Steel Industry (Hansard, 24 February 1981)

§ The Secretary of State for Industry (Sir Keith Joseph)
With permission, Mr. Speaker, I will make a statement about the steel industry.
No one in the House can welcome the position in which much of the industry finds itself. It has been nationalised, denationalised and then renationalised. It has been encouraged by Governments to carry out unrealistic investment programmes. The Labour Party refused to allow the British Steel Corporation to close surplus steel capacity. Its work force went on a three months' long strike. Now the market has collapsed and the high value of sterling has created serious difficulties for private and public steel firms alike—here and in Europe.
The BSC, which should have been allowed to contract gradually by the Labour Government, cut manned steel-making capacity from 21½ million tonnes of liquid steel to 15 million and shed 50,000 jobs in 1980. Works were closed and manning levels slimmed to raise productivity.
A report by the BSC on its plans has been placed in the Library of the House and in the Vote Office. The aim is for the corporation to become internationally competitive. Mr. MacGregor has reorganised the corporation into separate businesses, each responsible for the production and marketing of a specific product range. He is planning a manned capacity of 14.4 million tonnes of liquid steel annually, but is committed, if the assumptions behind the plan are not sustained, to reduce the corporation to a size that can in fact make a profit. The corporation's results will depend not only on its own performance but on factors such as exchange rates, the European market and any upturn in steel ordering in the United Kingdom. Mr. MacGregor admits that his plan is optimistic, and I think that he is right. He has made it clear to the Government and to the managers and work force of the corporation that there will be no future for any operations that are not competitive.
The corporation has asked the Government for an extra £150 million in 1980–81—bringing the total external finance requirement to £1,121 million—and for £730 million in 1981–82. That is a huge amount of money for taxpayers to find, particularly when unsubsidised private sector steel companies, some in competition with the corporation, face extreme difficulties. The Government are greatly concerned about the impact of the European steel recession, plus the corporation's vigorous marketing, on private firms. I therefore recently authorised the corporation to negotiate viable joint private companies with those firms whose operations overlapped its own. Agreement on one such company—Allied Steel and Wire—was announced on Friday. Transitional arrangements for some of the assets of Duport Steel were announced yesterday.
Setting up more joint companies takes time, and will not entirely deal with the problem of competition between the corporation and the private sector. I have stressed to Mr. MacGregor that the corporation must compete fairly with private firms and have pointed to widespread complaints that the corporation is unfairly undercutting private firms. He replies that the corporation's and private firms' prices have been increasingly undercut by other EEC producers. The corporation has therefore had to price down. The private sector has had to do the same. Mr. 746 MacGregor has assured me that it is not the corporation's policy to sell its steel more cheaply than imports, but only to match the prices charged for them.
Mr. MacGregor has further undertaken personally to investigate any specific allegations of unfair pricing that are put to him by companies or by hon. Members. I have asked my hon. Friend the Under-Secretary of State to monitor these complaints and to report to me.
In order to make the corporation's operations more transparent and to pave the way for further privatisation, Mr. MacGregor has agreed to consider placing those corporation businesses that are in competition with the private sector in separate Companies Act companies.
Mr. MacGregor has said that by all normal commercial criteria the corporation is bankrupt. Because it is a statutory body it cannot be liquidated like a private sector company, and the Government and taxpayers cannot, therefore, at present escape from funding it. Mr. MacGregor has developed a plan that could bring the corporation back to profitability by making it as efficient as its European competitors.
Recognising that the corporation should be given a last chance to become profitable and to cease to burden the taxpayer, the Government are prepared, on condition that the corporation behaves responsibly towards the unsubsidised private steel makers, to approve its corporate plan and to provide the finance needed to implement it. The corporation's target is to reduce its loss, before interest, from an estimated £480 million in this year to £225 million in 1981–82 and to achieve break-even in 1982–83. We shall increase the corporation's financial limit for 1980-81 to £1,121 million and have set its external financial limit for 1981–82 at £730 million. Those large figures reflect the corporation's substantial though reduced losses, but also provide for heavy redundancy and closure costs and a limited programme of essential capital expenditure.
I must also emphasise that if Mr. MacGregor's optimism is not justified further closures and redundancies may be necessary. The Government will monitor progress closely in each of the corporation's businesses. Mr. MacGregor will give us his assessment of progress by July.
To implement those decisions, some changes in the law are needed, and I have today published the Iron and Steel Bill 1981. This amends the Iron and Steel Act 1975 to ease the transfer of businesses to the private sector and to permit an extensive rundown of the corporation if that proves necessary. We also need to deal with the mistakes of the past. The Bill will write off some £3,500 million of the corporation's capital immediately, will provide a power to write off a further £1,000 million later, and will make consequential adjustments to the corporation's borrowing limit. That does not represent the commitment of additional funds; it marks the huge cost to the taxpayer of over-ambitious, centrally directed investments and the uncompetitive use of many of them.
The plan involves job losses in areas where unemployment is above the national average but which are already assisted areas, so considerable support is already available to encourage new investment and to help the jobless to find work. The Government do not intend to alter the assisted area status of any steel closure area at this time, but we do not underestimate the problems for the communities and people concerned. I shall, if necessary, consider whether any regrading would be appropriate.
747 We shall also seek to ensure that market conditions in Europe are improved. The production quotas imposed under article 58 of the Treaty of Paris expire on 30 June and we are already discussing with our Community partners the measures to replace them. We intend to ensure that reductions in capacity are equitably shared among the members of the Community and that, as far as possible, short-term market conditions do not invalidate long-term commercial objectives.
The financial provisions that we propose will require approval from the European Commission.
The Government may have had to spend taxpayers' money this time, but we are seeking powers to relieve the taxpayer of the inescapable obligation to fund the corporation indefinitely. The Government intend the competition that the private sector faces from the BSC to be fair, and we expect more public/private steel firms to be created, which will be in the private sector. It is a tough time for all who work in the steel industry. There can be no guarantee of survival. But for those who are, or who become, competitive there is far more hope of a secure and prosperous future than for those who do not become competitive.

§ Mr. Stanley Orme (Salford, West)
We welcome the Secretary of State's proposals for the steel industry—as far as they go—as spelt out in his delayed statement. They must be set against the current economic and industrial background, which the Government have done much to create—for example, low demand, high interest rates, the high level of the pound and high energy costs. Many of those can be laid firmly at the door of the Government. They have had a devastating effect on the steel industry, affecting the public and private sectors alike. Today we heard the dreadful news of the proposed closure of the Llanelli works, with all that that involves for the many thousands of steel workers in that area.
Against that sombre background, I wish to ask the Secretary of State a number of questions. He announced the current capital to be made available to the corporation, and said that it was for interest rates, redundancy payments and the purchase of pieces of private sector companies. What about current money for running the steel industry? What about the possibility of investment? What arrangements is the right hon. Gentleman making in that regard? It is extraordinary that he is talking about aspects of denationalisation when the Duport proposal actually involves nationalisation. That point should be taken into account.
The right hon. Gentleman calls for co-operation between the work force and the managers within the steel industry, but the corporate plan was not agreed between the steel unions and the management. If the right hon. Gentleman wants the co-operation of the steel unions he has a duty to ensure that Mr. MacGregor and the BSC board have proper consultations with the unions.
The Secretary of State talked about unfair competition from the EEC. His statement is almost anti-EEC. What action will he take to protect our steel industry from unfair subsidised competition from many of its European competitors, not least West Germany?
What about further privatisation? If the right hon. Gentleman, through this device, proposes to sell the BSC companies that have become profitable—which will be against the interests of the taxpayer, who has already put money into investment—what action will he take to 748 protect the taxpayer against unfair—[Interruption.] The taxpayer has invested in the industry and that investment, when it becomes profitable, will be taken away— [Interruption.] I suggest that Conservative Members save their complaints for the Secretary of State.
When the Bill is debated, will adequate time be provided to examine the detail, and not least the financial implications, of the statement? Will the right hon. Gentleman provide an opportunity for an early debate? He said that he wants Mr. MacGregor to report on the future of the corporation by July. Is that a feasible time scale, bearing in mind that we are already two months behind the proposed timetable? Will he ensure that proper co-operation and consultation are carried out within the industry?

§ Sir Keith Joseph
The use of the proposed capital is shown in the plan published by the BSC, a copy of which is in the Library. It is true that some assets of Duport have been bought by the public sector, but only transitionally, until the hoped-for public/private company in engineering steels is formed in the private sector. If that company were not to be formed, and Duport's assets, recently acquired by the BSC, could not be sold to it, the assets would be sold in the market.
The right hon. Gentleman referred to the co-operation of the unions. I am sure that Mr. MacGregor will read his comments. It is true that there is fierce competition within the EEC. That is being discussed under article 58. But not all of that competition is subsidised. The right hon. Gentleman referred to the taxpayers' interests in any company that might be sold from the BSC to the private sector. To the extent that part of the BSC is privatised, the taxpayers, who, to put it mildly, have not done well out of BSC, will be well out of it. Any question of a debate is for my right hon. Friend the Leader of the House.

§ Mr. Michael Grylls (Surrey, North-West)
Does my right hon. Friend accept that his statement illustrates the folly of nationalisation, which, strangely enough, the Opposition seem determined to extend even further in British industry. Will he say which BSC companies, in competition with the private sector, the corporation intends to turn into Companies Act companies, and when? Will he comment on the concern felt by many in the independent steel sector that the BSC will be judge and jury in the case of subsidised competition against it? Will he ensure that his Department's monitoring is tough and effective?

§ Sir Keith Joseph
It will be for the BSC board to decide which sections of its business it turns into Companies Act companies. I cannot, therefore, answer that question. On the question of allegations of unfair competition, Mr. MacGregor has assured me that he does not intend that there should be any such competition. If any cases are taken to him and not satisfactorily resolved, he has agreed that they will be brought to my hon. Friend the Under-Secretary, who has had 17 years' experience in private sector steel. The results will be communicated to the BSC. My hon. Friend will have the role not of arbitrator, but of conciliator.

§ Mr. A. E. P. Duffy (Sheffield, Attercliffe)
Is the Secretary of State aware that in my constituency, in the east end of Sheffield, his announcement about the funding of the BSC will be taken as a vote of confidence in some 749 of the best and most technologically advanced steel plants in the world, notably the £140 million stainless steel development? Is he further aware that elsewhere in my constituency private sector steel firms, such as Firth Brown, Hadfields, Aurora and Duports' local representative, Flather Bright Steels, feel battered, neglected and victimised by the Government's policies? Will he take steps to put his policies for private as well as public steel into a meaningful phase?

§ Sir Keith Joseph
I am not sure which side of the argument the hon. Gentleman is supporting. Is he on the side of subsidised and nationalised industry, or on the side of unsubsidised free enterprise? The trouble that we face today is the result of steel nationalisation, which the Opposition undertook not once but twice. As the hon. Gentleman knows from his wide experience, the BSC contains some internationally competitive—I hope many potentially internationally competitive—sectors.

§ Mr. Michael Brown (Brigg and Scunthorpe)
Will my right hon. Friend take into account the part played by my constituency in accepting the high level of redundancies that have been necessary during the past two years? Will he note that about 8,000 jobs have been lost in the steel industry in my constituency? Will he take the opportunity today to remind those of my constituents who might delude and deceive themselves that his announcement guarantees them a future? Will he point out how important it is for them to recognise the fall-off in demand for their product? What will the Government and the BSC need to see happen in July to determine whether today's statement will hold water post-July? Is my right hon. Friend of the view that the MacGregor proposals are too optimistic?

§ Sir Keith Joseph
I am sure that the House respects the degree of hardship and bitter disappointment that the redundancies that have been carried out and are having to be carried out represent to individuals' families and communities. I doubt whether there is any uncertainty among those who work in the steel industry, private or public, about the seriousness of the need for every effort to be made for the industry to become internationally competitive. I have said that Mr. MacGregor himself regards his plan as optimistic, and I believe that he is right. That merely makes it the more important for every group involved to struggle to be competitive. However, even when firms and sectors of the corporation succeed in raising their competitiveness sharply, market conditions may still be such—because of sharply lower demand throughout Europe and gross over-capacity, to which the corporation has contributed enormously in the past—that their purpose is defeated.

§ Mr. Speaker
Order. The number of hon. Members that I shall be able to call will depend very much on the length of the questions asked.

§ Mr. John Morris (Aberavon)
Despite the size of the sums involved, may we be assured that the adjustments proposed are sufficient for the industry to enable it to operate economically, without having to carry unrealistic burdens? Will the interest to be paid on capital after reconstruction be consistent with the capital then being used? Does the Government's proposal take fully into 750 account the needs of the industry, especially medium-term investment? Are the board and Mr. MacGregor satisfied with the Government's proposal?

§ Sir Keith Joseph
The interest on capital to be paid after reconstruction will be sharply reduced. The bulk of the capital then invested in the corporation will be equity capital and not, of course, served by interest. The corporation and Mr. MacGregor have identified the investment that is sensibly necessary to complete the previous investment programme. They and we together have naturally wanted to keep the investment burden to the optimum to reconcile the interests of the BSC and those of the taxpayer.

§ Mr. David Crouch (Canterbury)
Does my right hon. Friend recollect the statement that he made to the House on 4 January 1980, when he stated that the British Steel Corporation was entering the 1980s with equipment as modern and potentially as efficient as that in any steel industry in the Western world? I quote from memory. Does he also recollect how critical he and his then Minister of State were of me when I questioned whether he should not be more flexible in respect of the small sum that he was prepared to grant the corporation last year? When I asked for a little more he turned down that request. Is he telling the House that much more is necessary now?

§ Sir Keith Joseph
I wonder whether my hon. Friend is not deceiving himself slightly about the context in which he spoke. I think that he was speaking at the time of the strike. That strike was ruinous to the interests of the BSC and those who worked for it. It was called by the unions, which claimed a 20 per cent. increase with no strings. They obtained a 15 per cent. increase in return for a radical change in working practices and much increased redundancies.

§ Mr. David Penhaligon (Truro)
If the Minister believes that the process of nationalisation, denationalisation and nationalisation is one of the root causes of the trouble, why did he tell the House that another dose of the same process would improve the situation? His statement indicates that the international value of the pound is one of the current problems. Why do not the Government pursue a policy that will produce a more intelligent, sensible and rational value of the currency?

§ Sir Keith Joseph
Nationalisation is the problem. If the hon. Gentleman or the party to which he belongs has a magic method of controlling the pound that would not do more harm than good, no doubt he will let the House know.

§ Mr. Peter Emery (Honiton)
Does my right hon. Friend realise that he will gain support by the programme that he has put before us, but that many of us will respond to it with a heavy heart? Is it optimistic to believe that there will be losses of only £480 million and £285 million in the next two years? Bearing in mind that most optimistic forecasts for the steel industry have proved wrong, what are the pessimistic figures, so that we may know the worst that we may have to suffer, as well as the best?

§ Sir Keith Joseph
My hon. Friend has enough experience of the market to know that that answer cannot be given. Mr. MacGregor and the BSC will not sit back passively to wait for their forecast to be nullified. They will take what action seems to be necessary as events 751 unfold. It is market conditions and exchange rates as well as individual and company performances that will make the difference.

§ Mr. David Lambie (Central Ayrshire)
Will the right hon. Gentleman consult his right hon. Friend the Secretary of State for Scotland before agreeing to any further closures or redundancies in the Scottish steel industry, where unemployment is high and where we have already suffered enough closures and redundancies? We want only an opportunity to justify the investment that was put into this sector of industry in the past. Will the right hon. Gentleman encourage Mr. MacGregor and the corporation to go for joint ventures with foreign capital—for example, Japanese capital—to develop latent investment, such as the direct reduction plant at Hunterston, which has never been in operation since opening over two years ago?

§ Sir Keith Joseph
I sympathise thoroughly with those who have been made redundant and with the thinking behind the hon. Gentleman's question. However, under the legislation enacted by the Labour Government the power to decide on closures or redundancies is entirely with the BSC management. I am sure that Mr. MacGregor will note the hon. Gentleman's suggestion.

§ Mr. Speaker
Order. I propose to call four more hon. Members from each side of the Chamber.

§ Sir Charles Fletcher-Cooke (Darwen)
Against the possibility that this optimistic plan may fail, will my right hon. Friend include in his new Bill powers to wind up the corporation, if necessary?

§ Sir Keith Joseph
That is virtually what the new Bill enables to happen.

§ Mr. Donald Coleman (Neath)
Surely the right hon. Gentleman cannot object to being reminded of his stance at the Dispatch Box this time last year, when he was being so parsimonious with the industry. How much of the money that is being advanced to the corporation is to fund the purchase of private sector plants, such as the Duport plant? Is it right to expect that the expense should be borne by the corporation? Will that not perpetuate the adverse financial position of the BSC? What does this do to protect employment in the private sector of the industry?

§ Sir Keith Joseph
I do not think that the hon. Gentleman has understood the purpose of the partnerships that are proposed, for one of which some Duport assets were recently bought by the BSC. The purpose is to serve the interests both of the BSC and of the private companies concerned. Only to the extent that such partnerships are commercially sensible for the BSC and for private companies will they come into existence.

§ Mr. Hal Miller (Bromsgrove and Redditch)
Is my right hon. Friend aware of the keen sense of injustice that is felt by many private steel makers at the difference between the terms offered to them and those offered to the public sector in matters of competition on prices, redundancies and closures? Is he alive to their deep anxiety about future competitive prospects, because the BSC has now taken over the facilities of Duport well downstream of main steel making capacity?

§ Sir Keith Joseph
I have no doubt of the sense of injustice. On the other hand, some of the: allegations made 752 accuse the BSC of unfair competition when, in fact, the trade is being won by imports at far lower prices. That does not involve the BSC. Secondly although private sector firms feel a keen sense of injustice, the fact is that during the past two years the BSC has closed plants and dismissed staff to a far greater extent than has happened in the private sector. Thirdly, the Duport assets were bought by the BSC not for the purpose of retaining them and competing with the private sector but to go into a partnership with the private sector.

§ Mr. John Bruce-Gardyne (Knutsford)
Is it not sadly true, not least because of the behaviour of the British Steel Corporation under the leadership of Mr. MacGregor, that there are few firms in the private sector that would not be delighted to land their steel making activities in the hands of the taxpayer? Is it not further true that such public/ private amalgams will be tarred with the brush of the BSC and that their customers will be no more prepared to rely on them for quality or delivery than they have relied on the BSC in the past, and hence that the consequence will not be an improvement of the home share of the market but an improvement in the market for imported products'?

§ Sir Keith Joseph
I do not often disagree with my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne), but I disagree sharply with him on each of his three propositions. I know some companies that are not the least bit interested in being nationalised, and I am sure that many others do not want to be nationalised and are perfectly ready, as long as the BSC behaves as Mr. MacGregor wishes, to take their chance in a competitive market.
I do not believe for a moment that the new public/ private sector companies—which, I repeat, will be Companies Act companies in the private sector, with no umbilical cord to the taxpayer—will be tainted by the BSC image, or that they will serve their customers ill.

§ Mr. Speaker
Order. I shall call two hon. Members from the Government Benches in succession, and I shall do the same from the Opposition Benches.

§ Mr. Frederick Mulley (Sheffield, Park)
Does the Secretary of State realise that he is living in a totally unreal world if he believes that the problems of the industry stem from the shortcomings of the previous Government and are in no way connected with the economic policies of the present Government? Will he explain to his Treasury colleagues that if they were to cease levying the gas and electricity industries to the present extent it would be in the interests of the nation and of the steel industry—both the private and the public sector—and that the money could be spent on keeping the industry going rather than paying unemployment and supplementary benefits to people who are forced to lose their jobs? Will he give us estimates of the number of further jobs that will be lost in the future in the public and private sectors of the industry? Finally, since the industry has suffered such a catastrophic decline since his decision to deprive Sheffield of special area status, will he reconsider that decision in the very near future?

§ Sir Keith Joseph
I repeat that the problems of the BSC are not connected with this Government's policies. They are inherited from nationalisation, and from the overmanning and restrictive labour practices and the quality and delivery problems of the BSC. Exchange rates 753 are not under the control of the Government. On energy prices, we expect a report from the National Economic Development Corporation next week. On Sheffield's status, I am very willing to consider, with my colleagues in the Department of Industry, any arguments that are put forward for a review of status.

§ Mr. David Watkins (Consett)
What will happen to BSC (Industry) Limited, the corporation's job-finding agency in areas of closures? It seems to be the only part of the corporation that has any prospect of expansion. What will happen to the BSC's refractories?

§ Sir Keith Joseph
BSC (Industry) Limited is not affected by the present proposals. The decision about its funding is a matter for the management of the BSC, as is the question of the handling of the refractories.

§ Mr. Michael Morris (Northampton, South)
Will my right hon. Friend accept that a policy of destroying the private sector to save the public sector is unacceptable? Can we be given an assurance that the Department of Industry will look at the problem the other way round—in other words, that it will look at the needs of the private sector and, where they fail the nation, will bring forward the public sector?

§ Sir Keith Joseph
The Government have no such policy. My statement today shows the extent to which, with the active co-operation of the BSC, we are going to ensure fair competition.

§ Mr. D. N. Campbell-Savours (Workington)
Is the function of the conciliator in negotiations anything more than establishing the lowest available import price? Will the right hon. Gentleman use the services of the conciliator to intervene in the dispute between Workington and the British Steel Corporation on the future of the Distington foundry?

§ Sir Keith Joseph
No, Sir. The decision about competitive activity will be for the BSC management. All that I am suggesting that my hon. Friend and I shall do by way of a conciliation process is to make sure that allegations are promptly explored by the BSC, as Mr. MacGregor has offered to do.

§ Mr. Stanley Orme (Salford, West)
The Secretary of State referred to the high value of sterling. Is it not true that the cash limits of the Government led to the strike that took place last year and that has played some part in the present desperate state of the corporation? In view of the fact that the right hon. Gentleman is now attempting to wipe the slate clean, will he encourage the corporation and its workpeople to work together, invoke the 1975 Act, and see that genuine co-operation takes place? We do not want to talk about liquidation of the BSC. We want it to grow and prosper.

§ Sir Keith Joseph
It is of course true that the strength of the pound has an effect on all trading activities, but it does not follow from that that the Government control the level of the pound. Secondly, cash limits are a necessary instrument, which the right hon. Gentleman's Government also used. Thirdly, the strike was called because the unions misunderstood the interests of their members. Lastly, I am sure that Mr. MacGregor will read the last part of the right hon. Gentleman's question.