressure on us, but we have made clear to Sir Charles that we intend to impose these cash limits, and Sir Charles—whose chairmanship is one of the great signs of hope for the Corporation—far from challenging the cash limits, has said that he welcomes their severity.

My right hon. Friend the Member for Rotherham and the hon. Member for Mid-Sussex both referred to manning. I represent a constituency in which there have been redundancies as the result of a mill closure, so I sympathise with my right hon. Friend's misgivings about workers losing their jobs as a result of overmanning being dealt with.

The hon. Member for Mid-Sussex was not misrepresenting the situation when he put forward the point that the best hope for continuing employment prospects for those who remain with BSC is for the Corporation to have internationally competitive manning levels. Indeed, Mr. Bill Sirs and his colleagues in the trade union movement acknowledged this when they signed an agreement with the Corporation on 23rd January 1976. The trade unions know—and Sir Charles has made clear —that the implementation of that agreement has been handicapped by the pay policy of the last two years. We acknowledge that, and we believe that the pay policy was right. However, there is now a more flexible pay policy and the Corporation will be able to resume the implementation of that agreement. The agreement must be within the pay guidelines that the Chancellor announced last week.

Sir Charles has in no way sought to conceal the consequences of this. In his admirable introduction to the report and accounts—I want to pay tribute to the report and accounts, because they contain no glossy pictures but plenty of information, and that is exactly what an annual report should be—Sir Charles said: We have to drive the plants hard, re-structure many jobs, introduce more incentives to get flexibility and efficiency, close the old plants and introduce new products. This will involve a reduction year by year in the numbers employed by BSC, under established procedures. Sir Charles made no bones about that.

The hon. Member for Arundel (Mr. Marshall) was good enough to write to me to put a number of questions. I am sure he will agree that I have dealt with some of them already, and I shall seek to deal with the others now. Some of them were extremely technical, and if the hon. Gentleman is dissatisfied with the scope of my answers I shall be grateful if he will indicate that to me later, so that I can write to him in detail. However, that does not mean that I am not seeking to answer his questions now.

The hon. Gentleman put a point that was also raised by other hon. Members, about the break-even requirement. I have spoken of the discussions that we shall be having with the Corporation but, of course, there is under Section 14(1) of the 1975 Act a break-even requirement which automatically applies if no other target is in force. Of course, we are not departing from that norm. Nor could we, because it is a statutory requirement.

Hon. Members have taken an interest in the revaluation of foreign borrowing. I shall try to explain the position, but it may well be that I shall have to amplify it in explanations in correspondence later. There has been no change this year in the way foreign borrowings are shown in the accounts. Note 22 to the 1976–77 accounts shows figures both for the original amounts of the loans and the adjustments that must be made in respect of exchange rates ruling on the balance sheet date. The total figures taken into the balance sheet itself includes the foreign exchange provision, which amounts to £61.9 million, compared with £43.1 million on 3rd April 1976. The £18.8 million increase reflects both the fall in the sterling value over the year on loans taken out before the year began, and falls affecting the £114.5 million of new increment loans.

The Corporation has the option, on the basis of commercial advantage to itself, of obtaining exchange cover from the Treasury or of taking the risk itself, so it already effectively has a means of making foreign borrowings in sterling. The exchange rates have not greatly changed since 2nd April, so I would not expect the position now to be materially different from that shown in the accounts.

I myself do not find notional foreign exchange loans to be a helpful guide towards formulating policy on new borrowings. What matters are the exchange rates ruling when the loans come to be repaid.

I was asked about liability to suppliers. Hon. Members will appreciate that measuring the Corporation's outstanding liabilities to suppliers on any particular date is both costly and time-consuming, particularly if subject to external audit, so I am not able to give a figure more up to date than the £773.4 million for creditors shown on the 2nd April balance sheet. Further details are given in Note 16, and information on future capital expenditure is given in Note 11.

The hon. Gentleman asked about the level of indebtedness. In general, it is desirable to keep a balance between the levels of capital expenditure and internally-generated funds, but one has to be prepared to depart from that where circumstances warrant. The Corporation is faced with special problems, arising partly from the need to rectify past under-investment, and partly from the unexpected and severe world steel depression.

The hon. Member for Mid-Sussex got to the fringe, as it were, of order under your predecessor in the Chair, Mr. Deputy Speaker, when he questioned whether this industry was a proper one to be held in public ownership. I contend that one of the basic reasons for taking it into public ownership was to remedy these past shortcomings. We have to be prepared to maintain investment even though for a while generated funds are lower than we would wish. The hon. Gentleman's own continuing interest in the Port Talbot project suggests that he shares this view, despite his misgivings.

This does not imply any relaxation in the rigorous criteria for investment appraisal, designed to ensure that projects make an adequate return, and the Corporation is having to take account of recent changes in steel demand prospects in its development strategy. Sir Charles gave the details to the Select Committee in public session on 25th May. Investment strategy is also dealt with in Appendix 3 of the Press release, which, after all, was Sir Charles's own response to pressure to adduce reasons for bringing forward this order. That Press release sought to deal with the matter, and every Member was provided with a copy.

Mr. Tim Renton

May I revert to the question of nationalisation? The Minister has clearly looked at the financial results of many other major steel companies. Has he drawn the line whereby he can see that the companies that reported profits in the 1976 period were private and that all the loss-makers were public?

Mr. Kaufman

The hon. Gentleman made a very long statement, and I shall have to investigate it further. What we shall never know is what loss would have been made by what remained of the British steel industry if it had remained in private ownership. It was significant that during the period 1970ȓ74, when we did not have the benefit of the hon. Gentleman's presence in the House, the Conservative Government did not seek to denationalise the steel industry. They realised that it was necessary to retain it, just as the right hon. Lady the Leader of the Opposition has now wisely recognised that it would not be acceptable, should the Tory Party ever come to power, to denationalise the shipbuilding industry. That was a very welcome piece of news that she gave in a shipbuilding area a week or two ago, which I am retaining for my Question Time file to throw at hon. Gentlemen should they ever raise the matter.

Mr. Michael Marshall

When the hon. Gentleman is in opposition.

Mr. Kaufman

I am ready to wait until I am extremely old to have to deal with that point, and when some other party that is slightly farther to the Left takes over from me.

Mr. Michael Marshall

Does the Minister accept that there is a meaningful relationship between turnover and total debt, as in a five-year investment programme? Does he accept the international comparisons? Does he accept that there has to be some finite limit on the level of indebtedness?

Mr. Kaufman

I am not sure that I accept that it is a meaningful relationship. It is, after all, not a relationship that is arrived at by some calculation; it is something that eventuates on the basis of maintaining a capital investment programme. At the same time, as the hon. Gentleman knows, because of the cash limits the Corporation is reappraising the phasing of its investment programme. That being so, even if I accepted that there was a meaningful relationship, which I confess that I do not, there is not a constant relationship. It is a changing relationship.

The hon. Gentleman also asked about tying loans to specific investment. This is ground that we have gone over before. Recent developments do not lead me to feel that there is need to change our present practice. The Government exercise overall control through issuing finance, approval of the investment programme, through consideration of major projects—such as the plate mill which I have spoken about this afternoon—and in setting the cash limit. Over the period for which the £1,000 million of increased borrowing powers is expected to last the Corporation's use of funds for purposes other than meeting financing charges are forecast to be significantly greater than £1,000 million. Therefore, the Corporation is not expected to use increased power to sustain existing debt.

I have done my best to deal with the points that the hon. Gentleman has put. If he is at all dissatisfied with my answers, as distinct from disagreeing with them, which is a different matter, and if he feels that my replies have not been informative enough, if he writes to me I shall do my best to provide him with more information.

I have sought as best I can to deal with the points raised. It is entirely right that the Opposition should have sought as much information as they could on this important order, which deals with very large sums of money. I have not sought in any way to pretend that the problems of the Corporation are not very great, but I believe that they can be overcome. The order will assist in overcoming them. I hope, therefore, that the House will approve it.

Question put and agreed to.

Resolved, That the draft Iron and Steel (Borrowing Powers) Order 1977, which was laid before this House on 7th July, be approved.