REDUCTION OF BORROWING AND INVESTMENT LIMITS (Hansard, 23 June 1978)

§ Mr. Norman Lamont (Kingston upon Thames)

I beg to move, That the clause be read a Second time.

The purpose of the clause is to ascertain the Government's attitude to increasing the number of joint ventures with private enterprise which the British Steel Corporation might consider embarking upon and to the sale of assets. It is the view of the Opposition that, in the present circumstances of the Corporation, these two courses of action ought to be considered because they are one way in which the very weighty calls on the taxpayer might be reduced.

In the course of the Second Reading debate, considerable interest was shown in the possibility of selling off some assets, especially by hon. Members who had been considering those constituencies where plants were to be closed because they were not profitable.

In a number of instances which have been much publicised the Corporation also wanted to close plants, even though they were profitable. Altough the plants are making money they are old fashioned, and they do not fit in with the Corporation's overall plan. But that is not necessarily an overwhelming argument for closing them. A number of them, because they are fully depreciated, are making money and could be fitted into someone else's business. The Opposition believe that consideration should be given, in the event of closure, to selling them off to other investors.

912 The argument is put that we must not damage the commercial interests of the Corporation, but it does not say much for the costly investment in these great steel cathedrals if the Corporation is not confident of meeting competition from what it calls old-fashioned plant.

Then there is the consideration of the jobs that will be lost. If an old-fashioned plant is perhaps making money but the Corporation does not think that it will fit into its activities, it would be far better from the point of view of jobs if the plant were offered to private entrepreneurs. This suggestion should be considered seriously.

My hon. Friend the Member for New Forest (Mr. McNair-Wilson), who cannot be here today, took up the matter directly with the chairman of the BSC. When ne saw an advertisement in the newspapers for the Corporation asking people to invest in areas where there were to be closures, he wrote to the Corporation asking whether it would be prepared to sell complete steel works. He received an answer from Sir Charles Villiers on 30th March. BSC would of course be interested to hear if there were purchasers for complete steel works. This is something that we would be ready to discuss either directly or through BISPA. I should, however, point out that the equipment in each case is very old-fashioned and would not be suitable for modern economic operation. Indeed, with steel prices at their present levels, I doubt whether even the hardiest investors would be able to work up an attractive proposition. That reply from Sir Charles was clear. He doubted whether old-fashioned plants would be attractive to any business, but he was prepared to consider selling them.

It was after Sir Charles had made some subsequent remarks in Germany which seemed to contradict what my hon. Friend had been told that he wrote again to Sir Charles and received another letter on 24th April. It said: At this time of continuing over-capacity in steel BSC must safeguard its commercial interests in any deal involving the sale of any of its assets. That was clearly a shift in position between the two letters. As my hon. Friend said, if Sir Charles had intended that the plant, if sold, should be used purely for manufacturing jam tarts, for example, he would not have entered his caveat about doubting whether any investor would be able to make a go of 913 producing steel at these plants. Regardless of whether they are profitable or unprofitable—and some of them certainly are profitable—we believe that from the point of view of jobs the BSC should consider selling them to the private sector rather than closing them.

I suspect that many trade unionists will be disappointed if the Government intervene in this matter, and if the shift in the position of the Corporation is attributable to political interference.

Today the production of steel will stop at Shelton. The Secretary of State has decided not to intervene. Shelton is precisely the sort of area where perhaps one could have considered some sort of proposition. It has been operating at 75 per cent. capacity, but making a profit. Many people consider that it could make profits of £3 million or £4 million if only it had its own electric are furnace. Since the Corporation is losing about £500 million a year, it seems extraordinary not to consider selling off either profitable or unprofitable assets which do not fit in with its strategy.

What would any commercial company do if it was faced with losses on that scale? It would go through its assets and see what could be sold in order to reduce the losses. This point was made clearly and very well in a report produced by the British Iron and Steel Consumers Council. Its chairman is the former Labour Minister, Sir Richard Marsh. That report said: A company in the private sector faced with financial crisis on the scale of BSC would have to divest itself of activities not central to its business if it wanted to be able to fund the investment needed to maintain competitiveness and the ability to provide employment, in its central activities in the longer term. The report goes on: In its present situation there seems to be no justification for the BSC retaining any activities which have consistently failed to generate wealth and earn profits comparable to those of companies in similar lines of business in the private sector. They should be disposed of as going concerns. This would relieve BSC management of additional responsibilities and reduce the scale of public funds needed to support the BSC. That point is extremely well made and well put. I very much agree with what Sir Richard Marsh has said.

914 In the past the Corporation has done this. The Minister of State knows that four years ago it was done in Manchester with the Openshaw works. The BSC wanted to close the works and they were sold to the private sector. They now employ 1,400 people. Similarly there were the Brymbo Works which were sold to GKN. Why cannot the Corporation consider such a policy again, particularly at a time of mounting losses?

It would also be a particularly good policy to consider at a time when more and more people are becoming doubtful about these large steel cathedrals. Many people wonder whether small is not beautiful in steel production, and whether electric are furnaces should not play a large part in our overall steel production.

Recently Sir Charles Villiers received a letter from Mr. Dick Eddy, one of the steel workers at Llanwern. He questioned the whole concept of large integrated works. He said: Across the fields from Llanwern the future of strip steel already emerges—the Alpha private steel mill which will produce 800,000 tonnes a year on 500 men. Llanwern has problems doing that with 10,000 men. Of course he is right. The progress of the Alpha steel mill has been remarkable. It has 300 workers producing one-tenth of the output of Llanwern which employs 10,000 men. The Alpha works are planning to work up production in their four electric are furnaces to 1 million tonnes, and after that they are considering installing cold rolling mills which can convert hot rolled coil into the cold reduced form that win be needed by the motor industry. If that expansion takes place, more men will be taken on—perhaps up to 1,000—and then Alpha Steel will be producing 1 million tonnes of steel a year with 1,000 men. That does not compare at all badly with Llanwern producing 2½ million tonnes with 10,000 men.

These large integrated plants have been very expensive and are very vulnerable indeed. Port Talbot and Llanwern, for example, are highly sensitive to industrial disputes and technical problems. One thing after another seems to stop them getting the long lines of production that are necessary to make the sort of profits that were projected when the money was invested.

915 We have the dispute with the blast furnace men. Before that we had Llanwern out of action last year with the electricians' dispute which lasted several weeks. For five years the Corporation has invested more than any other steel company in Europe in large plants, and yet it has consistently failed to achieve the economies and the returns that were projected.

This relates to the problem of selling off the small plants that the corporation wants to close. Work has been transferred from these small plants, such as Shelton, to these great steel cathedrals. Yet despite this transfer of work, they still remain disappointing in their results.

What happens when these interruptions to production occur at the large plants. The BSC finds itself having to import steel. The BSC is third in the league of the 20 European steel producers, but is the only one which has to spend £4 million a week on the importation of steel. Therefore, from a national point of view the Government, rather than seeking to close old plants, should examine the total national picture. That is far better than having to resort to imports. It would be far better if investment had been made by the private sector in these plants, perhaps with electric arcs. That is the way to cut imports and create more jobs.

We are not trying to tell the Corporation what it should do, but we are saying that the selling off of plant by any company which is in financial difficulties is a matter which the private sector would automatically consider. It is reasonable that the same disciplines should apply to the BSC.

The same argument applies to joint ventures. The BSC has gone in for such ventures with the private sector on a number of occasions in the past. There are plenty of such ventures overseas, and recently a good deal of attention has been given to the joint venture on which Redpath Dorman Long is embarking with the Dutch. We could do more on those lines because the calls by the Corporation on the taxpayer have been very large. One method of reducing that call is to go in for more joint ventures and to sell off plant which does not fit in with the Corporation's overall strategy.

916 That is why in the clause we have suggested that the overall borrowing from the Government could be reduced by the extent to which a policy on these lines is followed. It is sound commercial logic, it is what happens in the private sector, and I do not believe that a good argument can be made against our proposal. Therefore, I hope that the Government will support it.

§ The Minister of State, Department of Industry (Mr. Gerald Kaufman)

The hon. Member for Kingston upon Thames (Mr. Lamont) used very fierce words indeed about the large integrated steel works. He said that they were very expensive and very vulnerable, and used a whole stream of hyperbole to describe them. But he must remember why we have this strategy. This is the basic strategy of concentrating bulk steel production in coastal sites, which was an integral part of the Conservative Government's plan for the development of the BSC. That policy was set out in the 1973 White Paper.

We know that the Opposition are trying to rewrite history in an effort to give the country the impression that what happened between 1970 and 1974 is nothing to do with them now, but it was that White Paper which began that process. It is fair to say that the strategy was selected against a different background with different market prospects from those obtaining today. It could well be that if those investment decisions were being taken now rather than then, some of them could well have turned out differently; but one cannot put the clock back. Approximately £1,000 million has already been spent on large plants, or will be required to complete develop ments which are substantially under way.

We are not talking about a situation that can be rectified by a stroke of the pen or by the acceptance of a new clause today. It is a strategy which was fully endorsed by the previous Government and which is now working its way through, except in cases where the strategy has been changed.

One of the problems is that this country, because of the market problems and other factors, is suffering from overcapacity in the steel industry. Whether mini mills or plants which the BSC now 917 seeks to close are in its hands or in private hands does not alter the capacity problem. Because of these factors, this country is faced with considerable overcapacity and transferring some of that over-capacity from public to private hands does not lessen the problem. The hon. Gentleman did not deal with that aspect.

I cannot add anything to what was said by my right hon. Friend the Secretary of State for Industry in a letter to the hon. Member for New Forest (Mr. McNair-Wilson) and in a letter from myself to my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) on the possible sale of plant which the Corporation is thinking of closing.

The operative sentence in my letter of 19th April was: We would of course expect to be fully consulted in advance of any such proposals —that is proposals in respect of the sale of steel works— and would consider them very carefully. I cannot go beyond that statement, but I would add that over-capacity remains over-capacity in whoever's hands it is.

The hon. Gentleman also spoke about joint ventures. As he fairly pointed out, the Corporation examines and participates in joint ventures from time to time. There may be circumstances in which such ventures make sense. The Corporation keeps under review activities of subsidiaries so as to ensure not only profitable operation, but the best use of resources for the group as a whole. There will be times when it is advantageous to dispose of shareholdings and form joint ventures. The deal with the Dutch group, to which the hon. Gentleman referred, leading to the formation of a joint company to ensure the future of RDL's platform building activities is a case in point. The Government expect to be consulted about significant disposals and we will not accept indiscriminate hiving off of the Corporation's assets which would in the long term weaken public enterprise in steel related activities. But if the Corporation considers that potential joint ventures are worth recommending to us, we will consider them.

I hope that after the prolonged discussion on the steel industry that has taken place for more than seven months 918 the hon. Gentleman will have come to the conclusion, as I have that, wherever one looks at the problems of the BSC, apparently easy solutions do not turn out to be easy at all. Therefore, I hope that the Opposition will not press the clause.