HC Deb 28 October 1980 vol 991 cc451-62

Motion made, and Question proposed, That this House do now adjourn.—[Lord James Douglas-Hamilton.]

5.9 am

Mr. Gavin Strang (Edinburgh, East)

It is appropriate that the first debate on the many industrial problems now affecting our country should be on the paper-making industry. I am sure all Members of Parliament are well aware of the scale of the crisis affecting this industry. Indeed, every hon. Member received a valuable publication, produced by the Society of Graphic and Allied Trades, which detailed the decline of the industry and focused attention on the enormity of the current crisis.

It is true that the paper-making industry has been in some sort of decline for a long time. During the 1960s, changes in the tariff arrangements, through our relationship with the European Free Trade Association, adversely affected the industry. The major paper mill in my constituency, the Inveresk paper mill, closed as long ago as 1971. It would have been bad enough if that rate of decline had continued into 1980. However, we now face a situation that is much worse. It is catastrophic. It is impossible to overstate the scale of the crisis that afflicts the whole paper and board industry. It is a direct consequence of the Government's economic policy.

The problems are the same as those afflicting other industries, but the Government's policy militates more severely against the paper-making industry. I refer in particular to the Government's obsession with monetarism, which has led to an overvalued pound and high interest rates. I also refer to excessively high energy prices. There is no doubt that the Government's economic policies are inflicting immense damage on the industry. They are directly responsible for the loss of thousands of jobs.

Since the Second World War, the case for investing in timber through the Forestry Commission has been based not on the need for wood in order to build ships for war but on the need—accepted by Governments of both parties—to invest in British timber in order to reduce imports. The case for investment—whether State investment through the Forestry Commission, or private investment that is encouraged through taxation concessions—has been based on the need to produce more timber to help our balance of payments.

We now face a preposterous situation. Instead of producing timber for our own wood-processing industries, the Forestry Commission is producing timber for export. Only this week, I saw a reference in the Financial Times to near boom conditions in the ports of Invergordon, Montrose and Grangemouth. As a result of closures, wood is being shipped out of the country. One may find that £1,000,000 worth of wood has been shipped out and reimported in the form of newsprint, at a cost of about £10,000,000. That is economic lunacy.

The immediate short-term impact on the Forestry Commission is negligible, as long as it can obtain a reasonable price for the export of timber. However, it is contrary to the long-term interests of the Forestry Commission to be so dependent on export markets. It is in the interest of the Forestry Commission, and in the national interest, to sustain and increase our capacity for the consumption and processing of home-based timber.

I shall mention two closures in particular. The first is a fait accompli. The second is a proposed closure that can, and must, be stopped. I refer in the first instance to the closure of the Fort William chemical pulp mill at Corpach. I raised that issue in April during a debate on the forestry industry. At that time the Scottish Office was still trying to save that mill.

Consolidated Bathurst, a big Canadian company, working with Wiggins Teape, tried, with Government help, to come up with the major investment in newsprint capacity which would have been an important and valuable development at Fort William. That failed, and I believe that the Government must accept a substantial responsibility for the failure. Many of the arguments that were made about the wood being too expensive and that it was all the Forestry Commission's fault have been shown to be wholly unjustified.

The fact is that it is overwhelmingly in the interests of the Highlands of Scotland that this indigenous industry—wood processing—should be developed and encouraged. Surely we should use the revenues from North Sea oil to invest in new capacity for these industries which will be with us long after the North Sea oil is dry. The negotiations were a total failure, the mill is now closed and, instead of Fort William being seen as an expanding development for new industries in association with timber production, the whole movement is in the other direction, and established channels are being fixed whereby the timber from the Forestry Commission and the private sector is now moving out in huge quantities to Scandinavia and elsewhere.

I ask the Government to give some sort of undertaking about Fort William. Are they saying that they are prepared to stand by and see a complete reversal of what the Highlands and Islands Development Board, the Forestry Commission and the local community all wanted for Fort William, namely, the development of this important indigenous industry?

I turn now to the proposed closure of the Bowater mill at Ellesmere Port. I believe that this is a major test case of the Government's commitment in this area. First, I think the Government have, to some extent, accepted that they have a responsibility to maintain some newsprint production in this country. If that Ellesmere Port closure goes through and Reed's mill at Aylesbury closes, the proportion of newsprint consumed in this country that is produced in Britain will be about one-eighth. We shall see the almost total elimination of newsprint production in this country, and the almost total dependence of Fleet Street on imported newsprint. Surely the Government accept that it is not in the national interest to have virtually all our newsprint imported.

Of course the major consideration at Ellesmere Port is employment. That is why the unions are still fighting this closure. There have been suggestions in some quarters that it is Bowater's fault, and that the package put forward by the Government is adequate to save this mill. Bowater's position is that the package is inadequate. But at least the Prime Minister had a meeting with the interested parties and accepted that something should be done. She did not take the hard-line, non-interventionist stance. The Government have put forward a package, both in relation to substantial regional development aid for a new mill, and. more significantly, some aid on revenue costs.

Mr. D. N. Campbell-Savours (Workington)

Does my hon. Friend accept that, following the meeting on 6 August with the National Economic Development Council on the energy price component in this problem, and the undertaking given by the CBI that it would examine closely the whole subject of energy prices in the United Kingdom, it is for the Minister to tell the House to what extent he will accept any recommendations that the CBI may make on energy pricing? If the CBI tells the Government that it believes that there should be a different industrial energy pricing structure, will they accept that, in line with the comments of the Secretary of State for Industry in his letter to Mr. Adams, when he said that the Department would be closely involved in the examination of energy prices?

Mr. Strang

I am grateful to my hon. Friend. It is significant that one of the sources of assistance that the Government put to Bowater at Ellesmere Port concerned the price of coal. It was estimated by the Department of Industry that the price reductions would lead to a saving of £2¼ million in a full year. The Government accept that they have to tackle the problem by acting directly on revenue and energy costs. Although it will not solve the problem, the quick way in which the Government can help is by tackling the ridiculous situation. We have a good indigenous energy supply of gas, oil and coal, yet our industries are paying higher prices for their energy, thus affecting the whole cost structure, than their competitors in other European countries, not to mention North America.

It is not sufficient for the Government to say that they have put forward a package and are trying to help. That failed at Corpach. That mill closed. It is no good doing the same at Ellesmere Port. It does not matter what the Government offer. All that counts is whether the jobs and that newsprint production capacity are saved. I hope that we shall have an assurance that the Government are not prepared to sit back and allow the closure to go ahead. They should make clear to Bowaters that there must be an agreed level of support and Government intervention to allow new investment to go ahead and production to be sustained at Ellesmere Port. I concentrated on the two closures because they are so important to employment in the Highlands and Merseyside and they have accounted for a large proportion of the Forestry Commission's output. There have been numerous closures throughout the country. About 800 jobs at the St. Anne's board mill at Bristol have been lost. Paper mill after paper mill has closed in the past year. Since the Prime Minister met representatives of the industry more than 1,000 redundancies have been announced. We are witnessing the almost complete decimation of our capacity in that important sector.

The Government cannot stand by. My hon. Friend the Member for Workington (Mr. Campbell-Savours) initiated a debate on the Consolidated Fund Bill and the hon. Member for Basildon (Mr. Proctor) also spoke about the matter. Although there was an important debate before the Summer Recess on the problems of the paper-making industry and there was a meeting between the Prime Minister and representatives of the industry, the situation is getting worse. The rate of decline is accelerating. More and more efficient mills, which cannot compete because of the economic factors loaded against them, are closing. The Government cannot stand by. They must be prepared to intervene. We need a reversal of their entire economic policy to help manufacturing industry generally, but we cannot wait for that. The paper industry is a special case. The Government must take that on board before it is too late.

5.23 am
The Under-Secretary of State for Industry (Mr. David Mitchell)

I congratulate the hon. Member for Edinburgh, East (Mr. Strang) on his good fortune in having another Adjournment debate so soon, although we would both wish that it had taken place at an earlier hour. I am grateful to him for enabling the House to discuss once again the situation in the paper and board industry. We considered the industry during our debate on the Consolidated Fund Bill in August, but I know that many hon. Members are concerned—including those with mills or forests in their constituencies—about the continuing situation.

I note the presence in the Chamber, even at this hour, of the hon. Member for Workington (Mr. Campbell-Savours) who raised the matter in the Consolidated Fund Bill debate.

The Government have continued to keep in close and continuing touch with the industry, and not only through my Department, where my right hon. Friend and the Minister of State, Lord Trenchard, have met representatives. The industry has also seen the Minister for Trade to discuss its concerns on the trade front. Moreover, as the hon. Member for Edinburgh, East said, the Prime Minister received a delegation to discuss in particular the problems of the newsprint industry.

Like other industries, and this will be so until the benefits of our policies have had time to work through the economic system, the paper and board industry is having to face a difficult combination of economic circumstances. Demand is depressed in most sectors and many mills are working below capacity. Our contacts with the industry have revealed encouraging examples of companies making efforts to improve efficiency and, despite current problems, considering seriously the need for investment.

The hon. Member referred to what he called the unique decline in the industry. I do not seek in any way to underestimate the degree of contraction in the industry. Indeed, I do not underestimate in any way the extreme competitive difficulties which the industry faces, for the reasons the hon. Member spelt out. But it has to be said that in the 1975 recession production of paper and board, including newsprint, fell by no less than 20.6 per cent. over the figure for the previous year. That was a more substantial year-on-year drop than we are likely to experience in 1980. I accept that, whatever the relative situation between the decline of one time and the decline of another, this is a position that causes grave concern to hon. Members, particularly those with mills in their constituencies, or, as is the case with the hon. Member for Edinburgh, East, where the Forestry Commission is involved. Then the problem is much wider in its implication than it is for particular constituencies.

The hon. Member drew attention to the situation facing the industry and laid the blame on what he called the monetarist policies of the Government in creating an impossibly strong pound. He must now, bearing in mind the passage of time since we last debated the problems of the country's economy before the Summer Recess, recognise that what he and his colleagues then referred to as the theory of monetarism is proving to be a practical reality. Earlier this year industry faced the horrifying consequences of a level of inflation which had risen to over 21 per cent. and was nearly 22 per cent. There were all the consequences for industry of a cash hunger. Businesses were needing more money to do the same volume of turnover. There were horrifying consequences for their borrowing, and in many cases there was an inability on the part of some companies to borrow to the extent that they needed simply to sustain the level of trade they had been doing earlier. Inflation is undoubtedly the worst enemy of business growth that (here is.

The hon. Member for Workington will recall making speeches against the Government's policies for dealing with inflation during the passage of the Industry Bill earlier this year. Now we find that, far from inflation of 21.9 per cent., for the last three months the rate has been down to single figures. The policy is working. The policy is laying the foundations for genuine business growth.

The hon. Member for Edinburgh, East said that the strong pound made it difficult for businesses to survive. I accept that the high level of the pound makes it difficult for businesses to compete in the export trade unless they have the utmost efficiency. Businesses seeking to compete with imports from abroad face equal strains and difficulty. They have to be efficient and they need restraint in their costs, including their wage costs. But the hon. Gentleman is as familiar with that need as I am.

We talk with pride of a strong pound—though we understand the difficulties that it causes—and that contrasts with the efforts of previous Governments who had to rush around to try to stop the pound from falling out of the bottom of the market. with all the inflationary consequences that that would have produced.

The strong pound is caused principally by our unique combination of a stable society and an oil well in our back garden. To the treasurer of a small country overseas or a major international company, those two strengths give us a unique combination that encourages people to put their money in sterling. A further factor is the high interest rates that the Government are employing in an endeavour to get inflation under control. I hope that the hon. Gentleman will not get the matter out of proportion and suggest that the level of sterling is within the gift of the Government to do with as they wish. It is not. The international market determines the value of our currency. It is not determined by what we wish it to be—up or down.

The hon. Member raised worrying points in connection with the Forestry Commission. The closure of the pulp mill at Fort William and the closures in prospect at Ellesmere Port and Bristol will obviously be regarded as a blow to forestry. The commission is rightly concerned to retain the industry's infrastructure, marketing and transport, as well as to mitigate the effects of the closures on employment. In co-operation with the private sector, the commission has been successful in securing export outlets for small round wood.

I noted that the hon. Gentleman expressed almost distaste for the prosperity that has come to certain ports on the North-East coast of Scotland. That distaste is not shared by those involved in the port activities.

Of course, the Government would sooner see value being added to the wood here, but it has to be done profitably and it is important that the hon. Gentleman should note that the export contracts are deliberately being kept short so that we do not prejudice the establishment of any new wood-processing activities in Britain. It is for the industry to seek out new commercial possibilities, and the Government are willing, to consider with it any viable proposals. I should have preferred to hear such proposals from the hon. Gentleman.

We have no reason to believe that the Forestry Commission is not getting comparable returns on exports with those it would have achieved if it had continued to sell in the United Kingdom. I hope that that reassures the hon. Gentleman about the consequences for the commission.

I am keenly aware of the position at Fort William. I know that my right hon. Friend the Secretary of State for Scotland is deeply concerned about the consequences for employment in a somewhat isolated community. It is one of the areas of the Scottish economy that cause my right hon. Friend great concern, because he recognises, in a human way, the effect on those who lose their jobs at a time of world recession.

However, the pulp mill has been making heavy losses, and the consultants engaged by Wiggins Teape confirm that it could not be made profitable, even after substantial investment. The alternative suggested by the consultants, of establishing a new pulp and newsprint mill at Fort William, was thoroughly explored by the company with a potential Canadian partner. The Government indicated that a significant package of financial assistance could be available for this development, but the companies finally decided that, even with Government help, the newsprint project could not produce adequate profits to be a commercial proposition.

I know that my right hon. Friend the Secretary of State for Scotland continues to regard the identification of alternative employment opportunities at Fort William and the search for new wood-using projects in the Highlands as a whole, as one of his priorities. The Wiggins Teape mill at Fort William is continuing in production, and I am aware of its importance for the local economy—indeed, an importance highlighted by the tragedy of the pulp mill situation. I understand that Wiggins Teape regards this operation as an important part of its whole activities.

I turn to the points that have been made on the subject of Bowater. It is not enough for me to say that we debated this almost as the House was rising in the early hours shortly before the recess, and that the situation has unfolded as the hon. Member for Workington foresaw at the time and as I foresaw and, tragically, had to accept. The Government were prepared to cobble together with the company a substantial package to make worthwhile significant technological advance and a new investment programme to create a new future for the company there, but the commercial decision-making was for the company, and, in spite of the significant public support that we were prepared to give, it did not feel that it was commercially viable and would secure an adequate pay-off in the time that it thought to be commercially right.

Mr. Campbell-Savours

What about the CBI?

Mr. Mitchell

The hon. Gentleman is of course referring to the energy question that he raised in his intervention. I do not wish to fail to deal with that.

Energy prices are crucial to a significant number of industries in this country, but probably nowhere of greater importance than for this industry. The matter was discussed by the National Economic Development Council at its last meeting. At that time the representatives of a number of industries feared that the price being asked was too high, whereas the Department of Energy took the view that the prices in which it had a hand were those ruling among our principal competitors on the Continent. There was a difference of opinion, and the CBI was asked whether it would co-ordinate and collect the views of industry, with practical examples to demonstrate whether there was unfairness. We are waiting for the CBI to provide that information for us to consider. It was asked to give the evidence.

The hon. Gentleman asked whether I would give an undertaking that the CBI's views would be accepted. It would be extraordinary for a Minister to do that—

The Question having been proposed after Ten o'clock on Tuesday evening, and the debate having continued for half an hour, the DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at twenty-one minutes to Six o'clock a.m..