BRITISH STEEL CORPORATION

HC Deb 22 March 1978 vol 946 cc1511-33

Mr. Speaker

Mr. Varley—statement.

Mr. Michael Marshall

On a point of order, Mr. Speaker. I should like to draw attention to the fact that the Secretary of State for Industry is about to make a statement based on the White Paper "British Steel Corporation: the Road to Viability" which was made available in the Vote Office only at 3 p.m. In view of the importance of the statement and the White Paper, I ask your help to see what can be done to improve these arrangements.

Mr. Speaker

I have to reply off the cuff, but I believe that it is common practice for a statement to be made when a White Paper is issued. I am not sure, but I believe that it has been done recently.

The Secretary of State for Industry (Mr. Eric G. Varley)

With your permission, Mr. Speaker, and that of the House, I should like to make a statement about the British Steel Corporation.

As my right hon. Friend the Prime Minister told the House on 28th February, the Government have been conducting a study in depth of the medium and longer-term position of the British Steel Corporation. There has recently been much public concentration on the Corporation's likely losses in 1977–78. As I have told the House, these losses result from the worst crisis in the world steel industry for more than 40 years and one in which the BSC's overseas competitors are suffering in common with the Corporation.

Our review has now been completed. Close consultations have taken place with the Corporation and the TUC steel committee. We have also taken account of the reports of the Select Committee on Nationalised Industries. The Government's conclusions are set out in a White Paper which is being published today. A separate White Paper will be published soon giving the Government's response to the Select Committee's recommendations.

A modern steel industry is vital to an industrial nation. The Government will therefore ensure that a substantial bulk steel-making capacity is available in this country. The BSC plays a key role in supplying our manufacturing industries with the major part of their steel requirements. That must continue.

Our examination has shown that the present world surplus of steel will last for many years and that the sales opportunities for BSC, both at home and overseas, on which the ten-year development strategy of February 1973 was based, are no longer realistic even on the most optimistic assumptions. In present market conditions, the Corporation has substantial over-capacity. In the next few years, considerable additional capacity will become available from large modernisation and expansion schemes already close to completion. A sufficient margin is essential to supply home and export needs when the world economy moves out of recession, and to provide for the unforeseen eventualities which have persistently invalidated previous forecasts. But neither the Corporation nor the country can afford the cost of the mounting overcapacity that would result from unchanged policies.

Accordingly, the BSC has proposed, and the Government have agreed, the following policies. First, modernisation and expansion projects already approaching completion must be finished—for example, Redcar II B and Ravenscraig III. Secondly, substantial investment to improve product quality and so ensure competitiveness in the 1980s must continue. Subject to the conditions in the White Paper, the Corporation hopes to make a start on the installation of continuous casting facilities at Port Talbot in 1978–79.

Very substantial improvements in productivity are also needed if the Corporation is to become viable. The trade unions and local workers' representatives have a major role to play in this. The TUC steel committee has made clear its commitment to achieving this improvement. For their part, the Government are determined to give full, sustained and public support to steps to achieve improved productivity in BSC and will continue to promote this with both the BSC management and the TUC steel committee.

Only by a common effort can we attain an internationally competitive British Steel Corporation that supplies the steel our manufacturing industries need, a Corporation that provides a secure livelihood for those employed in it while making a proper return on the resources invested by the taxpayer—the efficient, competitive and profitable British steeel industry that we need and are determined to achieve.

Sir K. Joseph

The Secretary of State has made a statement marked by a great deal of obscurity. I have six questions to ask him.

First, will the right hon. Gentleman confirm that the ten-year development strategy has now been firmly abandoned by the Government? Secondly, does he accept that the losses imposed on the industry by the Beswick plan and by overmanning have drained much of the funds that could have gone to some of the sensible modernisation schemes that are now being dropped?

Thirdly, will he say whether the cash limits proposed are, as the Select Committee recommended, to be split between capital and revenue? Fourthly, is he aware that the Select Committee recommended an agreed and specified programme of demanning? What demanning is proposed?

Fifthly, is the right hon. Gentleman aware that, in our view, the Government are perhaps beginning to grapple—we cannot tell how seriously from the statement—with only half of the steel part of our economic problems—namely, overmanning and the search for competitiveness? Is he also aware that the Opposition want to see an internationally competitive industry and every sensible step taken to stimulate the growth of new jobs to reduce unemployment repercussions? [HON. MEMBERS: "Oh."] Labour Members have not yet grasped that there has to be positive encouragement of job creation to accompany demanning.

My last question to the Government is, when will the Government begin to tackle the other half of the economic problem—namely, the need to encourage growth of new jobs in new firms and expanded existing firms by tax cuts and less hostility by Government and trade unions to industry?

Mr. Varley

I shall try to deal with the right hon. Gentleman's points one by one. There is no doubt that the ten-year development strategy targets announced by the Conservative Government in 1973 have, in my judgment, no hope of ever being attained. I must say to the right hon. Member for Worcester (Mr. Walker), because I had some things to say to him in that period, that he was wrong and I was wrong on the basis of consideration. He was wrong, as were the Conservatives in general, about the level of demand at that time.

On the right hon. Gentleman's second supplementary question relating to the Beswick plan and what he described as overmanning, I can tell him that even on the basis of the 1973 development strategy some of the Beswick plans, as they have come to be known, would still be in operation if the Conservative Government had stayed in office. The Conservatives would still have had to deal with the situation on the basis on which we are now dealing with it.

As for capital cash limits, I have already made the situation clear to the House. The investment programme is included in those cash limits and is a figure of £500 million at outturn prices for next year.

The right hon. Gentleman mentioned the Select Committee on Nationalised Industries and its specified targets in the reduction of manpower. The Government have rejected that approach, and I want to make that plain. We want to proceed on a stage-by-stage basis. We want the TUC steel committee, in negotiation with the Corporation, to decide on capacity. I say that flatly to the House. There will be a White Paper in due course in response to the Select Committee, but we believe that its way was not the right way to go about the matter.

Thirdly the Government have approved a proposed capital investment programme for BSC for the year 1978–79 at outturn prices of £500 million. For the year 1979–80, subject to the normal annual review, there will be, again at outturn prices, a further £500 million. Fourthly, there is no case, at present, for new starts on increased steel-making capacity, so the proposed expansion in capacity at Port Talbot and the construction of electric are plants at Shelton, Hunterston and Ravenscraig must be deferred until demand forecasts improve sufficiently to justify their construction. Fifthly, the major and costly new mill projects for hot rolled coil at Port Talbot, plate at Teesside and tinplate in South Wales must similarly be deferred.

For the BSC to achieve financial viability, it is necessary for capacity to move more into line with demand. The Government have therefore accepted that BSC should seek to negotiate the closures in 1978–79 of high cost plants, in particular the Beswick review plants, in close consultation with the TUC steel committee and the local work forces. As the House knows, terms have already been agreed for the closure of the Clyde iron works, the Hartlepool steel works and the East Moors steel works.

The Government will seek to ensure that everything practical is done to provide alternative employment in the areas affected by steel-making closures. For its part, the Corporation will intensify its efforts in this direction, through its subsidiary BSC (Industry).

The White Paper gives details of the special measures we propose at Hartlepool and East Moors. The Scottish Development Agency is already taking all practical measures to assist employment in the area affected by the closure of the Clyde iron works. The Government will announce any necessary remedial measures at other plants when closure dates have been negotiated by the BSC.

The Government's present view is that further rationalisation will be necessary after 1978–79. However, both the Government and the BSC favour a step-by-step approach which will retain flexibility to adapt to developments in the market. Hasty and arbitrary decisions now will close the door to meeting future requirements.

As the House knows, the BSC faces serious financial problems. In this, the Corporation is not alone amongst the world steel industries. The Corporation will need a substantial capital reconstruction at a reasonably early date. This will not, of course, affect its overseas loans, which will be serviced and repaid on the due dates. In the present uncertainty in the steel market, it is very difficult to determine the precise size and nature of the reconstruction needed to produce a viable long-term capital structure.

Pending that reconstruction, and in place of further advances from the National Loans Fund and of public dividend capital on the present criterion, the Government will meet BSC's financial requirements, other than short-term, by subscription of equity capital under Section 18(1) of the Iron and Steel Act 1975. These requirements include finance for capital investment, meeting obligations under NLF and other loans and covering the deficit expected to arise before reconstruction. BSC will continue to make short-term borowings under Section 16 of the Act within the ceiling determined by the Government.

Because of the immediate financial outlook, no dividend is expected on the new capital before the reconstruction, but I should make it clear that I shall require all new capital subscribed from 1st April to be properly remunerated by dividends after the reconstruction. It would be premature to fix a minimum dividend requirement at this stage. I shall shortly present to the House legislation to raise the borrowing limit for BSC. More detailed information will then be given. We shall continue to determine the Corporation's cash limit on a year-by-year basis and will take into account the Corporation's physical and financial progress. For 1978–79 the cash limit will be £875 million.

The funds required by BSC inevitably place a heavy burden on the public purse and divert resources from other desirable objectives. This can be justified only if both management and work force can show they are taking the steps necessary to achieve the lasting viability and international competitiveness, which are the Government's firm objective.

I must tell the right hon. Gentleman that it is our aim to be internationally competitive and to do all we can to achieve an industry which reconciles what in the short term appear to be three irreconcilable objectives. I refer to our having a major steel industry which can move as quickly as possible into profitability and viability, supplying the needs of British industry, and dealing properly with the social consequences for those who are affected. So far, I think that we have tried to deal with the social consequences properly. We have not moved too arbitrarily or precipitately in our decisions to reduce manpower in the industry.

I was also asked about new jobs. I recall that in the last few months when I have appeared at the Dispatch Box to support measures for jobs, the right hon. Member for Leeds, North-East (Sir K. Joseph) and his hon. Friends have voted against them. It did not matter whether those measures related to the shipbuilding industry or the temporary employment subsidy or anything of that kind, the Opposition were always in the "No" lobby.

Several Hon. Members rose—

Mr. Speaker

Order. I want to make a request to the House. I shall be under heavy pressure in the major debate that is to follow later in the day. I appreciate that we have heard a serious statement and that many hon. Members wish to raise constituency issues. Therefore, I should be most grateful if they will keep to the point so that I am able to call many more Members.

Mr. Hardy

Is my right hon. Friend aware that many people who are concerned that Britain shall maintain a steel industry will regard his statement as realistic but not entirely unhopeful? Will he confirm that successful parts of the BSC, such as various units within and near my constituency, will be encouraged to maintain a commendable level of activity? Will he ensure that winners are backed?

Mr. Varley

What I have said about moving to viability and profitability applies to all divisions within BSC. I know that my hon. Friend is referring to the parts of the Sheffield division of the Corporation situated in Rotherham. I was in the area last Friday. I was encouraged by the fact that that concern had maintained its profitability against all adverse market factors and that it was realistic in wanting to ensure that it continues to make products of very high quality. I do not think anything I have said today affects the position in my hon. Friend's part of the country.

Mr. Richard Wainwright

Is the fight hon. Gentleman aware that the absence of any new plans for development strategy, although unavoidable, leaves large numbers of workers and local authorities in a state of uncertainty? To deal fairly and squarely with people and local authorities in about six of the areas which at one time were expecting an increase in steel-making capacity, will he confirm that the plans for increased capacity are not merely deferred but can be revived only if a quite spectacular and unexpected revival of demand for steel takes place?

Mr. Varley

That is one of the great uncertainties. I do not think that anyone in the House or country knows exactly how steel demand will move over the next few years. For example, at the moment the Japanese have 13 million tonnes of over-capacity, which is equal to the total exports of all other steel-producing countries. That is one measure of the overcapacity in the world. We are not quite sure how things will go. I have said that capital reconstruction is essential. We need to be able to make some assessment in the months ahead. The impact of this decision on local authorities is serious. The hon. Gentleman has probably not had the time to look at the White Paper. We make reference to the impact in paragraphs 16, 17 and 18. In due course detailed announcements will be made about the temporary loss of rate income. We shall be seeing whether the areas concerned can be properly compensated.

Mr. Ifor Davies

Is my right hon. Friend aware that the changes in investment plans for Port Talbot will cause deep disappointment, not only among steel workers but throughout the industrial belt of West Glamorgan and West Wales, especially among the industrial and tinplate workers in my constituency? Does he realise that the tinplate industry is vitally concerned and integrated with Port Talbot? Is he further aware that there will be a warm welcome for what he has said about selective investment and his reference to the continuous casting facilities at Port Talbot, which has such an important bearing on the quality of tinplate? Can my right hon. Friend give us some idea of the timetable and the possible date when this investment will be begun?

Mr. Varley

I made a statement some time ago on the question of the tinplate industry at Ebbw Vale and I do not think that the position has changed. As soon as the market conditions are favourable, the second phase of that programme will go ahead, because tinplate is extremely important to South Wales. We want to do all that we can to help. It is necessary to bear in mind that there is already £100 million worth of investment taking place at Port Talbot. I know that it will come as a disappointment that some of the major investments cannot go ahead and increase capacity there. I have explained the difficulties about increasing capacity. I know that it is the Corporation's intention, after a full financial appraisal has been made, to ensure that the continuous casting project should go ahead to improve the quality of the product.

Mr. Crawford

Is the right hon. Gentleman aware of the great and deep anger which will be felt by all sections of opinion in Scotland over the deferment of the electric are plant at Ravenscraig and the lack of any announcement concerning the starting date for an integrated steel works at Hunterston? Is the right hon. Gentleman further aware that the Labour Government are presiding over the destruction of the steel industry in Scotland and that the voters of Garscadden will have a chance to say what they think about this on 13th April, as will the voters of Central Ayr, Motherwell and Lanarkshire at the General Election?

Mr. Varley

The hon. Gentleman is greatly exaggerating. If he looks at the figures he will find that the British Steel Corporation's investment in Scotland has sustained the industry there. For example, in 1976–77, 21 per cent. of total British Steel Corporation investment was associated with Scotland, although Scotland has only just over 10 per cent. of the total steel-making capacity. I do not think that the hon. Gentleman is reflecting the views of the steel workers and the trade unions in Scotland.

Dr. Bray

Contrary to what the hon. Member for Perth and East Perthshire (Mr. Crawford) has said, is my right hon. Friend aware that the steel workers of Scotland will be glad to hear of the completion of existing projects, particularly the 3½ million tonnes of fully integrated modern capacity at Ravenscraig? Will he confirm that the cash limits will be operated in such a way as to permit commercially justifiable investment to enhance capacity and improve quality, such as the project for secondary steel-making at Ravenscraig, the forging machine needed to replace handmills at Craigneuk, the enhancement of electric are capacity at Hallside, de-bottlenecking at Gartcosh, the bloom re-heating furnace at Glengarnock and so on? Does he accept that it is a matter not of having increased capacity available but of having the capacity that is in demand in world markets? Is he aware that it is a matter of concern that, on the plans he has announced, BSC will not be able to supply the steel required for the North Sea gas gathering pipeline and similar projects?

Mr. Varley

One of the major factors guiding us throughout this review has been the fact that we have a substantial investment programme of £500 million for the British Steel Corporation next year. That is an investment programme comparable with that of many other publicly owned industries, for example, the coal-mining industry. Emphasis will have to be placed on the completion of contracts already under way. It would be crazy to stop those projects. Emphasis will also have to be placed on product quality and development.

Mr. D. E. Thomas

Will the right hon. Gentleman accept that I am not exaggerating when I say that his statement, about Port Talbot in particular, will be seen as striking a severe blow at the steel workers and the local authorities in West Glamorgan? Does he accept that in not going ahead with their investment plans the British Steel Corporation and the Government are choosing not to go ahead at one of the most attractive major sites available for an expansion of steel-making in Western Europe, bearing in mind, the port and rail facilities and the availability of coking coal and skilled labour in the area? Does the right hon. Gentleman realise that in not undertaking this investment the BSC and the Government are threatening the long-term future of 18,000 jobs in South Wales?

Mr. Valley

There is nothing in my statement which threatens Port Talbot or steel-making in Wales. We are determined, on the basis of the investment programme which I have emphasised already this afternoon, that the steel industry in Wales will be a substantial and major employer. There is already £100 million worth of investment taking place at Port Talbot on the coking coal facilities there. There is also the continuous casting development, with which I know BSC wants to go ahead. Within the stage-by-stage approach we are adopting we can move to new capacity, provided the market justifies it. No one can tell me exactly how the steel market will develop over the next 12 months or two years, not only in this country but world-wide.

Mr. Leadbitter

Will my right hon. Friend bear in mind that we in Hartlepool welcome his recognition of our special problems? Will he also bear in mind that we have 17 per cent. unemployment and that in recent weeks we have lost 1,500 jobs in steel-making? Is he aware that we are pleased that he has agreed to put the British Steel Corporation on a firm financial basis and has decided that capital projects now under way should be completed? Will he say whether the plate mill and the pipe mills in Hartlepool may now be considered, without prejudice to future policy, as having a permanent part to play in steel-making at Redcar?

Mr. Varley

My hon. Friend is right to draw attention to the formidable problems existing in Hartlepool as a result of the closure negotiated voluntarily between the TUC steel committee and the British Steel Corporation. I know that he will welcome some of the measures we are taking, outlined in the White Paper, to help the situation. Paragraph 17 of the White Paper in particular deals with alleviating measures. I understand that one of the benefits, if I can put it that way, of the situation is that if the Teesside new plate mill does not go ahead, the plate facilities already in Hartlepool will continue in operation.

Mr. Peter Walker

Is the right hon. Gentleman aware that when I introduced my White Paper he proposed a motion in two parts? The first part said that the investment programme—which he has halved today—should have been doubled, while the second part said that no closure should be permitted until there was a guarantee of new jobs in the areas concerned. Will the right hon. Gentleman permit any closure before such a guarantee is given?

Mr. Varley

I shall not permit arbitrary and precipitate closures. The right hon. Gentleman voted for something like that about a couple of weeks ago. I suspect that at some stage articles will be written to the newspapers by some right hon. and hon. Members on the Opposition Benches who follow these matters to the effect that we should have done something more, that we should have taken a grip and taken action to reduce manpower even further. It is necessary to reduce capacity within the short term, but we are determined to ensure that it is done on the basis of negotiation. That is our policy, and we shall be guided by that approach.

Mr. Lambie

Is my right hon. Friend aware that today's statement will be met with bitterness and anger by the Labour movement and trade union movement in Scotland. as expressed at the Labour Party conference at Dunoon last weekend? How can my right hon. Friend justify stopping an investment of £40 million for an electric are furnace at Hunterston when the Corporation has already committed £150 million for a project that will be mothballed? Will he confirm that the £7 million investment for the reheating furnace at Glengarnock will go ahead? In Scotland we do not have 5,000 jobs coming in for the Ford factory. Unlike Cardiff, we do not have 1,000 jobs coming from Government offices. We have no M4. We do not even have an adequate sewerage system. However, we have an unemployment rate of 35 per cent. How can my right hon. Friend, a member of a Labour Government, justify that?

Mr. Varley

Nothing would have given me more satisfaction than to tell the House that the Corporation's prospective capacity will be higher than the capacity that we think likely. During the financial year the Corporation will sell about 17 million tonnes of liquid steel. There is a theoretical capacity of 25 million tonnes to 26 million tonnes. On that basis the Corporation is running at 66 per cent. capacity, with all the effects that that has. If I were to propose that we should add to capacity—I wish that I could say that—I am sure that the majority of the House of Commons, including some of my hon. Friends, would not think that to be in the best interests of the country. Every 1 million tonnes of unused steel capacity costs the British people about £60 million. We have to ensure that we can assess the situation. We have to ensure that the overall position of the Corporation is in a much more viable state in another year's time.

Mr. Hugh Fraser

Some people may still believe that the Secretary of State's policy is wrong. In view of the crash in world demand for steel, surely the concentration should be on small, effective and competitive plants rather than on the production of unsaleable bulk steel? In that relationship will the right hon. Gentleman consider the proposed closure of the Shelton plant, which is making a profit and is an efficient steel plant? It would be a disaster, I believe, to close the plant. If we are to have anything like an efficient steel industry, the right hon. Gentleman should try to sell the Shelton plant to private enterprise, which would make a profit from the plant of about £3 million a year.

Mr. Varley

I think that the right hon. Gentleman is wrong. All steel-making countries with operations of a comparable size to that of the Corporation are in some sort of difficulty, and by no means is the Corporation in the worst position. It is necessary only to read the figures of steel industries throughout the world to realise that. I do not think that the right hon. Gentleman has that wholly in focus. As regards the Shelton plant, I know that the Corporation is discussing the matter with the TUC steel committee. It is up to the two bodies to decide exactly what takes place at Shelton.

Mr. John Mendelson

When my right hon. Friend considers the overall strategy of the Corporation, will he bear in mind that he has been maintained in his policy by those who work in the steel industry, and not by those, such as spokesmen for the Opposition, who put the emphasis on global figures, demanning, redundancies and unemployment? Will my right hon. Friend relate his strategy to two major subjects? Does his announcement mean that where comparatively limited sums have already been considered for investments to allow works to continue successfully on their way, there will be no interference of any sort in spite of the financial pressure? Secondly, will he recall that we are still importing millions of tonnes of steel? Is he prepared to take the financial risks, which will be underwritten by those who support him in his policy, if not by others, to ensure international competitiveness and standing, which means that we continue advancing money to the industry? If we do not, we shall have to import steel again in a few years' time.

Mr. Varley

I think that my hon. Friend's approach is right. We have to proceed on a step-by-step basis. I do not want to go into the sort of targetry that is urged by some—for example, the number of redundancies, whether we can impose them and the sort of investment that will exist. I am determined to maintain a large investment programme so that pro-jets already under way will be completed. That is an essential condition. If capacity is to be taken out, it will be done with agreement and proper consultation with the work force on the basis of Hartlepool and East Moors.

Some action has been taken about imports. It will not have escaped the attention of my hon. Friend that even with the present gloomy prospects for world steel the Corporation last year became a net exporter of steel. That is something on which we must build.

Mr. Cant

Is my right hon. Friend aware that his statement will be greeted by my constituents and the Shelton steel workers as a betrayal of promises and commitments given over the past six and a half years? Is he aware that the decision has been made because of the implacable opposition of the BSC to Shelton? Under paragraph 23(4) dealing with cost reduction schemes, will he accept, when he meets Moss Evans with the Shelton action committee after Easter, a guarantee from the Shelton workers that if an electric are is installed they will repay the total capital cost within four years?

My right hon. Friend has made numerous statements about co-operation between the BSC and the unions in effecting closures. Despite the letter of 18th October from the Minister of State, and despite what appears in column 1696 of Hansard of 9th March, the BSC, without any consultation with the unions, has written to workers telling them that it is closing steel-making at Shelton, that it is sending in no more supplies and that it is to cut off orders. That is abominable. My right hon. Friend should assert his authority over Bob Scoley, who does not say many complimentary things about him. He should tell the chairman of the BSC that he must not starve these workers into submission.

Mr. Varley

I know that my hon. Friend is disappointed that the electric are furnace project is not going ahead. The matter will have to be reviewed in the future. It is the Government's firm policy that there should be proper negotiations and procedures before any closures take place of iron and steelmaking plants. That has been made plain on more than one occasion to the Corporation. I assure my hon. Friend that it will be made plain again if he feels that it is necessary.

Mr. Ian Lloyd

Is the right hon. Gentleman aware that there is a self-evidently powerful case for allocating some national resources to ensure that those sectors of the industry that can achieve international competitive levels should do so? As he knows, we are moving rapidly from the age of steel to the age of silicone. Does he think it appropriate that there should be an investment of about £870 million to support the steel industry and only £8 million to support the semi-conductor industry?

Mr. Varley

That is one of the conflicts. It is a conflict that is apparent not only among the Government Benches but among Opposition Members. When I referred to steel-making capacity I saw some right hon. and hon. Members on the Opposition Front Bench nodding and suggesting that we should have had an even higher investment programme com- mitted to even greater capacity. The hon. Member for Glasgow, Cathcart (Mr. Taylor), who speaks for Scotland on behalf of the Opposition, and the hon. Gentleman should get together and sort themselves out.

Mr. Stan Crowther

In the light of my right hon. Friend's comments about the Rotherham workers in reply to my hon. Friend the Member for Rother Valley (Mr. Hardy)—incidentally, Rotherham is expected to make a profit of £4 million in the current year—is he in a position to indicate when a decision will be made on the introduction of continuous billet casting, thus ensuring for an efficient plant and a highly skilled and dedicated work force a long-term future based on security and general economic viability?

Mr. Varley

I do not know about the particular project mentioned by my hon. Friend. However, as I have said, it is the British Steel Corporation's intention that the investment programme for next year shall be very much directed to improving product quality. I confirm everything that he said about the Rotherham works. It is extremely profitable, even against all this background, it has an enthusiastic work force and it is anxious to expand its capacity, if possible.

Mr. Patrick McNair-Wilson

Will the Secretary of State indicate what his policy is towards the direct reduction of iron making? He has talked about steelmaking at Hunterston, but, as I understand it, neither the gas reforming catalyst nor the pellets have been ordered. Does that mean that the iron-making plant is to go into mothballs as well?

Mr. Varley

It does not form part of the statement that I have made to the House. I believe that the BSC is actively looking at that part of its operations. I speak from memory, but I think that reference was made to this aspect in the Select Committee's Second Report.

Mr. Robert Edwards

Is my right hon. Friend in a position to say whether the Bilston steelworks comes within the category that he described as a high-cost plant? If so, I suggest that that is very debateable because it has never made a loss since nationalisation. Is he aware that if the Bilston plant is closed that will double unemployment in my constituency and create serious problems for the whole of the metal industry in the West Midlands?

Mr. Varley

I have no precise financial figures for particular plants. One difficulty is that, given a demand for only 17 million tonnes of British Steel Corporation production this year against a theoretical capacity of 25 million to 26 million tonnes, loading the plants does not have a great effect. It means that some plants can be loaded to produce a profit, while others, which are generally described as low-cost plants, are loaded inefficiently. That is a difficult management problem for the Corporation.

Mr. Michael Marshall

Is not the right hon. Gentleman's statement today the result of four years of prevarication and delay? Does he agree that if the programme in the 1973 White Paper had gone ahead, new plant, including the mill and continuous casting at Port Talbot, would be coming on stream just about now? Will he confirm that this is now five years out and adds to uncertainty about the future? Finally, in which way does his proposal today differ from what Sir Monty Finneston said on demanning and for which he was sacked?

Mr. Varley

I need not refer to or comment on that last remark. It is utter and total rubbish. The hon. Gentleman, who pretends to be a serious Member of the House of Commons, would not expect me to comment on that.

In addition to all that, I shall not take lectures from Conservative Members of Parliament about delays in the steelmaking plans. The development plan that was first produced for the British Steel Corporation was not the development plan of the right hon. Member for Worcester. It was produced in 1969. At that time there was what we called the constitutional monstrosity—the joint steel steering group—where for two years the investment programme and that plan were held up. It was proceeded with only after the right hon. Gentleman was able to take Lord Melchett, Sir Monty Finniston and other such people into the Cabinet room to convince the right hon. Member for Sidcup (Mr. Heath).

Several Hon. Members rose—

Mr. Speaker

Order. I propose to call all hon. Members who have been rising throughout.

Mr. Kinnock

Does my right hon. Friend accept that the viability, profitability and improved sales that both he and the industry seek can be achieved only by improvements in costs, supply and quality? Does he further accept that these objectives can be achieved only by improvements in productivity, which cannot be secured solely by manpower reductions but need massive additional investment to ensure that we anticipate rises in demand and have the best possible means of manufacture available so that we may have a lead and an advantage over the rest of the world? In consequence, is not the decision on Port Talbot and other areas retrograde in this respect, because it offers the industry little more than the maintenance of what it already has, what is now irreversible, plus some manpower reductions? Is that not bound to make people very bitter without the offsetting effect of further investment in the industry?

Mr. Varley

My hon. Friend was one of those who said that we should go for specific reductions in manpower targets.

Mr. Kinnock

What is my right hon. Friend going to do?

Mr. Varley

My hon. Friend said that in his report. I am not here to cause trouble for anyone this afternoon, but I think that it is fair to point that out.

The investment programme is substantial in any terms. I suggest that an investment next year of £500 million so that expansion can take place is significant. We need to see how the market goes over the next 12 months and then to review the situation on what we call a stage-by-stage basis. It is premature to go in for targetry, as happened in 1973 and a few years before that.

Mr. Teddy Taylor

Is the Secretary of State aware that his statement confirms the gloomiest predictions that have been made in Scotland and that his package is more severe than it would have been had the Government taken the right decisions at the right time? What will be the effect of the planned closures in Scotland? What is the status of the electric are furnaces in Ravenscraig and Hunterston? Are they to be scrapped or postponed? What will be the effect on Scotland's share of steel-making capacity? Does he realise that his statement will make the people of Scotland a bit sick when they recall what the Labour Party and the right hon. Gentleman said about investment programmes when the Conservative Government announced them—plans which this Government are now scrapping?

Mr. Varley

The hon. Gentleman's comments are riddled with clichés. I do not know what he means by too little, too late. I suppose he is one of those who thought that I should have taken some arbitrary and precipitate decisions to reduce costs one month into the financial year. In effect, that is what he voted for only two weeks ago.

The electric are furnaces at Ravenscraig and Hunterston have been deferred. If the market improves significantly and demand justifies it, we shall want to consider whether they can be proceeded with.

Mr. Ashley

Is my right hon. Friend aware that, by his failure to give an electric are furnace to Shelton immediately, he has gone back on a clear and specific promise that he made two years ago and that that is deplorable and indefensible? At this late hour, will he heed a plea to consult not only the TUC steel committee but the European Commission and the action committee at Shelton with a view to reprieving this viable steelworks?

Mr. Varley

I know of the disappointment at Shelton because of the postponement of the electric are furnace. In some respects I share that disappointment. I should have liked nothing better than to come to the House of Commons and to confirm that it should go ahead.

I shall be consulting the TUC steel committee further. I have been in close touch with it during the last three months.

Mr. Wrigglesworth

Bearing in mind that 10,000 jobs in the steel industry have been lost on Teesside since nationalisation in 1968 and the need for integrated, balanced plants with no bottlenecks, may I ask whether my right hon. Friend is aware that people on Teesside are glad that the development of the Redcar site is to go ahead? Is he also aware that there will be disappointment south of the Tees that the new plate mill is not to be built there? I understand the position of people in Hartlepool and the circumstances in the market. However, will my right hon. Friend confirm that this decision has been deferred only for the present?

Mr. Varley

All the investments have been deferred because of market conditions. No one knows precisely how the market will go in the next 12 months. Even the right hon. Member for Worcester, who is very concerned about this matter and has a funny grimace on his face, does not know how the market will go. We need to make a close assessment of the situation over the next 12 months to see whether some of the postponed investments can be resumed.

Mr. Anderson

Does my right hon. Friend accept that the full investment in Port Talbot will ultimately be necessary if the plant is to remain viable and avoid increasing obsolescence? What assurances can he give on that matter?

Mr. Varley

It is not our intention that any of the steelworks should be allowed to wither in the way that my hon. Friend has described. We want an investment programme directed, above all, to the completion of the projects already under way and to the improvement of product quality. I think that my hon. Friend will see over the months that this is what the British Steel Corporation is aiming for. However, we shall keep the matter constantly under review. If the market justifies going further there will be no hesitation on our part to do so.

Mr. Skinner

Does my right hon. Friend agree that it is just about the height of hypocrisy for members of the Select Committee dealing with the steel industry to come here with their synthetic indignation, having paved the way for some of these closures with their recent report?

How much will this exercise cost, bearing in mind the £4,000 mililon it is already costing to finance the pile of human misery known as the dole queue? How many men will be added to it? Can my right hon. Friend help me to understand how it is that one Minister comes to the House telling us that we need the temporary employment subsidy, job creation, and schemes by which people count lamp posts, while another Minister comes along wanting to sack thousands of workers all for the sake of stockpiling a bit of steel? Does my right hon. Friend not recall the problems in the pits, when, through a failure to stockpile coal, many pits were shut and a few years later we could have done with those pits being kept open?

Mr. Varley

I am not deriving any joy from closures or redundancies, and I know that my hon. Friend would not want to misrepresent what I have said today. The reductions have been brought about not by arbitrary ministerial decision but on the basis of discussions between the steel trade unions and the British Steel Corporation on a step-by-step basis. No arbitrary decisions have been taken and where closures are proposed that procedure will be fully observed.

I can assure my hon. Friend that the Government have a stockpile of steel—

Mr. Skinner

Then stockpile some more.

Mr. Varley

The stockpiling was done a year ago and it cost the taxpayer about £89 million. It was done to meet this kind of eventuality. But the facts—and no one can escape these facts—are that at the moment there is a market for 17 million tonnes and the BSC has a theoretical capacity of 25 million or 26 million tonnes. Some of that will be increased, but we shall have to judge it on the basis that I have put before the House today.

Dr. Phipps

In view of my right hon. Friend's statement that further investment in major new projects which have not been begun will be halted, will he reconsider the BSC's plans for the electrical steels industry which, as I understand it, currently means expenditure of some £50 million in developing new capacity at the Orb works and closing down the Cookley works in my constituency, with the loss of 670 steel jobs? Is my right hon. Friend aware of the widespread concern being expressed in the West Midlands at the fact that the BSC has decided that the region has no future in steel-making and steel-finishing? Is that the case?

Mr. Varley

The Corporation has given no indication to the Government that any particular area of Britain does not have a future in steel-making. Ultimately the BSC manages the industry. I know that some projects in the West Midlands are extremely valuable and beneficial to the Corporation. Any reduction in capacity, however, will have to take place on the basis I have announced this afternoon, of an assessment of the market, with the BSC talking directly to the TUC steel committee. If there is agreement, there will be a reduction in that capacity. There will, however, be no arbitrary decision and no diktat by Government.

Mr. Edwin Wainwright

Will my right hon. Friend confirm that while the Select Committee has made recommendations to him, no matter what happens there will be close co-operation between the BSC, the Government and the trade unions? Can he assure the House that that has been carried out to its finality, even on the White Paper? May I assure my hon. Friend the Member for Bolsover (Mr. Skinner) that if the steel industry had produced what everyone thought it should in order to keep jobs, the production would have been 43 million tonnes of steel going down to 36 million tonnes and then to 30 million, and that even at 30 million tonnes—

Mr. Speaker

Order. The hon. Member is not here to defend his Select Committee report now. He may ask a question in which no doubt a little defence will appear.

Mr. Wainwright

I shall defend myself in some other place. What my right hon. Friend has announced means redundancies. May we be assured that redundancy payments will be generous—[HON. MEMBERS: "Don't count on it."] They are bound to be. If anyone does not think so, he is not being realistic. Can we do any more than we have done in the past to put new jobs into areas where steel jobs are being lost?

Mr. Varley

I have explained that British Steel Corporation (Industry) will be doing everything it can about new jobs, and paragraphs 16, 17 and 18 of the White Paper refer to the measures we hope to take. It is not for me to comment further on the Select Committee's report. I shall be introducing legislation after the recess and further reference will be made at that time. I can give my hon. Friend the absolute assurance that the procedures we have agreed with the BSC and the TUC steel committee are being fully observed.